UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31, 2010
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from
to
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Commission File Number 1-9548
The Timberland
Company
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other
jurisdiction
of incorporation or organization)
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02-0312554
(I.R.S. Employer
Identification No.)
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200 Domain Drive, Stratham,
New Hampshire
(Address of principal
executive offices)
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03885
(Zip Code)
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Registrants telephone number, including area code:
(603) 772-9500
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Each Exchange on Which Registered
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Class A Common Stock, par value $.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act.
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Yes
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No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act.
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Yes
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No
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.
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Yes
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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).
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Yes
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No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K.
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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.
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Large
accelerated
filer
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Accelerated
filer
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Non-accelerated
filer
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Smaller
reporting
company
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(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act).
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Yes
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No
The aggregate market value of Class A Common Stock of the
Company held by non-affiliates of the Company was $635,270,723
on July 2, 2010, which was the last business day of the
Companys second fiscal quarter in 2010. For purposes of
the foregoing sentence, the term affiliate includes
each director and executive officer of the Company. See
Item 12 of this Annual Report on
Form 10-K.
On February 10, 2011, 39,948,551 shares of the
Companys Class A Common Stock and
10,568,389 shares of Class B Common Stock were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Companys definitive Proxy Statement for
the 2011 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A are incorporated by reference in
Part III, Items 10, 11, 12, 13 and 14, of this Annual
Report on
Form 10-K.
TABLE OF CONTENTS
PART I
Overview
The Timberland Company was incorporated in Delaware on
December 20, 1978. We are the successor to the Abington
Shoe Company, which was incorporated in Massachusetts in 1933.
We refer to The Timberland Company, together with its
subsidiaries, as we, our,
us, its, Timberland or the
Company.
We design, develop and market premium quality footwear, apparel
and accessories products for men, women and children under the
Timberland
®
,
Timberland
PRO
®
,
Timberland Boot
Company
®
,
SmartWool
®
and
howies
®
brands. We sell our products to retail accounts through our
wholesale channel, through Timberland-owned retail including
stores and Internet sales, and through a mix of independent
distributors, franchisees and licensees worldwide.
Our principal strategic goal is to become the #1 Outdoor
Brand on Earth by offering an integrated product selection that
equips consumers to enjoy the experience of being in the
outdoors. Our ongoing efforts to achieve this goal include
(i) enhancing our leadership position in our core
Timberland
®
footwear business through an increased focus on technological
innovation and big idea initiatives like
Earthkeepers
tm
,
(ii) expanding our global apparel and accessories business
by leveraging the brands equity and initiatives through a
combination of in-house development and licensing arrangements
with trusted partners, (iii) expanding our brands
geographically, (iv) driving operational and financial
excellence, (v) setting the standard for social and
environmental responsibility, and (vi) striving to be an
employer of choice.
Products
Our products fall into two primary
categories: (1) footwear and (2) apparel and
accessories. We also derive royalty revenue from third party
licensees and distributors that produce
and/or
sell
our products under license. The following summarizes the
percentage of our revenues derived from each of these categories
for the past three years:
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Category
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2010
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2009
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2008
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Footwear
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72.5
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%
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72.4
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%
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71.4
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%
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Apparel and Accessories
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25.8
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%
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25.6
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%
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26.9
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%
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Royalty and Other
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1.7
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%
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2.0
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%
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1.7
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%
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Footwear
In 1973, we produced our first pair of waterproof leather boots
under the
Timberland
®
brand. We now offer a broad variety of footwear products for
men, women and children, featuring premium materials and
state-of-the-art
design and construction. Our
Timberland
®
mens footwear products emphasize durability, comfort and
craftsmanship. Our
Timberland
®
womens footwear line combines beautiful styling,
performance features and eco-conscious materials. Our
Timberland
®
kids footwear products are designed and engineered
specifically for kids with the same high-quality standards and
materials as our adult footwear products, combining
Timberlands heritage of premium leathers and craftsmanship
with a focus on fit, functionality and convenience.
Timberland
®
brand footwear offerings within each of our mens,
womens and kids lines include (i) basic,
premium and sports boots, including hikers; (ii) handsewn
oxfords, boat shoes and casual footwear; and
(iii) performance footwear. The Timberland
PRO
®
series for skilled tradespeople and working professionals is an
additional footwear category we developed to address those
consumers distinct needs.
Some of the principal features of our boot products include
premium waterproof leather, direct-attach and seam-sealed
waterproof construction, rubber lug outsoles for superior
traction and abrasion resistance, shock diffusion plates,
durable laces, padded collars for comfortable fit, enhanced
insulation, rustproof hardware for durability and
moisture-wicking components for comfort and breathability. Our
casual footwear is rooted in our commitment to the environment,
craftsmanship and innovation, a design ethos which results in
products made from superior earth-conscious materials and
characterized by enhanced comfort. Our performance footwear
continues to address the needs of outdoor recreationalists and
enthusiasts of all levels, offering
2
technical, end-use driven products for outdoor adventures from
summit to sea and everywhere in between. Additionally, we offer
premium-priced elite collections which we distribute
via selective boutique channels in major markets.
The Timberland
PRO
®
series targets working professionals whose jobs demand footwear
that stands up to the harshest working conditions. Timberland
PRO has an assortment of occupational footwear products across
categories including Industrial, Healthcare and Duty, and builds
on the marketplace success of its Anti-Fatigue Technology, a
system of geometrically designed cones that provide the consumer
with increased standing tolerance providing more energy
throughout their work day. Timberland PRO serves customers in
Canada with a line of occupational products built specifically
for the Canadian market, and continues to expand its
occupational offering internationally, with a licensing
agreement with Sperian Protection for Europe, as well as parts
of the Middle East and Africa.
Footwear
Technology
Our advanced concepts footwear team focuses on developing the
next innovations in our footwear technologies, including
materials, constructions and processes. A few of our most
frequently used technological innovations are the Smart
Comfort
®
system which incorporates a multi-density footbed and allows
footwear to expand and contract with the changing shape of the
foot during the walking motion while preserving the essential
style of the footwear, the
Timberland
®
Agile IQ system which delivers improved stability, shock
absorption and fit, and the Anti-Fatigue platform, first
developed for Timberland PRO consumers who spend many hours on
their feet every day. In addition, we use Green
Rubber
tm
compound to make outsoles containing recycled rubber for our
Earthkeepers
tm
and Mountain
Athletics
®
lines. We have also recently introduced
Bionic
tm
canvas, a fabric made with recycled material and organic cotton,
ion-mask
tm
,
a super water-repellency treatment and
Pebax
tm
foam, a super lightweight foam, into our footwear
and/or
apparel. We maintain numerous patented and other technologies
for use in our footwear, apparel and accessories.
Apparel
and Accessories
Timberland
®
and Timberland
PRO
®
Series
Timberlands apparel for men, women and kids continues to
offer outdoor adventure and outdoor leisure products that
combine performance benefits and versatile styling. We believe
that continuing to develop and expand our apparel business is
important to our global brand aspirations, and that experienced
licensing partners will help us maximize our brand potential in
apparel. We have licensing arrangements with Phillips-Van Heusen
Corporation for mens apparel in North America and
Mediterranea S.r.l. for womens apparel in Europe.
Childrens Worldwide Fashion S.A.S., our longstanding
licensing partner, continues to make, market and distribute our
kids apparel in Europe and Asia. In the United States,
beginning with the Spring season in 2011, Parigi Group will
make, market and distribute our kids apparel as we
transition from KHQ Investment LLC. We design and market
Timberland
®
mens apparel for our European and Asian operations through
our London-based International Design Center, which enables us
to remain close to our target consumers. Li & Fung
(Trading) Limited is our buying agent to source this apparel for
us. We offer Timberland
PRO
®
apparel in Europe pursuant to a licensing arrangement that has
been in effect since 2004.
A key driver of our mens and womens apparel lines is
our
Earthkeepers
tm
initiative, which reflects the intersection of product design
and environmental stewardship. Organic, recycled and renewable
materials have all been introduced into the lines to further our
ongoing commitment to minimize our environmental impact and
appeal to an environmentally-aware consumer.
SmartWool
SmartWool extends our enterprises reach by offering
apparel and accessories to the active outdoor consumer.
SmartWool is a mountain-based apparel brand located in Steamboat
Springs, CO that delivers extraordinary comfort through products
designed for an active-outdoor life. The company brings the
lessons of active-mountain life to bear on business and apparel
that has redefined the experience of wearing wool, allowing
consumers to do what they love to do, longer.
3
SmartWool offers consumers a premium, technical layering system
of merino wool apparel, socks and accessories that are designed
to work together in fit, form and function. Its key product
categories are
Next-to-Skin
Baselayers, Thermal Midlayers and Performance Socks.
Additionally, SmartWool has a growing line of performance
accessories including technical ski gloves, hats, balaclavas,
neck gaiters and scarves.
The merino wool fiber used in
SmartWool
®
products is superior at moisture management and temperature
control, and is naturally odor free.
SmartWool
®
products are sold through premium outdoor and specialty
retailers, outdoor chains, better department stores and online
at www.smartwool.com.
howies
Limited
howies Limited is an active sports apparel brand founded on the
idea of designing and manufacturing clothing for the socially
engaged and environmentally conscious action sports and outdoor
consumer. howies uses high quality materials and pursues lower
impact building processes and sourcing strategies, all of which
help howies make innovative product while minimizing its impact
on the environment. We sell
howies
®
products through seasonal catalogs, howies-owned retail,
including stores and the Internet, and through a mix of
independent retailers. howies main office is located in
Cardigan Bay, Wales, U.K.
Third-party
Licensing
Third-party licensing enables us to expand our brand reach to
appropriate and well-defined categories and to benefit from the
expertise of the licensees in a manner that reduces the risks to
us associated with pursuing these opportunities. We receive a
royalty on sales of our licensed products. We continue to focus
on closely aligning our licensed products and distribution to
our strategic brand initiatives and long range strategies and to
build better integration across these products to present a
seamless brand worldwide. We license rights to childrens
apparel worldwide, mens apparel in North America, and
womens apparel in Europe. The accessories products we
license generally include packs and travel gear, womens
handbags, belts, wallets, socks, headwear, gloves, watches,
sunglasses, eyewear and ophthalmic frames and various other
small leather goods, and are designed, manufactured and
distributed pursuant to a variety of exclusive and non-exclusive
licensing agreements with third parties. We also offer
Timberland
PRO
®
footwear and apparel in Europe under a license agreement.
Product
Sales: Business Segments and Operations by Geographic
Area
Our products are sold by us as well as our distributor partners
in the United States and internationally primarily through
independent outdoor retailers, independent footwear retailers,
better department stores, athletic stores and other national
retailers, which reinforce the high level of quality,
performance and service associated with the
Timberland
®
brand and business. In addition, our products are sold by us as
well as our distributor and franchise partners in
Timberland
®
specialty stores and
Timberland
®
factory outlet stores dedicated exclusively to selling
Timberland
®
products and
Timberland
®
sub-branded
products. We also sell our products in the United States online
at www.timberland.com and www.smartwool.com, in the United
Kingdom online at www.timberlandonline.co.uk and
www.howies.co.uk and in Japan online at
www.shop.timberland.co.jp.
We operate in an industry that includes the designing,
engineering, marketing and distribution of footwear, apparel and
accessories products for men, women and children. We manage our
business in the following three reportable segments, each
segment sharing similar product, distribution and marketing:
North America, Europe and Asia.
The North America segment is comprised of the sale of products
to wholesale customers in the United States and Canada, as
well as the Company-operated specialty and factory outlet stores
in the United States and our
U.S. e-commerce
businesses. This segment also includes royalties from licensed
products sold worldwide, the management costs and expenses
associated with our worldwide licensing efforts and certain
marketing expenses and value added services. The Europe and Asia
segments consist of the marketing, selling and distribution of
footwear, apparel and accessories and licensed products outside
of North America. Products are sold outside of the United States
through our subsidiaries (which use wholesale and retail
channels, including
e-commerce
in the United Kingdom and Japan, to sell footwear, apparel and
accessories), independent distributors, franchisees and
licensees.
4
The following table presents the percentage of our total revenue
generated by each of these reportable segments for the past
three years:
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2010
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2009
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2008
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North America
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45.3
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%
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47.4
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%
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47.8
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%
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Europe
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41.4
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%
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41.1
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%
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40.4
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%
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Asia
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13.3
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%
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11.5
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%
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11.8
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%
|
More detailed information regarding these reportable segments,
and each of the geographic areas in which we operate, is set
forth in Note 14 to our consolidated financial statements,
entitled Business Segments and Geographic
Information, in Part II, Item 8 of this Annual
Report on
Form 10-K.
North
America
Our wholesale customer accounts within North America include
independent outdoor retailers, independent footwear retailers,
better department stores, national athletic accounts, general
sporting goods retailers and other national accounts. Many of
these wholesale accounts merchandise our products in selling
areas dedicated exclusively to our products. These concept
shops display the breadth of our product line and brand
image to consumers, and are serviced through a combination of
field and corporate-based sales teams responsible for these
distribution channels. We also service our wholesale accounts
through our principal showroom in New York City and regional
showrooms in Atlanta, Georgia; Dallas, Texas; and Miami, Florida.
SmartWool
®
products are sold in the United States through sales agents and
in Canada through distributors.
SmartWool
®
products are also available in Company-owned
Timberland
®
specialty stores in the United States, as well as online at
www.smartwool.com.
At December 31, 2010, in the United States we operated 10
specialty stores, which carry current season, first quality
merchandise, including footwear, apparel and accessories; and 56
factory outlet stores, which serve as a primary channel for the
sale of excess, damaged or discontinued products from our
specialty stores and also sell products specifically made for
them. We also sell products online through our Internet store at
www.timberland.com. Our online store allows U.S. consumers
to purchase current season, first quality merchandise over the
Internet. This Internet site also provides information about
Timberland, including the reports we file with or furnish to the
Securities and Exchange Commission, investor relations,
corporate governance, community involvement initiatives and
employment opportunity information. Additionally, the site
serves to reinforce our marketing efforts. We also sell products
online through our Internet store at www.smartwool.com.
Europe
We sell our products in Europe through our sales subsidiaries in
the United Kingdom, Italy, France, Germany, Switzerland,
Austria, Belgium, the Netherlands and Spain. All of these sales
subsidiaries provide support for the sale of our products to
wholesale customers
and/or
operate
Timberland
®
stores in their respective countries. At December 31, 2010,
we operated 47 specialty stores and shops and 17 factory outlet
stores in Europe. We sell products through our international
online store in the United Kingdom, www.timberlandonline.co.uk.
Timberland
®
products are also sold in Europe, the Middle East, Africa,
Central America and South America by distributors, franchisees
and commissioned agents, some of which may also operate
Timberland
®
stores located in their respective countries.
SmartWool
®
products are sold in Europe, the Middle East and Africa through
a combination of agents and distributors, and are also available
in Company-owned
Timberland
®
stores, as well as online at www.timberlandonline.co.uk.
Located in the United Kingdom, howies Limited develops and
markets active sports apparel and sells its products through 2
howies-owned retail stores, catalogs, online at
www.howies.co.uk, and through independent retailers.
Asia
We sell our products in Asia through our sales subsidiaries in
Japan, Hong Kong, Singapore, Taiwan, China and Malaysia. Most of
these sales subsidiaries provide support for the sale of our
products to wholesale
5
customers and operate
Timberland
®
stores in their respective countries. One such wholesale
customer accounted for approximately 18% of the segments
revenue during the year ended December 31, 2010. At
December 31, 2010, we operated 75 company-owned
specialty stores and shops and 21 factory outlet stores in Asia.
We also sell products through our online store in Japan at
www.shop.timberland.co.jp.
Timberland
®
products are sold elsewhere in Asia and Australasia by
distributors, franchisees and commissioned agents, some of which
may also operate
Timberland
®
stores located in their respective countries. We intend to
continue expanding the
Timberland
®
brand into new markets and consumer segments to strengthen our
position as a leading global brand.
SmartWool
®
products are sold in Asia through distributors and are also
available in Company-owned
Timberland
®
stores.
Distribution
We distribute our products through three Company-managed
distribution facilities, which are located in Danville,
Kentucky; Ontario, California and Enschede, Netherlands and
through third-party managed distribution facilities, which are
located in Canada and Asia.
Advertising
and Marketing
The Companys overall marketing strategy is to develop
category and consumer-specific plans and advertising, and
related promotional materials for U.S. and international
markets to foster a differentiated approach with a consistent
image for each of the Companys big product ideas.
Marketing campaigns and strategies vary by product idea and may
target accounts
and/or
end
users as they strive to increase overall brand awareness and
purchase intent. The Companys advertisements typically
emphasize outdoor performance, environmental features, quality,
durability and other performance and lifestyle aspects of the
Companys products. Components of the category and
consumer-specific plans vary and may include online, print,
radio and television advertising, events, public relations,
in-store point of purchase displays, promotional materials, and
sales and technical assistance.
Seasonality
In 2010, our revenue was higher in the last two quarters of the
year than in the first two quarters, which is consistent with
our historical experience. Accordingly, the amount of fixed
costs related to our operations represented a larger percentage
of revenue in the first two quarters of 2010 than in the last
two quarters of 2010. We expect this seasonality to continue in
2011.
Backlog
At December 31, 2010, our backlog of orders from our
customers was $335 million compared to $281 million at
December 31, 2009 and $278 million at
December 31, 2008. While all orders in the backlog are
subject to cancellation by customers, we expect that the
majority of such orders will be filled in 2011. We believe that
backlog is an imprecise indicator of revenue that may be
achieved because backlog relates only to wholesale orders for
the next season, excludes potential sales at Timberland-owned
retail during the year, and is affected by seasonality.
Accordingly, a comparison of backlog from period to period is
not necessarily meaningful, and may not be indicative of
eventual actual shipments or the growth rate of sales from one
period to the next.
Manufacturing
We operate a manufacturing facility in the Dominican Republic
where we manufacture four different construction footwear types
for both
Timberland
®
boots and shoes as well as our Timberland
PRO
®
series footwear. We believe we benefit from our internal
manufacturing capability which provides us with sourcing for our
core assortment, planning efficiencies and lead time reduction,
refined production techniques, including the ability to
customize boots and handsewns, and favorable duty rates and tax
benefits. We manufactured approximately 12% of our footwear unit
volume in the Dominican Republic during 2010, compared to
approximately 10% in 2009 and 11% in 2008. The remainder of our
footwear products and all of our apparel and accessories
products were produced by independent manufacturers and
licensees in Asia, Europe, Africa, the Middle East, and North,
South and Central America. Approximately 88% of the
Companys 2010 footwear unit volume was produced by
independent manufacturers in China, Vietnam, Thailand and India.
Three of
6
these manufacturing partners together produced approximately 60%
of the Companys 2010 footwear volume. The Company
continually evaluates footwear production sources in other
countries to maximize cost efficiencies, maintain adequate
production capacity, diversify its manufacturing base and keep
pace with advanced production techniques.
We maintain a product quality management group, which develops,
reviews and updates our quality and production standards. To
help ensure such standards are met, the group also conducts
product quality audits at our factories and distribution centers
and our independent manufacturers factories and
distribution centers. We have offices in Bangkok, Thailand; Zhu
Hai, China; Ho Chi Minh City, Vietnam; and Chennai, India to
supervise our footwear sourcing activities conducted in the
Asia-Pacific region. Li & Fung (Trading) Limited, our
apparel buying agent in Asia, also performs such functions in
certain locations.
Materials
In 2010, seven suppliers provided, in the aggregate,
approximately 80% of our leather purchases. Three of these
suppliers together provided approximately 50% of our leather
purchases in 2010. We historically have not experienced
significant difficulties in obtaining leather or other materials
in quantities sufficient for our operations, although in 2010,
due to increased demand for leather, we experienced some
capacity constraints. Our gross profit margins are adversely
affected to the extent that the selling prices of our products
do not increase proportionately with increases in the costs of
leather and other materials. Any significant, unanticipated
increase or decrease in the prices of these commodities could
materially affect our results of operations. We attempt to
manage this risk, as we do with all other footwear and
non-footwear materials, on an ongoing basis by monitoring
related market prices, working with our suppliers to achieve the
maximum level of stability in their costs and related pricing,
seeking alternative supply sources when necessary and passing
increases in commodity costs to our customers, to the maximum
extent possible, when they occur. We cannot assure you that such
factors will protect us from future changes in the prices for
such materials.
In addition, we have established a central network of suppliers
through which our footwear manufacturing facilities and
independent footwear manufacturers can purchase materials. We
seek sources of materials local to manufacturers in an effort to
reduce lead times while maintaining our high quality standards.
We believe that key strategic alliances with leading materials
vendors help reduce the cost and provide greater consistency of
materials procured to produce
Timberland
®
products and improve compliance with our production standards.
We continue to work to offset cost increases with cost savings
by reducing complexity, utilizing new lower cost suppliers and
consolidating existing suppliers. In 2010, we maintained
contracts with global vendors for leather, thread for hand-sewn
styles, leather laces, waterproof membrane gasket material,
waterproof seam-seal adhesives, topline reinforcement tape,
packaging, laces, box toes and counters, cellulose and nonwoven
insole board,
Ströbel
®
construction insole materials and thread, synthetic suede lining
materials, soling components and compounds, and packaging labels.
Trademarks
and Trade Names; Patents; Research &
Development
Our principal trade name is The Timberland Company and our
principal trademarks are Timberland and our tree design logo,
which have been registered in the United States and many foreign
countries. In addition, we own many other trademarks that we
utilize in marketing our products. Some of the more frequently
used marks include: the PRO design, Timberland PRO, Timberland
Boot Company, Earthkeepers, Green Index, Mountain Athletics,
SmartWool and howies.
We regard our trade name and trademarks as valuable assets and
believe that they are important factors in marketing our
products. We seek to protect and vigorously defend our trade
name and trademarks against infringement under the laws of the
United States and other countries. In addition, we seek to
protect and vigorously defend our patents, designs, copyrights
and all other proprietary rights covering components and
features used in various footwear, apparel and accessories under
applicable laws.
We conduct research, design and development efforts for our
products on a continual basis, including field testing of a
number of our products to evaluate and improve product
performance. In addition, we engage in research and development
related to new production techniques and to improving the
function, performance, reliability and quality of our footwear.
We have also dedicated resources to an international design and
7
development team based in Europe. Our expenses relating to
research, design and development have not represented a material
expenditure relative to our other expenses.
Competition
Our footwear, apparel and accessories products are marketed in
highly competitive environments that are subject to changes in
consumer preference. Product quality, performance, design,
styling and pricing, as well as consumer awareness, are all
important elements of competition in the footwear, apparel and
accessories markets we serve. Although the footwear industry is
fragmented to a great degree, many of our competitors are larger
and have substantially greater resources than we do, including
athletic shoe companies, several of which compete directly with
some of our products. In addition, we face competition from
retailers that have established products under private labels
and from direct mail companies in the United States. The
competition from some of these competitors is particularly
strong where such competitors business is focused on one
or a few product categories or geographic regions in which we
also compete. However, we do not believe that any of our
principal competitors offers a complete line of products that
provides the same quality and performance as the complete line
of
Timberland
®
,
Timberland
PRO
®
,
SmartWool
®
,
Timberland Boot
Company
®
and
howies
®
footwear, apparel and accessories products.
Environmental
Matters
Compliance with federal, state and local environmental
regulations has not had, nor is it expected to have, any
material effect on our capital expenditures, earnings or
competitive position based on information and circumstances
known to us at this time.
Employees
We had approximately 5,600 full and part-time employees
worldwide at December 31, 2010. Our management considers
our employee relations to be good. None of our employees are
represented by a labor union, and we have never suffered a
material interruption of business caused by labor disputes
involving our own employees.
Available
Information
Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
and exhibits and amendments to those reports that are filed with
or furnished to the Securities and Exchange Commission, referred
to as the SEC, are made available free of charge through our
website, www.timberland.com, as soon as reasonably practicable
after we electronically file them with, or furnish them to, the
SEC. The public may also read and copy any materials we file
with the SEC at the SECs Public Reference Room at
100 F Street, NE, Washington, D.C. 20549. In
addition, the SEC maintains an Internet site that contains
reports, proxy and information statements and other information
regarding issuers, like us, that file electronically with the
SEC at
http://www.sec.gov.
The charters for our Audit Committee, Governance and Nominating
Committee, Management Development and Compensation Committee,
and Corporate Social Responsibility Committee, as well as our
Corporate Governance Principles and Code of Ethics and other
corporate information are available free of charge through our
website, www.timberland.com. You may request a copy of any of
the above documents by writing to the Companys Secretary
at The Timberland Company, 200 Domain Drive, Stratham, New
Hampshire 03885.
We submitted to the New York Stock Exchange in 2010 the
certification required by Section 303A.12 of the New York
Stock Exchange Listed Company Manual.
8
Executive
Officers of the Registrant
The following table lists the names, ages and principal
occupations during the past five years of our executive
officers. All executive officers serve at the discretion of our
Companys Board of Directors. Except as otherwise noted
below, all positions listed for a particular officer are
positions with The Timberland Company or one of its subsidiaries.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Principal Occupation During the Past Five Years
|
|
Sidney W. Swartz
|
|
|
74
|
|
|
Chairman of the Board since June 1986; Chief Executive Officer
and President, June 1986 June 1998.
|
Jeffrey B. Swartz
|
|
|
50
|
|
|
President and Chief Executive Officer since June 1998.
Jeffrey Swartz is the son of Sidney Swartz.
|
Carden N. Welsh
|
|
|
57
|
|
|
Senior Vice President and Chief Administrative Officer since
September 2007; Treasurer of a New Hampshire U.S.
Congressional Campaign, 2007; Advisory Board, The Trust for
Public Land-New Hampshire, a conservation organization devoted
to conserving land as parks, gardens and other natural places,
2006-2007; Masters studies at University of New Hampshire,
2003-2006.
|
Michael J. Harrison
|
|
|
50
|
|
|
Chief Brand Officer since July 2009; Co-President,
Timberland
®
brand December 2007 June 2009; President
Casual Gear, February 2007 December 2007; Senior
Vice President Worldwide Sales and Marketing,
February 2006 February 2007; Senior Vice President
and General Manager International, November
2003 February 2006.
|
Carrie W. Teffner
|
|
|
44
|
|
|
Vice President and Chief Financial Officer since September 2009;
Senior Vice President and Chief Financial Officer, Sara Lee
International Household and Body Care, 2008-2009; Senior Vice
President and Chief Financial Officer, Sara Lee Foodservice,
2007-2008; Senior Vice President, Financial Planning &
Analysis and Treasurer, Sara Lee Corporation, 2005-2007. Sara
Lee Corporation is a global manufacturer and marketer of high
quality, brand name consumer products.
|
Richard C. ORourke
|
|
|
58
|
|
|
Senior Vice President International since January
2011; Vice President and Managing Director Europe and
Distributors, 1998 December 2010.
|
John J. Fitzgerald, Jr.
|
|
|
48
|
|
|
Vice President, Corporate Controller and Chief Accounting
Officer since December 2008; Vice President, Finance for
Worldwide Sales and Marketing, January 2006 December
2008.
|
Danette Wineberg
|
|
|
64
|
|
|
Vice President and General Counsel since October 1997 and
Secretary since July 2001.
|
9
Special
Note Regarding Forward-Looking Statements
The Timberland Company (the Company) wishes to take
advantage of The Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities Exchange Act of
1934, which provide a safe harbor for certain
written and oral forward-looking statements to encourage
companies to provide prospective information. Prospective
information is based on managements then current
expectations or forecasts. Such information is subject to the
risk that such expectations or forecasts, or the assumptions
used in making such expectations or forecasts, may become
inaccurate. The discussion below identifies important factors
that could affect the Companys actual results and could
cause such results to differ materially from those contained in
forward-looking statements made by or on behalf of the Company.
The risks included below are not exhaustive. Other sections of
this report may include additional factors which could adversely
affect the Companys business and financial performance.
