e10vq
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the quarterly period ended September 29, 2006
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 |
For the transition period from to
Commission File Number 1-9548
The Timberland Company
(Exact Name of Registrant as Specified in Its Charter)
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Delaware
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02-0312554 |
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(State or Other Jurisdiction of
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(I.R.S. Employer Identification No.) |
Incorporation or Organization) |
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200 Domain Drive, Stratham, New Hampshire
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03885 |
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(Address of Principal Executive Offices)
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(Zip Code) |
Registrants Telephone Number, Including Area Code: (603) 772-9500
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act. (Check one):
Large Accelerated Filer þ Accelerated Filer o Non-Accelerated Filer o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
o Yes þ No
On
October 27, 2006, 50,676,027 shares of the registrants Class A Common Stock were outstanding
and 11,743,660 shares of the registrants Class B Common Stock were outstanding.
Page 2
THE TIMBERLAND COMPANY
FORM 10-Q
TABLE OF CONTENTS
Page 3
PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
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September 29, |
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September 30, |
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2006 |
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2005 |
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December 31, 2005 |
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Assets |
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Current assets |
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Cash and equivalents |
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$ |
61,850 |
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$ |
117,634 |
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$ |
213,163 |
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Accounts receivable, net of allowance for doubtful accounts of $13,002
at September 29, 2006, $10,243 at September 30, 2005 and $8,755 at
December 31, 2005 |
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330,384 |
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298,172 |
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168,831 |
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Inventory, net |
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250,522 |
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242,622 |
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167,132 |
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Prepaid expense |
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41,059 |
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31,994 |
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33,502 |
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Deferred income taxes |
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18,416 |
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23,524 |
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26,934 |
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Derivative assets |
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1,388 |
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5,122 |
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6,044 |
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Total current assets |
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703,619 |
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719,068 |
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615,606 |
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Property, plant and equipment, net |
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86,201 |
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77,373 |
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82,372 |
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Deferred income taxes |
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8,261 |
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Goodwill |
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39,533 |
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14,163 |
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39,503 |
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Intangible assets, net |
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42,597 |
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4,579 |
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40,909 |
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Other assets, net |
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10,467 |
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10,007 |
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10,264 |
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Total assets |
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$ |
890,678 |
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$ |
825,190 |
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$ |
788,654 |
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Liabilities and Stockholders Equity |
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Current liabilities |
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Notes payable |
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$ |
54,200 |
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$ |
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$ |
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Accounts payable |
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127,440 |
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125,670 |
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97,294 |
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Accrued expense |
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Payroll and related |
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34,275 |
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39,520 |
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48,721 |
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Other |
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88,374 |
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64,173 |
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53,121 |
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Income taxes payable |
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34,087 |
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47,844 |
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44,210 |
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Derivative liabilities |
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1,455 |
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Total current liabilities |
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339,831 |
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277,207 |
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243,346 |
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Deferred compensation and other long-term liabilities |
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13,486 |
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15,274 |
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16,046 |
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Deferred income taxes |
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5,051 |
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1,075 |
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Stockholders equity |
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Preferred Stock, $.01 par value; 2,000,000 shares authorized; none issued |
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Class A Common Stock, $.01 par value (1 vote per share); 120,000,000
shares authorized; 72,512,804 shares issued at September 29, 2006,
71,688,107 shares issued at September 30, 2005 and 71,804,959 shares