Moreover, the Company operates in a very competitive and rapidly
changing environment. New risk factors emerge from time to time
and it is not possible for management to predict all such risk
factors, nor can it assess the impact of all such risk factors
on the Companys business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as
a prediction of actual results.
As discussed herein, 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. Statements containing the words may,
assumes, forecasts,
positions, predicts,
strategy, will, expects,
estimates, anticipates,
believes, projects, intends,
plans, budgets, potential,
continue, target and variations thereof,
and other statements contained in this Annual Report regarding
matters that are not historical facts are forward-looking
statements. 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.
The Company undertakes no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise.
Risks
Related to Our Business
We
operate in a highly competitive industry.
We market our products in highly competitive environments. Many
of our competitors are larger and have substantially greater
resources for marketing, research and development and other
purposes. These competitors include athletic and other footwear
companies, branded apparel companies and private labels
established by retailers. Furthermore, efforts by our
competitors to dispose of their excess inventory could put
downward pressure on retail prices and could cause our wholesale
customers to redirect some of their purchases away from our
products.
We may
have difficulty matching our products and inventory levels to
consumer preferences and demand.
As we continue to market established products and develop new
products, our success depends in large part on our ability to
anticipate, understand and react to changing consumer demands.
We believe that our more fashion-focused products are more
susceptible to changing fashion trends and consumer preferences
than our other products. Our products must appeal to a broad
range of consumers whose preferences cannot be predicted with
certainty and are subject to rapid change. The success of our
products and marketing strategy will also depend on a favorable
reception by our wholesale customers. We cannot ensure that any
existing products or brands will continue to be favorably
received by consumers or our wholesale customers, nor can we
ensure that any new products or brands that we introduce will be
favorably received by consumers or our wholesale customers. Any
failure on our part to anticipate, identify and respond
effectively to changing consumer demands and fashion trends
could adversely affect retail and consumer acceptance of our
products and leave us with unsold inventory or missed
opportunities. If that occurs, we may be forced to rely on
markdowns or promotional sales to dispose of excess, slow-moving
inventory, which may harm our business.
10
At the same time, our focus on the management of inventory may
result, from time to time, in not having an adequate supply of
products to meet consumer demand and cause us to lose sales.
We may
be unable to execute key strategic initiatives.
We continue to take actions to restructure our business
operations to maximize operating effectiveness and efficiency
and to reduce costs. Achievement of the targeted benefits
depends in part on our ability to identify, develop and execute
strategies and initiatives appropriately and effectively. We
cannot assure you that we will achieve the targeted benefits
under these programs within a targeted timeframe or within
targeted costs or that the benefits, even if achieved, will be
adequate.
We
conduct business outside the United States, which exposes us to
foreign currency, import restrictions, taxes, duties and other
risks.
We manufacture and source a majority of our products outside the
United States. Our products are sold in the U.S. and
internationally. Accordingly, we are subject to the risks of
doing business abroad, including, among other risks, foreign
currency exchange rate risks, import restrictions, anti-dumping
investigations, political or labor disturbances, expropriation
and acts of war. Additionally, as a global company, our
effective tax rate is highly dependent upon the geographic
composition of worldwide earnings and tax regulations governing
each region. The Obama Administration continues to propose
legislation that would fundamentally change how
U.S. multinational corporations are taxed on their global
income. It is possible that these or other changes in the
U.S. tax laws could increase our U.S. income tax
liability and adversely affect our profitability.
On October 7, 2006, the European Commission imposed
definitive duties on leather upper footwear originating from
China and Vietnam and imported into European Member States.
These duties have been in effect since then with a final 16.5%
rate for China sourced footwear and a 10% rate for Vietnam
sourced footwear. Although the European Commission has
informally confirmed that the duties will not be further
extended and, therefore, will no longer be imposed beginning on
April 1, 2011, we will continue to monitor developments in
this case and others like it to the extent they arise.
Although we pay for the purchase and manufacture of our products
primarily in U.S. dollars, we are routinely subject to
currency rate movements on
non-U.S. denominated
assets, liabilities and income as we sell goods in local
currencies through our foreign subsidiaries. We cannot assure
you that we will be protected from future changes in foreign
currency exchange rates that may impact our financial condition
or performance. Currency exchange rate fluctuations could also
disrupt the business of the independent manufacturers that
produce our products by making their purchases of raw materials
more expensive and more difficult to finance. Foreign currency
fluctuations could have an adverse effect on our results of
operations and financial condition.
We engage in hedging activities to mitigate the impact of
foreign currencies on our financial results (see Note 3 to
our consolidated financial statements, entitled
Derivatives, in Part II, Item 8 of this
Annual Report on
Form 10-K).
Our hedging activities are designed to reduce, but cannot and
will not eliminate, the effects of foreign currency
fluctuations. Factors that could impact the effectiveness of our
hedging activities include accuracy of sales forecasts,
volatility of currency markets, and the availability of hedging
instruments. Because the hedging activities are designed to
reduce volatility, they not only reduce the negative impact of a
stronger U.S. dollar, but they also reduce the positive
impact of a weaker U.S. dollar. Our future financial
results could be significantly affected by the value of the
U.S. dollar in relation to the foreign currencies in which
we conduct business. The degree to which our financial results
are affected for any given time period will depend in part upon
our hedging activities.
We
depend on independent manufacturers to produce the majority of
our products, and our business could suffer if we need to
replace manufacturers or suppliers or find additional
capacity.
During 2010, we manufactured approximately 12% of our footwear
unit volume. Independent manufacturers and licensees in Asia,
Europe, Mexico, Africa and South and Central America produced
the remainder of our footwear products and all of our apparel
and accessories products. Independent manufacturers in China,
Vietnam, Thailand and India produced approximately 88% of our
2010 footwear unit volume. Three of these manufacturing partners
together produced approximately 60% of our 2010 footwear volume.
If a manufacturer
11
is unable to manufacture or ship orders of our products in a
timely manner or to meet our quality standards for any reason,
we could miss customer delivery date requirements for those
items, which could result in cancellation of orders, refusal to
accept deliveries or a reduction in purchase prices, any of
which could have a material adverse effect on our financial
condition and results of operations. We compete with other
companies for the production capacity of our manufacturers and
import quota capacity. Any long-term economic downturn could
cause our suppliers to fail to make and ship orders we placed.
We cannot assure you that we will be able to maintain current
relationships with our current manufacturers or locate
additional manufacturers that can meet our requirements or
manufacture on terms that are acceptable to us. Any delays,
interruption or increased costs in the supply of materials or
manufacture of our products could have an adverse effect on our
ability to meet customer and consumer demand for our products
and, consequently, have an adverse effect on our financial
condition and results of operations.
Further, these independent manufacturers agree to comply with a
code of conduct and other environmental, health and safety
standards for the benefit of workers. However, from time to
time, such manufacturers may fail to comply with such standards
or applicable local law. Significant or continuing noncompliance
with such standards and laws by one or more of such
manufacturers could harm our reputation and, as a result, have
an adverse effect on our business and financial condition.
The
loss of one or more of our major suppliers for materials may
interrupt our supplies.
We depend on a limited number of key sources for leather, our
principal material, and other proprietary materials used in our
products. In 2010, seven suppliers provided, in the aggregate,
approximately 80% of our leather purchases. Three of these
suppliers provided approximately 50% of our leather purchases in
2010. While historically we have not experienced significant
difficulties in obtaining leather or other materials in
quantities sufficient for our operations, there have been
significant changes in the prices for these materials. In 2010,
due to increased demand for leather, we experienced some
capacity constraints. Our gross profit margins are adversely
affected to the extent that we cannot increase the selling
prices of our products proportionately with increases in the
costs of leather and other materials. Any significant
unanticipated increase or decrease in the prices of these
commodities could materially affect our results of operations.
Increasing oil-related product costs, such as manufacturing and
transportation costs, could also adversely impact our gross
margins.
Our
business could be adversely impacted by any disruption to our
supply chain.
Independent manufacturers manufacture a majority of our products
outside of our principal sales markets, which requires us to
transport our products via third parties over large geographic
distances. Delays in or increases in the cost of the
manufacture, shipment or delivery of our products due to the
availability of materials, labor, transportation, or other
factors could adversely impact our financial performance.
In addition, manufacturing delays or unexpected demand for our
products may require us to use faster, but more expensive,
transportation methods such as aircraft, which could adversely
affect our profit margins. The cost of fuel is a significant
component in manufacturing and transportation costs, so
increases in the price of oil-related products could adversely
affect our profit margins.
Additionally, if contract manufacturers of our products or other
participants in our supply chain experience difficulty obtaining
financing to purchase raw materials or to finance general
working capital needs due to volatility or disruption in the
capital and credit markets, we may experience delays or
non-delivery of shipments of our products.
Our
business is dependent upon our customers and their financial
health.
Our financial success is directly related to the willingness of
our wholesale customers to continue to purchase our products. We
do not typically have long-term contracts with customers. Sales
to our customers are generally on an
order-by-order
basis and are subject to rights of cancellation and rescheduling
by the customers. Failure to fill customers orders in a
timely manner could harm our relationships with our customers.
Furthermore, if any of our major customers experience a
significant downturn in its business, or fails to remain
committed to our products or brands, then these customers may
reduce or discontinue purchases from us, which could have an
adverse effect on our business, results of operations and
financial condition.
12
We sell our products to wholesale customers and extend credit
based on an evaluation of each customers financial
condition, usually without requiring collateral. The financial
difficulties of a customer could cause us to stop doing business
with that customer or reduce our business with that customer.
Our inability to collect from our customers or a cessation or
reduction of sales to certain customers because of credit
concerns could have an adverse effect on our business, results
of operations and financial condition.
Our products are sold in many international markets through
independent licensees, franchisees, and distributors. Failure by
such parties to meet planned annual sales goals could have an
adverse effect on our business, results of operations and
financial condition, and it may be difficult and costly to
locate an acceptable substitute. If a change in licensees,
franchisees or distributors becomes necessary, we may experience
increased costs, as well as substantial disruption and a
resulting loss of sales and brand equity in that market.
In addition, changes in the channels of distribution, such as
the growth of Internet commerce and the trend toward the sale of
private label products by major retailers, could have an adverse
effect on our business, results of operations and financial
condition.
Our
business could be impacted by global capital and credit market
conditions and resulting declines in consumer confidence and
spending.
Volatility and disruption in the global capital and credit
markets have led to a tightening of business credit and
liquidity, a contraction of consumer credit, business failures,
higher unemployment, and declines in consumer confidence and
spending in the United States and internationally. If global
economic and financial market conditions continue to deteriorate
or remain weak for an extended period of time, the following
factors could have a material adverse effect on our business,
operating results and financial condition: slower consumer
spending may result in reduced demand for our products, reduced
orders from customers for our products, order cancellations,
lower revenues, increased inventories and lower gross margins;
continued volatility in the markets and prices for commodities
and raw materials we use in our products and in our supply chain
could have a material adverse effect on our costs, gross margins
and profitability; if customers experience declining revenues or
experience difficulty obtaining financing in the capital and
credit markets to purchase our products, this could result in
reduced orders for our products, order cancellations, inability
of customers to timely meet their payment obligations to us,
extended payment terms, higher accounts receivable, reduced cash
flows, greater expense associated with collection efforts, and
increased bad debt expense; and if customers experience severe
financial difficulty, some may become insolvent and cease
business operations, which could reduce the availability of our
products to consumers.
Our
business could be adversely impacted by the financial
instability of third parties with which we do
business.
Distress in the financial markets has had an adverse impact on
the availability of credit and liquidity resources. Continued
market deterioration could jeopardize our ability to rely on and
benefit from certain counterparty obligations, including those
of financial institutions party to our credit agreements and
derivative contracts and those of other parties with which we do
business. The failure of any of these counterparties to honor
their obligations to us, or the continued deterioration of the
global economy, could have a material adverse effect on our
financial condition and results of operations. In addition, our
ability to replace such credit agreements on the same or similar
terms may be limited if market and general economic conditions
continue to deteriorate.
We
rely significantly on information technology, and any failure,
inadequacy, interruption or security failure of that technology
could harm our ability to effectively operate our
business.
We are heavily dependent on information technology systems,
including for design, production, forecasting, ordering,
manufacturing, transportation, sales, and distribution. Our
ability to manage and maintain our inventory effectively and to
ship and sell products to customers on a timely basis depends
significantly on the reliability of these systems. The failure
of these systems to operate effectively, problems with
transitioning to upgraded or replacement systems, or a breach in
security of these systems could cause delays in product
13
fulfillment and reduced efficiency of our operations, could
require significant capital investments to remediate the
problem, and may have an adverse effect on our results of
operations and financial condition.
We are converting certain internally developed and other
third-party applications to an integrated enterprise resource
planning, or ERP, information technology system provided by
third-party vendors. This multi-year initiative began in the
third quarter of 2010. While we believe the implementation of
these systems will provide significant opportunity for us to
make our business more responsive and efficient, such a major
undertaking carries various risks and uncertainties that could
cause actual results to differ materially. These include:
(i) changes in the estimated costs and anticipated benefits
of a strategic business system transformation;
(ii) potential disruption to our business and operations as
we implement the ERP applications; (iii) the timing and
uncertainty of activities related to software implementation and
business transformation; (iv) our ability to utilize our
new information technology systems to execute our strategies
successfully; and (v) the additional risk of unforeseen
issues, interruptions and costs. If we are unable to
successfully implement this initiative, it may have an adverse
effect on our capital resources, financial condition and results
of operations and liquidity.
We
depend on sales forecasts which may not be accurate and may
result in higher than necessary infrastructure and product
investments.
We base our investments in infrastructure and product, in part,
on sales forecasts. We do business in highly competitive
markets, and our business is affected by a variety of factors,
including brand awareness, product innovations, retail market
conditions, economic and other factors, changing consumer
preferences, fashion trends, seasonality and weather conditions.
One of our principal challenges is to predict these factors to
enable us to match the production of our products with demand.
If sales forecasts are not achieved, these investments could
represent a higher percentage of revenue, and we may experience
higher inventory levels and associated carrying costs, and
decreased profit margins if we are forced to dispose of
resulting excess or slow-moving inventory, all of which could
adversely affect our financial performance.
Declines
in revenue in our retail stores could adversely affect
profitability.
We have made significant capital investments in opening retail
stores and incur significant expenditures in operating these
stores. The higher level of fixed costs related to our retail
organization can adversely affect profitability, particularly in
the first half of the year, as our revenue historically has been
more heavily weighted to the second half of the year. Our
ability to recover the investment in and expenditures of our
retail organization can be adversely affected if sales at our
retail stores are lower than anticipated. Our gross margin could
be adversely affected if off-price sales increase as a
percentage of revenue.
We
rely on our licensing partners to help us preserve the value of
our brand.
As mentioned in Part I, Item 1, we have entered into
several licensing agreements which enable us to expand our brand
to product categories and geographic territories in which we
have not had an appreciable presence. The risks associated with
our own products also apply to our licensed products. There are
also any number of possible risks specific to a licensing
partners business, including, for example, risks
associated with a particular licensing partners ability to
obtain capital, manage its labor relations, maintain
relationships with its suppliers, manage its credit risk
effectively, control quality and maintain relationships with its
customers. Although our license agreements prohibit licensing
partners from entering into licensing arrangements with certain
of our competitors, generally our licensing partners are not
precluded from offering, under other brands, the types of
products covered by their license agreements with us. A
substantial portion of sales of the licensed products by our
domestic licensing partners are also made to our largest
customers. While we have significant control over our licensing
partners products and advertising, we rely on our
licensing partners for, among other things, operational and
financial control over their businesses.
The
loss of key executives could cause our business to suffer, and
control by members of the Swartz family and the anti-takeover
effect of multiple classes of stock could discourage attempts to
acquire us.
Sidney W. Swartz, our Chairman, Jeffrey B. Swartz, our President
and Chief Executive Officer, and other executives have been key
to the success of our business to date. The loss or retirement
of these or other key executives could adversely affect us.
Sidney W. Swartz, Jeffrey B. Swartz and various trusts
established for the
14
benefit of their families or for charitable purposes, hold
approximately 73.7% of the combined voting power of our capital
stock in the aggregate, enabling them to control our affairs.
Members of the Swartz family will, unless they sell shares of
Class B common stock that would reduce the number of shares
of Class B common stock outstanding to 12.5% or less of the
total number of shares of Class A and Class B common
stock outstanding, have the ability, by virtue of their stock
ownership, to prevent or cause a change in control of the
Company. This could discourage an attempt to acquire the Company
that might provide stockholders with a premium to the market
price of their common shares.
Our
charter documents and Delaware law may inhibit a change of
control that stockholders may consider favorable.
Under our Certificate of Incorporation, the Board of Directors
has the ability to issue and determine the terms of preferred
stock. The ability to issue preferred stock, coupled with the
anti-takeover provisions of Delaware law, could delay or prevent
a change of control or change in management that might provide
stockholders with a premium to the market price of their common
stock.
Our
inability to attract and retain qualified employees could impact
our business.
We compete for talented employees within our industry. We must
maintain competitive compensation packages to recruit and retain
qualified employees. Our failure to attract and retain qualified
employees could adversely affect the sales, design and
engineering of our products.
Our
ability to protect our trademarks and other intellectual
property rights may be limited.
We believe that our trademarks and other proprietary rights are
important to our success and our competitive position. We devote
substantial resources to the establishment and protection of our
trademarks on a worldwide basis. We cannot ensure that the
actions we have taken to establish and protect our trademarks
and other proprietary rights will be adequate to prevent
imitation of our products by others or to prevent others from
seeking to block sales of our products as a violation of the
trademarks and proprietary rights of others. Also, we cannot
ensure that others will not assert rights in, or ownership of,
trademarks and other proprietary rights of ours or that we will
be able to successfully resolve these types of conflicts to our
satisfaction. We are also susceptible to injury from parallel
trade and counterfeiting of our products. In addition, the laws
of certain foreign countries, including some countries in which
we currently do business, may not protect proprietary rights to
the same extent as do the laws of the United States.
The
value of our brand, and our sales, could be diminished if we are
associated with negative publicity.
While our staff and third-party compliance auditors periodically
visit and monitor the operations of our vendors, independent
manufacturers and licensees, we do not control these vendors or
independent manufacturers or their labor practices. A violation
of our vendor policies, labor laws or other laws, including
consumer and product safety laws, by us, such vendors or
independent manufacturers, or any inaccuracy with respect to
claims we may make about our business or products, including
environmental and consumer and product safety claims, could
interrupt or otherwise disrupt our sourcing or damage our brand
image. Negative publicity, for these or other reasons, regarding
our Company, brand or products, including licensed products,
could adversely affect our reputation and sales.
Our
business is affected by seasonality, which could result in
fluctuations in our operating results and stock
price.
We experience fluctuations in aggregate sales volume during the
year. Historically, revenue in the second half of the year has
exceeded revenue in the first half of the year. However, the mix
of product sales may vary considerably from time to time as a
result of changes in seasonal and geographic demand for
particular types of footwear, apparel and accessories. As a
result, we may not be able to predict our quarterly sales
accurately. Accordingly, our results of operations are likely to
fluctuate significantly from period to period. Results of
operations in any period should not be considered indicative of
the results to be expected for any future period.
15
Our
success depends on our global distribution
facilities.
We distribute our products to customers directly from the
factory and through distribution centers located throughout the
world. Our ability to meet customer expectations, manage
inventory, complete sales and achieve objectives for operating
efficiencies depends on the proper operation of our distribution
facilities, the development or expansion of additional
distribution capabilities, and the timely performance of
services by third parties (including those involved in shipping
product to and from our distribution facilities). Our
distribution facilities could be interrupted by information
technology problems and disasters such as earthquakes, severe
weather or fires. Any significant failure in our distribution
facilities could result in an adverse effect on our business. We
maintain business interruption insurance, but it may not
adequately protect us from any adverse effects that could be
caused by significant disruptions in our distribution facilities.
Our
business could be adversely affected by governmental policies
and regulation.
Our business is affected by changes in government and regulatory
policies in the United States and in other countries. Changes in
interest rates, tax laws, duties, tariffs and quotas could have
a negative impact on our ability to produce and market our
products at competitive prices.
Our
business could be adversely affected by global political and
economic uncertainty.
Concerns regarding acts of terrorism, the wars in Iraq,
Afghanistan and the Middle East and increasing tensions between
Asian countries, among other events, have created significant
global economic and political uncertainties that may have
material and adverse effects on consumer demand, foreign
sourcing of footwear, shipping and transportation, product
imports and exports and the sale of products in foreign markets.
We are subject to risks in doing business in developing
countries and economically and politically volatile areas.
Risks
Related to Our Industry
We
face intense competition in the worldwide footwear and apparel
industry, which may impact our sales.
We face a variety of competitive challenges from other domestic
and foreign footwear and apparel producers, some of which may be
significantly larger and more diversified and have greater
financial and marketing resources than we have. We compete with
these companies primarily on the basis of anticipating and
responding to changing consumer demands in a timely manner,
maintaining favorable brand recognition, developing innovative,
high-quality products in sizes, colors and styles that appeal to
consumers, providing strong and effective marketing support,
creating an acceptable value proposition for retail customers,
ensuring product availability and optimizing supply chain
efficiencies with manufacturers and retailers, and obtaining
sufficient retail floor space and effective presentation of our
products at retail. Increased competition in the worldwide
footwear and apparel industries, including Internet-based
competitors, could reduce our sales, prices and margins and
adversely affect our results of operations.
A
downturn in the economy may affect consumer purchases of
discretionary items and retail products, which could adversely
affect our sales.
The industries in which we operate are cyclical. Many factors
affect the level of consumer spending in the footwear and
apparel industries, including, among others, general business
conditions, interest rates, the availability of consumer credit,
weather, taxation and consumer confidence in future economic
conditions. Consumer purchases of discretionary items, including
our products, may decline during recessionary periods and also
may decline at other times when disposable income is lower. A
downturn in the economies in which we, or our licensing and
distributor partners, sell our products, whether in the United
States or abroad, may adversely affect our sales. Our gross
margin could also be adversely affected if off-price sales
increase as a percentage of revenue.
Retail
trends could result in downward pressure on our
prices.
With the growing trend toward retail trade consolidation, we
increasingly depend upon a reduced number of key retailers whose
bargaining strength is growing. Changes in the policies of these
retail trade customers, such as increased at-once ordering,
limitations on access to shelf space and other conditions may
result in
16
lower net sales. Further consolidations in the retail industry
could result in price and other competition that could damage
our business.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
We lease our worldwide headquarters located in Stratham, New
Hampshire. The lease for this property expires in December 2020.
We consider our headquarters facilities adequate and suitable
for our current needs.
We lease our manufacturing facilities located in Santiago,
Dominican Republic, under leasing arrangements, which expire on
various dates through 2013. We own our distribution facility in
Danville, Kentucky, and we lease our facilities in Ontario,
California and Enschede, Netherlands. The Company and its
subsidiaries lease all of their specialty, factory outlet and
footwear plus stores. Our subsidiaries also lease office and
warehouse space to meet their individual requirements. These
stores and office space leases expire on various dates through
2024.
Our headquarters and manufacturing facilities are included in
Unallocated Corporate for purposes of segment reporting. Our
distribution facilities in the United States are included in our
North America segment. Our distribution facility in Enschede is
included in our Europe segment. Specialty, factory outlet and
footwear plus stores are included in each of our North America,
Europe and Asia segments, as are office and warehouse space.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are involved in various legal matters, including litigation,
which have arisen in the ordinary course of business. We believe
that the ultimate resolution of any existing matter will not
have a material adverse effect on our business or our
consolidated financial statements.
|
|
ITEM 4.
|
(Removed
and Reserved)
|
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our Class A Common Stock is traded on the New York Stock
Exchange under the symbol TBL. There is no market for shares of
our Class B Common Stock; however, shares of Class B
Common Stock may be converted into shares of Class A Common
Stock on a
one-for-one
basis and will automatically be converted upon any transfer
(except for estate planning transfers and transfers approved by
the Board of Directors).
The following table presents the high and low closing sales
prices of our Class A Common Stock for the past two years,
as reported by the New York Stock Exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
21.59
|
|
|
$
|
15.86
|
|
|
$
|
14.05
|
|
|
$
|
8.84
|
|
Second Quarter
|
|
|
23.26
|
|
|
|
15.99
|
|
|
|
16.24
|
|
|
|
12.28
|
|
Third Quarter
|
|
|
19.88
|
|
|
|
15.15
|
|
|
|
15.00
|
|
|
|
12.42
|
|
Fourth Quarter
|
|
|
26.42
|
|
|
|
19.83
|
|
|
|
18.37
|
|
|
|
13.31
|
|
As of February 10, 2011, the number of record holders of
our Class A Common Stock was 702 and the number of record
holders of our Class B Common Stock was 7. The closing
sales price of our Class A Common Stock on
February 10, 2011 was $28.65 per share.
We have never declared a dividend on either the Companys
Class A or Class B Common Stock. Our ability to pay
cash dividends is limited pursuant to loan agreements (see
Note 10 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K).
The Company has no plans to declare or pay any dividends at this
time.
17
Performance
Graph
The following graph shows the five year cumulative total return
of Class A Common Stock as compared with the
Standard & Poors (S&P) 500 Stock Index and
the weighted average of the S&P 500 Footwear Index and the
S&P 500 Apparel, Accessories and Luxury Goods Index. The
total return for the Footwear and Apparel, Accessories and
Luxury Goods indices is weighted in proportion to the percent of
the Companys revenue derived from sales of footwear and
from apparel and accessories (excluding royalties on products
sold by licensees), respectively, for each year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005(1)
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
Timberland
|
|
|
|
100.00
|
|
|
|
|
97.02
|
|
|
|
|
55.55
|
|
|
|
|
35.48
|
|
|
|
|
55.08
|
|
|
|
|
75.55
|
|
S&P 500 Index
|
|
|
|
100.00
|
|
|
|
|
115.79
|
|
|
|
|
122.16
|
|
|
|
|
76.96
|
|
|
|
|
97.33
|
|
|
|
|
111.99
|
|
Weighted Average of S&P 500 Footwear Index and S&P 500
Apparel, Accessories & Luxury Goods Index
|
|
|
|
100.00
|
|
|
|
|
120.77
|
|
|
|
|
135.77
|
|
|
|
|
106.82
|
|
|
|
|
146.94
|
|
|
|
|
195.24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Indexed to December 31, 2005.
18
ISSUER
PURCHASES OF EQUITY SECURITIES(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Fiscal Months Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
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
|
|
|
October 2 October 29
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
3,298,977
|
|
October 30 November 26
|
|
|
111,456
|
|
|
|
24.61
|
|
|
|
111,456
|
|
|
|
3,187,521
|
|
November 27 December 31
|
|
|
290,084
|
|
|
|
25.18
|
|
|
|
290,084
|
|
|
|
2,897,437
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 Total
|
|
|
401,540
|
|
|
$
|
25.02
|
|
|
|
401,540
|
|
|
|
|
|
Footnote(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
|
|
|
|
|
|
|
Announcement
|
|
|
Program
|
|
|
Expiration
|
|
|
|
Date
|
|
|
Size (Shares)
|
|
|
Date
|
|
|
Program 1
|
|
|
12/09/2009
|
|
|
|
6,000,000
|
|
|
|
None
|
|
|
|
|
*
|
|
Fiscal month
|
|
**
|
|
Based on trade date not settlement date
|
No existing programs expired or were terminated during the
reporting period. See Note 12 to our consolidated financial
statements, entitled Stockholders Equity, in
Item 8 of this Annual Report on
Form 10-K
for additional information.
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data should be read in
conjunction with our consolidated financial statements and
related notes, included in Part II, Item 8 of this
Annual Report on
Form 10-K.
Selected
Statement of Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Revenue
|
|
$
|
1,429,484
|
|
|
$
|
1,285,876
|
|
|
$
|
1,364,550
|
|
|
$
|
1,436,451
|
|
|
$
|
1,567,619
|
|
Net income
|
|
|
96,622
|
|
|
|
56,644
|
|
|
|
42,906
|
|
|
|
39,999
|
|
|
|
101,205
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.84
|
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
|
$
|
1.62
|
|
Diluted
|
|
$
|
1.82
|
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
|
$
|
1.59
|
|
Selected
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
272,221
|
|
|
$
|
289,839
|
|
|
$
|
217,189
|
|
|
$
|
143,274
|
|
|
$
|
181,698
|
|
Working capital
|
|
|
474,502
|
|
|
|
442,530
|
|
|
|
417,829
|
|
|
|
399,122
|
|
|
|
363,143
|
|
Total assets
|
|
|
892,359
|
|
|
|
859,907
|
|
|
|
849,399
|
|
|
|
836,345
|
|
|
|
860,377
|
|
Total long-term debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
611,511
|
|
|
|
595,617
|
|
|
|
576,538
|
|
|
|
577,160
|
|
|
|
561,685
|
|
19
|
|
ITEM 7.
|
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 consolidated financial
statements and related notes included in this Annual Report on
Form 10-K.
With respect to the 2010 versus 2009 and 2009 versus 2008
comparisons set forth below, we have included discussions and
reconciliations of (i) 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 performance measures recognized
under generally accepted accounting principles in the United
States (GAAP). 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 calculate constant dollar revenue
changes by recalculating current year revenue using the prior
years exchange rates and comparing it to prior year
revenue reported on a GAAP basis. We provide constant dollar
revenue changes for Total Company, Europe and Asia results
because we use the measure to understand the underlying results
and trends of the business segments excluding the impact of
exchange rate changes that are not under managements
direct control. 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 revenue reported on a
GAAP basis. We have a foreign exchange rate risk management
program intended to minimize both the positive and negative
effects of currency fluctuations on our reported consolidated
results of operations, financial position and cash flows. The
actions we take to mitigate foreign exchange risk are reflected
in cost of goods sold and other, net in our consolidated
statements of operations.
Overview
Our principal strategic goal is to become the #1 Outdoor
Brand on Earth by offering an integrated product selection that
equips consumers to enjoy the experience of being in the
outdoors. 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
®
brand.
Our ongoing efforts to achieve this goal include
(i) enhancing our leadership position in our core
Timberland
®
footwear business through an increased focus on technological
innovation and big idea initiatives like
Earthkeepers, (ii) expanding our global apparel and
accessories business by leveraging the brands equity and
initiatives through a combination of in-house development and
licensing arrangements with trusted partners,
(iii) expanding our brands geographically,
(iv) driving operational and financial excellence,
(v) setting the standard for social and environmental
responsibility and (vi) striving to be an employer of
choice.
A summary of our 2010 financial performance, compared to 2009,
follows:
|
|
|
|
|
Revenue increased 11.2%, or 11.7% on a constant dollar basis, to
$1,429.5 million.
|
|
|
|
Gross margin increased 180 basis points to 48.7%.
|
|
|
|
Operating expenses increased 7.0% to $562.2 million.
|
|
|
|
Operating income increased 73.3% to $134.3 million.
|
|
|
|
Net income increased from $56.6 million to
$96.6 million.
|
|
|
|
Diluted earnings per share increased from $1.01 to $1.82.
|
|
|
|
Net cash provided by operating activities decreased from
$135.9 million to $87.9 million.
|
|
|
|
Cash at the end of 2010 was $272.2 million, with no debt
outstanding.
|
|
|
|
We repurchased approximately 4.4 million shares in 2010 for
approximately $85.2 million.
|
20
We are undertaking a multi-year business system transformation
initiative, pursuant to which we will develop and implement an
integrated enterprise resource planning, or ERP, system to
better support our business model and further streamline our
operations. The Company incurred incremental expenses of
approximately $3.5 million during the year ended
December 31, 2010 related to initiatives in preparation for
this ERP implementation, as well as $3.4 million in capital
spending, primarily software licenses and hardware, related to
the project.
Critical
Accounting Policies
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these consolidated 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, derivatives,
other contingencies, impairment of assets, incentive
compensation accruals, shared-based compensation and the
provision for 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 applying our critical accounting policies. Our
significant accounting policies are described in Note 1 to
the Companys consolidated financial statements appearing
in Part II, Item 8 of this Annual Report on
Form 10-K.
We have identified the following as critical accounting
policies, based on the significant judgments and estimates used
in determining the amounts reported in our consolidated
financial statements:
Sales
Returns and Allowances
Our revenue consists of sales to wholesale customers (including
distributors and franchisees), retail and
e-commerce
customers, and license fees and royalties. We record wholesale
and
e-commerce
revenues when title passes and the risks and rewards of
ownership have passed to our customer, based on the terms of
sale. Title passes generally upon shipment to or upon receipt by
our customer, depending on the country of sale and the agreement
with our customer. Retail store revenues are recorded at the
time of the sale. License fees and royalties are recognized as
earned per the terms of our licensing and royalty agreements. We
also sell gift cards, the revenue from which is recognized at
the time of redemption.
We record reductions to revenue for estimated wholesale and
retail customer returns and allowances in the same period the
related sales are recorded. We base our estimates on historical
rates of customer returns and allowances, as well as the
specific identification of outstanding returns and allowances,
which are known to us but which have not yet been received. Our
total reserves for sales returns and allowances were
$29.3 million and $27.1 million at December 31,
2010 and 2009, respectively. The actual amount of customer
returns and allowances may differ from our estimates. If we
determine that increases or decreases to sales returns and
allowances are appropriate, we record either a reduction or an
increase in sales in the period in which we make such a
determination.
Allowance
for Doubtful Accounts
We make ongoing estimates for losses relating to our allowance
for uncollectible accounts receivable resulting from the
potential inability of our customers to make required payments.
We estimate potential losses primarily based upon our historical
rate of credit losses and our knowledge of the financial
condition of our customers. Our allowance for doubtful accounts
totaled $10.9 million and $12.2 million at
December 31, 2010 and 2009, respectively. Historically,
losses have been within our expectations. If the financial
condition of our customers were to change, we may be required to
make adjustments to these estimates. If we determine that
increases or decreases to the allowance for doubtful accounts
are appropriate, we record either an increase or decrease to
selling expense in the period in which we make such a
determination.
21
Derivatives
We are routinely subject to currency rate movements on
non-U.S. dollar
denominated assets, liabilities and cash flows as we purchase
and sell goods in foreign markets in their local currencies. We
use derivative instruments, specifically forward contracts, to
mitigate the impact of foreign currency fluctuations on a
portion of our forecasted foreign currency exposures. These
derivatives are carried at fair value on our consolidated
balance sheet. Changes in fair value of derivatives not
designated as hedge instruments are recorded in other, net in
our consolidated statements of income (see Notes 1 and 3 to
our consolidated financial statements in Part II,
Item 8 of this Annual Report on
Form 10-K).
For our derivative contracts that have been designated as hedge
instruments, the effective portion of gains and losses resulting
from changes in the fair value of the instruments are deferred
in accumulated other comprehensive income and reclassified to
earnings, in cost of goods sold, in the period that the
transaction that is subject to the related hedge contract is
recognized in earnings. The ineffective portion of the hedge is
reported in other, net in our consolidated statements of income.
We use our operating budget and forecasts to estimate future
economic exposure and to determine the levels and timing of
derivative transactions intended to mitigate such exposures in
accordance with our risk management policies. We closely monitor
our foreign currency exposure and adjust our derivative
positions accordingly. Our estimates of anticipated transactions
could fluctuate over time and could vary from the ultimate
transactions. Future operating results could be impacted by
adjustments to these estimates and changes in foreign currency
forward rates.
Contingencies
In the ordinary course of business, we are involved in legal
matters involving contractual and employment relationships,
product liabilities, trademark rights and a variety of other
matters. We record contingent liabilities when it is probable
that a liability has been incurred and the amount of the loss
can be reasonably estimated. Estimating probable losses requires
analysis and judgment about the potential actions. Therefore,
actual losses in any future period are inherently uncertain. We
do not believe that any pending legal matters will have a
material impact on our consolidated financial statements.
However, if actual or estimated probable future losses exceed
our recorded liability, we would record additional expense
during the period in which the loss or change in estimate
occurred.
Goodwill
and Indefinite-lived Intangible Assets
The Company evaluates goodwill and indefinite-lived intangible
assets for impairment annually (at the end of our second fiscal
quarter) and when events occur or circumstances change that may
reduce the value of the asset below its carrying amount, using
forecasts of discounted future cash flows. Events or
circumstances that might require an interim evaluation include
unexpected adverse business conditions, economic factors,
technological changes and loss of key personnel. Goodwill and
indefinite-lived intangible assets totaled $39.0 million
and $32.4 million, respectively, at December 31, 2010.
Should the fair value of the Companys goodwill or
indefinite-lived intangible assets decline because of reduced
operating performance, market declines, or other indicators of
impairment, or as a result of changes in the discount rate,
charges for impairment may be necessary. The Company recorded an
impairment charge of $8.8 million in 2010 related to
goodwill and indefinite-lived intangible assets. No impairment
of goodwill or indefinite-lived assets occurred in 2009 or 2008
(see Note 8 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K).
For goodwill, the primary valuation technique used is the
discounted cash flow analysis based on managements
estimates of forecasted cash flows for each business unit, with
those cash flows discounted to present value using rates
proportionate with the risks of those cash flows. Estimates of
future cash flows require assumptions related to revenue and
operating income growth, asset-related expenditures, working
capital levels and other factors. In addition, management uses a
market-based valuation method involving analysis of market
multiples of revenues and earnings before interest, taxes,
depreciation and amortization for a group of similar publicly
traded companies and, if applicable, recent transactions
involving comparable companies. The Company believes the blended
use of these models balances the inherent risk associated with
either model if used on a stand-alone basis, and this
combination is indicative of the factors a market participant
would consider when performing a similar valuation. For
trademark intangible assets, management
22
uses the relief-from-royalty method, in which fair value is the
discounted value of forecasted royalty revenue using a royalty
rate that an independent third party would pay for use of that
trademark.
Different assumptions from those made in the Companys
analysis could materially affect projected cash flows and the
Companys evaluation of goodwill and indefinite-lived
intangible assets for impairment. Our estimates of fair value
are sensitive to changes in the assumptions used in our
valuation analyses and, as a result, actual performance in the
near and longer-term could be different from these expectations
and assumptions. These differences could be caused by events
such as strategic decisions made in response to economic and
competitive conditions and the impact of economic factors on our
customer base. If our future actual results are significantly
lower than our current operating results or our estimates and
assumptions used to calculate fair value are materially
different, the value determined using the discounted cash flow
analysis could result in a lower value. A significant decrease
in value could result in a fair value lower than carrying value,
which could result in impairment of our remaining goodwill.
While we believe we have made reasonable estimates and
assumptions used to calculate the fair value of the reporting
units and other intangible assets, it is possible a material
change could occur, which may ultimately result in the recording
of an additional non-cash impairment charge. We revise our
estimates used in calculating the fair value of our reporting
units as needed.
These non-cash impairment charges do not have any direct impact
on our liquidity, compliance with any covenants under our debt
agreements or potential future results of operations. Our
historical operating results may not be indicative of our future
operating results.
Long-lived
Assets
When events or circumstances indicate that the carrying value of
a long-lived asset may be impaired, we estimate the future
undiscounted cash flows to be derived from the asset to
determine whether or not a potential impairment exists. If the
carrying value exceeds the estimate of future undiscounted cash
flows, impairment is calculated as the excess of the carrying
value of the asset over the estimate of its fair market value.
We estimate future undiscounted cash flows using assumptions
about expected future operating performance. Those estimates of
undiscounted cash flows could differ from actual cash flows due
to, among other things, economic conditions, changes to business
operations or technological change. In 2010 and 2009, an
impairment of $1.0 million and $3.0 million,
respectively, was recorded related to the carrying value of
certain fixed assets (see Note 5 to our consolidated
financial statements in Part II, Item 8 of this Annual
Report on
Form 10-K).
In 2010, 2009 and 2008, an impairment of $5.1 million,
$0.9 million and $2.1 million, respectively, related
to the carrying value of intangible assets was recorded (see
Note 8 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K).
Incentive
Compensation Accruals
We use incentive compensation plans to link compensation to the
achievement of specific annual performance targets. We accrue
for this liability during each year based on certain estimates
and assumptions. The amount paid, based on actual performance,
could differ from our accrual.
Share-based
Compensation
The Company estimates the fair value of its stock option awards
and employee stock purchase plan (the ESPP) rights
on the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model includes various assumptions,
including the expected volatility for stock options and ESPP
rights and the expected term of stock options. These assumptions
reflect the Companys best estimates, but they involve
inherent uncertainties based on market conditions generally
outside of the Companys control. Additionally, we make
certain estimates about the number of options and shares which
will be awarded under performance-based incentive plans. As a
result, if other assumptions or estimates had been used,
share-based compensation expense could have been materially
impacted. Furthermore, if the Company uses different assumptions
in future periods, share-based compensation expense could be
materially impacted in future periods. See Note 13 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K
for additional information regarding the Companys
share-based compensation.
23
Income
Taxes
We record deferred tax assets and liabilities based upon
temporary book to tax differences and to recognize tax
attributes, such as tax loss carryforwards and credits. The
carrying value of our net deferred tax assets assumes that we
will be able to generate sufficient future taxable income in
certain tax jurisdictions to realize the value of these assets.
If we were unable to generate sufficient future taxable income
in these jurisdictions, an adjustment could be required in the
net carrying value of the deferred tax assets, which would
result in additional income tax expense in our consolidated
statements of income. Management evaluates the realizability of
the deferred tax assets and assesses the need for any valuation
allowance quarterly.
We estimate the effective tax rate for the full fiscal year and
record a quarterly income tax provision in accordance with the
anticipated annual rate. As the fiscal year progresses, the
estimate is refined based upon actual events and earnings by
jurisdiction during the year. This continual estimation process
periodically results in a change to the expected effective tax
rate for the fiscal year. When this occurs, we adjust the income
tax provision during the quarter in which the change in estimate
occurs so that the
year-to-date
provision reflects the expected annual rate.
The Company recognizes the impact of a tax position in our
financial statements if that position is more likely than not to
be sustained upon examination by the appropriate taxing
authority, based on its technical merits. We exercise our
judgment in determining whether a position meets the more
likely than not threshold for recognition, based on the
individual facts and circumstances of that position in light of
all available evidence. In measuring the liability, we consider
amounts and probabilities of outcomes that could be realized
upon settlement with taxing authorities using the facts,
circumstances and information available at the balance sheet
date. These reflect the Companys best estimates, but they
involve inherent uncertainties. As a result, if new information
becomes available, the Companys judgments and estimates
may change. A change in judgment relating to a tax position
taken in a prior annual period will be recognized as a discrete
item in the period in which the change occurs. A change in
judgment relating to a tax position taken in a prior interim
period within the same fiscal year will be reflected through our
effective tax rate.
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Revenue
|
|
$
|
1,429,484
|
|
|
|
100.0
|
%
|
|
$
|
1,285,876
|
|
|
|
100.0
|
%
|
|
$
|
1,364,550
|
|
|
|
100.0
|
%
|
Gross profit
|
|
|
696,514
|
|
|
|
48.7
|
|
|
|
602,922
|
|
|
|
46.9
|
|
|
|
620,733
|
|
|
|
45.5
|
|
Operating expense
|
|
|
562,230
|
|
|
|
39.3
|
|
|
|
525,448
|
|
|
|
40.9
|
|
|
|
551,097
|
|
|
|
40.4
|
|
Operating income
|
|
|
134,284
|
|
|
|
9.4
|
|
|
|
77,474
|
|
|
|
6.0
|
|
|
|
69,636
|
|
|
|
5.1
|
|
Interest income/(expense), net
|
|
|
(104
|
)
|
|
|
|
|
|
|
405
|
|
|
|
|
|
|
|
1,719
|
|
|
|
0.1
|
|
Other, net
|
|
|
7,080
|
|
|
|
0.5
|
|
|
|
3,506
|
|
|
|
0.3
|
|
|
|
5,455
|
|
|
|
0.4
|
|
Net income
|
|
$
|
96,622
|
|
|
|
6.8
|
|
|
$
|
56,644
|
|
|
|
4.4
|
|
|
$
|
42,906
|
|
|
|
3.1
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.84
|
|
|
|
|
|
|
$
|
1.01
|
|
|
|
|
|
|
$
|
0.73
|
|
|
|
|
|
Diluted
|
|
$
|
1.82
|
|
|
|
|
|
|
$
|
1.01
|
|
|
|
|
|
|
$
|
0.73
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,498
|
|
|
|
|
|
|
|
56,034
|
|
|
|
|
|
|
|
58,442
|
|
|
|
|
|
Diluted
|
|
|
52,990
|
|
|
|
|
|
|
|
56,352
|
|
|
|
|
|
|
|
58,786
|
|
|
|
|
|
2010
Compared to 2009
Revenue
Our consolidated revenues grew 11.2% to $1,429.5 million in
2010, reflecting growth in every major market across Europe,
Asia, and North America. The impact of changes in foreign
exchange rates did not have a material impact on consolidated
revenues. North America revenue totaled $647.3 million, a
6.1% increase from 2009. Europe revenues were
$592.1 million for 2010, an increase of 12.1% from 2009,
and up
24
15.7% on a constant dollar basis. Asia revenues were
$190.1 million for 2010, an increase of 28.7% from 2009,
and up 22.0% on a constant dollar basis.
Products
Worldwide footwear revenue was $1,035.7 million for 2010,
an increase of $104.5 million, or 11.2%, from 2009, driven
by sales of mens footwear in Europe, North America and
Asia, as well as womens and kids footwear in Europe
and Timberland
PRO
®
product in North America. Worldwide apparel and accessories
revenue grew 12.1% to $368.8 million, reflecting strong
growth in
Timberland
®
apparel sales in Asia and
SmartWool
®
apparel and accessories in North America. Royalty and other
revenue decreased slightly in 2010 to $25.0 million.
Channels
Wholesale revenue was $1,024.7 million in 2010, an 11.5%
increase compared to 2009, reflecting growth in footwear in
Europe, North America and Asia and apparel and accessories in
North America. Retail revenues grew 10.3% to
$404.8 million, driven by comparable store sales growth,
the net addition of 10 stores, and favorable foreign exchange
rate impacts in Asia. Global retail comparable store sales were
up 8.8% compared to 2009, with growth in both our specialty and
outlet stores in each of our geographic regions. We had 228
Company-owned stores, shops and outlets worldwide at the end of
2010 compared to 218 at December 31, 2009.
Gross
Profit
Gross profit as a percentage of sales, or gross margin, was
48.7% in 2010, a 180 basis point improvement compared to
46.9% in 2009. The gross margin expansion was driven by
favorable region, channel and product mix, fewer and more
profitable close-out sales, and better pricing, in part due to
less promotional activity in retail, which more than offset
margin pressure from higher product costs. While the benefits
from mix may continue, we expect that increased product costs as
a result of higher leather, transportation and labor costs will
adversely impact gross margin through 2011.
Operating
Expense
Total operating expense was $562.2 million in 2010,
$36.8 million, or 7.0% higher than 2009. The change is
attributable to a $19.4 million increase in selling expense
and an increase in general and administrative costs of
$7.1 million, partially offset by a $3.0 million gain
related to the termination of certain licensing agreements in
2010. Operating expense in 2010 and 2009 also included
impairment charges of $13.9 million and $0.9 million,
respectively, related to goodwill and intangible assets.
Overall, changes in foreign exchange rates reduced operating
expense by approximately $3.2 million in 2010.
Selling expense for 2010 was $427.4 million, an increase of
$19.4 million, or 4.8%, compared to the prior year. This
increase was driven by increases of $7.9 million in
variable selling-related costs such as agent fees, shipping
costs and sales incentives, $7.4 million in investments in
key strategic advertising and branding initiatives, including
the launch of a new website and micro-sites, $3.6 million
in rent and occupancy costs for store expansion in Asia and
Europe, and $2.2 million in incentive compensation and
other employee related costs. These increases were partially
offset by a reduction of $1.5 million associated with the
write-off of certain fixed assets related to our retail
business. Selling expense as a percentage of revenue was 29.9%
in 2010, compared to 31.7% in 2009.
We include the costs of physically managing inventory
(warehousing and handling costs) in selling expense. These costs
totaled $36.4 million and $37.4 million in 2010 and
2009, respectively.
Advertising expense, which is included in selling expense, was
$47.1 million and $40.7 million in 2010 and 2009,
respectively. Increased investment in brand-focused
consumer-facing marketing programs such as Internet and other
digital and social media initiatives, as well as magazine
campaigns, was partially offset by lower levels of television
advertising and related media production costs. Our commitment
to strengthen our premium brand position through consumer-facing
advertising initiatives remains key to driving our strategy
forward.
25
General and administrative expense was $123.9 million, an
increase of 6.1% over the $116.8 million recorded in 2009,
driven by increases in incentive compensation and other employee
related costs of $5.0 million, as well as $3.5 million
in incremental costs related to business system transformation
initiatives in preparation for a multi-year ERP system
implementation. These increases were partially offset by a
decrease in government taxes on certain foreign investments.
Total operating expense in 2010 included an impairment charge of
$8.5 million related to certain intangible assets, an
impairment charge of $5.4 million related to goodwill, and
gains of $3.0 million associated with the termination of
certain licensing agreements. Total operating expense in 2009
included a charge of $0.9 million to reflect the impairment
of a trademark. See Notes 5 and 8 to the consolidated
financial statements included in Part II, Item 8 of
this Annual Report on
Form 10-K
for additional information.
Operating
Income
Operating income was $134.3 million in 2010, compared to
operating income of $77.5 million in 2009. Operating income
in 2010 included a goodwill and intangible asset impairment
charge of $13.9 million and gains on termination of certain
licensing agreements of $3.0 million, compared to a
$0.9 million intangible asset impairment charge included in
operating income in 2009.
Other
Income/(Expense) and Taxes
Interest income was $0.4 million and $0.9 million in
2010 and 2009, respectively, reflecting lower interest rates.
Interest expense, which is comprised of fees related to the
establishment and maintenance of our revolving credit facility
and bank guarantees, was $0.5 million in both 2010 and 2009.
Other, net, included $5.5 million and $1.5 million of
foreign exchange gains for 2010 and 2009, respectively,
reflecting changes in the fair value of financial derivatives,
specifically forward contracts not designated as cash flow
hedges, and currency gains and losses associated with foreign
currency denominated receivables and payables. These results
were driven by the volatility of exchange rates during the
respective reporting periods and should not be considered
indicative of expected future results.
Our effective tax rate was 31.6% in 2010, compared to 30.4% in
2009. The 2010 rate was impacted by the release of approximately
$4.4 million in tax accruals as a result of final approval
associated with tax clearance for certain closed foreign
operations, as well as the lapse of certain statutes of
limitation. The 2009 rate was impacted by a tax benefit of
approximately $7.3 million due to the closure of audits or
lapsing of certain statutes of limitation in 2009.
In December 2009, we received a Notice of Assessment from the
Internal Revenue Department of Hong Kong for approximately
$17.6 million with respect to the tax years 2004 through
2008. In connection with the assessment, the Company made
required payments to the Internal Revenue Department of Hong
Kong totaling approximately $8.4 million in 2010. These
payments are included in prepaid taxes on our consolidated
balance sheet. We believe we have a sound defense to the
proposed adjustment and will continue to firmly oppose the
assessment. We believe that the assessment does not impact the
level of liabilities for our income tax contingencies. However,
actual resolution may differ from our current estimates, and
such differences could have a material impact on our future
effective tax rate and our results of operations. See
Note 11 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
2009
Compared to 2008
Revenue
Consolidated revenue for 2009 was $1,285.9 million, a
decrease of $78.7 million, or 5.8%, compared to 2008. These
results were driven primarily by declines in
Timberland
®
footwear in North America and apparel worldwide, and the
strengthening of the U.S. dollar against the British Pound
and the Euro versus the prior year, partially offset by strong
growth in footwear internationally as well as
SmartWool
®
products. On a constant dollar basis, consolidated revenues were
down 3.6%. North America revenue totaled $610.2 million, a
6.5% decline from 2008. Europe revenues were $528.0 million
for 2009, a decrease of 4.3% from 2008, but up 2.0% on a
constant dollar basis. Asia revenues were $147.7 million
for 2009, a decrease of 7.9% from 2008, and a decline of 11.8%
on a constant dollar basis.
26
Products
Worldwide footwear revenue was $931.2 million for 2009,
down $43.1 million, or 4.4%, from 2008, driven by declines
in our mens and womens business in North America.
Internationally, we continued to see signs of our mens
business strengthening in Europe and Asia. Worldwide apparel and
accessories revenue fell 10.3% to $329.1 million, as growth
from SmartWool was offset by a decline in
Timberland
®
brand apparel and accessories, reflecting softness in
international markets, the strengthening of the U.S. dollar
relative to the British Pound and the Euro, and, to a lesser
extent, the impact of transitioning our North America wholesale
mens 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
increased 10.5% in 2009 to $25.6 million, reflecting
increased sales of apparel in North America under our licensing
agreement established in 2008.
Channels
Wholesale revenue was $918.8 million, a 7.1% decrease
compared to 2008. Softness in the North America and Asia
markets, the strengthening of the U.S. dollar relative to
the British Pound and Euro and, to a lesser degree, the
transition of our North America wholesale mens apparel
business to a licensing arrangement drove the year over year
wholesale decline.
Retail revenues fell 2.1% to $367.1 million, driven by
unfavorable foreign exchange rate impacts and a challenging
retail market in North America. Overall, global comparable store
sales were down 2.4% compared to 2008, with favorable comparable
store results in Europe offset by declines in our North America
and Asia stores. We had 218 Company-owned stores, shops and
outlets worldwide at the end of 2009 compared to 219 at
December 31, 2008.
Gross
Profit
Gross profit as a percentage of sales, or gross margin, was
46.9% in 2009 compared to 45.5% in 2008. The improvement in
gross margin reflects favorable channel and pricing mix within
our operating segments, as well as lower sales returns and
allowances, partially offset by strengthening of the
U.S. dollar relative to the British Pound and Euro and
lower margins on close-out sales. On a consolidated basis,
higher product costs were offset by favorable purchase price and
other manufacturing variances, as well as savings from sourcing
cost initiatives.
Operating
Expense
Total operating expense was $525.4 million in 2009,
$25.6 million, or 4.7% lower than 2008. The change is
attributable to a $29.7 million decrease in selling expense
and a $1.2 million decrease in restructuring charges,
partially offset by an increase in general and administrative
costs of $3.8 million. Operating expense in 2009 and 2008
also included an impairment charge of $0.9 million and
$2.1 million, respectively, related to an intangible asset.
Operating expense in 2008 was favorably impacted by a
$2.6 million litigation settlement. Overall, changes in
foreign exchange rates reduced operating expense by
approximately $13.9 million in 2009.
Selling expense for 2009 was $408.0 million, a decrease of
$29.7 million, or 6.8%, compared to the prior year. This
decline was driven by a $20.7 million reduction in sales,
marketing and distribution expenses, due, in part, to the
strengthening of the U.S. dollar relative to the Euro and
British Pound, lower distribution costs, and a decrease in
provisions for bad debts. Additionally, we had an
$8.8 million reduction in retail expenses primarily as a
result of the closure of certain underperforming stores in Asia
and the benefit of foreign exchange impacts in Europe, and a
$4.3 million reduction in discretionary spending. These
savings were partially offset by an increase of
$3.2 million in incentive-based compensation costs due to
the achievement of certain performance targets in 2009, and
$1.7 million associated with the write-off of certain fixed
assets related to our retail business.
We include the costs of physically managing inventory
(warehousing and handling costs) in selling expense. These costs
totaled $37.4 million and $41.3 million in 2009 and
2008, respectively.