issued at December 31, 2005 |
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725 |
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717 |
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718 |
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Class B Common Stock, $.01 par value (10 votes per share); convertible
into Class A shares on a one-for-one basis; 20,000,000 shares
authorized; 11,743,660 shares issued and outstanding at September 29,
2006, September 30, 2005 and December 31, 2005 |
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117 |
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117 |
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117 |
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Additional paid-in capital |
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211,370 |
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211,603 |
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214,483 |
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Deferred compensation |
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(30,498 |
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(27,166 |
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Retained earnings |
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807,093 |
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692,124 |
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739,004 |
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Accumulated other comprehensive income |
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10,443 |
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10,203 |
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8,696 |
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Treasury Stock at cost; 21,603,950 Class A shares at September 29, 2006,
17,330,185 Class A shares at September 30, 2005 and 18,921,290 Class A
shares at December 31, 2005 |
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(492,387 |
) |
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(356,608 |
) |
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(407,665 |
) |
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Total stockholders equity |
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537,361 |
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527,658 |
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528,187 |
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Total liabilities and stockholders equity |
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$ |
890,678 |
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$ |
825,190 |
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$ |
788,654 |
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The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
Page 4
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Amounts in Thousands, Except Per Share Data)
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For the Three Months Ended |
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For the Nine Months Ended |
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September 29, |
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September 30, |
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September 29, |
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September 30, |
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2006 |
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2005 |
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2006 |
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2005 |
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Revenue |
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$ |
502,980 |
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$ |
505,913 |
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$ |
1,079,396 |
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$ |
1,100,393 |
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Cost of goods sold |
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266,324 |
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258,555 |
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563,816 |
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547,894 |
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Gross profit |
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236,656 |
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247,358 |
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515,580 |
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552,499 |
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Operating expense |
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Selling |
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123,660 |
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111,259 |
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324,014 |
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297,236 |
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General and administrative |
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32,300 |
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28,462 |
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88,568 |
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77,304 |
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Restructuring and related costs |
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(92 |
) |
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2,531 |
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|
820 |
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2,531 |
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Total operating expense |
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155,868 |
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142,252 |
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413,402 |
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377,071 |
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Operating income |
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80,788 |
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105,106 |
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102,178 |
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175,428 |
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Other income/(expense) |
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Interest income/(expense), net |
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(308 |
) |
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|
570 |
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1,463 |
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2,734 |
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Other, net |
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494 |
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(900 |
) |
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2,087 |
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238 |
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Total other income/(expense) |
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186 |
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(330 |
) |
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3,550 |
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2,972 |
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Income before provision for income taxes |
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80,974 |
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104,776 |
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|
105,728 |
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|
178,400 |
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Provision for income taxes |
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29,099 |
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|
35,624 |
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|
37,639 |
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|
60,656 |
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Net income |
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$ |
51,875 |
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$ |
69,152 |
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$ |
68,089 |