Advertising expense, which is included in selling expense, was
$40.7 million and $43.1 million in 2009 and 2008,
respectively. We maintained our commitment to strengthening our
premium brand position despite
27
adverse economic conditions during 2009. Increased investment in
consumer-facing marketing programs such as Internet and other
digital and social media initiatives was offset by lower levels
of co-op advertising as well as television and magazine
advertising. Television advertising in 2008 included a global
campaign which coincided with the summer Olympics.
General and administrative expense was $116.8 million, an
increase of 3.3% over the $113.0 million recorded in 2008.
Increases in employee-related costs of $6.5 million,
including higher incentive-based compensation costs, as well as
employee benefit-related costs, were partially offset by a
reduction of $2.5 million in discretionary spending.
Total operating expense in 2009 included a charge of
$0.9 million to reflect the impairment of a trademark,
compared to $2.1 million in 2008 of which $1.9 million
was recorded in the fourth quarter of 2008. Operating expense in
2008 was also reduced by a $2.6 million favorable legal
settlement recorded in the fourth quarter of 2008.
We recorded net restructuring credits of $0.2 million in
2009 compared to charges of $0.9 million in 2008. Credits
in 2009 reflect the completion of our 2007 restructuring
programs. Charges in 2008 reflect incremental costs associated
with the execution of restructuring programs initiated in 2007
to close certain underperforming retail locations and streamline
our global operations.
Operating
Income
Operating income was $77.5 million in 2009, compared to
$69.6 million in 2008. Operating income in 2009 and 2008
included an intangible asset impairment charge of
$0.9 million and $2.1 million, respectively, and
restructuring charges/(credits) of $(0.2) million and
$0.9 million, respectively. Operating income in 2008 also
included the benefit of a $2.6 million favorable legal
settlement.
Other
Income/(Expense) and Taxes
Interest income was $0.9 million and $2.4 million in
2009 and 2008, respectively, as an increase in average cash
balances was more than offset by lower interest rates. Interest
expense, which is comprised of fees related to the establishment
and maintenance of our revolving credit facility and bank
guarantees and interest paid on short-term borrowings, was
$0.5 million and $0.7 million in 2009 and 2008,
respectively. The reduction in expense was driven by lower
borrowings throughout the year.
Other, net, included $1.5 million and $5.8 million of
foreign exchange gains for 2009 and 2008, respectively,
reflecting changes in the fair value of financial derivatives,
specifically forward contracts not designated as cash flow
hedges, and currency gains and losses associated with foreign
currency denominated receivables and payables. These results
were driven by the volatility of exchange rates during the
respective reporting periods and should not be considered
indicative of expected future results.
The effective tax rate was 30.4% in 2009, compared to 44.1% in
2008. The 2009 rate was impacted by a tax benefit of
approximately $7.3 million due to the closure of audits or
lapsing of certain statutes of limitation in 2009.
Segments
Review
We have three business segments (see Note 14 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K):
North America, Europe and Asia.
Revenue by segment for each of the last three years ended
December 31 is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
Percentage Change
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2010
|
|
|
2009
|
|
|
North America
|
|
$
|
647.3
|
|
|
$
|
610.2
|
|
|
$
|
652.4
|
|
|
|
6.1
|
%
|
|
|
(6.5
|
)%
|
Europe
|
|
|
592.1
|
|
|
|
528.0
|
|
|
|
551.7
|
|
|
|
12.1
|
|
|
|
(4.3
|
)
|
Asia
|
|
|
190.1
|
|
|
|
147.7
|
|
|
|
160.4
|
|
|
|
28.7
|
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,429.5
|
|
|
$
|
1,285.9
|
|
|
$
|
1,364.5
|
|
|
|
11.2
|
|
|
|
(5.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28
Operating income/(loss) by segment and as a percentage of
segment revenue for each of the last three years ended December
31 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. Unallocated
Corporate includes certain value chain costs such as sourcing
and logistics, as well as inventory variances and standard cost
adjustments, which are not allocated back to the geographic
segments. North America includes impairment charges of
$8.6 million and a gain related to the termination of
certain licensing agreements of $3.0 million in the year
ended December 31, 2010. Europe includes impairment charges
of $5.3 million and $0.9 million in the years ended
December 31, 2010 and 2009, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
$
|
126.3
|
|
|
|
19.5
|
%
|
|
$
|
95.7
|
|
|
|
15.7
|
%
|
|
$
|
104.2
|
|
|
|
16.0
|
%
|
Europe
|
|
|
106.3
|
|
|
|
18.0
|
|
|
|
73.8
|
|
|
|
14.0
|
|
|
|
83.0
|
|
|
|
15.1
|
|
Asia
|
|
|
30.6
|
|
|
|
16.1
|
|
|
|
11.0
|
|
|
|
7.5
|
|
|
|
3.2
|
|
|
|
2.0
|
|
Unallocated Corporate
|
|
|
(128.9
|
)
|
|
|
(9.0
|
)
|
|
|
(103.0
|
)
|
|
|
(8.0
|
)
|
|
|
(120.8
|
)
|
|
|
(8.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
134.3
|
|
|
|
9.4
|
|
|
$
|
77.5
|
|
|
|
6.0
|
|
|
$
|
69.6
|
|
|
|
5.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of Company-owned retail stores at December 31,
2010, 2009 and 2008 by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
|
66
|
|
|
|
69
|
|
|
|
71
|
|
Europe
|
|
|
66
|
|
|
|
63
|
|
|
|
54
|
|
Asia
|
|
|
96
|
|
|
|
86
|
|
|
|
94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
228
|
|
|
|
218
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
North America revenues increased 6.1% to $647.3 million in
2010, driven by the wholesale business, which reflects growth in
first quality revenue and strong sell-in of Fall 2010 product,
partially offset by a decline in off-price revenue. Our
Timberland
PRO
®
footwear line and
SmartWool
®
apparel and accessories delivered strong
year-over-year
growth, complemented by mid single-digit growth in our
Timberland
®
brand mens footwear. Within North America, our retail
business grew 2.2%, as a 3.1% increase in comparable store sales
was partially offset by the net closure of 3 stores.
The Companys North America revenue decreased 6.5% to
$610.2 million in 2009, driven by softness in our wholesale
business, where we saw declines in mens footwear, as well
as
Timberland
®
apparel, due in part to anticipated declines from the decision
in 2008 to transition our North America wholesale mens
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 4.9%, driven by an 8.7% decrease in
comparable store sales, principally related to our outlet
stores, partially offset by growth in our
e-commerce
business.
Operating income for our North America segment was
$126.3 million in 2010, an increase of 31.9% compared to
$95.7 million for 2009. The increase was driven by higher
gross profit from 6.1% revenue growth, as well as fewer and more
profitable closeout sales, less promotional activity in retail
and favorable mix impacts. Operating expenses increased 8.0%
reflecting goodwill and intangible asset impairment charges of
$8.6 million, increases in certain selling related costs of
$4.8 million and planned investments in key strategic
marketing initiatives of $3.2 million. These items were
partially offset by a gain of $3.0 million associated with
the termination of certain licensing agreements and a reduction
of $1.5 million associated with fixed asset write-offs
taken in 2009 related to our
e-commerce
business and underperforming retail stores.
Operating income for our North America segment decreased 8.2% to
$95.7 million in 2009, driven by an 8.5% decline in gross
margin, partially offset by an 8.7% reduction in operating
expenses. The decrease in
29
gross profit was primarily driven by revenue declines of 6.5%,
which were partially offset by favorable pricing and channel
mix. The lower operating expenses were principally a result of a
decrease in selling and distribution expenses of
$10.8 million, reflecting lower volume related costs, as
well as savings from our cost reduction and efficiency
initiatives, a $4.2 million decline in employee-related
costs, resulting from reduced headcount and severance associated
with streamlining our operations in 2008 and a $1.6 million
decrease in discretionary spending. Write-offs of certain fixed
assets related to our retail business offset savings associated
with the exiting of certain specialty brands in 2008.
Europe
Europe revenues increased to $592.1 million in 2010, which
was a 12.1% increase from 2009, and an increase of 15.7% on a
constant dollar basis. We recorded double-digit growth across
nearly all our major markets in Europe, in particular
Scandinavia and Central and Southern Europe. The increases were
driven by strong growth in footwear sales through both the
wholesale and retail channels. Strength in retail apparel and
accessories was partially offset by wholesale apparel revenue
declines. Retail growth of 10.6% was driven by comparable store
sales growth of 11.8% and the net addition of 3 stores, which
more than offset pressure from unfavorable foreign exchange rate
changes.
Our Europe revenues decreased to $528.0 million in 2009
from the $551.7 million reported in 2008 due to foreign
exchange rate impacts. Europe revenues increased 2.0% on a
constant dollar basis. Strong growth in our retail business,
where we experienced comparable store sales growth of 6.7% as
well as the net addition of 9 stores, offset softness in
wholesale sales, primarily in the UK, Spain and our distributor
markets.
Europes operating income was $106.3 million in 2010,
compared to $73.8 million in 2009. Improvement in Europe
was driven by revenue growth of 12.1% and favorable channel mix,
partially offset by unfavorable foreign exchange rate impacts.
Operating expenses increased 3.1% year over year, as the impact
of a $5.3 million impairment charge and increases in
marketing and rent and occupancy costs associated with store
expansion were partially offset by favorable foreign exchange
rate impacts and a decrease in government taxes on certain
foreign investments. Operating expense for the 2009 period
included a charge of $0.9 million for the impairment of the
GoLite trademark.
Europes operating income was $73.8 million in 2009,
compared to $83.0 million in 2008, reflecting an 8.4%
decline in gross profit, which was driven by the impact of
foreign exchange rate fluctuations and reduced margin on
close-outs, partially offset by favorable channel and product
mix. This decrease was partially offset by a 7.3% decrease in
operating expenses, reflecting the impact of foreign exchange
rate movements. A decrease in sales, marketing and distribution
costs, including a decrease in provisions for bad debt, lower
discretionary spending and the impact of a lower intangible
asset write-off in 2009 as compared to 2008 were substantially
offset by increased rent, occupancy and compensation costs
associated with additional stores, government taxes on certain
foreign investments and higher compensation costs.
Asia
In Asia, revenues increased 28.7%, or 22.0% in constant dollars,
to $190.1 million in 2010, as nearly every brand, category,
channel and country delivered growth. Wholesale growth, driven
by mens footwear, was strongest in Japan and China. Retail
revenues were up 26.2%, driven by comparable store sales growth
of 14.6%, the net addition of 10 stores, and favorable foreign
exchange rate impacts.
Asia revenues for 2009 were $147.7 million, compared to
$160.4 million for 2008, a decline of 7.9%, or 11.8% in
constant dollars, due to softness in both our retail and
wholesale businesses. The retail declines were due to decreases
in comparable store sales of 2.2% combined with the net closure
of 8 stores, while wholesale markets continued to be soft in
Hong Kong and the distributor businesses.
Asia had operating income of $30.6 million for 2010,
compared to $11.0 million for 2009, driven by improvement
in gross profit, reflecting a 28.7% increase in revenue as well
as favorable foreign exchange rate and mix impacts. These
benefits were partially offset by an increase of 13.7% in
operating expenses. The increase in expense was driven primarily
by higher marketing and rent and occupancy costs, as well as
unfavorable foreign exchange rate impacts.
30
Asias operating income was $11.0 million in 2009,
compared to $3.2 million in 2008, driven by a 12.1%
reduction in operating expenses due principally to lower costs
in our retail business of $6.3 million, resulting from the
closure of certain underperforming stores, and $2.2 million
in reduced distribution and marketing costs, due to lower volume
and the absence of a major television campaign in 2009.
Unallocated
Corporate
Our Unallocated Corporate expenses increased 25.1% to
$128.9 million in 2010. Unallocated Corporate expenses
include central support and administrative costs, as well as
supply chain costs, including sourcing and logistics, inventory
cost variances and adjustments to standard costs, which are not
allocated to our reportable business segments. The increased
expense reflects unfavorability in certain supply chain costs,
primarily inventory cost variances, as well as higher incentive
compensation and other employee related costs of
$4.8 million, and incremental costs related to a multi-year
ERP system implementation of $3.5 million.
Our Unallocated Corporate expenses, which include central
support and administrative costs not allocated to our business
segments, decreased 14.8% to $103.0 million in 2009. The
lower expenses reflect favorable variances from standard costs,
sourcing cost initiatives and other cost variances. These items
are not allocated to the Companys reportable segments.
Corporate operating expenses increased 15.2% due to an increase
in employee-related costs, primarily incentive-based
compensation costs of $4.7 million and certain
employee-related benefits, marketing costs of $1.3 million
and the impact of a favorable legal settlement of
$2.6 million reported in 2008.
Reconciliation
of Total Company, Europe and Asia Revenue Changes to Constant
Dollar Revenue Changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
For the Year Ended
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
$ Change
|
|
|
|
|
|
$ Change
|
|
|
|
|
|
|
(in millions)
|
|
|
% Change
|
|
|
(in millions)
|
|
|
% Change
|
|
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase/(decrease) (GAAP)
|
|
$
|
143.6
|
|
|
|
11.2
|
%
|
|
$
|
(78.7
|
)
|
|
|
(5.8
|
)%
|
Decrease due to foreign exchange rate changes
|
|
|
(7.0
|
)
|
|
|
(0.5
|
)%
|
|
|
(29.5
|
)
|
|
|
(2.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase/(decrease) in constant dollars
|
|
$
|
150.6
|
|
|
|
11.7
|
%
|
|
$
|
(49.2
|
)
|
|
|
(3.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase/(decrease) (GAAP)
|
|
$
|
64.1
|
|
|
|
12.1
|
%
|
|
$
|
(23.8
|
)
|
|
|
(4.3
|
)%
|
Decrease due to foreign exchange rate changes
|
|
|
(18.8
|
)
|
|
|
(3.6
|
)%
|
|
|
(34.7
|
)
|
|
|
(6.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase in constant dollars
|
|
$
|
82.9
|
|
|
|
15.7
|
%
|
|
$
|
10.9
|
|
|
|
2.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase/(decrease) (GAAP)
|
|
$
|
42.3
|
|
|
|
28.7
|
%
|
|
$
|
(12.6
|
)
|
|
|
(7.9
|
)%
|
Increase due to foreign exchange rate changes
|
|
|
9.9
|
|
|
|
6.7
|
%
|
|
|
6.3
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase/(decrease) in constant dollars
|
|
$
|
32.4
|
|
|
|
22.0
|
%
|
|
$
|
(18.9
|
)
|
|
|
(11.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between changes in reported revenue (the most
comparable GAAP measure) and constant dollar revenue changes is
the impact of foreign currency. We calculate constant dollar
revenue changes by recalculating current year revenue using the
prior years exchange rates and comparing it to prior year
revenue reported on a GAAP basis. We provide constant dollar
revenue changes for Total Company, Europe and Asia results
because we use the measure to understand the underlying results
and trends of the business segments excluding the impact of
exchange rate changes that are not under managements
direct control. We have a foreign exchange rate risk management
program intended to minimize both the positive and negative
effects of currency fluctuations on our reported consolidated
results of operations, financial position and cash flows. The
actions we take to mitigate foreign exchange risk are reflected
in cost of goods sold and other, net.
31
Accounts
Receivable and Inventory
Accounts receivable were $188.3 million as of
December 31, 2010, compared to $149.2 million as of
December 31, 2009 and $168.7 million as of
December 31, 2008. Accounts receivable increased 26.2%
compared to 2009 on a 26.7% increase in revenue in the fourth
quarter, combined with timing of shipments in the quarter. Days
sales outstanding were 35 days as of December 31, 2010
and 2009, and 39 days as of December 31, 2008.
Wholesale days sales outstanding were 44 days, 45 days
and 48 days at the end of 2010, 2009 and 2008,
respectively. We continue to maintain our strong collection
discipline and focus on working capital management.
Inventory increased 13.6% to $180.1 million as of
December 31, 2010 from $158.5 million as of
December 31, 2009 and $179.7 million as of
December 31, 2008. The increase in 2010 compared to 2009
reflects higher product costs, strong revenue growth and
prospects for the business going into 2011. Despite the increase
in inventory, our level of excess inventory declined as a
percentage of inventory at December 31, 2010 compared to
December 31, 2009. The decrease in 2009 was attributable to
improved demand planning against lower revenue, resulting in
reduced excess inventory creation.
Liquidity
and Capital Resources
2010
Compared to 2009
Net cash provided by operations for 2010 was $87.9 million,
compared with $135.9 million in 2009. Despite a strong
improvement in profitability, after taking into account non-cash
impairments totaling $14.9 million, we saw a decrease in
cash provided in 2010 compared with 2009, primarily due to an
increased investment in inventory and higher accounts
receivable. Inventory grew to support our expected growth and
reflects higher product costs compared to 2009. The increase in
accounts receivable was driven by our significant revenue growth
in the fourth quarter, and timing of shipments. Accounts payable
was a source of cash in 2010 versus a use of cash in 2009 due in
part to the timing of inventory purchases. Overall, in 2010, we
invested $61.5 million in operating assets and liabilities,
compared to generating $40.1 million from them in 2009.
Net cash used for investing activities amounted to
$20.6 million in 2010, compared with $20.1 million in
2009. Net cash used for investing activities in 2009 included
approximately $1.5 million paid in connection with the
acquisition of Glaudio. Capital expenditures in 2010 were
$19.9 million, compared to $17.7 million in 2009. The
increase in capital expenditures is due primarily to investments
in hardware and software associated with our business system
transformation initiative.
Net cash used for financing activities was $81.0 million in
2010, compared with $43.1 million in 2009. Cash flows from
financing activities reflected share repurchases of
$85.2 million in 2010, compared with $43.9 million in
2009. We received cash inflows of $4.4 million in 2010 from
the issuance of common stock related to the exercise of employee
stock options and employee stock purchases, compared with
$2.0 million in 2009.
2009
Compared to 2008
Net cash provided by operations for 2009 was
$135.9 million, compared with $147.7 million in 2008.
The decrease in cash provided in 2009 compared with 2008 was
primarily due to the timing of inventory payments in 2008,
partially offset by an increase in incentive compensation
accruals. We also continued our focus on balance sheet
management through the collection of accounts receivable and
improved inventory planning. In 2009, we generated
$40.1 million from operating assets and liabilities,
compared to $52.1 million in 2008.
Net cash used for investing activities amounted to
$20.1 million in 2009, compared with $21.2 million in
2008. Net cash used for investing activities in 2009 included
approximately $1.5 million paid in connection with the
acquisition of Glaudio, while 2008 included approximately
$1.0 million of cash received as a purchase price
adjustment related to the IPATH acquisition in 2007. Capital
expenditures in 2009 were $17.7 million, compared to
$22.3 million in 2008. The decrease was primarily
attributable to reduced retail store investment in Europe and
Asia.
32
Net cash used for financing activities was $43.1 million in
2009, compared with $44.2 million in 2008. Cash flows from
financing activities reflected share repurchases of
$43.9 million in 2009, compared with $46.3 million in
2008. We received cash inflows of $2.0 million in 2009 from
the issuance of common stock related to the exercise of employee
stock options and employee stock purchases, compared with
$1.9 million in 2008.
Credit
Risks
We are exposed to the credit risk of those with whom 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. As a matter of policy, we only enter
into derivative contracts with counterparties having a minimum
investment-grade or better credit rating. Credit risk is managed
through the continuous monitoring of exposures to such
counterparties. 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.
Additionally, consumer spending is being affected by the current
macro-economic environment, particularly the disruption of the
credit and stock markets. Continued deterioration, or lack of
improvement, in the markets 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 and the
adverse capital and credit market conditions are not expected to
significantly affect our ability to meet our liquidity needs.
Credit
Facilities
We have an unsecured committed revolving credit agreement,
referred to as the Credit Agreement, with a group of banks which
matures on June 2, 2011. The Credit 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 Credit Agreement
($1.6 million at December 31, 2010) reduce the
amount available for borrowing under the Credit 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 Credit Agreement, we
may borrow at interest rates based on Eurodollar rates
(approximately 0.3% at December 31, 2010), plus an
applicable margin of between 13.5 and 47.5 basis points,
based on a fixed charge coverage grid that is adjusted
quarterly. As of December 31, 2010, the applicable margin
under the facility was 47.5 basis points. We will 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
December 31, 2010, the commitment fee was 15 basis
points. The Credit 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 Credit Agreement on a
fiscal quarter basis, and were in compliance for the quarter
ended December 31, 2010. The continued volatility in the
credit markets could result in significant increases in
borrowing costs for any new facility we may require. Our ability
to obtain new financing with comparable terms upon the maturity
of our existing facility will depend upon prevailing market
conditions, our financial condition and the terms and conditions
available at the time of such financing.
We had uncommitted lines of credit available from certain banks
totaling $30 million as of December 31, 2010. Any
borrowings under these lines would be at prevailing money market
rates. Further, we had 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 December 31, 2010 and 2009, we had no borrowings
outstanding under any of our credit facilities. We did not
utilize our borrowing capability under the facilities at any
point during 2010 and 2009.
33
Management believes that our operating costs, capital
requirements and funding for our share repurchase program for
2011 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. We are undertaking a
multi-year business system transformation initiative pursuant to
which we will develop and implement an ERP system to better
support our business model and further streamline our
operations. It is the Companys intent to finance these
costs with cash from operations, without the need for additional
financing. However, as discussed in the section entitled
Special Note regarding Forward-Looking Statements in
Part I, Item 1A, Risk Factors, of this Annual Report
on
Form 10-K,
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.
Aggregate
Contractual Obligations
At December 31, 2010, we have the following contractual
obligations due by period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(Dollars in millions)
|
|
|
Operating leases(1)
|
|
$
|
210.2
|
|
|
$
|
50.9
|
|
|
$
|
71.9
|
|
|
$
|
43.3
|
|
|
$
|
44.1
|
|
Production purchase obligations(2)
|
|
|
219.4
|
|
|
|
219.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-production purchase obligations(3)
|
|
|
32.2
|
|
|
|
18.1
|
|
|
|
14.1
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan(4)
|
|
|
7.1
|
|
|
|
0.6
|
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
5.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(5)
|
|
$
|
468.9
|
|
|
$
|
289.0
|
|
|
$
|
86.7
|
|
|
$
|
43.9
|
|
|
$
|
49.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See Note 16 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
|
|
(2)
|
|
Production purchase obligations consist of open production
purchase orders for sourced footwear, apparel and accessories
and materials used to manufacture footwear.
|
|
(3)
|
|
Non-production purchase obligations consist of open purchase
orders for operating expense purchases relating to goods or
services ordered in the normal course of business.
|
|
(4)
|
|
Our deferred compensation plan liability was $7.1 million
at December 31, 2010. See Note 9 to our consolidated
financial statements in Part II, Item 8 of this Annual
Report on
Form 10-K.
|
|
(5)
|
|
We had $22.7 million of gross liability for uncertain tax
positions recorded in other long-term liabilities on our
consolidated balance sheet at December 31, 2010. We are not
able to reasonably estimate in which future periods these
amounts will ultimately be settled. See Note 11 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K.
|
Off
Balance Sheet Arrangements
Letters
of Credit
As of December 31, 2010, 2009 and 2008, we had letters of
credit outstanding of $16.5 million, $16.6 million and
$16.1 million, respectively. These letters of credit 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 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.
34
New
Accounting Pronouncements
A discussion of new accounting pronouncements, none of which had
a material impact on our operations, financial condition or
liquidity, is included in Note 1, Summary of Significant
Accounting Policies, to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
|
|
ITEM 7A.
|
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 mitigate 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 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 December 31, 2010, 2009 and 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 decrease the volatility of our earnings.
The foreign currency forward contracts under this program will
expire in 13 months or less. Based upon sensitivity
analysis as of December 31, 2010, a 10% change in foreign
exchange rates would cause the fair value of our financial
instruments to increase/decrease by approximately
$19.4 million, compared with an increase/decrease of
$12.2 million as of December 31, 2009. The increase as
of December 31, 2010, compared to December 31, 2009,
is primarily related to an increase in our foreign currency
denominated exposures, as well as the percentage of those
exposures we have hedged, as of December 31, 2010 compared
with December 31, 2009.
35
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Timberland
Company
Stratham, New Hampshire:
We have audited the accompanying consolidated balance sheets of
The Timberland Company and subsidiaries (the
Company) as of December 31, 2010 and 2009, and
the related consolidated statements of income, changes in
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2010. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These consolidated financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The
Timberland Company and subsidiaries at December 31, 2010
and 2009, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2010, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2010, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 22, 2011 expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/s/
DELOITTE &
TOUCHE LLP
Boston, Massachusetts
February 22, 2011
36
THE
TIMBERLAND COMPANY
CONSOLIDATED
BALANCE SHEETS
As
of December 31, 2010 and 2009
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
(Dollars in thousands,
|
|
|
|
except per share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
272,221
|
|
|
$
|
289,839
|
|
Accounts receivable, net of allowance for doubtful accounts
of $10,859 in 2010 and $12,175 in 2009
|
|
|
188,336
|
|
|
|
149,178
|
|
Inventory
|
|
|
180,068
|
|
|
|
158,541
|
|
Prepaid expenses
|
|
|
32,729
|
|
|
|
32,863
|
|
Prepaid income taxes
|
|
|
25,083
|
|
|
|
11,793
|
|
Deferred income taxes
|
|
|
22,562
|
|
|
|
26,769
|
|
Derivative assets
|
|
|
29
|
|
|
|
1,354
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
721,028
|
|
|
|
670,337
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
68,043
|
|
|
|
69,820
|
|
Deferred income taxes
|
|
|
15,594
|
|
|
|
14,903
|
|
Goodwill
|
|
|
38,958
|
|
|
|
44,353
|
|
Intangible assets, net
|
|
|
34,839
|
|
|
|
45,532
|
|
Other assets, net
|
|
|
13,897
|
|
|
|
14,962
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
892,359
|
|
|
$
|
859,907
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
91,025
|
|
|
$
|
79,911
|
|
Accrued expense
|
|
|
|
|
|
|
|
|
Payroll and related
|
|
|
47,376
|
|
|
|
43,512
|
|
Other
|
|
|
80,675
|
|
|
|
81,988
|
|
Income taxes payable
|
|
|
25,760
|
|
|
|
21,959
|
|
Deferred income taxes
|
|
|
|
|
|
|
48
|
|
Derivative liabilities
|
|
|
1,690
|
|
|
|
389
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
246,526
|
|
|
|
227,807
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
34,322
|
|
|
|
36,483
|
|
Commitments and contingencies (See Note 16)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value; 2,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Class A Common Stock, $.01 par value (1 vote per
share); 120,000,000 shares authorized;
75,543,672 shares issued at December 31, 2010 and
74,570,388 shares issued at December 31, 2009
|
|
|
756
|
|
|
|
746
|
|
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; 10,568,389 shares
issued and outstanding at December 31, 2010 and
11,089,160 shares issued and outstanding at
December 31, 2009
|
|
|
106
|
|
|
|
111
|
|
Additional paid-in capital
|
|
|
280,154
|
|
|
|
266,457
|
|
Retained earnings
|
|
|
1,071,305
|
|
|
|
974,683
|
|
Accumulated other comprehensive income
|
|
|
6,671
|
|
|
|
15,048
|
|
Treasury Stock at cost; 35,610,050 Class A shares at
December 31, 2010 and 31,131,253 Class A shares at
December 31, 2009
|
|
|
(747,481
|
)
|
|
|
(661,428
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
611,511
|
|
|
|
595,617
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
892,359
|
|
|
$
|
859,907
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
37
THE
TIMBERLAND COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
For
the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Revenue
|
|
$
|
1,429,484
|
|
|
$
|
1,285,876
|
|
|
$
|
1,364,550
|
|
Cost of goods sold
|
|
|
732,970
|
|
|
|
682,954
|
|
|
|
743,817
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
696,514
|
|
|
|
602,922
|
|
|
|
620,733
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
427,367
|
|
|
|
407,987
|
|
|
|
437,730
|
|
General and administrative
|
|
|
123,912
|
|
|
|
116,772
|
|
|
|
113,011
|
|
Litigation settlement
|
|
|
|
|
|
|
|
|
|
|
(2,630
|
)
|
Impairment of goodwill
|
|
|
5,395
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
8,556
|
|
|
|
925
|
|
|
|
2,061
|
|
Gain on termination of licensing agreements
|
|
|
(3,000
|
)
|
|
|
|
|
|
|
|
|
Restructuring
|
|
|
|
|
|
|
(236
|
)
|
|
|
925
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
562,230
|
|
|
|
525,448
|
|
|
|
551,097
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
134,284
|
|
|
|
77,474
|
|
|
|
69,636
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
434
|
|
|
|
903
|
|
|
|
2,371
|
|
Interest expense
|
|
|
(538
|
)
|
|
|
(498
|
)
|
|
|
(652
|
)
|
Other, net
|
|
|
7,080
|
|
|
|
3,506
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income/(expense), net
|
|
|
6,976
|
|
|
|
3,911
|
|
|
|
7,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
141,260
|
|
|
|
81,385
|
|
|
|
76,810
|
|
Provision for income taxes
|
|
|
44,638
|
|
|
|
24,741
|
|
|
|
33,904
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,622
|
|
|
$
|
56,644
|
|
|
$
|
42,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.84
|
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
Diluted
|
|
$
|
1.82
|
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
52,498
|
|
|
|
56,034
|
|
|
|
58,442
|
|
Diluted
|
|
|
52,990
|
|
|
|
56,352
|
|
|
|
58,786
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
38
THE
TIMBERLAND COMPANY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For
the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(Loss)
|
|
|
Stock
|
|
|
Income
|
|
|
Equity
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, January 1, 2008
|
|
$
|
734
|
|
|
$
|
117
|
|
|
$
|
251,063
|
|
|
$
|
875,133
|
|
|
$
|
20,106
|
|
|
$
|
(569,993
|
)
|
|
|
|
|
|
$
|
577,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/conversion of shares of common stock
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
2,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,123
|
|
|
|
|
|
Surrender of shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,761
|
)
|
|
|
|
|
|
|
(44,761
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
Tax deficiency from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,083
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,906
|
|
|
|
|
|
|
|
|
|
|
$
|
42,906
|
|
|
|
42,906
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,955
|
)
|
|
|
|
|
|
|
(15,955
|
)
|
|
|
(15,955
|
)
|
|
|
|
|
Change in fair value of cash flow hedges, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,254
|
|
|
|
|
|
|
|
8,254
|
|
|
|
8,254
|
|
|
|
|
|
Other adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
138
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
738
|
|
|
|
115
|
|
|
|
260,267
|
|
|
|
918,039
|
|
|
|
12,543
|
|
|
|
(615,164
|
)
|
|
|
|
|
|
|
576,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/conversion of shares of common stock
|
|
|
8
|
|
|
|
(4
|
)
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,962
|
|
|
|
|
|
Surrender of shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
(1,284
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,980
|
)
|
|
|
|
|
|
|
(44,980
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,295
|
|
|
|
|
|
Tax deficiency from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,063
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,644
|
|
|
|
|
|
|
|
|
|
|
$
|
56,644
|
|
|
|
56,644
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,877
|
|
|
|
|
|
|
|
5,877
|
|
|
|
5,877
|
|
|
|
|
|
Change in fair value of cash flow hedges, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,725
|
)
|
|
|
|
|
|
|
(3,725
|
)
|
|
|
(3,725
|
)
|
|
|
|
|
Other adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
353
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
746
|
|
|
|
111
|
|
|
|
266,457
|
|
|
|
974,683
|
|
|
|
15,048
|
|
|
|
(661,428
|
)
|
|
|
|
|
|
|
595,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/conversion of shares of common stock
|
|
|
10
|
|
|
|
(5
|
)
|
|
|
4,402
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4,407
|
|
|
|
|
|
Surrender of shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(981
|
)
|
|
|
|
|
|
|
(981
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(85,072
|
)
|
|
|
|
|
|
|
(85,072
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,997
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,997
|
|
|
|
|
|
Tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
298
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
96,622
|
|
|
|
|
|
|
|
|
|
|
$
|
96,622
|
|
|
|
96,622
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,630
|
)
|
|
|
|
|
|
|
(5,630
|
)
|
|
|
(5,630
|
)
|
|
|
|
|
Change in fair value of cash flow hedges, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,495
|
)
|
|
|
|
|
|
|
(2,495
|
)
|
|
|
(2,495
|
)
|
|
|
|
|
Other adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(252
|
)
|
|
|
|
|
|
|
(252
|
)
|
|
|
(252
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
88,245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
$
|
756
|
|
|
$
|
106
|
|
|
$
|
280,154
|
|
|
$
|
1,071,305
|
|
|
$
|
6,671
|
|
|
$
|
(747,481
|
)
|
|
|
|
|
|
$
|
611,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
39
THE
TIMBERLAND COMPANY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
For
the Years Ended December 31, 2010, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
96,622
|
|
|
$
|
56,644
|
|
|
$
|
42,906
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
3,407
|
|
|
|
450
|
|
|
|
2,784
|
|
Share-based compensation
|
|
|
9,287
|
|
|
|
5,942
|
|
|
|
8,518
|
|
Depreciation and amortization
|
|
|
25,500
|
|
|
|
28,783
|
|
|
|
32,345
|
|
Provision for losses on accounts receivable
|
|
|
1,242
|
|
|
|
3,224
|
|
|
|
7,575
|
|
Impairment of goodwill
|
|
|
5,395
|
|
|
|
|
|
|
|
|
|
Impairment of intangible assets
|
|
|
8,556
|
|
|
|
925
|
|
|
|
2,061
|
|
Impairment of other long-lived assets
|
|
|
989
|
|
|
|
3,023
|
|
|
|
1,154
|
|
Litigation settlement
|
|
|
|
|
|
|
|
|
|
|
(2,630
|
)
|
Tax expense from share-based compensation, net of excess benefit
|
|
|
(463
|
)
|
|
|
(2,214
|
)
|
|
|
(1,254
|
)
|
Unrealized (gain)/loss on derivatives
|
|
|
422
|
|
|
|
333
|
|
|
|
(131
|
)
|
Other non-cash charges/(credits), net
|
|
|
(1,567
|
)
|
|
|
(1,381
|
)
|
|
|
2,274
|
|
Increase/(decrease) in cash from changes in operating assets and
liabilities, net of the effect of business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(43,559
|
)
|
|
|
18,206
|
|
|
|
3,847
|
|
Inventory
|
|
|
(20,285
|
)
|
|
|
24,178
|
|
|
|
20,789
|
|
Prepaid expenses and other assets
|
|
|
1,539
|
|
|
|
1,479
|
|
|
|
4,963
|
|
Accounts payable
|
|
|
9,013
|
|
|
|
(17,762
|
)
|
|
|
11,533
|
|
Accrued expense
|
|
|
2,590
|
|
|
|
11,846
|
|
|
|
3,809
|
|
Prepaid income taxes
|
|
|
(13,290
|
)
|
|
|
4,894
|
|
|
|
674
|
|
Income taxes payable
|
|
|
2,120
|
|
|
|
(2,093
|
)
|
|
|
7,270
|
|
Other liabilities
|
|
|
332
|
|
|
|
(626
|
)
|
|
|
(767
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
87,850
|
|
|
|
135,851
|
|
|
|
147,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business and purchase price adjustments, net of
cash acquired
|
|
|
|
|
|
|
(1,554
|
)
|
|
|
970
|
|
Additions to property, plant and equipment
|
|
|
(19,917
|
)
|
|
|
(17,677
|
)
|
|
|
(22,316
|
)
|
Other
|
|
|
(707
|
)
|
|
|
(849
|
)
|
|
|
141
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(20,624
|
)
|
|
|
(20,080
|
)
|
|
|
(21,205
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
(85,233
|
)
|
|
|
(43,905
|
)
|
|
|
(46,261
|
)
|
Issuance of common stock
|
|
|
4,406
|
|
|
|
1,962
|
|
|
|
1,875
|
|
Excess tax benefit from share-based compensation
|
|
|
761
|
|
|
|
151
|
|
|
|
183
|
|
Other
|
|
|
(971
|
)
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(81,037
|
)
|
|
|
(43,076
|
)
|
|
|
(44,203
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
|
(3,807
|
)
|
|
|
(45
|
)
|
|
|
(8,397
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and equivalents
|
|
|
(17,618
|
)
|
|
|
72,650
|
|
|
|
73,915
|
|
Cash and equivalents at beginning of year
|
|
|
289,839
|
|
|
|
217,189
|
|
|
|
143,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of year
|
|
$
|
272,221
|
|
|
$
|
289,839
|
|
|
$
|
217,189
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
376
|
|
|
$
|
331
|
|
|
$
|
486
|
|
Income taxes paid
|
|
$
|
52,134
|
|
|
$
|
23,513
|
|
|
$
|
24,863
|
|
Non-cash investing activity (purchase of hardware and software
on account)
|
|
$
|
2,305
|
|
|
$
|
|
|
|
$
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
40
THE
TIMBERLAND COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts
in Thousands, Except Share and Per Share Data)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Basis
of Consolidation
The consolidated financial statements include the accounts of
The Timberland Company and its subsidiaries (we,
our, us, its,
Timberland or the Company). All
intercompany transactions have been eliminated in consolidation.
Fiscal
Calendar
The Companys fiscal quarters end on the Friday closest to
the calendar quarter end, except that the fourth quarter and
fiscal year always end on December 31.
Nature
of Operations
We design, develop and market premium quality footwear, apparel
and accessories products for men, women and children under the
Timberland
®
,
Timberland
PRO
®
,
Timberland Boot
Company
®
,
SmartWool
®
and
howies
®
brands. We sell our products through independent retailers,
better department stores, athletic stores and other national
retailers, through Timberland-owned retail including stores and
Internet sales, and through a mix of independent distributors,
franchisees and licensees worldwide.
We manage our business in three major segments, each sharing
similar product, distribution and marketing: North America,
Europe and Asia. See Note 14 for additional information
regarding our revenues by product and geography.
We sourced approximately 88%, 90% and 89% of our footwear
products from unrelated manufacturing vendors in 2010, 2009 and
2008, respectively. The remainder was produced in our
manufacturing facilities in the Dominican Republic. All of our
apparel and accessories products are sourced from unrelated
manufacturing vendors.
Use of
Estimates
The preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the
United States of America requires us to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results may
differ from these estimates. The significant estimates in the
consolidated financial statements include sales returns and
allowances, allowance for doubtful accounts receivable,
derivatives, incentive compensation accruals, share-based
compensation, contingent liabilities, impairment of long-lived
assets and goodwill and income taxes.
Revenue
Recognition
Our revenue consists of sales to wholesale customers (including
distributors and franchisees), retail store and
e-commerce
revenues, license fees and royalties. We record wholesale and
e-commerce
revenues when title passes and the risks and rewards of
ownership have passed to our customer, based on the terms of
sale. Title passes generally upon shipment to or upon receipt by
our customer, depending on the country of sale and the agreement
with our customer. Retail store revenues are recorded at the
time of the sale. License fees and royalties are recognized as
earned per the terms of our licensing agreements. We also sell
gift cards. Revenue from gift cards, which is not material to
total revenue, is recognized at the time of redemption.
Taxes collected from customers and remitted to governmental
authorities, such as sales, use and value added taxes, are
recorded on a net basis.
In 2010, 2009 and 2008, we recorded $3,091, $2,320 and $2,848 of
reimbursed shipping expenses within revenues and the related
shipping costs within selling expense, respectively. Shipping
costs are included in selling expense and were $21,331, $16,012
and $18,658 for 2010, 2009 and 2008, respectively. Our cost of
41
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
sales may not be comparable with the cost of sales of other
companies as our shipping costs are not included in costs of
sales.
We record reductions to revenue for estimated wholesale and
retail customer returns and allowances in the same period the
related sales are recorded. We base our estimates on historical
rates of customer returns and allowances, as well as the
specific identification of outstanding returns and allowances,
which are known to us but which have not yet been received or
paid. Our total reserves for sales returns and allowances were
$29,307 and $27,139 at December 31, 2010 and 2009,
respectively.
Allowance
for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated
losses resulting from the potential inability of our customers
to make required payments. We estimate potential losses
primarily based on our historical rate of credit losses and our
knowledge of the financial condition of our customers. Our
allowance for doubtful accounts totaled $10,859 and $12,175 at
December 31, 2010 and 2009, respectively.
During 2008, the Company was assigned the lease on two retail
locations from a franchisee. As part of this transaction, the
Company recorded a non-cash exchange of a key money asset
totaling $2,700 in partial settlement of certain overdue
accounts receivable balances from this franchisee.
Advertising
Advertising costs are expensed at the time the advertising is
used, predominantly in the season that the advertising costs are
incurred. As of December 31, 2010 and 2009, we had $1,563
and $958, respectively of prepaid advertising costs recorded on
our consolidated balance sheets. Advertising expense, which is
included in selling expense in our consolidated statements of
income, was $47,146, $40,680 and $43,123 in 2010, 2009 and 2008,
respectively. Advertising expense includes co-op advertising
costs, consumer-facing advertising costs such as print,
television and Internet and digital campaigns, production costs
including agency fees, and catalog costs. In 2010, increased
investment in consumer-facing marketing and branding programs
including Internet and other digital and social media
initiatives, as well as magazine campaigns, was partially offset
by lower levels of television advertising and related media
production costs. The decrease in advertising expense from 2008
to 2009 is primarily due to lower co-op advertising spending as
well as television and magazine advertising. Television
advertising in 2008 included a global campaign which coincided
with the summer Olympics.
Translation
of Foreign Currencies
The majority of our subsidiaries have adopted their local
currencies as their functional currencies. We translate
financial statements denominated in foreign currencies by
translating balance sheet accounts at the end of period exchange
rates and statement of income accounts at the average exchange
rates for the period. Cumulative translation gains and losses
are recorded in accumulated other comprehensive income in
stockholders equity and changes in cumulative translation
gains and losses are reflected in comprehensive income. Realized
gains and losses on transactions are reflected in earnings.
Other, net, included $7,135, $100 and $6,574 of foreign exchange
gains for 2010, 2009 and 2008, respectively, reflecting net
currency gains and losses associated with foreign currency
denominated receivables and payables.
Cash
and Equivalents
Cash and equivalents consist of short-term, highly liquid
investments that have original maturities to the Company of
three months or less.
Inventory
Inventory is stated at the lower of cost
(first-in,
first-out) or market. Cost includes materials, labor, and
manufacturing overhead related to the purchase and production of
inventories. Market value is estimated based upon assumptions
made about future demand and retail market conditions. If we
determine that the actual
42
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
market value differs from the carrying value of our inventory,
we make an adjustment to reduce the value of our inventory to
its net realizable value.
Derivatives
We are exposed to foreign currency exchange risk when we
purchase and sell goods in foreign currencies. It is our policy
and business practice to manage a portion of this risk through
forward purchases and sales of foreign currencies, thereby
locking in the future exchange rates. These derivative
instruments are viewed as risk management tools and are not used
for trading or speculative purposes. We use our operating budget
and forecasts to estimate our economic exposure and to determine
our hedging strategy.
Derivatives settling within the next twelve months are
recognized at fair value and included in either current
derivative assets or current derivative liabilities on our
consolidated balance sheets. Changes in fair value of
derivatives not designated or effective as hedges are recorded
in other, net.
The Company has a program that qualifies for hedge accounting
treatment to aid in mitigating the Companys foreign
currency exposures and to decrease the volatility in earnings.
Under this hedging program, the Company performs a quarterly
assessment of the effectiveness of the hedge relationship and
measures and recognizes any hedge ineffectiveness in earnings. A
hedge is effective if the changes in the fair value of the
derivative provide offset of at least 80 percent and not
more than 125 percent of the changes in fair value or cash
flows of the hedged item attributable to the risk being hedged.
The Companys hedging strategy uses forward contracts as
cash flow hedging instruments which are recorded in the
consolidated balance sheets 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 and reclassified to earnings, in cost of
goods sold, in the period that the transaction that is subject
to the related hedge contract is recognized in earnings. Cash
flows associated with these contracts are classified as
operating cash flows in the consolidated statements of cash
flows. Hedge ineffectiveness is evaluated using the hypothetical
derivative method and the ineffective portion of the hedge is
reported in other, net in our consolidated statements of income.
Property,
Plant and Equipment
We record property, plant and equipment at cost. We provide for
depreciation using the straight-line method over the estimated
useful lives of the assets or over the terms of the related
leases, if such periods are shorter. The principal estimated
useful lives are 3 to 20 years for building and
improvements, 3 to 12 years for machinery and equipment and
3 years for lasts, patterns and dies.
Goodwill
and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are evaluated
for impairment at least annually (at the end of our second
fiscal quarter), or when events occur or circumstances change
that would more likely than not reduce the fair value of the
reporting unit or asset below its carrying amount using
forecasts of discounted future cash flows. Events or
circumstances that might require an interim evaluation include
unexpected adverse business conditions, material changes in
market capitalization, economic factors, technological changes
and loss of key personnel. Should the fair value of the
Companys goodwill or indefinite-lived intangible assets
decline because of a decline in operating performance, market
declines, or other indicators of impairment, or as a result of
changes in the discount rate, charges for impairment may be
necessary.
Long-lived
Assets
We periodically evaluate the carrying values and estimated
useful lives of our long-lived assets, primarily property, plant
and equipment and finite-lived intangible assets. When factors
indicate that such assets should be evaluated for possible
impairment, we use estimates of undiscounted future cash flows
to determine whether the assets are recoverable. If the
undiscounted cash flows are insufficient to recover the carrying
value, an impairment loss is recognized.
43
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Contingencies
In the ordinary course of business, we are involved in legal
matters involving contractual and employment relationships,
product liability claims, trademark rights and a variety of
other matters. We record contingent liabilities resulting from
such matters when it is probable that a liability has been
incurred and the amount of the loss is reasonably estimable (see
Note 16).
Income
Taxes
Deferred income taxes are recognized based on temporary
differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets and liabilities are
measured using the statutory tax rates and laws expected to
apply to taxable income in the years in which the temporary
differences are expected to reverse. Valuation allowances are
provided against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income and the timing of the
temporary differences becoming deductible. Management considers,
among other available information, scheduled reversals of
deferred tax liabilities, projected future taxable income,
limitations of availability of net operating loss
carry-forwards, and other matters in making this assessment.
The Company recognizes the impact of a tax position in its
financial statements if that position is more likely than not to
be sustained upon examination by the appropriate taxing
authority, based on its technical merits.
We recognize interest expense on the amount of underpaid taxes
associated with our tax positions beginning in the first period
in which interest starts accruing under the tax law, and
continuing until the tax positions are settled. We classify
interest associated with underpayments of taxes within the
income tax provision in our statement of income and in income
taxes payable and other long-term liabilities on our
consolidated balance sheet.
If a tax position taken does not meet the minimum statutory
threshold to avoid the payment of a penalty, an accrual for the
amount of the penalty that may be imposed under the tax law is
recorded. Penalties are classified within the income tax
provision in our statement of income and in other long-term
liabilities on our consolidated balance sheet.
Earnings
Per Share (EPS)
Basic earnings per share 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 earnings per share reflects the potential dilution that
would occur if potentially dilutive securities such as stock
options were exercised and nonvested shares vested, to the
extent such securities would not be anti-dilutive.
44
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following is a reconciliation of the number of shares (in
thousands) included in the basic and diluted EPS computations
for the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS
|
|
$
|
96,622
|
|
|
|
52,498
|
|
|
$
|
1.84
|
|
|
$
|
56,644
|
|
|
|
56,034
|
|
|
$
|
1.01
|
|
|
$
|
42,906
|
|
|
|
58,442
|
|
|
$
|
0.73
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan shares
|
|
|
|
|
|
|
358
|
|
|
|
(.02
|
)
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
Nonvested shares
|
|
|
|
|
|
|
134
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
492
|
|
|
|
(.02
|
)
|
|
|
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
96,622
|
|
|
|
52,990
|
|
|
$
|
1.82
|
|
|
$
|
56,644
|
|
|
|
56,352
|
|
|
$
|
1.01
|
|
|
$
|
42,906
|
|
|
|
58,786
|
|
|
$
|
0.73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following stock options and nonvested shares (in thousands)
were outstanding as of December 31, 2010, 2009 and 2008,
but were not included in the computation of diluted EPS as their
inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Anti-dilutive securities
|
|
|
2,514
|
|
|
|
3,967
|
|
|
|
4,405
|
|
Share-based
Compensation
The Company measures the grant date fair value of equity awards
given to employees in exchange for services and recognizes that
cost over the period that such services are performed. The
Company recognizes the cost of share-based awards on a
straight-line basis over the awards requisite service
period, with the exception of certain stock options for
officers, directors and key employees granted prior to, but not
yet vested as of, January 1, 2006, and awards granted under
certain long-term incentive plans, for which expense continues
to be recognized on a graded schedule over the vesting period of
the award. The Company estimates the fair value of its stock
option awards and employee stock purchase plan rights on the
date of grant using the Black-Scholes option valuation model.
See Note 13 for additional information.
Comprehensive
Income
Comprehensive income is the combination of reported net income
and other comprehensive income/(loss), which is comprised
primarily of foreign currency translation adjustments and
changes in the fair value of cash flow hedges.
The components of accumulated other comprehensive income/(loss)
as of December 31, 2010 and 2009 were:
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
Cumulative translation adjustment
|
|
$
|
8,023
|
|
|
$
|
13,653
|
|
Fair value of cash flow hedges, net of taxes of $(84) at
December 31, 2010 and $47 at December 31, 2009
|
|
|
(1,591
|
)
|
|
|
904
|
|
Other adjustment, net of taxes of $96 at December 31, 2010
and $147 at December 31, 2009
|
|
|
239
|
|
|
|
491
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
6,671
|
|
|
$
|
15,048
|
|
|
|
|
|
|
|
|
|
|
45
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
New
Accounting Pronouncements
In December 2010, the Financial Accounting Standards Board
(FASB) issued Accounting Standards Update
(ASU)
No. 2010-28,
When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units With Zero or Negative Carrying Amounts. This
accounting standard update requires entities with a zero or
negative carrying value to assess, considering adverse
qualitative factors, whether it is more likely than not that a
goodwill impairment exists. If an entity concludes that it is
more likely than not that a goodwill impairment exists, the
entity must perform step 2 of the goodwill impairment test. ASU
No. 2010-28
is effective for impairment tests performed by the Company
during 2011, and its adoption is not expected to have a material
impact on the Companys results of operations or financial
position.
In January 2010, the FASB issued ASU
No. 2010-06,
Improving Disclosures About Fair Value Measurements. This
accounting standard update requires additional fair value
measurement disclosures for transfers into and out of
Levels 1 and 2 and separate disclosures for purchases,
sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosure
requirements regarding the level of disaggregation and inputs
and valuation techniques used to measure fair value. ASU
No. 2010-06
was effective for the Company beginning January 1, 2010 and
its adoption did not have a material impact on the
Companys existing disclosures.
Inventory consists of the following:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
Materials
|
|
$
|
11,299
|
|
|
$
|
7,944
|
|
Work-in-process
|
|
|
841
|
|
|
|
740
|
|
Finished goods
|
|
|
167,928
|
|
|
|
149,857
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
180,068
|
|
|
$
|
158,541
|
|
|
|
|
|
|
|
|
|
|
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. As a matter of
policy, we enter into these derivative 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. 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 2012.
Cash
Flow Hedges
The Company principally uses foreign currency forward contracts
as cash flow hedges to offset the effects of exchange rate
fluctuations on certain of its forecasted foreign currency
denominated sales transactions. The
46
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Companys cash flow exposures include anticipated foreign
currency transactions, such as foreign currency denominated
sales, costs, expenses, intercompany 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 program that qualifies for hedge accounting
treatment to aid in mitigating its foreign currency exposures
and to decrease earnings volatility. Under this hedging program,
the Company performs a quarterly assessment of the effectiveness
of the hedge relationship and measures and recognizes any hedge
ineffectiveness in earnings. A hedge is considered effective if
the changes in the fair value of the derivative provide offset
of at least 80 percent and not more than 125 percent
of the changes in the fair value or cash flows of the hedged
item attributable to the risk being hedged. The Company uses
regression analysis to assess the effectiveness of a hedge
relationship.
The Companys hedging strategy uses forward contracts as
cash flow hedging instruments, which are recorded in our
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
transaction that is subject to the related hedge contract is
recognized in earnings. Cash flows associated with these
contracts are classified as operating cash flows in the
consolidated statements of cash flows. Hedge ineffectiveness is
evaluated using the hypothetical derivative method and the
ineffective portion of the hedge is reported in our consolidated
statement of income in other, net. The amount of hedge
ineffectiveness for the years ended December 31, 2010, 2009
and 2008 was not material.
The notional value, latest maturity date, and fair value of
foreign currency forward sell contracts entered into as cash
flow hedges as of December 31, 2010 and December 31,
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
Fair
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
Fair
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Value
|
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Value
|
|
|
Pounds Sterling
|
|
$
|
20,410
|
|
|
|
2011
|
|
|
$
|
(59
|
)
|
|
Pounds Sterling
|
|
$
|
18,216
|
|
|
|
2010
|
|
|
$
|
55
|
|
Pounds Sterling
|
|
|
3,126
|
|
|
|
2012
|
|
|
|
19
|
|
|
Pounds Sterling
|
|
|
2,441
|
|
|
|
2011
|
|
|
|
22
|
|
Euro
|
|
|
85,122
|
|
|
|
2011
|
|
|
|
(646
|
)
|
|
Euro
|
|
|
62,168
|
|
|
|
2010
|
|
|
|
648
|
|
Euro
|
|
|
3,292
|
|
|
|
2012
|
|
|
|
(45
|
)
|
|
Euro
|
|
|
2,230
|
|
|
|
2011
|
|
|
|
86
|
|
Japanese Yen
|
|
|
19,185
|
|
|
|
2011
|
|
|
|
(886
|
)
|
|
Japanese Yen
|
|
|
12,766
|
|
|
|
2010
|
|
|
|
58
|
|
Japanese Yen
|
|
|
3,632
|
|
|
|
2012
|
|
|
|
(84
|
)
|
|
Japanese Yen
|
|
|
3,317
|
|
|
|
2011
|
|
|
|
73
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
134,767
|
|
|
|
|
|
|
$
|
(1,701
|
)
|
|
December 31, 2009
|
|
$
|
101,138
|
|
|
|
|
|
|
$
|
942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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. Cash flows
associated with these contracts are classified as operating cash
flows in the consolidated statements of cash flows.