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$ |
117,744 |
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Earnings per share |
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Basic |
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$ |
.84 |
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$ |
1.04 |
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$ |
1.08 |
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$ |
1.76 |
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Diluted |
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$ |
.82 |
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$ |
1.02 |
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$ |
1.06 |
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$ |
1.72 |
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Weighted-average shares outstanding |
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Basic |
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|
62,120 |
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|
|
66,175 |
|
|
|
62,910 |
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|
|
66,892 |
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Diluted |
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|
63,062 |
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|
67,697 |
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|
64,069 |
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|
68,359 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
Page 5
THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
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For the Nine Months Ended |
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September 29, |
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September 30, |
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2006 |
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2005 |
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Cash flows from operating activities: |
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Net income |
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$ |
68,089 |
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$ |
117,744 |
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Adjustments to reconcile net income to net cash used by operating activities: |
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Deferred income taxes |
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|
(495 |
) |
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|
(3,488 |
) |
Share-based compensation |
|
|
16,417 |
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|
3,791 |
|
Depreciation and other amortization |
|
|
20,413 |
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|
18,190 |
|
Tax benefit from share-based compensation, net of excess benefit |
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|
1,284 |
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|
6,490 |
|
Other non-cash charges/(credits), net |
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(1,969 |
) |
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|
1,966 |
|
Increase/(decrease) in cash from changes in working capital: |
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Accounts receivable |
|
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(155,614 |
) |
|
|
(154,003 |
) |
Inventory |
|
|
(79,369 |
) |
|
|
(116,360 |
) |
Prepaid expense |
|
|
(6,302 |
) |
|
|
(5,881 |
) |
Accounts payable |
|
|
27,204 |
|
|
|
79,693 |
|
Accrued expense |
|
|
19,365 |
|
|
|
(18,837 |
) |
Income taxes payable |
|
|
(10,204 |
) |
|
|
13,157 |
|
|
|
|
|
|
|
|
|
Net cash used by operating activities |
|
|
(101,181 |
) |
|
|
(57,538 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Additions to property, plant and equipment |
|
|
(21,878 |
) |
|
|
(15,704 |
) |
Other |
|
|
(4,241 |
) |
|
|
147 |
|
|
|
|
|
|
|
|
|
Net cash used by investing activities |
|
|
(26,119 |
) |
|
|
(15,557 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Common stock repurchases |
|
|
(95,543 |
) |
|
|
(128,906 |
) |
Issuance of common stock |
|
|
13,478 |
|
|
|
17,668 |
|
Net borrowing under short-term credit facilities |
|
|
54,200 |
|
|
|
|
|
Excess tax benefit from share-based compensation |
|
|
2,605 |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities |
|
|
(25,260 |
) |
|
|
(111,238 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents |
|
|
1,247 |
|
|
|
(7,149 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and equivalents |
|
|
(151,313 |
) |
|
|
(191,482 |
) |
Cash and equivalents at beginning of period |
|
|
213,163 |
|
|
|
309,116 |
|
|
|
|
|
|
|
|
Cash and equivalents at end of period |
|
$ |
61,850 |
|
|
$ |
117,634 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
693 |
|
|
$ |
290 |
|
Income taxes paid |
|
$ |
44,416 |
|
|
$ |
43,987 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
Page 6
THE TIMBERLAND COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in Thousands, Except Share and Per Share Data)
Note 1. Summary of Significant Accounting Policies
In the opinion of management, the accompanying unaudited condensed consolidated financial
statements contain the adjustments necessary to present fairly The Timberland Companys (we,
our, us, Timberland or the Company) financial position, results of operations and changes
in cash flows for the interim periods presented. Such adjustments consist of normal recurring
items. The unaudited condensed consolidated financial statements should be read in conjunction
with our consolidated financial statements and notes thereto included in our Annual Report on Form
10-K for the year ended December 31, 2005.
Our revenue consists of sales to wholesale customers, retail store revenues, license fees and
royalties. We record wholesale revenues when title passes and the risks and rewards of ownership
have passed to the customer, based on the terms of sale. Title passes generally upon shipment or
upon receipt by the customer, depending on the country of sale and the agreement with the 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.
In the
third quarter and the first nine months of 2006, we recorded $1,107
and $2,774 of reimbursed
shipping expenses within revenues and the related shipping costs within selling expense,
respectively. In the third quarter and the first nine months of 2005, we recorded $1,295 and
$3,223 of reimbursed shipping expenses within revenues and the related shipping costs within
selling expense, respectively. Shipping costs are included in selling
expense and were $3,846 and
$5,733 for the third quarters of 2006 and 2005, and $11,910 and $14,744 for the first nine months of
2006 and 2005, respectively.
Note 2. Historical Financial Results
The results of operations for the three and nine months ended September 29, 2006 are not
necessarily indicative of the results to be expected for the full year. Historically, our revenue
has been more heavily weighted to the second half of the year.
Note 3. Share-Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS)
123(R), Share-Based Payment, which requires a company to measure the grant date fair value of
equity awards given to employees in exchange for services and recognize that cost over the period
that such services are performed. This Standard is a revision of SFAS 123, Accounting for
Stock-Based Compensation, and supersedes Accounting Principles Board (APB) Opinion 25,
Accounting for Stock Issued to Employees, and its related implementation guidance. The Company
adopted the provisions of SFAS 123(R) using the modified prospective application method. Under
this method, compensation expense is recognized on all share-based awards granted prior to, but not
yet vested as of adoption based on the grant date fair value estimated in accordance with the
original provisions of SFAS 123. 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 adoption, for which expense continues to be recognized
on a graded schedule over the vesting period of the award. Share-based compensation costs, which
are recorded in cost of goods sold and selling and general and administrative expenses, totaled
$5,450 ($3,493 net of taxes) and $16,417 ($10,573 net of taxes) for the three and nine months ended
September 29, 2006, respectively.
As a result of adopting SFAS 123(R), the Companys income before provision for income taxes for the
three and nine months ended September 29, 2006 are $2,375 and $7,906 lower, respectively, and the
Companys net income for the three and nine months ended September 29, 2006 are $1,521 and $5,091
lower, respectively, than if we had continued to account for share-based compensation under APB
Opinion 25. Had the Company not adopted SFAS 123(R), basic and diluted earnings per share for the
three and nine months ended September 29, 2006 would have been:
Page 7
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
For the Nine |
|
|
Months Ended |
|
Months Ended |
|
|
September 29, 2006 |
|
September 29, 2006 |
Basic earnings per share, as reported |
|
$ |
.84 |
|
|
$ |
1.08 |
|
Pro forma basic earnings per share |
|
|
.86 |
|
|
|
1.16 |
|
Diluted earnings per share, as reported |
|
|
.82 |
|
|
|
1.06 |
|
Pro forma diluted earnings per share |
|
|
.85 |
|
|
|
1.14 |
|
Prior to January 1, 2006, the Company applied the intrinsic value method in APB Opinion 25 and
related interpretations in accounting for our stock plans, SFAS 123, and SFAS 148, Accounting for
Stock-Based Compensation-Transitional and Disclosure-An Amendment of FASB Statement No. 123, for
disclosure purposes. In our unaudited condensed consolidated statements of operations for the
three and nine months ended September 30, 2005, no compensation expense was recognized for stock
option grants. However, the Company recognized compensation expense for nonvested share awards of
$2,467 ($1,629 net of taxes) and $3,791 ($2,502 net of taxes), respectively. The following table
illustrates the effects on net income and earnings per share had compensation expense for stock
option grants issued been determined under the fair value method of SFAS 123 for the three and nine
months ended September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
For the Nine |
|
|
Months Ended |
|
Months Ended |
|
|
September 30, 2005 |
|
September 30, 2005 |
Net income as reported |
|
$ |
69,152 |
|
|
$ |
117,744 |
|
Add: Share-based employee compensation
expense included in reported net
income, net of related tax effect |
|
|
1,629 |
|
|
|
2,502 |
|
Deduct: Total share-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effect |
|
|
3,822 |
|
|
|
8,585 |
|
|
|
|
Pro forma net income |
|
$ |
66,959 |
|
|
$ |
111,661 |
|
|
|
|
Basic earnings per share, as reported |
|
$ |
1.04 |
|
|
$ |
1.76 |
|
Pro forma basic earnings per share |
|
$ |
1.01 |
|
|
$ |
1.67 |
|
Diluted earnings per share, as reported |
|
$ |
1.02 |
|
|
$ |
1.72 |
|
Pro forma diluted earnings per share |
|
$ |
.99 |
|
|
$ |
1.63 |
|
Financial statement amounts for the three and nine months ended September 30, 2005 have not been
restated to reflect the fair value method of expensing share-based compensation.
Prior to the adoption of SFAS 123(R), the Company presented all tax benefits of deductions
resulting from the exercise of stock options as operating cash flows in the statement of cash
flows. Effective January 1, 2006 and in accordance with SFAS 123(R), the Company changed its cash
flow presentation whereby the cash flows resulting from the tax benefits arising from tax
deductions in excess of the compensation expense recognized for share-based awards (excess tax
benefits) are now classified as financing cash flows. In the unaudited condensed consolidated
statement of cash flows for the nine months ended September 29, 2006, the total excess tax benefit
of $2,605 related to share-based compensation included in cash flows from financing activities
would have been included in cash flows from operating activities if the Company had not adopted
SFAS 123(R).
The Company received $13,478 in proceeds on the exercise of stock options under the Companys stock
option and employee stock purchase plans and recorded a tax benefit of $4,288 related to these
stock option exercises during the nine months ended September 29, 2006.
Under the provisions of SFAS 123(R), the Company is required to estimate the number of all
share-based awards that will be forfeited. Effective January 1, 2006, the Company uses historical
data to estimate forfeitures. Prior to the adoption of SFAS 123(R), the Company recognized the
impact of forfeitures as they occurred.
Shares issued upon the exercise of stock options under the Companys stock option and employee
stock purchase plans are normally from authorized but unissued shares of the Companys Class A
Common Stock. However, to the extent that the Company has treasury shares issued, such shares may
be reissued upon the exercise of stock options.