The notional value, latest maturity date, and fair value of
foreign currency forward (buy) and sell contracts entered into
to mitigate the foreign currency risk associated with certain
balance sheet items is as
47
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
follows (the contract amount represents the net amount of all
purchase and sale contracts of a foreign currency):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Fair Value
|
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Fair Value
|
|
|
Pounds Sterling
|
|
$
|
9,312
|
|
|
|
2011
|
|
|
$
|
(41
|
)
|
|
Pounds Sterling
|
|
$
|
(12,922
|
)
|
|
|
2010
|
|
|
$
|
1
|
|
Euro
|
|
|
8,913
|
|
|
|
2011
|
|
|
|
(9
|
)
|
|
Euro
|
|
|
14,122
|
|
|
|
2010
|
|
|
|
94
|
|
Japanese Yen
|
|
|
28,680
|
|
|
|
2011
|
|
|
|
(35
|
)
|
|
Japanese Yen
|
|
|
8,013
|
|
|
|
2010
|
|
|
|
59
|
|
Canadian Dollar
|
|
|
6,013
|
|
|
|
2011
|
|
|
|
11
|
|
|
Canadian Dollar
|
|
|
8,204
|
|
|
|
2010
|
|
|
|
23
|
|
Norwegian Kroner
|
|
|
2,219
|
|
|
|
2011
|
|
|
|
(2
|
)
|
|
Norwegian Kroner
|
|
|
2,335
|
|
|
|
2010
|
|
|
|
16
|
|
Swedish Krona
|
|
|
2,601
|
|
|
|
2011
|
|
|
|
6
|
|
|
Swedish Krona
|
|
|
1,969
|
|
|
|
2010
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
57,738
|
|
|
|
|
|
|
$
|
(70
|
)
|
|
December 31, 2009
|
|
$
|
21,721
|
|
|
|
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Buy Contracts
|
|
$
|
(14,061
|
)
|
|
|
|
|
|
$
|
(27
|
)
|
|
Buy Contracts
|
|
$
|
(22,572
|
)
|
|
|
|
|
|
$
|
(60
|
)
|
Sell Contracts
|
|
|
71,799
|
|
|
|
|
|
|
|
(43
|
)
|
|
Sell Contracts
|
|
|
44,293
|
|
|
|
|
|
|
|
265
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Contracts
|
|
$
|
57,738
|
|
|
|
|
|
|
$
|
(70
|
)
|
|
Total Contracts
|
|
$
|
21,721
|
|
|
|
|
|
|
$
|
205
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value of Derivative Instruments
The following table summarizes the fair values and presentation
in the consolidated balance sheets for derivatives, which
consist of foreign exchange forward contracts, as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
Balance Sheet Location
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
|
|
|
$
|
1,313
|
|
|
$
|
|
|
|
$
|
224
|
|
Derivative liabilities
|
|
|
1,693
|
|
|
|
6
|
|
|
|
3,284
|
|
|
|
335
|
|
Other assets, net
|
|
|
6
|
|
|
|
184
|
|
|
|
5
|
|
|
|
|
|
Other long-term liabilities
|
|
|
67
|
|
|
|
|
|
|
|
178
|
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,766
|
|
|
$
|
1,503
|
|
|
$
|
3,467
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
29
|
|
|
$
|
265
|
|
|
$
|
|
|
|
$
|
|
|
Derivative liabilities
|
|
|
6
|
|
|
|
|
|
|
|
105
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35
|
|
|
$
|
265
|
|
|
$
|
105
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
$
|
1,801
|
|
|
$
|
1,768
|
|
|
$
|
3,572
|
|
|
$
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of our derivative contracts are covered under a master
netting arrangement (see Note 5).
48
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The
Effect of Derivative Instruments on the Statements of Income for
the Years Ended December 31, 2010, 2009 and
2008
The following table summarizes the impact on OCI as of
December 31, 2010 and 2009 and the statement of income for
the years ended December 31, 2010, 2009 and 2008 for
derivatives, which consist of foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives in Cash Flow
|
|
|
|
|
|
|
|
|
|
Hedging Relationships
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Gain/(loss) recognized in OCI, net of taxes (effective portion)
|
|
$
|
(1,591
|
)
|
|
$
|
904
|
|
|
$
|
4,629
|
|
Gain/(loss) reclassified from OCI into cost of goods sold
(effective portion)
|
|
$
|
4,609
|
|
|
$
|
1,398
|
|
|
$
|
(3,390
|
)
|
The Company expects to reclassify pre-tax losses of $1,701 to
the statement of income in cost of goods sold within the next
twelve months.
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not Designated
|
|
|
|
|
|
|
|
|
|
as Hedging Instruments
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Gain/(loss) recognized in other, net
|
|
$
|
(1,669
|
)
|
|
$
|
1,371
|
|
|
$
|
(727
|
)
|
During the year ended December 31, 2009, the Company
de-designated certain cash flow hedges that related to its
Japanese Yen exposure. Included in other, net above is a net
loss of approximately $14 related to these contracts.
|
|
4.
|
Concentration
of Credit Risk
|
Financial instruments, which potentially subject us to
concentrations of credit risk, consist principally of temporary
cash investments, trade receivables and derivative instruments.
We place our temporary cash investments and derivative
instruments with a variety of high credit quality financial
institutions, thereby minimizing exposure to concentration of
credit risk. As a matter of policy, we enter into derivative
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. Credit risk with respect to trade receivables is
limited due to the large number of customers included in our
customer base.
|
|
5.
|
Fair
Value of Financial Instruments
|
Accounting Standards Codification Topic 820, Fair Value
Measurements and Disclosures, 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 Company recognizes and reports
significant transfers between Level 1 and Level 2, and
into and out of Level 3, as of the actual date of the event
or change in circumstances that caused the transfer. For the
years ended December 31, 2010 and 2009, the Company did not
have any financial assets or liabilities or nonfinancial assets
or liabilities recognized or disclosed at fair value on a
recurring basis for which significant unobservable inputs
(Level 3) were used to measure fair value.
49
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Financial
Assets and Liabilities
The following tables present information about our assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2010 and 2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
|
2010
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
|
|
|
$
|
95,000
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
95,000
|
|
Mutual funds
|
|
$
|
|
|
|
$
|
13,202
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
13,202
|
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
|
|
|
$
|
1,801
|
|
|
$
|
|
|
|
$
|
(1,771
|
)
|
|
$
|
30
|
|
Cash surrender value of life insurance
|
|
$
|
|
|
|
$
|
7,564
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
7,564
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
3,572
|
|
|
$
|
|
|
|
$
|
(1,771
|
)
|
|
$
|
1,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
|
2009
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Time deposits
|
|
$
|
|
|
|
$
|
70,041
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
70,041
|
|
Mutual funds
|
|
$
|
|
|
|
$
|
95,871
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
95,871
|
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative assets
|
|
$
|
|
|
|
$
|
1,768
|
|
|
$
|
|
|
|
$
|
(230
|
)
|
|
$
|
1,538
|
|
Cash surrender value of life insurance
|
|
$
|
|
|
|
$
|
8,036
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,036
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
|
|
|
$
|
621
|
|
|
$
|
|
|
|
$
|
(230
|
)
|
|
$
|
391
|
|
Cash equivalents, included in cash and equivalents on our
consolidated balance sheet, include money market mutual funds
and time deposits placed with a variety of high credit quality
financial institutions. Time deposits are valued based on
current interest rates and mutual funds are valued at the net
asset value of the fund. The carrying values of accounts
receivable and accounts payable approximate their fair values
due to their short-term maturities.
The fair value of the derivative contracts in the tables 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. As
of December 31, 2010 and 2009, the derivative contracts
above include $1 and $184, respectively, of assets included in
other assets, net on our consolidated balance sheet and $111 and
$2, respectively, of liabilities included in other long-term
liabilities on our 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 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.
50
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Nonfinancial
Assets
Goodwill and indefinite-lived intangible assets are tested for
impairment annually at the end of our second quarter and when
events occur or circumstances change that would, more likely
than not, reduce the fair value of a business unit or an
intangible asset with an indefinite-life below its carrying
value. Events or changes in circumstances that may trigger
interim impairment reviews include significant changes in
business climate, operating results, planned investment in the
business unit or an expectation that the carrying amount may not
be recoverable, among other factors.
During the quarter ended July 2, 2010, management concluded
that the carrying value of goodwill exceeded the estimated fair
value for its IPath, North America Retail and Europe Retail
reporting units and, accordingly, recorded an impairment charge
of $5,395. Management also concluded that the carrying value of
the IPath and howies trademarks and other intangible assets
exceeded the estimated fair value and, accordingly, recorded an
impairment charge of $7,854. The Companys North America
Wholesale and Europe Wholesale business units have fair values
substantially in excess of their carrying value (see
Note 8).
Impairment charges included in the 2010 consolidated statement
of income, by segment, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
|
Sub-
|
|
|
Europe
|
|
|
Sub-
|
|
|
Total
|
|
|
|
IPath
|
|
|
Retail
|
|
|
Total
|
|
|
IPath
|
|
|
Howies
|
|
|
Retail
|
|
|
Total
|
|
|
Company
|
|
|
Goodwill
|
|
$
|
4,118
|
|
|
$
|
794
|
|
|
$
|
4,912
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
483
|
|
|
$
|
483
|
|
|
$
|
5,395
|
|
Trademarks
|
|
|
2,407
|
|
|
|
|
|
|
|
2,407
|
|
|
|
1,426
|
|
|
|
3,181
|
|
|
|
|
|
|
|
4,607
|
|
|
|
7,014
|
|
Other intangibles
|
|
|
1,298
|
|
|
|
|
|
|
|
1,298
|
|
|
|
|
|
|
|
244
|
|
|
|
|
|
|
|
244
|
|
|
|
1,542
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,823
|
|
|
$
|
794
|
|
|
$
|
8,617
|
|
|
$
|
1,426
|
|
|
$
|
3,425
|
|
|
$
|
483
|
|
|
$
|
5,334
|
|
|
$
|
13,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
These non-recurring fair value measurements were developed using
significant unobservable inputs (Level 3). For goodwill,
the primary valuation technique used was the discounted cash
flow analysis based on managements estimates of forecasted
cash flows for each business unit, with those cash flows
discounted to present value using rates proportionate with the
risks of those cash flows. In addition, management used a
market-based valuation method involving analysis of market
multiples of revenues and earnings before interest, taxes,
depreciation and amortization for a group of similar publicly
traded companies and, if applicable, recent transactions
involving comparable companies. The Company believes the blended
use of these models balances the inherent risk associated with
either model if used on a stand-alone basis, and this
combination is indicative of the factors a market participant
would consider when performing a similar valuation. For
trademark intangible assets, management used the
relief-from-royalty method, in which fair value is the
discounted value of forecasted royalty revenue using a royalty
rate that an independent third party would pay for use of that
trademark. Further information regarding the fair value
measurements is provided below.
IPath
The IPath business unit has not met the revenue and earnings
growth forecasted at its acquisition in April 2007. Accordingly,
during the second quarter of 2010, management reassessed the
financial expectations of this business as part of its long
range planning process. The revenue and earnings growth
assumptions were developed based on near term trends, potential
opportunities and planned investment in the
IPath
®
brand. Managements business plans and projections were
used to develop the expected cash flows for the next five years
and a 4% residual revenue growth rate applied thereafter. The
analysis reflects a market royalty rate of 1.5% and a weighted
average discount rate of 22%, derived primarily from published
sources and adjusted for increased market risk. We recorded
charges of $8,547 in the second quarter of 2010, which reduced
the carrying value of finite-lived trademark intangible assets
to $720 and the carrying value of IPaths goodwill to zero.
In the fourth quarter of 2010, the Company recorded an
additional charge of $702 which reduced the remaining carrying
value of the IPath intangible assets to zero.
51
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
howies
howies has not met the revenue and earnings growth forecasted at
its acquisition in December 2006. Accordingly, during the second
quarter of 2010, management reassessed the financial
expectations of this business as part of its long range planning
process. The revenue and earnings growth assumptions were
developed based on near term trends, potential opportunities and
planned investment in the
howies
®
brand. Managements business plans and projections were
used to develop the expected cash flows for the next five years
and a 4% residual revenue growth rate applied thereafter. The
analysis reflects a market royalty rate of 2% and a weighted
average discount rate of 24%, derived primarily from published
sources and adjusted for increased market risk. After the
charges in the table above, there was $1,200 of indefinite-lived
trademark intangible assets remaining.
North
America and Europe Retail
The Companys retail businesses in North America and Europe
have been negatively impacted by continued weakness in the
macroeconomic environment, low consumer spending and a longer
than expected economic recovery. The fair value of these
businesses using the discounted cash flow analysis were based on
managements business plans and projections for the next
five years and a 4% residual growth thereafter. The analysis
reflects a weighted average discount rate in the range of 19%,
derived primarily from published sources and adjusted for
increased market risk. After the charges in the table above, the
carrying value of the goodwill was zero.
Other
Long-lived Assets
During 2010 and 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 $550 and $800 in the years ended December 31,
2010 and 2009, respectively, which reduced the carrying value of
the molds to zero. The charge is reflected in cost of goods sold
in our consolidated statement of income and in Unallocated
Corporate in our segment reporting.
During 2010 and 2009, we also evaluated the carrying value of
certain long-lived fixed assets, primarily related to certain of
our retail locations, including leasehold improvements and, in
2009, certain software associated with our
e-commerce
platform. With respect to store-level assets, the Companys
evaluation of potential impairment includes Level 3 input
factors such as estimates of future cash flows based on past and
expected future performance, intended future use of the assets
and knowledge of the market in which the store is located. Based
on this evaluation we determined that the carrying value of
these assets was impaired and we recorded a pre-tax non-cash
charge of approximately $500 in 2010, which is reflected in
selling expense in our consolidated statement of income.
Approximately $230 of the charge is in our North America
segment, $265 is in our Europe segment, and $5 is in our Asia
segment. In 2009, we recorded a pre-tax non-cash charge of
approximately $2,125, of which $1,800 is reflected in selling
expense in our consolidated statement of income, and $325 is
reflected in general and administrative expense. Approximately
$1,800 of the charge is in our North America segment, $165 is in
our Europe segment, and $160 is in our Asia segment. The charges
reduced the carrying value of these assets to zero.
During 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 Level 3
input 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. See Note 8 for additional information.
52
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
6.
|
Property,
Plant and Equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
Land and improvements
|
|
$
|
501
|
|
|
$
|
501
|
|
Building and improvements
|
|
|
47,171
|
|
|
|
47,800
|
|
Machinery and equipment
|
|
|
165,798
|
|
|
|
162,515
|
|
Lasts, patterns and dies
|
|
|
32,935
|
|
|
|
30,090
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
246,405
|
|
|
|
240,906
|
|
Less: accumulated depreciation
|
|
|
(178,362
|
)
|
|
|
(171,086
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
68,043
|
|
|
$
|
69,820
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $22,280, $24,654 and $28,005 for the
years ended December 31, 2010, 2009 and 2008, respectively.
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 9
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 the financial
position and results of operations of Glaudio 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.
|
|
8.
|
Goodwill
and Other Intangible Assets
|
The Company tests goodwill for impairment annually at the end of
its second quarter and when events occur or circumstances change
that would, more likely than not, reduce the fair value of a
business unit below its carrying value. During the quarter ended
July 2, 2010, management concluded that the carrying value
of goodwill exceeded the estimated fair value for its IPath,
North America Retail and Europe Retail reporting units and,
accordingly, recorded an impairment charge of $5,395 which
reduced the carrying value of the goodwill to zero. See
Note 5 for additional information.
A summary of goodwill activity follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Gross
|
|
|
Impairment
|
|
|
Net Book Value
|
|
|
Gross
|
|
|
Impairment
|
|
|
Net Book Value
|
|
|
Balance at beginning of year
|
|
$
|
44,353
|
|
|
$
|
|
|
|
$
|
44,353
|
|
|
$
|
43,870
|
|
|
$
|
|
|
|
$
|
43,870
|
|
Additions from acquisitions (Note 7)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
483
|
|
|
|
|
|
|
|
483
|
|
Impairment charges (Note 5)
|
|
|
|
|
|
|
(5,395
|
)
|
|
|
(5,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
44,353
|
|
|
$
|
(5,395
|
)
|
|
$
|
38,958
|
|
|
$
|
44,353
|
|
|
$
|
|
|
|
$
|
44,353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived intangible assets are also tested for
impairment annually at the end of our second quarter and when
events occur or circumstances change that would, more likely
than not, reduce the fair value of an intangible asset with an
indefinite-life below its carrying value. The IPath business
unit and howies have not met the revenue and earnings growth
forecasted at their acquisitions. Accordingly, during the second
quarter of 2010, management reassessed the financial
expectations of these businesses as part of its long range
planning process. As a result of this assessment and testing
process, management concluded that the carrying value of
53
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the IPath and howies trademarks and other intangible assets
exceeded the estimated fair value and, accordingly, recorded an
impairment charge of $7,854. In the fourth quarter of 2010, the
Company recorded an additional charge of $702, which reduced the
remaining carrying value of IPath intangible assets to zero. See
Note 5 for additional information.
On an on-going basis, the Company evaluated the carrying value
of the
GoLite
®
trademark, which was licensed to a third party, for events or
changes in circumstances indicating that the carrying value of
the asset may not be recoverable. Factors considered included
the ability of the licensee to obtain necessary financing, the
impact of changes in economic conditions and an assessment of
the Companys ability to recover all contractual payments
when due under the licensing arrangement. During 2008, we
evaluated the useful life and carrying value of the
GoLite
®
indefinite-lived trademark in response to our decision to
license the trademark to a third party. We concluded that the
trademark no longer met the definition of an indefinite-lived
intangible asset and began amortizing the trademark over a
10-year
period, or the initial license term. We evaluated its carrying
value using forecasts of undiscounted future cash flows and,
during 2008, recorded $2,061 of impairment charges related to
this intangible asset, which reduced its carrying value to
approximately $1,000 at December 31, 2008. During 2009,
using the factors noted above, the Company determined that the
carrying value of the
GoLite
®
trademark was further impaired and recorded a charge of
approximately $925, which reduced the carrying value of the
trademark to zero. The charges are reflected in our Europe
segment.
Intangible assets consist of trademarks and other intangible
assets. Other intangible assets consist of customer, patent and
non-competition related intangible assets.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
Trademarks (indefinite-lived)
|
|
$
|
32,402
|
|
|
$
|
|
|
|
$
|
32,402
|
|
|
$
|
35,841
|
|
|
$
|
|
|
|
$
|
35,841
|
|
Trademarks (finite-lived)
|
|
|
4,064
|
|
|
|
(2,462
|
)
|
|
|
1,602
|
|
|
|
10,239
|
|
|
|
(4,149
|
)
|
|
|
6,090
|
|
Other intangible assets (finite-lived)
|
|
|
5,995
|
|
|
|
(5,160
|
)
|
|
|
835
|
|
|
|
10,723
|
|
|
|
(7,122
|
)
|
|
|
3,601
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,461
|
|
|
$
|
(7,622
|
)
|
|
$
|
34,839
|
|
|
$
|
56,803
|
|
|
$
|
(11,271
|
)
|
|
$
|
45,532
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We amortize intangible assets with finite useful lives assuming
no expected residual value.
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
Weighted average amortization period for trademarks subject to
amortization (years)
|
|
|
5.0
|
|
|
|
11.7
|
|
Weighted average amortization period for other intangible assets
(years)
|
|
|
5.7
|
|
|
|
5.7
|
|
Weighted average amortization period for all intangible assets
subject to amortization (years)
|
|
|
5.4
|
|
|
|
8.6
|
|
Amortization expense related to all intangible assets was
$2,223, $2,883 and $3,366 in 2010, 2009 and 2008, respectively.
We estimate future amortization expense from intangible assets
held as of December 31, 2010 to be $1,363, $538, $330, $162
and $44 in 2011, 2012, 2013, 2014 and 2015, respectively.
|
|
9.
|
Deferred
Compensation Plan
|
We have established an irrevocable grantors trust to hold
assets to fund benefit obligations under the Companys
Deferred Compensation Plan (the Plan). Our
obligations under the Plan consist of our unsecured contractual
commitment to deliver, at a future date, any of the following:
(i) deferred compensation credited to an account under the
Plan, (ii) additional amounts, if any, that we may, from
time to time, credit to the Plan, and (iii) notional
earnings on the foregoing amounts based upon investment
elections made by the participants. The obligations are payable
in cash upon retirement, termination of employment
and/or
at
certain other times
54
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
in a lump-sum distribution or in installments, as elected by the
participant in accordance with the Plan. The Plan assets, which
reside in other assets, net on our consolidated balance sheets,
were $7,564 and $8,036 as of December 31, 2010 and 2009,
respectively. The securities that comprise the Plan assets are
Company-owned life insurance policies. These assets are subject
to the claims of the general creditors of the Company in the
event of insolvency. Our deferred compensation liability, which
is included in other long-term liabilities on our consolidated
balance sheet, was $7,140 and $6,617 as of December 31,
2010 and 2009, respectively.
We have an unsecured committed revolving credit agreement with a
group of banks which matures on June 2, 2011 (the
Credit Agreement). The Credit Agreement provides for
$200,000 of committed borrowings, of which up to $125,000 may be
used for letters of credit. Any letters of credit outstanding
under the Credit Agreement ($1,595, at December 31,
2010) reduce the amount available for borrowing under the
Credit Agreement. Upon approval of the bank group, we may
increase the committed borrowing limit by $100,000 for a total
commitment of $300,000. Under the terms of the Credit Agreement,
we may borrow at interest rates based on Eurodollar rates
(approximately 0.3% as of December 31, 2010), plus an
applicable margin of between 13.5 and 47.5 basis points,
based on a fixed charge coverage grid that is adjusted
quarterly. As of December 31, 2010, the applicable margin
under the facility was 47.5 basis points. We will pay a
utilization fee of an additional 5 basis points if our
outstanding borrowings under the facility exceed $100,000. 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 December 31, 2010,
the commitment fee was 15 basis points. The Credit
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 Credit Agreement on a fiscal quarter basis.
We had uncommitted lines of credit available from certain banks
totaling $30,000 as of December 31, 2010. Any borrowings
under these lines would be at prevailing money market rates.
Further, we had an uncommitted letter of credit facility of
$80,000 to support inventory purchases. These arrangements may
be terminated at any time at the option of the banks or at our
option.
As of December 31, 2010 and 2009, we had no borrowings
outstanding under any of our credit facilities. We did not
utilize our borrowing capability under the facilities at any
point during 2010 and 2009.
The components of income before taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Domestic
|
|
$
|
66,271
|
|
|
$
|
51,432
|
|
|
$
|
51,779
|
|
International
|
|
|
74,989
|
|
|
|
29,953
|
|
|
|
25,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
141,260
|
|
|
$
|
81,385
|
|
|
$
|
76,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
December 31,
|
|
Current
|
|
|
Deferred
|
|
|
Current
|
|
|
Deferred
|
|
|
Current
|
|
|
Deferred
|
|
|
Federal
|
|
$
|
28,543
|
|
|
$
|
(326
|
)
|
|
$
|
13,417
|
|
|
$
|
1,834
|
|
|
$
|
21,434
|
|
|
$
|
3,983
|
|
State
|
|
|
6,244
|
|
|
|
(165
|
)
|
|
|
3,494
|
|
|
|
557
|
|
|
|
3,648
|
|
|
|
774
|
|
Foreign
|
|
|
8,077
|
|
|
|
2,265
|
|
|
|
7,252
|
|
|
|
(1,813
|
)
|
|
|
6,115
|
|
|
|
(2,050
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
42,864
|
|
|
$
|
1,774
|
|
|
$
|
24,163
|
|
|
$
|
578
|
|
|
$
|
31,197
|
|
|
$
|
2,707
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The provision for income taxes differs from the amount computed
using the statutory federal income tax rate of 35.0% due to the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Federal income tax at statutory rate
|
|
$
|
49,441
|
|
|
|
35.0
|
%
|
|
$
|
28,485
|
|
|
|
35.0
|
%
|
|
$
|
26,884
|
|
|
|
35.0
|
%
|
State taxes, net of applicable federal benefit
|
|
|
3,951
|
|
|
|
2.8
|
|
|
|
2,633
|
|
|
|
3.2
|
|
|
|
2,874
|
|
|
|
3.7
|
|
Foreign
|
|
|
(11,611
|
)
|
|
|
(8.2
|
)
|
|
|
(5,556
|
)
|
|
|
(6.8
|
)
|
|
|
(3,932
|
)
|
|
|
(5.1
|
)
|
Tax examination settlements
|
|
|
|
|
|
|
|
|
|
|
(6,417
|
)
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
Uncertain tax positions
|
|
|
3,960
|
|
|
|
2.8
|
|
|
|
4,677
|
|
|
|
5.8
|
|
|
|
5,974
|
|
|
|
7.8
|
|
Other, net
|
|
|
(1,103
|
)
|
|
|
(0.8
|
)
|
|
|
919
|
|
|
|
1.1
|
|
|
|
2,104
|
|
|
|
2.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
44,638
|
|
|
|
31.6
|
%
|
|
$
|
24,741
|
|
|
|
30.4
|
%
|
|
$
|
33,904
|
|
|
|
44.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tax effects of temporary differences and carry-forwards that
give rise to deferred tax assets and liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
1,257
|
|
|
$
|
2,193
|
|
Receivable allowances
|
|
|
8,834
|
|
|
|
8,570
|
|
Employee benefit accruals
|
|
|
6,252
|
|
|
|
4,643
|
|
Interest
|
|
|
916
|
|
|
|
4,783
|
|
Tax credits on undistributed foreign earnings
|
|
|
1,261
|
|
|
|
2,088
|
|
Deferred compensation
|
|
|
3,970
|
|
|
|
3,075
|
|
Deferred unrecognized tax benefits
|
|
|
3,952
|
|
|
|
5,777
|
|
Share-based compensation
|
|
|
8,280
|
|
|
|
7,339
|
|
Net operating loss carry-forwards
|
|
|
5,944
|
|
|
|
4,990
|
|
Other
|
|
|
6,563
|
|
|
|
7,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,229
|
|
|
|
51,406
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization
|
|
|
(3,129
|
)
|
|
|
(4,744
|
)
|
Other
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,129
|
)
|
|
|
(4,792
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset before valuation allowance
|
|
|
44,100
|
|
|
|
46,614
|
|
Valuation allowance
|
|
|
(5,944
|
)
|
|
|
(4,990
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
38,156
|
|
|
$
|
41,624
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes are reported in the following balance sheet
captions in the amounts shown:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
Deferred income taxes (current assets)
|
|
$
|
22,562
|
|
|
$
|
26,769
|
|
Deferred income taxes (non-current assets)
|
|
|
15,594
|
|
|
|
14,903
|
|
Deferred income taxes (current liabilities)
|
|
|
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
38,156
|
|
|
$
|
41,624
|
|
|
|
|
|
|
|
|
|
|
56
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The valuation allowance relates to foreign net operating loss
carry-forwards that may not be realized. The valuation allowance
of $5,944 at December 31, 2010 includes $883 provided for
during 2010 relating primarily to net operating loss
carry-forwards in Luxembourg. The valuation allowance at
December 31, 2009 of $4,990 includes $805 provided for
during 2009 relating primarily to net operating loss
carry-forwards in Luxembourg.
Losses before income taxes from foreign operations were
$(4,026), $(3,659) and $(4,045) for the years ended
December 31, 2010, 2009 and 2008, respectively. At
December 31, 2010, the Company had $26,654 of foreign
operating loss carry-forwards available to offset future foreign
taxable income. Of these operating loss carry-forwards, $356
will expire in various years from 2016 through 2019, and $26,298
relates to operating loss carry-forwards that may be carried
forward indefinitely.
As of December 31, 2010, the Company has indefinitely
reinvested approximately $196,864 of the cumulative
undistributed earnings of certain foreign subsidiaries. Such
earnings would be subject to U.S. taxes if repatriated to
the U.S. The amount of unrecognized deferred tax liability
associated with the permanently reinvested cumulative
undistributed earnings was approximately $43,031.
The following table reconciles the total amount recorded for
unrecognized tax benefits for the years ended December 31,
2010, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Unrecognized tax benefits at January 1
|
|
$
|
19,707
|
|
|
$
|
23,751
|
|
|
$
|
19,046
|
|
Gross increases tax positions in prior period
|
|
|
|
|
|
|
207
|
|
|
|
824
|
|
Gross decreases tax positions in prior period
|
|
|
(1,693
|
)
|
|
|
(7,062
|
)
|
|
|
(4
|
)
|
Gross increases current-period tax positions
|
|
|
3,685
|
|
|
|
3,888
|
|
|
|
4,317
|
|
Settlements
|
|
|
|
|
|
|
(295
|
)
|
|
|
|
|
Lapse in statute of limitations
|
|
|
(981
|
)
|
|
|
(782
|
)
|
|
|
(432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31
|
|
$
|
20,718
|
|
|
$
|
19,707
|
|
|
$
|
23,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had a $22,693 and $24,748 gross liability for uncertain
tax positions and accrued interest and penalties included in
other long-term liabilities on our balance sheet as of
December 31, 2010 and 2009, respectively. We had a $22 and
$48 gross liability for uncertain tax positions and accrued
interest and penalties included in accrued income taxes payable
on our balance sheet as of December 31, 2010 and 2009,
respectively. Of the total gross liability at the end of 2010,
$18,763 represents the amount of unrecognized tax benefits that,
if recognized, would affect the Companys effective tax
rate.
We recognize interest expense on the amount of taxes associated
with our tax positions beginning in the first period in which
interest starts accruing under the tax law, and continuing until
the tax positions are settled. We classify interest associated
with underpayments of taxes as income tax expense in our
consolidated statement of income and in other long-term
liabilities and in accrued income taxes payable on the
consolidated balance sheet. The gross amount of interest expense
included in our income tax provision was $1,046, $1,276 and
$1,714 for the years ended December 31, 2010, 2009 and
2008, respectively. The total amount of accrued interest
included in other long-term liabilities as of December 31,
2010 and 2009 was $1,802 and $4,868, respectively. The total
amount of interest included in accrued income taxes payable as
of December 31, 2010 and 2009 was $22 and $48, respectively.
If a tax position taken does not meet the minimum statutory
threshold to avoid the payment of a penalty, an accrual for the
amount of the penalty that may be imposed under the tax law is
recorded. Penalties are classified as income tax expense in our
consolidated statement of income and in other long-term
liabilities on our consolidated balance sheet. There were no
penalties included in our income tax provision for the year
ended December 31, 2010. There were penalties of $53 and
$120 included in our income tax provision for the
57
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
years ended December 31, 2009 and 2008, respectively. The
total amount of penalties included in other long-term
liabilities at each of December 31, 2010 and 2009 is $173.
We conduct business globally and, as a result, the Company or
one or more of our subsidiaries files income tax returns in the
U.S. federal jurisdiction and various state and foreign
jurisdictions. In the normal course of business, we are subject
to examination by taxing authorities throughout the world,
including such major jurisdictions as China, France, Germany,
Hong Kong, Italy, Japan, Spain, Switzerland, the U.K. and the
United States. We are no longer subject to U.S. federal,
state and local, or
non-U.S. income
tax examinations for years before 2003.
In 2010, we received final approval associated with tax
clearance for certain foreign operations which resulted in a
decrease in prior year tax positions of $1,377. In 2009, we
concluded audits internationally which resulted in settlements
of $295 and decreases in prior year tax positions of $7,062. In
2008, we did not conclude any audits. It is reasonably possible
that unrecognized tax benefits related to federal, state and
foreign tax positions may decrease by $8,400 by
December 31, 2011 if audits are completed or tax years
close during 2011.
In December of 2009, we received a Notice of Assessment from the
Internal Revenue Department of Hong Kong for approximately
$17,600 with respect to the tax years 2004 through 2008. In
connection with the assessment, the Company made required
payments to the Internal Revenue Department of Hong Kong
totaling approximately $8,400 in 2010. These payments are
included in prepaid taxes on our consolidated balance sheet. We
believe we have a sound defense to the proposed adjustment and
will continue to firmly oppose the assessment. We believe that
the assessment does not impact the level of liabilities for our
income tax contingencies. However, actual resolution may differ
from our current estimates, and such differences could have a
material impact on our future effective tax rate and our results
of operations.
Our Class A Common Stock and Class B Common Stock are
identical in virtually all respects, except that shares of
Class A Common Stock carry one vote per share, while shares
of Class B Common Stock carry ten votes per share. In
addition, holders of Class A Common Stock have the right,
voting separately as a class, to elect 25% of the directors of
the Company, and vote together with the holders of Class B
Common Stock for the remaining directors. Class B Common
Stock may be converted to Class A Common Stock on a
one-for-one
basis. In 2010, 2009 and 2008, respectively, 520,771, 440,000
and 214,500 shares of Class B Common Stock were
converted to Class A Common Stock.
On February 7, 2006, our Board of Directors approved a
repurchase of 6,000,000 shares of our Class A Common
Stock. During 2008, we repurchased 1,281,602 shares under
this authorization. No shares remain under this authorization.
On March 10, 2008, our Board of Directors approved the
repurchase of up to an additional 6,000,000 shares of our
Class A Common Stock. Shares repurchased under this
authorization totaled 1,324,259, 3,244,643 and 1,431,098 for the
years ended December 31, 2010, 2009 and 2008, respectively.
No shares remain under this authorization.
On December 3, 2009, our Board of Directors approved the
repurchase of up to an additional 6,000,000 shares of our
Class A Common Stock. Shares repurchased under this
authorization totaled 3,102,563 for the year ended
December 31, 2010. As of December 31, 2010,
2,897,437 shares remained available for purchase 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.
During 2010, 2009 and 2008, certain employees surrendered
restricted shares, valued at approximately $981, $1,284 and
$410, respectively, to the Company to satisfy tax withholding
obligations.
58
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
13.
|
Share-based
Compensation
|
The Company accounts for share-based compensation by measuring
the grant date fair value of equity awards given to employees in
exchange for services and recognizing that cost over the period
that such services are performed. The Company recognizes the
cost of share-based awards on a straight-line basis over the
awards requisite service period, with the exception of
certain stock options for officers, directors and key employees
granted under certain long-term incentive plans, for which
expense continues to be recognized on a graded schedule over the
vesting period of the award. The Company is required to estimate
the number of all share-based awards that will be forfeited, and
uses historical data to estimate its forfeitures.
Share-based compensation costs were recorded in cost of good
sold, selling expense, and general and administrative expense as
follows for the years ended December 31, 2010, 2009 and
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Cost of goods sold
|
|
$
|
351
|
|
|
$
|
700
|
|
|
$
|
1,385
|
|
Selling expense
|
|
|
2,944
|
|
|
|
2,837
|
|
|
|
4,529
|
|
General and administrative expense
|
|
|
5,992
|
|
|
|
2,405
|
|
|
|
2,604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,287
|
|
|
$
|
5,942
|
|
|
$
|
8,518
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
Plans
In February 2007, our Board of Directors adopted The Timberland
Company 2007 Incentive Plan (the 2007 Plan), which
was subsequently approved by shareholders on May 17, 2007.
The 2007 Plan was established to provide for grants of awards to
key employees and directors of, and consultants and advisors to,
the Company or its affiliates who, in the opinion of the
Management Development and Compensation Committee of the Board
of Directors (MDCC), are in a position to make
significant contributions to the success of the Company and its
affiliates. The 2007 Plan replaced the Companys 1997
Incentive Plan, as amended (the 1997 Plan), and no
new awards have been issued under the 1997 Plan. Awards under
the 2007 Plan may take the form of stock options, stock
appreciation rights, restricted stock, unrestricted stock, stock
units, including restricted stock units, performance awards,
cash and other awards that are convertible into, or otherwise
based on, the Companys stock. A maximum of
8,000,000 shares may be issued under the 2007 Plan, subject
to adjustment as provided in the 2007 Plan. The 2007 Plan also
contains limits with respect to the awards that can be made to
any one person. Stock options granted under the 2007 Plan will
be granted with an exercise price equal to fair market value at
date of grant. All options expire ten years from date of grant.
Awards granted under the 2007 Plan will become exercisable or
vest as determined by the Administrator of the Plan.
Under the Companys 1997 Plan, 16,000,000 shares of
Class A Common Stock were reserved for issuance to
officers, directors and key employees. In addition to stock
options, any of the following incentives may have been awarded
to participants under the 1997 Plan: stock appreciation rights,
nonvested shares, unrestricted stock, awards entitling the
recipient to delivery in the future of Class A Common Stock
or other securities, securities that are convertible into, or
exchangeable for, shares of Class A Common Stock and cash
bonuses. Option grants and vesting periods under the 1997 Plan
were determined by the MDCC. Outstanding stock options granted
under the 1997 Plan were granted with an exercise price equal to
fair market value at the date of grant and became exercisable
either in equal installments over three years, beginning one
year after the grant date, or became exercisable two years after
the grant date. Prior to 2007, most stock options granted under
the 1997 Plan were exercisable in equal installments over four
years. All options expire ten years after the grant date. Upon
approval of the 2007 Plan, no new awards were issued under the
1997 Plan.
Under our 2001 Non-Employee Directors Stock Plan, as amended
(the 2001 Plan), we reserved 400,000 shares of
Class A Common Stock for the granting of stock options to
eligible non-employee directors of the Company. Under the terms
of the 2001 Plan, stock option grants were awarded on a
predetermined
59
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
formula basis. Unless terminated by our Board of Directors, the
2001 Plan will be in effect until all options issued thereunder
expire or are exercised. The exercise price of options granted
under the 2001 Plan is the fair market value of the stock on the
date of the grant. Initial awards of stock options granted under
the 2001 Plan to new directors become exercisable in equal
installments over three years and annual awards of options
granted under the 2001 Plan become fully exercisable one year
from the date of grant and, in each case, expire ten years after
the grant date. Stock options granted under the 2001 Plan prior
to December 31, 2004 became exercisable in equal
installments over four years, beginning one year after the grant
date, and expire ten years after the grant date.
Options to purchase an aggregate of 3,159,713, 3,208,571 and
3,110,208 shares were exercisable under all option
arrangements as of December 31, 2010, 2009 and 2008,
respectively. Under the 2007 Plan, the only Plan from which we
are actively issuing equity awards, there were 4,423,778,
1,153,937 and 3,121,365 shares available for future grants
as of December 31, 2010, 2009 and 2008, respectively. The
shares available at December 31, 2010 and 2009 reflect the
assumption that awards granted under the Companys 2010 and
2009 Executive Long Term Incentive Programs discussed below will
be earned at the target level for performance stock units and
the maximum level for performance stock options.
The Company received $4,406 in proceeds on the exercise of stock
options under the Companys stock option and employee stock
purchase plans and recorded a tax benefit of $493 related to
these stock option exercises during the year ended
December 31, 2010.
Shares issued upon the exercise of stock options under the
Companys stock option and employee stock purchase plans
are from authorized but unissued shares of the Companys
Class A Common Stock.
Long
Term Incentive Programs
2010
Executive Long Term Incentive Program
On March 3, 2010, the Management Development and
Compensation Committee of the Board of Directors approved the
terms of The Timberland Company 2010 Executive Long Term
Incentive Program (2010 LTIP) with respect to equity
awards to be made to certain of the Companys executives
and employees. On March 4, 2010, the Board of Directors
also approved the 2010 LTIP with respect to the Companys
Chief Executive Officer. The 2010 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 stock
options (PSOs), with an exercise price of $19.45
(the closing price of the Companys Class A Common
Stock as quoted on the New York Stock Exchange on
March 4, 2010, the date of grant). On May 13, 2010,
additional awards were made under the 2010 LTIP consisting of
PSUs equal in value to one share of the Companys
Class A Common Stock, and PSOs with an exercise price of
$22.55 (the closing price of the Companys Class A
Common Stock as quoted on the New York Stock Exchange on
May 13, 2010, 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 PSOs 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
revenue growth and earnings before interest, taxes, depreciation
and amortization (EBITDA), with threshold, budget,
target and maximum award levels based upon actual revenue growth
and 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, 2010 through December 31, 2012, and the
performance period for the PSOs is the twelve-month period from
January 1, 2010 through December 31, 2010. No awards
shall be made or earned, as the case may be, unless the
threshold goal is attained, and the maximum payout may not
exceed 200% of the target award.
60
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The maximum number of shares to be awarded with respect to PSUs
under the 2010 LTIP is 527,800, which, if earned, will be
settled in early 2013. Based on current estimates of the likely
level of achievement of the performance metric, unrecognized
compensation expense with respect to the 2010 PSUs was $2,463 as
of December 31, 2010. This expense is expected to be
recognized over a weighted-average remaining period of
2.2 years.
The maximum number of shares subject to exercise with respect to
PSOs under the 2010 LTIP is 737,640, which, if earned, will be
settled, subject to the vesting schedule noted above, in early
2011. Based on current estimates of the likely level of
achievement of the performance metric, unrecognized compensation
expense related to the 2010 PSOs was $2,638 as of
December 31, 2010. This expense is expected to be
recognized over a weighted-average remaining period of
2.2 years.
2009
Executive Long Term Incentive Program
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 employees. 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 PSUs, equal in value to one
share of the Companys Class A Common Stock, and PSOs,
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 PSOs 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 PSOs
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 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 PSOs
was the twelve-month period from January 1, 2009 through
December 31, 2009. No awards shall be made or earned, as
the case may be, unless the threshold goal is attained, and the
maximum payout may not exceed 200% of the target award.
The maximum number of shares to be awarded with respect to PSUs
under the 2009 LTIP is 745,000, which, if earned, will be
settled in early 2012. Based on current estimates of the likely
level of achievement of the performance metric, unrecognized
compensation expense with respect to the 2009 PSUs was $1,631 as
of December 31, 2010. This expense is expected to be
recognized over a weighted-average remaining period of
1.2 years.
Based on actual performance, the number of shares subject to
exercise with respect to PSOs under the 2009 LTIP is 599,619,
which shares were settled on March 4, 2010, subject to the
vesting schedule noted above. The weighted-average grant date
fair value per share of PSOs granted under the 2009 LTIP, for
which exercise price equals market value at the date of grant,
was $9.52.
61
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The Company estimates the fair value of its PSOs on the date of
grant using the Black-Scholes option valuation model, which
employs the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
2010 LTIP
|
|
|
2009 LTIP
|
|
|
|
Year Ended December 31, 2010
|
|
|
Year Ended December 31, 2009
|
|
|
Expected volatility
|
|
|
47.7
|
%
|
|
|
41.9
|
%
|
Risk-free interest rate
|
|
|
2.7
|
%
|
|
|
1.9
|
%
|
Expected life (in years)
|
|
|
6.1
|
|
|
|
6.4
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
The following summarizes activity associated with stock options
earned under the Companys 2009 LTIP and excludes the
performance-based awards noted above under the 2010 LTIP for
which performance conditions have not been met:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Outstanding at January 1, 2010
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
Settled
|
|
|
599,619
|
|
|
|
9.52
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(30,554
|
)
|
|
|
9.79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
569,065
|
|
|
$
|
9.50
|
|
|
|
8.19
|
|
|
$
|
8,582
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest at December 31, 2010
|
|
|
542,089
|
|
|
$
|
9.50
|
|
|
|
8.18
|
|
|
$
|
8,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized compensation expense related to the 2009 PSOs was
$719 as of December 31, 2010. This expense is expected to
be recognized over a weighted-average remaining period of
1.6 years.
2008
Executive Long Term Incentive Program
In March 2008, the MDCC approved the terms of The Timberland
Company 2008 Executive Long Term Incentive Program (2008
LTIP) with respect to equity awards to be made to certain
Company executives, and in March 2008, the Board of Directors
also approved the 2008 LTIP with respect to the Companys
Chief Executive Officer. The 2008 LTIP was established under the
2007 Plan. The awards were based on the achievement of certain
net income goals for the Company for the twelve-month period
from January 1, 2008 through December 31, 2008, with
threshold, budget, target and maximum award values based on
actual net income of the Company for 2008 equaling or exceeding
specified percentages of budgeted net income. No awards were to
be made unless the threshold goal was attained and in no event
could the payout exceed 150% of the target award. The total
potential grant date value of the maximum awards under the 2008
LTIP was $7,500. Awards earned under the 2008 LTIP were $1,453,
and were paid in early 2009. The awards were settled 60% in
stock options, subject to a three-year vesting schedule, and 40%
in restricted stock, subject to a two-year vesting schedule. For
purposes of the payout, the number of shares subject to the
options was based on the value of the option as of the date of
issuance using the Black-Scholes option pricing model, and the
number of restricted shares issued was based on the fair market
value of the Companys Class A Common Stock on the
date of issuance.
Other
Long Term Incentive Programs
During 2010, the MDCC approved a program to award cash or equity
awards based upon the achievement of certain project milestones.
Awards will be granted upon approval of performance criteria
achievement by a
62
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
steering committee designated by the Board of Directors, and, if
equity based, will vest immediately upon grant. The Company
expects the milestones to be achieved at various stages through
2013. The maximum aggregate value which may be earned under the
program is $2,615, and the number of equity awards to be issued,
if applicable, will be determined based on the fair market value
of the Companys Class A Common Stock on the date of
issuance. Unrecognized compensation expense related to these
awards was $1,748 as of December 31, 2010, and the expense
is expected to be recognized over a weighted-average remaining
period of 1.8 years.
Stock
Options
The Company estimates the fair value of its stock option awards
on the date of grant using the Black-Scholes option valuation
model, which employs the assumptions noted in the following
table, for stock option awards excluding awards issued under the
Companys Long Term Incentive Programs discussed above.
Expected volatility is based on the historical volatility of the
Companys stock.
The expected term of options is estimated using the historical
exercise behavior of employees and directors. The risk-free
interest rate for periods within the contractual life of the
option is based on the U.S. Treasury yield curve
corresponding to the stock options average life.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Expected volatility
|
|
|
49.0
|
%
|
|
|
43.5
|
%
|
|
|
32.2
|
%
|
Risk-free interest rate
|
|
|
2.2
|
%
|
|
|
2.1
|
%
|
|
|
3.0
|
%
|
Expected life (in years)
|
|
|
5.0
|
|
|
|
6.1
|
|
|
|
6.4
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes transactions for the year ended
December 31, 2010, under stock option arrangements
excluding awards issued under the Companys Long Term
Incentive Programs discussed above:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Aggregate
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Intrinsic Value
|
|
|
Outstanding at January 1, 2010
|
|
|
3,908,270
|
|
|
$
|
25.05
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
185,300
|
|
|
|
20.78
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(215,035
|
)
|
|
|
15.62
|
|
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(218,611
|
)
|
|
|
26.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2010
|
|
|
3,659,924
|
|
|
$
|
25.29
|
|
|
|
4.66
|
|
|
$
|
11,275
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2010
|
|
|
3,622,230
|
|
|
$
|
25.37
|
|
|
|
4.61
|
|
|
$
|
11,042
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2010
|
|
|
3,159,713
|
|
|
$
|
26.86
|
|
|
|
4.04
|
|
|
$
|
6,693
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average grant date fair values per share of stock
options granted, for which exercise price equals market value at
the date of grant, were $9.32, $4.39 and $5.73 for the years
ended December 31, 2010, 2009 and 2008, respectively. The
total intrinsic values of stock options exercised during the
years ended December 31, 2010, 2009 and 2008 were $1,263,
$354 and $476, respectively.
Total unrecognized share-based compensation expense related to
nonvested stock options was $1,848 as of December 31, 2010.
The cost is expected to be recognized over the weighted-average
remaining period of 1.5 years.
63
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Nonvested
Shares Restricted Stock and Restricted Stock
Units
As noted above, the Companys 1997 Plan and 2007 Plan
provide for grants of nonvested shares. Under the 1997 Plan, the
Company generally granted restricted stock with a three year
vesting period, which is the same as the contractual term. Under
the 2007 Plan, restricted stock awards will vest in equal annual
installments over a two-year period and restricted stock units
will vest in equal annual installments over a one to three-year
period. Expense is recognized over the awards requisite
service period, which begins on the first day of the measurement
period and ends on the last day of the vesting period. The fair
value of nonvested share grants is determined by the fair market
value at the date of grant.
Changes in the Companys nonvested shares, excluding awards
under the Companys Long Term Incentive Programs discussed
above, for the year ended December 31, 2010 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
Average Grant
|
|
|
|
|
|
Average Grant
|
|
|
|
Stock Awards
|
|
|
Date Fair Value
|
|
|
Stock Units
|
|
|
Date Fair Value
|
|
|
Nonvested at January 1, 2010
|
|
|
86,102
|
|
|
$
|
15.59
|
|
|
|
297,758
|
|
|
$
|
13.74
|
|
Awarded
|
|
|
|
|
|
|
|
|
|
|
145,684
|
|
|
|
22.03
|
|
Vested
|
|
|
(61,142
|
)
|
|
|
18.14
|
|
|
|
(161,256
|
)
|
|
|
13.65
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
|
(22,194
|
)
|
|
|
15.69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2010
|
|
|
24,960
|
|
|
$
|
9.34
|
|
|
|
259,992
|
|
|
$
|
18.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at December 31, 2010
|
|
|
24,960
|
|
|
$
|
9.34
|
|
|
|
236,862
|
|
|
$
|
18.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of stock awards vested during the years
ended December 31, 2010, 2009 and 2008 was $1,107, $3,017
and $1,913, respectively. Unrecognized compensation expense
related to nonvested restricted stock awards was $13 as of
December 31, 2010, and the expense is expected to be
recognized over a weighted-average remaining period of
0.2 years. The total fair value of stock units vested
during the years ended December 31, 2010 and 2009 was
$3,148 and $618, respectively. No stock units vested during
2008. Unrecognized compensation expense related to nonvested
restricted stock units was $2,787 as of December 31, 2010,
and the expense is expected to be recognized over a
weighted-average remaining period of 1.5 years.
Employee
Stock Purchase Plan
Pursuant to the terms of our 1991 Employee Stock Purchase Plan,
as amended (the ESPP), we are authorized to issue up
to an aggregate of 2,600,000 shares of our Class A
Common Stock to eligible employees electing to participate in
the ESPP. Eligible employees may contribute, through payroll
withholdings, from 2% to 10% of their regular base compensation
during six-month participation periods beginning January 1 and
July 1 of each year. At the end of each participation period,
the accumulated deductions are applied toward the purchase of
Class A Common Stock at a price equal to 85% of the market
price at the beginning or end of the participation period,
whichever is lower.
The fair value of the ESPP purchase rights was estimated on the
date of grant using the Black-Scholes option valuation model
that uses the assumptions in the following table. Expected
volatility is based on the six-month participation period (the
options contractual and expected life). The risk-free
interest rate is based on the six-month U.S. Treasury rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Expected volatility
|
|
|
47.4
|
%
|
|
|
76.5
|
%
|
|
|
49.6
|
%
|
Risk-free interest rate
|
|
|
0.2
|
%
|
|
|
0.3
|
%
|
|
|
2.8
|
%
|
Expected life (in months)
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
64
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Employee purchases totaled 76,222, 95,337 and 87,365 shares
in 2010, 2009 and 2008, respectively, at prices ranging from
$9.82 to $13.74 per share. As of December 31, 2010, a total
of 96,580 shares were available for future purchases. The
weighted-average fair values of the Companys ESPP purchase
rights were approximately $4.54, $4.20 and $4.65 per share for
the years ended December 31, 2010, 2009 and 2008,
respectively.
As of December 31, 2010, there was no unrecognized
compensation expense with respect to purchase rights under the
ESPP.
|
|
14.
|
Business
Segments and Geographic Information
|
The Companys reportable segments are North America, Europe
and Asia. The composition of 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. Beginning
in the first quarter of 2010, results for the North America
segment include certain U.S. distribution expenses,
customer operations and service costs, credit management and
short-term incentive compensation costs that were recorded in
Unallocated Corporate in prior years. These prior year costs, as
well as the assets related to the U.S. distribution
centers, have been reclassified to North America to conform to
the current year presentation.
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. Certain wholesale distributor
revenue and operating income reflected in our Europe segment in
prior periods has been reclassified to Asia to conform to the
current year presentation. Additionally, certain expenses,
primarily related to short-term incentive compensation costs
previously reported in Unallocated Corporate, have been
reclassified to Europe and Asia to conform to the current year
presentation.
Unallocated Corporate consists primarily of corporate finance,
information services, legal and administrative expenses,
share-based compensation costs, global marketing support
expenses, worldwide product development costs and other costs
incurred in support of Company-wide activities. Unallocated
Corporate also includes certain value chain costs such as
sourcing and logistics, as well as inventory variances.
Beginning in the first quarter of 2010, certain
U.S. distribution expenses, customer operations and service
costs and credit management costs previously reported in
Unallocated Corporate were reclassified to North America.
Additionally, short-term incentive compensation costs previously
reported in Unallocated Corporate were reclassified to North
America, Europe and Asia. Unallocated Corporate also includes
total other income/(expense), net, which is comprised of
interest income, interest expense and other, net, which includes
foreign exchange gains and losses resulting from changes in the
fair value of financial derivatives not accounted for as hedges
and the timing and 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. Intersegment revenues, which are eliminated in
consolidation, are not material. Total assets are disaggregated
to the extent that assets apply specifically to a single
segment. Unallocated Corporate assets primarily consist of cash
and equivalents, manufacturing/sourcing assets, computers and
related equipment, and deferred tax assets.
The following tables present the segment information as of and
for the years ended December 31, 2010, 2009 and 2008,
respectively. Operating income/(loss) shown below for the year
ended December 31, 2010 includes impairment charges of
$8,617 and $5,334 in North America and Europe, respectively,
related to goodwill and certain other intangible assets.
Operating income for North America for the year ended
65
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
December 31, 2010 also includes gains related to the
termination of licensing agreements of $3,000. Operating income
for Europe for the years ended December 31, 2009 and 2008
includes an impairment charge of $925 and $2,061, respectively,
related to a certain intangible asset. See Notes 5 and 8
for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
647,337
|
|
|
$
|
592,086
|
|
|
$
|
190,061
|
|
|
$
|
|
|
|
$
|
1,429,484
|
|
Operating income/(loss)
|
|
|
126,267
|
|
|
|
106,327
|
|
|
|
30,575
|
|
|
|
(128,885
|
)
|
|
|
134,284
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
434
|
|
|
|
434
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(538
|
)
|
|
|
(538
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,080
|
|
|
|
7,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
$
|
126,267
|
|
|
$
|
106,327
|
|
|
$
|
30,575
|
|
|
$
|
(121,909
|
)
|
|
$
|
141,260
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
275,972
|
|
|
$
|
374,394
|
|
|
$
|
97,402
|
|
|
$
|
144,591
|
|
|
$
|
892,359
|
|
Goodwill
|
|
|
31,964
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
38,958
|
|
Expenditures for capital additions
|
|
|
3,058
|
|
|
|
5,801
|
|
|
|
2,199
|
|
|
|
8,859
|
|
|
|
19,917
|
|
Depreciation and amortization
|
|
|
6,343
|
|
|
|
5,157
|
|
|
|
1,723
|
|
|
|
12,277
|
|
|
|
25,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
610,164
|
|
|
$
|
527,979
|
|
|
$
|
147,733
|
|
|
$
|
|
|
|
$
|
1,285,876
|
|
Operating income/(loss)
|
|
|
95,699
|
|
|
|
73,759
|
|
|
|
11,031
|
|
|
|
(103,015
|
)
|
|
|
77,474
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
903
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(498
|
)
|
|
|
(498
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,506
|
|
|
|
3,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
$
|
95,699
|
|
|
$
|
73,759
|
|
|
$
|
11,031
|
|
|
$
|
(99,104
|
)
|
|
$
|
81,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
248,639
|
|
|
$
|
353,520
|
|
|
$
|
56,552
|
|
|
$
|
201,196
|
|
|
$
|
859,907
|
|
Goodwill
|
|
|
36,876
|
|
|
|
7,477
|
|
|
|
|
|
|
|
|
|
|
|
44,353
|
|
Expenditures for capital additions
|
|
|
6,235
|
|
|
|
1,889
|
|
|
|
1,153
|
|
|
|
8,400
|
|
|
|
17,677
|
|
Depreciation and amortization
|
|
|
7,018
|
|
|
|
5,600
|
|
|
|
1,770
|
|
|
|
14,395
|
|
|
|
28,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
652,435
|
|
|
$
|
551,752
|
|
|
$
|
160,363
|
|
|
$
|
|
|
|
$
|
1,364,550
|
|
Operating income/(loss)
|
|
|
104,213
|
|
|
|
83,040
|
|
|
|
3,237
|
|
|
|
(120,854
|
)
|
|
|
69,636
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,371
|
|
|
|
2,371
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(652
|
)
|
|
|
(652
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,455
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
$
|
104,213
|
|
|
$
|
83,040
|
|
|
$
|
3,237
|
|
|
$
|
(113,680
|
)
|
|
$
|
76,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
273,347
|
|
|
$
|
267,947
|
|
|
$
|
115,880
|
|
|
$
|
192,225
|
|
|
$
|
849,399
|
|
Goodwill
|
|
|
36,876
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
43,870
|
|
Expenditures for capital additions
|
|
|
5,039
|
|
|
|
5,632
|
|
|
|
1,707
|
|
|
|
9,938
|
|
|
|
22,316
|
|
Depreciation and amortization
|
|
|
7,056
|
|
|
|
7,382
|
|
|
|
2,588
|
|
|
|
15,319
|
|
|
|
32,345
|
|
66
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes our operations in different geographic
areas for the years ended December 31, 2010, 2009 and 2008,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
States
|
|
|
Europe
|
|
|
Asia
|
|
|
Foreign
|
|
|
Consolidated
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
609,484
|
|
|
$
|
561,233
|
|
|
$
|
190,556
|
|
|
$
|
68,211
|
|
|
$
|
1,429,484
|
|
Long-lived assets
|
|
|
121,455
|
|
|
|
24,198
|
|
|
|
5,729
|
|
|
|
4,355
|
|
|
|
155,737
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
575,495
|
|
|
$
|
498,386
|
|
|
$
|
148,214
|
|
|
$
|
63,781
|
|
|
$
|
1,285,876
|
|
Long-lived assets
|
|
|
134,677
|
|
|
|
30,713
|
|
|
|
4,697
|
|
|
|
4,580
|
|
|
|
174,667
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
615,897
|
|
|
$
|
526,137
|
|
|
$
|
160,872
|
|
|
$
|
61,644
|
|
|
$
|
1,364,550
|
|
Long-lived assets
|
|
|
138,376
|
|
|
|
35,360
|
|
|
|
2,347
|
|
|
|
4,885
|
|
|
|
180,968
|
|
Other Foreign revenue above consists of revenue in Canada, the
Middle East, Latin America and Africa. Revenues from external
customers are reflected in the geographic regions based on where
the products are sold. Licensing revenue, which is included in
our North America reporting segment, has been allocated to the
geographic regions above based on where the products are sold.