Page 8
Stock Options
Under the Companys 1997 Incentive Plan, as amended (the 1997 Plan), 16,000,000 shares of Class A
Common Stock have been reserved for issuance to officers, directors and key employees. In addition
to stock options, any of the following incentives may be awarded to participants under the 1997
Plan: stock appreciation rights (SARs), 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 are determined by the Management Development and Compensation
Committee of the Board of Directors. Outstanding stock options granted under the 1997 Plan are
granted with an exercise price equal to market value at date of grant and become exercisable either
in equal installments over three years, beginning one year after the grant date, or become
exercisable two years after the grant date. Prior to 2006, 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.
Under our 2001 Non-Employee Directors Stock Plan, as amended (the 2001 Plan), we have 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 are awarded on a
predetermined formula basis. Unless terminated by our Board of Directors, the 2001 Plan will be in
effect until all shares available for issuance have been issued, pursuant to the exercise of all
options granted. The exercise price of options granted under the 2001 Plan is the 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 become exercisable in equal installments over four years, beginning one
year after the grant date, and expire ten years after the grant date.
The Company estimates the fair value of its stock option awards on the date of grant using the
Black-Scholes option valuation model that uses the assumptions noted in the following table.
Expected volatility is based on 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
|
September 29, 2006 |
|
September 30, 2005 |
|
September 29, 2006 |
|
September 30, 2005 |
Expected volatility |
|
|
29.9 |
% |
|
|
28.3 |
% |
|
|
30.2 |
% |
|
|
29.6 |
% |
Risk-free interest rate |
|
|
4.9 |
% |
|
|
4.0 |
% |
|
|
4.7 |
% |
|
|
3.6 |
% |
Expected life (in years) |
|
|
4.0 |
|
|
|
4.1 |
|
|
|
4.2 |
|
|
|
5.1 |
|
Expected dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes transactions under all stock option arrangements for the nine months
ended September 29, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Aggregate |
|
|
|
|
|
|
|
Average |
|
|
Contractual Term |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise Price |
|
|
(Years) |
|
|
Value |
|
Outstanding at January 1, 2006 |
|
|
5,708,184 |
|
|
$ |
25.15 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
784,231 |
|
|
|
33.06 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(707,845 |
) |
|
|
17.63 |
|
|
|
|
|
|
|
|
|
Expired or forfeited |
|
|
(285,954 |
) |
|
|
29.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 29, 2006 |
|
|
5,498,616 |
|
|
$ |
27.02 |
|
|
|
6.9 |
|
|
$ |
21,874 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 29, 2006 |
|
|
3,034,174 |
|
|
$ |
23.67 |
|
|
|
5.7 |
|
|
$ |
18,630 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 9
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 $8.55 and $9.94 for the three
months ended September 29, 2006 and September 30, 2005, respectively, and $10.46 and $11.57 for
the nine months ended September 29, 2006 and September 30, 2005, respectively. The total
intrinsic values of stock options exercised during the three months ended September 29, 2006 and
September 30, 2005 were $1,354 and $4,252, respectively, and $11,307 and $17,631 for the nine
months ended September 29, 2006 and September 30, 2005, respectively.
Information on stock options outstanding and exercisable as of September 29, 2006 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Remaining |
|
|
Average |
|
|
|
|
|
|
Average |
|
Range of |
|
|
Number |
|
|
Contractual |
|
|
Exercise |
|
|
Number |
|
|
Exercise |
|
Exercise Prices |
|
|
Outstanding |
|
|
Term (Years) |
|
|
Price |
|
|
Exercisable |
|
|
Price |
|
$ |
5.27 |
|
|
|
|
|
17.74 |
|
|
|
804,539 |
|
|
|
4.05 |
|
|
$ |
14.28 |
|
|
|
802,414 |
|
|
$ |
14.28 |
|
|
17.81 |
|
|
|
|
|
19.10 |
|
|
|
125,129 |
|
|
|
5.56 |
|
|
|
18.20 |
|
|
|
112,254 |
|
|
|
18.20 |
|
|
19.12 |
|
|
|
|
|
19.49 |
|
|
|
683,890 |
|
|
|
6.42 |
|
|
|
19.48 |
|
|
|
431,784 |
|
|
|
19.47 |
|
|
19.50 |
|
|
|
|
|
27.22 |
|
|
|
561,207 |
|
|
|
6.89 |
|
|
|
24.67 |
|
|
|
363,706 |
|
|
|
24.21 |
|
|
27.53 |
|
|
|
|
|
28.50 |
|
|
|
654,326 |
|
|
|
5.51 |
|
|
|
28.40 |
|
|
|
520,180 |
|
|
|
28.50 |
|
|
28.63 |
|
|
|
|
|
30.82 |
|
|
|
119,384 |
|
|
|
8.10 |
|
|
|
29.28 |
|
|
|
24,100 |
|
|
|
29.50 |
|
|
30.88 |
|
|
|
|
|
31.29 |
|
|
|
928,902 |
|
|
|
7.36 |
|
|
|
31.29 |
|
|
|
465,848 |
|
|
|
31.29 |
|
|
31.32 |
|
|
|
|
|
35.01 |
|
|
|
822,050 |
|
|
|
9.03 |
|
|
|
34.06 |
|
|
|
63,311 |
|
|
|
32.12 |
|
|
35.02 |
|
|
|
|
|
35.27 |
|
|
|
3,950 |
|
|
|
8.99 |
|
|
|
35.14 |
|
|
|
486 |
|
|
|
35.23 |
|
|
35.42 |
|
|
|
|
|
39.70 |
|
|
|
795,239 |
|
|
|
8.36 |
|
|
|
35.69 |
|
|
|
250,091 |
|
|
|
35.78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
5.27 |
|
|
|
|
|
39.70 |
|
|
|
5,498,616 |
|
|
|
6.86 |
|
|
$ |
27.02 |
|
|
|
3,034,174 |
|
|
$ |
23.67 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total unrecognized share-based compensation expense related to nonvested stock options was $11,585
as of September 29, 2006. The cost is expected to be recognized over the weighted-average period of
1.1 years.
Nonvested Shares
As noted above, the Companys 1997 Plan provides for grants of nonvested shares. The Company
generally grants nonvested shares with a three year vesting period, which is the same as the
contractual term. 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 Company has assumed no forfeitures with respect to nonvested shares. The
fair value of nonvested share grants is determined by the market value at the date of the grant.
Changes in the Companys nonvested shares for the nine months ended September 29, 2006 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant Date |
|
|
|
Shares |
|
|
Fair Value |
|
Unvested at January 1, 2006 |
|
|
698,061 |
|
|
$ |
36.27 |
|
Awarded |
|
|
377,770 |
|
|
|
26.47 |
|
Vested |
|
|
(143,355 |
) |
|
|
34.40 |
|
|
|
|
|
|
|
|
Unvested at September 29, 2006 |
|
|
932,476 |
|
|
$ |
32.59 |
|
|
|
|
|
|
|
|
The total fair value of shares vested during the nine months ended
September 29, 2006 was $4,250.
Unrecognized compensation expense related to nonvested share grants was $20,546 as of September 29,
2006. The expense is expected to be recognized over a weighted-average period of 1.7 years.
Under the provisions of SFAS 123(R), we are no longer permitted to record deferred compensation for
the unvested portion of nonvested share grants. Accordingly, upon adoption of SFAS 123(R), the
balance of deferred compensation was reduced to zero, resulting in an offsetting reduction to
additional paid-in capital in the unaudited condensed consolidated balance sheet.
Page 10
Employee Stock Purchase Plan
Pursuant to the terms of our 1991 Employee Stock Purchase Plan, as amended (the ESP Plan), we are
authorized to issue up to an aggregate of 2,400,000 shares of our Class A Common Stock to eligible
employees electing to participate in the ESP Plan. 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 Companys ESP Plan 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 stock options contractual and expected lives).