Long-lived assets in the table above include property, plant and
equipment, goodwill, intangible assets, net and other assets,
net. Other Foreign assets consist primarily of the
Companys manufacturing assets in the Caribbean.
For segment reporting, Canada is included in our North America
segment. The Middle East, Latin America and Africa are
included in our Europe segment.
The following summarizes our revenue by product group for the
years ended December 31, 2010, 2009 and 2008, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
Footwear
|
|
$
|
1,035,681
|
|
|
$
|
931,179
|
|
|
$
|
974,326
|
|
Apparel and accessories
|
|
|
368,825
|
|
|
|
329,071
|
|
|
|
367,032
|
|
Royalty and other
|
|
|
24,978
|
|
|
|
25,626
|
|
|
|
23,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,429,484
|
|
|
$
|
1,285,876
|
|
|
$
|
1,364,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 reflects a reclassification adjustment of $500 between
Apparel and accessories and Royalty and other.
We maintain a contributory 401(k) Retirement Earnings Plan (the
401(k) Plan) for eligible U.S. salaried and
hourly employees who are at least 18 years of age. Under
the provisions of the 401(k) Plan, employees may contribute up
to 40% of their base salary up to certain limits. The 401(k)
Plan provides for Company matching contributions not to exceed
3% of the employees compensation or, if less, 50% of the
employees contribution. Vesting of our contribution begins
at 25% after one year of service and increases by 25% each year
until full vesting occurs. We maintain a non-contributory profit
sharing plan for eligible hourly employees not covered by the
401(k) Plan. Our contribution expense under these
U.S. retirement plans was $1,611, $1,586 and $1,648 in
2010, 2009 and 2008, respectively.
|
|
16.
|
Commitments
and Contingencies
|
Leases
We lease our corporate headquarters facility and other
management offices, manufacturing facilities, retail stores,
showrooms, two distribution facilities and certain equipment
under non-cancelable operating leases
67
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
expiring at various dates through 2024. The approximate minimum
rental commitments under all non-cancelable leases as of
December 31, 2010 are as follows:
|
|
|
|
|
2011
|
|
$
|
50,868
|
|
2012
|
|
|
40,316
|
|
2013
|
|
|
31,627
|
|
2014
|
|
|
23,966
|
|
2015
|
|
|
19,339
|
|
Thereafter
|
|
|
44,058
|
|
|
|
|
|
|
Total
|
|
$
|
210,174
|
|
|
|
|
|
|
Most of the leases for retail space provide for renewal options,
contain normal escalation clauses and require us to pay real
estate taxes, maintenance and other expenses. The aggregate base
rent obligation for a lease is expensed on a straight-line basis
over the term of the lease. Base rent expense for all operating
leases was $58,504, $54,915 and $58,338 for the years ended
December 31, 2010, 2009 and 2008, respectively. Percentage
rent, based on sales levels, for the years ended
December 31, 2010, 2009 and 2008 was $9,465, $8,983 and
$10,213, respectively.
Litigation
We are involved in various legal matters, including litigation,
which have arisen in the ordinary course of business. Management
believes that the ultimate resolution of any existing matter
will not have a material adverse effect on our business or our
consolidated financial statements. In December 2008, we settled
certain litigation involving infringement of our intellectual
property rights by a third party, which resulted in a pre-tax
gain of approximately $2,630.
|
|
17.
|
Selected
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Quarter Ended
|
|
April 2
|
|
|
July 2(1)
|
|
|
October 1
|
|
|
December 31(1)(2)
|
|
|
|
(Amounts in Thousands, Except Per Share Data)
|
|
|
Revenue
|
|
$
|
317,042
|
|
|
$
|
188,954
|
|
|
$
|
432,344
|
|
|
$
|
491,144
|
|
Gross profit
|
|
|
157,983
|
|
|
|
93,508
|
|
|
|
206,569
|
|
|
|
238,454
|
|
Net income/(loss)
|
|
|
25,747
|
|
|
|
(23,452
|
)
|
|
|
52,195
|
|
|
|
42,132
|
|
Basic earnings/(loss) per share
|
|
$
|
.48
|
|
|
$
|
(.44
|
)
|
|
$
|
1.01
|
|
|
$
|
.83
|
|
Diluted earnings/(loss) per share
|
|
$
|
.47
|
|
|
$
|
(.44
|
)
|
|
$
|
1.00
|
|
|
$
|
.82
|
|
|
|
|
(1)
|
|
Net income includes a pre-tax charge of $13,249 and $702 in the
quarters ended July 2 and December 31, respectively,
associated with the impairment of certain goodwill and
intangible assets. See Note 5 for additional information.
|
|
(2)
|
|
Net income includes a $3,950 cumulative adjustment to correct
the tax rate applied to intercompany profits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended
|
|
April 3
|
|
|
July 3
|
|
|
October 2
|
|
|
December 31
|
|
|
Revenue
|
|
$
|
296,648
|
|
|
$
|
179,702
|
|
|
$
|
421,766
|
|
|
$
|
387,760
|
|
Gross profit
|
|
|
136,689
|
|
|
|
75,508
|
|
|
|
194,512
|
|
|
|
196,213
|
|
Net income/(loss)
|
|
|
15,877
|
|
|
|
(19,244
|
)
|
|
|
37,757
|
|
|
|
22,254
|
|
Basic earnings/(loss) per share
|
|
$
|
.28
|
|
|
$
|
(.34
|
)
|
|
$
|
.68
|
|
|
$
|
.40
|
|
Diluted earnings/(loss) per share
|
|
$
|
.27
|
|
|
$
|
(.34
|
)
|
|
$
|
.68
|
|
|
$
|
.40
|
|
68
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Managements
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures which
are designed to ensure that information required to be disclosed
by us in reports we file or submit under the Securities Exchange
Act of 1934 (the Exchange Act) is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms. These disclosure controls and procedures include
controls and procedures designed to ensure that information
required to be disclosed under the federal securities laws is
accumulated and communicated to our management on a timely basis
to allow decisions regarding required disclosure.
Based on their evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, were effective as of the end of the
period covered by this report.
There were no changes in our internal control over financial
reporting, as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act, that occurred during the quarter ended
December 31, 2010, that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Timberlands internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Timberlands
internal control over financial reporting as of the end of the
period covered by this report. In making this assessment,
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework.
Based
on our assessment and those criteria, management believes that
Timberlands internal control over financial reporting was
effective as of the end of the period covered by this report.
Timberlands independent registered public accounting firm
has issued their report on the effectiveness of
Timberlands internal control over financial reporting,
which appears below.
69
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Timberland
Company
Stratham, New Hampshire
We have audited the internal control over financial reporting of
The Timberland Company and subsidiaries (the
Company) as of December 31, 2010 based on
criteria established in
Internal Control
Integrated Framework
issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2010, based on the criteria established in
Internal Control Integrated Framework
issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2010 of
the Company and our report dated February 22, 2011
expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 22, 2011
70
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Please refer to the information set forth under the caption
Executive Officers of the Registrant in Part I,
Item 1 of this Annual Report on
Form 10-K
and to the information under the captions Required Votes
and Method of Tabulation, Item 1. Election of
Directors, Information with Respect to
Nominees, Corporate Governance and Code of
Ethics, The Audit Committee and
Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive Proxy Statement (the
2011 Proxy Statement) relating to our 2011 Annual
Meeting of Stockholders, that will be filed with the Securities
and Exchange Commission within 120 days after the close of
our fiscal year ended December 31, 2010, which information
is incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Please refer to the information set forth under the captions
Directors Compensation for Fiscal Year 2010,
Executive Compensation and all
sub-captions
thereunder, and Compensation Committee Interlocks and
Insider Participation in our 2011 Proxy Statement, which
information is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Please refer to the information set forth under the captions
Equity Compensation Plan Information and
Security Ownership of Certain Beneficial Owners and
Management in our 2011 Proxy Statement, which information
is incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Please refer to the information set forth under the captions
The Audit Committee (introductory paragraph),
Board Independence, and Certain Relationships
and Related Transactions in our 2011 Proxy Statement,
which information is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
Please refer to the information set forth under the captions
Audit and Non-Audit Fees and Audit Committee
Pre-Approval of Audit and Non-Audit Services in our 2011
Proxy Statement, which information is incorporated herein by
reference.
71
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) FINANCIAL STATEMENTS. The following consolidated
financial statements are included in Part II, Item 8
of this Annual Report on
Form 10-K
and appear on the pages shown below:
|
|
|
|
|
|
|
Form 10-K Page
|
|
Report of Independent Registered Public Accounting Firm
|
|
|
36
|
|
Consolidated Balance Sheets as of December 31, 2010 and 2009
|
|
|
37
|
|
For the years ended December 31, 2010, 2009 and 2008:
|
|
|
|
|
Consolidated Statements of Income
|
|
|
38
|
|
Consolidated Statements of Changes in Stockholders Equity
|
|
|
39
|
|
Consolidated Statements of Cash Flows
|
|
|
40
|
|
Notes to Consolidated Financial Statements
|
|
|
41-68
|
|
(a)(2)
FINANCIAL STATEMENT SCHEDULE.
The
following additional financial data appearing on the pages shown
below should be read in conjunction with the consolidated
financial statements:
|
|
|
|
|
|
|
Form 10-K Page
|
|
Schedule II Valuation and Qualifying Accounts
|
|
|
76
|
|
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and have, therefore, been omitted.
(b)
EXHIBITS.
Listed below are the
Exhibits filed or furnished as part of this report, some of
which are incorporated by reference from documents we previously
filed with the Securities and Exchange Commission in accordance
with the provisions of
Rule 12b-32
of the Exchange Act.
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
(3
|
)
|
|
ARTICLES OF INCORPORATION AND BY-LAWS
|
|
3
|
.1
|
|
(a) Restated Certificate of Incorporation dated
May 14, 1987(8)
|
|
|
|
|
(b) Certificate of Amendment of Restated Certificate of
Incorporation dated May 22, 1987(8)
|
|
|
|
|
(c) Certificate of Ownership Merging The Nathan Company
into The Timberland Company dated July 31, 1987(8)
|
|
|
|
|
(d) Certificate of Amendment of Restated Certificate of
Incorporation dated June 14, 2000(8)
|
|
|
|
|
(e) Certificate of Amendment of Restated Certificate of
Incorporation dated September 27, 2001(9)
|
|
3
|
.2
|
|
Amended and Restated By-Laws, dated February 28, 2007(7)
|
|
(4
|
)
|
|
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES (See also Exhibits 3.1 and 3.2)
|
|
4
|
.1
|
|
Revised specimen stock certificate for shares of The Timberland
Companys Class A Common Stock(14)
|
|
(10
|
)
|
|
MATERIAL CONTRACTS
|
|
10
|
.1
|
|
Agreement dated as of August 29, 1979 between The
Timberland Company and Sidney W. Swartz(1)
|
|
10
|
.2
|
|
The Timberland Company 1997 Incentive Plan, as amended(10)
|
|
10
|
.3
|
|
The Timberland Company 1991 Employee Stock Purchase Plan, as
amended(5)
|
|
10
|
.4
|
|
(a) The Timberland Company 1991 Stock Option Plan for
Non-Employee Directors(6)
|
|
|
|
|
(b) Amendment No. 1 dated December 7, 2000(8)
|
|
10
|
.5
|
|
The Timberland Company 2001 Non-Employee Directors Stock Plan,
as amended(13)
|
|
10
|
.6
|
|
Summary of Compensation for Non-Management Members of the Board
of Directors of The Timberland Company, effective
January 1, 2009(3)
|
72
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.7
|
|
Second Amended and Restated Revolving Credit Agreement dated as
of June 2, 2006 among The Timberland Company, certain banks
listed therein and Bank of America, N.A., as administrative
agent(11)
|
|
10
|
.8
|
|
First Amendment to the Second Amended and Restated Revolving
Credit Agreement, dated as of September 4, 2007 among The
Timberland Company, certain lending institutions listed therein
and Bank of America, N.A., as a lender and as administrative
agent.(15)
|
|
10
|
.9
|
|
The Timberland Company Deferred Compensation Plan, as amended(2)
|
|
10
|
.10
|
|
Amended and Restated Change of Control Severance Agreement(4)
|
|
10
|
.11
|
|
The Timberland Company 2007 Executive Long Term Incentive
Program(16)
|
|
10
|
.12
|
|
The Timberland Company 2007 Incentive Plan, as amended
(2007 IP)(17)
|
|
10
|
.13
|
|
The Timberland Company 2008 Executive Long Term Incentive
Program(18)
|
|
10
|
.14
|
|
The Timberland Company 2009 Executive Long Term Incentive
Program(3)
|
|
10
|
.15
|
|
The Timberland Company 2010 Executive Long Term Incentive
Program(20)
|
|
10
|
.16
|
|
Form of Performance Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.17
|
|
Form of Performance Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.18
|
|
Form of Non-Qualified Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.19
|
|
Form of Restricted Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.20
|
|
Form of Restricted Stock Award Agreement under the 2007 IP(3)
|
|
10
|
.21
|
|
Form of Director Restricted Stock Unit Agreement under the 2007
IP(12)
|
|
10
|
.22
|
|
The Timberland Company 2004 Executive Long Term Incentive
Program(13)
|
|
10
|
.23
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program(13)
|
|
10
|
.24
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program dated November 30, 2005(19)
|
|
(21
|
)
|
|
SUBSIDIARIES
|
|
21
|
.1
|
|
List of subsidiaries of the registrant, filed herewith
|
|
(23
|
)
|
|
CONSENT OF EXPERTS AND COUNSEL
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche LLP, filed herewith
|
|
(31
|
)
|
|
RULE 13a-14(a)/15d
14(a) CERTIFICATIONS
|
|
31
|
.1
|
|
Principal Executive Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
31
|
.2
|
|
Principal Financial Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
(32
|
)
|
|
SECTION 1350 CERTIFICATIONS
|
|
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
|
|
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
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
73
We agree to furnish to the Commission, upon its request, copies
of any omitted schedule or exhibit to any Exhibit filed herewith.
|
|
|
(1)
|
|
Filed as an exhibit to Registration Statement on
Form S-1,
numbered
33-14319,
and incorporated herein by reference.
|
|
(2)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference.
|
|
(3)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended April 3, 2009, and incorporated
herein by reference.
|
|
(4)
|
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on December 22, 2008, and incorporated herein by
reference.
|
|
(5)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended October 2, 2009, and
incorporated herein by reference.
|
|
(6)
|
|
Filed on August 18, 1992, as an exhibit to Registration
Statement on
Form S-8,
numbered
33-50998,
and incorporated herein by reference.
|
|
(7)
|
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on March 2, 2007, and incorporated herein by
reference.
|
|
(8)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2000, and
incorporated herein by reference.
|
|
(9)
|
|
Filed on October 26, 2001, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-72248,
and incorporated herein by reference.
|
|
(10)
|
|
Filed on January 15, 2004, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-111949,
and incorporated herein by reference.
|
|
(11)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended June 30, 2006, and incorporated
herein by reference.
|
|
(12)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended July 3, 2009, and incorporated
herein by reference.
|
|
(13)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004, as amended,
and incorporated herein by reference.
|
|
(14)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 (filed on
March 1, 2007), and incorporated herein by reference.
|
|
(15)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended September 29, 2007, and
incorporated herein by reference.
|
|
(16)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 30, 2007, and
incorporated herein by reference.
|
|
(17)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended July 2, 2010, and incorporated
herein by reference.
|
|
(18)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 28, 2008, and
incorporated herein by reference.
|
|
(19)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, and
incorporated herein by reference.
|
|
(20)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended April 2, 2010, and incorporated
herein by reference.
|
74
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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
February 22, 2011
|
|
|
|
By:
|
/s/
JEFFREY
B. SWARTZ
|
Jeffrey B. Swartz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/
SIDNEY
W. SWARTZ
Sidney
W. Swartz
|
|
Chairman of the Board of Directors
|
|
February 22, 2011
|
|
|
|
|
|
/s/
JEFFREY
B. SWARTZ
Jeffrey
B. Swartz
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 22, 2011
|
|
|
|
|
|
/s/
CARRIE
W. TEFFNER
Carrie
W. Teffner
|
|
Chief Financial Officer and Vice President (Principal Financial
Officer)
|
|
February 22, 2011
|
|
|
|
|
|
/s/
JOHN
J. FITZGERALD, JR.
John
J. Fitzgerald, Jr.
|
|
Chief Accounting Officer and Vice President, Corporate
Controller
(Principal Accounting Officer)
|
|
February 22, 2011
|
|
|
|
|
|
/s/
IAN
W. DIERY
Ian
W. Diery
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
JOHN
A. FITZSIMMONS
John
A. Fitzsimmons
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
ANDRÉ
J. HAWAUX
André
J. Hawaux
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
VIRGINIA
H. KENT
Virginia
H. Kent
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
KENNETH
T. LOMBARD
Kenneth
T. Lombard
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
EDWARD
W. MONEYPENNY
Edward
W. Moneypenny
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
PETER
R. MOORE
Peter
R. Moore
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
BILL
SHORE
Bill
Shore
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
TERDEMA
L. USSERY, II
Terdema
L. Ussery, II
|
|
Director
|
|
February 22, 2011
|
|
|
|
|
|
/s/
CARDEN
N. WELSH
Carden
N. Welsh
|
|
Senior Vice President, Chief Administrative Officer and Director
|
|
February 22, 2011
|
75
SCHEDULE II
THE
TIMBERLAND COMPANY
VALUATION
AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
Balance at
|
|
|
Additions
|
|
|
Charged
|
|
|
Write-Offs,
|
|
|
Balance at
|
|
|
|
Beginning
|
|
|
Charged to
|
|
|
to Other
|
|
|
Net of
|
|
|
End of
|
|
Description
|
|
of Period
|
|
|
Costs and Expenses
|
|
|
Accounts(a)
|
|
|
Recoveries
|
|
|
Period
|
|
|
|
(Dollars In Thousands)
|
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
12,175
|
|
|
$
|
1,242
|
|
|
$
|
(645
|
)
|
|
$
|
1,913
|
|
|
$
|
10,859
|
|
December 31, 2009
|
|
|
14,482
|
|
|
|
3,224
|
|
|
|
328
|
|
|
|
5,859
|
|
|
|
12,175
|
|
December 31, 2008
|
|
|
14,762
|
|
|
|
7,575
|
|
|
|
(636
|
)
|
|
|
7,219
|
|
|
|
14,482
|
|
Sales returns and allowances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
$
|
27,139
|
|
|
$
|
101,545
|
|
|
$
|
(264
|
)
|
|
$
|
99,113
|
|
|
$
|
29,307
|
|
December 31, 2009
|
|
|
26,451
|
|
|
|
102,964
|
|
|
|
365
|
|
|
|
102,641
|
|
|
|
27,139
|
|
December 31, 2008
|
|
|
30,003
|
|
|
|
123,090
|
|
|
|
(464
|
)
|
|
|
126,178
|
|
|
|
26,451
|
|
|
|
|
(a)
|
|
Impact of foreign exchange rate changes
|
76
Timberland, the Tree Design logo, Earthkeepers, howies, Mountain
Athletics, Smart Comfort, SmartWool, Timberland Boot Company,
Timberland PRO, the PRO design, Green Index and GoLite are
trademarks of The Timberland Company or its affiliated
companies. Green Rubber is a trademark of Elastomer Technologies
Ltd. Ströbel is a trademark of Ströbel Und Söhne
GmbH & Co. Bionic is a trademark of Return Textiles,
LLC. Ion-mask is a trademark of P2I Limited. Pebax is a
trademark of Arkema Corporation.
©
2011 The Timberland Company
All Rights Reserved
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
(3)
|
|
|
ARTICLES OF INCORPORATION AND BY-LAWS
|
|
3
|
.1
|
|
(a) Restated Certificate of Incorporation dated
May 14, 1987(8)
|
|
|
|
|
(b) Certificate of Amendment of Restated Certificate of
Incorporation dated May 22, 1987(8)
|
|
|
|
|
(c) Certificate of Ownership Merging The Nathan Company
into The Timberland Company dated July 31, 1987(8)
|
|
|
|
|
(d) Certificate of Amendment of Restated Certificate of
Incorporation dated June 14, 2000(8)
|
|
|
|
|
(e) Certificate of Amendment of Restated Certificate of
Incorporation dated September 27, 2001(9)
|
|
3
|
.2
|
|
Amended and Restated By-Laws, dated February 28, 2007(7)
|
|
(4)
|
|
|
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES (See also Exhibits 3.1 and 3.2)
|
|
4
|
.1
|
|
Revised specimen stock certificate for shares of The Timberland
Companys Class A Common Stock(14)
|
|
(10)
|
|
|
MATERIAL CONTRACTS
|
|
10
|
.1
|
|
Agreement dated as of August 29, 1979 between The
Timberland Company and Sidney W. Swartz(1)
|
|
10
|
.2
|
|
The Timberland Company 1997 Incentive Plan, as amended(10)
|
|
10
|
.3
|
|
The Timberland Company 1991 Employee Stock Purchase Plan, as
amended(5)
|
|
10
|
.4
|
|
(a) The Timberland Company 1991 Stock Option Plan for
Non-Employee Directors(6)
|
|
|
|
|
(b) Amendment No. 1 dated December 7, 2000(8)
|
|
10
|
.5
|
|
The Timberland Company 2001 Non-Employee Directors Stock Plan,
as amended(13)
|
|
10
|
.6
|
|
Summary of Compensation for Non-Management Members of the Board
of Directors of The Timberland Company, effective
January 1, 2009(3)
|
|
10
|
.7
|
|
Second Amended and Restated Revolving Credit Agreement dated as
of June 2, 2006 among The Timberland Company, certain banks
listed therein and Bank of America, N.A., as administrative
agent(11)
|
|
10
|
.8
|
|
First Amendment to the Second Amended and Restated Revolving
Credit Agreement, dated as of September 4, 2007 among The
Timberland Company, certain lending institutions listed therein
and Bank of America, N.A., as a lender and as administrative
agent.(15)
|
|
10
|
.9
|
|
The Timberland Company Deferred Compensation Plan, as amended(2)
|
|
10
|
.10
|
|
Amended and Restated Change of Control Severance Agreement(4)
|
|
10
|
.11
|
|
The Timberland Company 2007 Executive Long Term Incentive
Program(16)
|
|
10
|
.12
|
|
The Timberland Company 2007 Incentive Plan, as amended
(2007 IP)(17)
|
|
10
|
.13
|
|
The Timberland Company 2008 Executive Long Term Incentive
Program(18)
|
|
10
|
.14
|
|
The Timberland Company 2009 Executive Long Term Incentive
Program(3)
|
|
10
|
.15
|
|
The Timberland Company 2010 Executive Long Term Incentive
Program(20)
|
|
10
|
.16
|
|
Form of Performance Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.17
|
|
Form of Performance Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.18
|
|
Form of Non-Qualified Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.19
|
|
Form of Restricted Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.20
|
|
Form of Restricted Stock Award Agreement under the 2007 IP(3)
|
|
10
|
.21
|
|
Form of Director Restricted Stock Unit Agreement under the 2007
IP(12)
|
|
10
|
.22
|
|
The Timberland Company 2004 Executive Long Term Incentive
Program(13)
|
|
10
|
.23
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program(13)
|
|
10
|
.24
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program dated November 30, 2005(19)
|
|
(21)
|
|
|
SUBSIDIARIES
|
|
21
|
.1
|
|
List of subsidiaries of the registrant, filed herewith
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
(23)
|
|
|
CONSENT OF EXPERTS AND COUNSEL
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche LLP, filed herewith
|
|
(31)
|
|
|
RULE 13a-14(a)/15d
14(a) CERTIFICATIONS
|
|
31
|
.1
|
|
Principal Executive Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
31
|
.2
|
|
Principal Financial Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
(32)
|
|
|
SECTION 1350 CERTIFICATIONS
|
|
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
|
|
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
|
|
101
|
.INS
|
|
XBRL Instance Document
|
|
101
|
.SCH
|
|
XBRL Taxonomy Extension Schema Document
|
|
101
|
.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
101
|
.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
101
|
.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
|
101
|
.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
We agree to furnish to the Commission, upon its request, copies
of any omitted schedule or exhibit to any Exhibit filed herewith.
|
|
|
(1)
|
|
Filed as an exhibit to Registration Statement on
Form S-1,
numbered
33-14319,
and incorporated herein by reference.
|
|
(2)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference.
|
|
(3)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended April 3, 2009, and incorporated
herein by reference.
|
|
(4)
|
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on December 22, 2008, and incorporated herein by
reference.
|
|
(5)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended October 2, 2009, and
incorporated herein by reference.
|
|
(6)
|
|
Filed on August 18, 1992, as an exhibit to Registration
Statement on
Form S-8,
numbered
33-50998,
and incorporated herein by reference.
|
|
(7)
|
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on March 2, 2007, and incorporated herein by
reference.
|
|
(8)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2000, and
incorporated herein by reference.
|
|
(9)
|
|
Filed on October 26, 2001, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-72248,
and incorporated herein by reference.
|
|
(10)
|
|
Filed on January 15, 2004, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-111949,
and incorporated herein by reference.
|
|
(11)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended June 30, 2006, and incorporated
herein by reference.
|
|
(12)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended July 3, 2009, and incorporated
herein by reference.
|
|
(13)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004, as amended,
and incorporated herein by reference.
|
|
(14)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 (filed on
March 1, 2007), and incorporated herein by reference.
|
|
|
|
(15)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended September 29, 2007, and
incorporated herein by reference.
|
|
(16)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 30, 2007, and
incorporated herein by reference.
|
|
(17)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended July 2, 2010, and incorporated
herein by reference.
|
|
(18)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 28, 2008, and
incorporated herein by reference.
|
|
(19)
|
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, and
incorporated herein by reference.
|
|
(20)
|
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended April 2, 2010, and incorporated
herein by reference.
|
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