The risk-free interest rate is based on the six-month U.S. Treasury rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
|
September 29, 2006 |
|
September 30, 2005 |
|
September 29, 2006 |
|
September 30, 2005 |
Expected volatility |
|
|
28.7 |
% |
|
|
25.9 |
% |
|
|
28.7 |
% |
|
|
25.9 |
% |
Risk-free interest rate |
|
|
5.3 |
% |
|
|
3.2 |
% |
|
|
4.7 |
% |
|
|
2.8 |
% |
Expected life (in
months) |
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
|
|
6 |
|
Expected dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average fair values of the Companys ESP Plan purchase rights were
approximately $6.27 and $7.99 for
the three months ended September 29, 2006 and September 30, 2005, respectively. The
weighted-average fair values of the Companys ESP Plan purchase
rights were approximately $6.64 and $6.91 for the
nine months ended September 29, 2006 and September 30, 2005, respectively.
Total unrecognized compensation expense related to the unvested portion of the Companys ESP awards
was $119 as of September 29, 2006. The expense is expected to be recognized in the fourth
quarter of 2006.
Note 4. Earnings Per Share
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 (EPS) reflects the potential dilution that would occur if potentially dilutive
securities such as stock options were exercised and nonvested shares vested. The following is a
reconciliation of the number of shares (in thousands) for the basic and diluted EPS computations
for the three and nine months ended September 29, 2006 and September 30, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
September 29, 2006 |
|
September 30, 2005 |
|
|
|
|
|
|
Weighted |
|
Per- |
|
|
|
|
|
Weighted |
|
Per- |
|
|
Net |
|
-Average |
|
Share |
|
Net |
|
-Average |
|
Share |
|
|
Income |
|
Shares |
|
Amount |
|
Income |
|
Shares |
|
Amount |
|
|
|
|
|
Basic EPS |
|
$ |
51,875 |
|
|
|
62,120 |
|
|
$ |
.84 |
|
|
$ |
69,152 |
|
|
|
66,175 |
|
|
$ |
1.04 |
|
Effect of dilutive
securities |
|
|
|
|
|
|
942 |
|
|
|
(.02 |
) |
|
|
|
|
|
|
1,522 |
|
|
|
(.02 |
) |
|
|
|
|
|
Diluted EPS |
|
$ |
51,875 |
|
|
|
63,062 |
|
|
$ |
.82 |
|
|
$ |
69,152 |
|
|
|
67,697 |
|
|
$ |
1.02 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended |
|
|
September 29, 2006 |
|
September 30, 2005 |
|
|
|
|
|
|
Weighted |
|
Per- |
|
|
|
|
|
Weighted |
|
Per- |
|
|
Net |
|
-Average |
|
Share |
|
Net |
|
-Average |
|
Share |
|
|
Income |
|
Shares |
|
Amount |
|
Income |
|
Shares |
|
Amount |
|
|
|
|
|
Basic EPS |
|
$ |
68,089 |
|
|
|
62,910 |
|
|
$ |
1.08 |
|
|
$ |
117,744 |
|
|
|
66,892 |
|
|
$ |
1.76 |
|
Effect of dilutive
securities |
|
|
|
|
|
|
1,159 |
|
|
|
(.02 |
) |
|
|
|
|
|
|
1,467 |
|
|
|
(.04 |
) |
|
|
|
|
|
Diluted EPS |
|
$ |
68,089 |
|
|
|
64,069 |
|
|
$ |
1.06 |
|
|
$ |
117,744 |
|
|
|
68,359 |
|
|
$ |
1.72 |
|
|
|
|
|
|
Page 11
The following securities (in thousands) were outstanding as of September 29, 2006 and September 30,
2005, but were not included in the computation of diluted EPS because the options exercise price
was greater than the average market price of the common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Nine Months Ended |
|
|
September 29, 2006 |
|
September 30, 2005 |
|
September 29, 2006 |
|
September 30, 2005 |
Options to purchase
shares of common
stock |
|
|
3,392 |
|
|
|
903 |
|
|
|
2,573 |
|
|
|
659 |
|
Note 5. Comprehensive Income
Comprehensive income for the three and nine months ended September 29, 2006 and September 30, 2005
is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
For the Nine Months Ended |
|
|
|
|
|
|
|
September 30, |
|
|
|
|
|
|
|
|
|
September 29, 2006 |
|
|
2005 |
|
|
September 29, 2006 |
|
|
September 30, 2005 |
|
Net income |
|
$ |
51,875 |
|
|
$ |
69,152 |
|
|
$ |
68,089 |
|
|
$ |
117,744 |
|
Change in
cumulative
translation
adjustment |
|
|
(769 |
) |
|
|
(699 |
) |
|
|
7,584 |
|
|
|
(14,068 |
) |
Change in fair
value of derivative
financial
instruments, net of
taxes |
|
|
4,468 |
|
|
|
(1,176 |
) |
|
|
(5,837 |
) |
|
|
14,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
55,574 |
|
|
$ |
67,277 |
|
|
$ |
69,836 |
|
|
$ |
117,721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended September 29, 2006 and September 30, 2005, the after tax hedging
gains/(losses) reclassified to earnings were $(2,165) and $2,444, respectively. For the nine
months ended September 29, 2006 and September 30, 2005, the after tax hedging gains/(losses)
reclassified to earnings were $(259) and $1,384, respectively.
Note 6. Business Segments and Geographic Information
We manage our business in three reportable segments, each sharing similar product, distribution and
marketing. The reportable segments are U.S. Wholesale, U.S. Consumer Direct and International.
The U.S. Wholesale segment is comprised of the sale of products to wholesale customers in the
United States. This segment also includes royalties from licensed products sold in the United
States, the management costs and expenses associated with our worldwide licensing efforts and
certain marketing expenses and value added services. For the three and nine months ended September
30, 2005, marketing expenses of $3,121 and $4,132, respectively, were reclassified from our
unallocated corporate segment to U.S. Wholesale as the expenses were deemed to be primarily related
to our U.S. Wholesale business.
The U.S. Consumer Direct segment includes the Company-operated specialty and factory outlet stores
in the United States and our e-commerce business.
The International segment consists of the marketing, selling and distribution of footwear, apparel
and accessories and licensed products outside of the United States. Products are sold outside of
the United States through our subsidiaries (which use wholesale and retail channels to sell
footwear, apparel and accessories), independent distributors and licensees.
The Unallocated Corporate component of segment reporting consists primarily of corporate finance,
information services, legal and administrative expenses, United States distribution expenses,
global marketing support expenses, worldwide product development and other costs incurred in
support of Company-wide activities. It also includes the costs related to share-based
compensation. Additionally, Unallocated Corporate includes total other income, which is primarily
interest income, net, and other miscellaneous income, net. Such income is not allocated among the
reported 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 operating contribution,
which represents pre-tax income before unallocated corporate expenses, interest and other
income/(expense), net, and operating cash flow measurements. Total assets are
Page 12
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
United States transportation and distribution equipment.
For the Three Months Ended September 29, 2006 and September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
U.S. |
|
Consumer |
|
|
|
|
|
Unallocated |
|
|
|
|
Wholesale |
|
Direct |
|
International |
|
Corporate |
|
Consolidated |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
202,110 |
|
|
$ |
45,858 |
|
|
$ |
255,012 |
|
|
$ |
|
|
|
$ |
502,980 |
|
Operating income/(loss) |
|
|
61,814 |
|
|
|
2,867 |
|
|
|
71,290 |
|
|
|
(55,183 |
) |
|
|
80,788 |
|
Income/(loss) before income taxes |
|
|
61,814 |
|
|
|
2,867 |
|
|
|
71,290 |
|
|
|
(54,997 |
) |
|
|
80,974 |
|
Total assets |
|
|
347,505 |
|
|
|
36,772 |
|
|
|
418,182 |
|
|
|
88,219 |
|
|
|
890,678 |
|
Goodwill |
|
|
31,745 |
|
|
|
794 |
|
|
|
6,994 |
|
|
|
|
|
|
|
39,533 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
220,694 |
|
|
$ |
46,595 |
|
|
$ |
238,624 |
|
|
$ |
|
|
|
$ |
505,913 |
|
Operating income/(loss) |
|
|
75,243 |
|
|
|
5,512 |
|
|
|
76,498 |
|
|
|
(52,147 |
) |
|
|
105,106 |
|
Income/(loss) before income taxes |
|
|
75,243 |
|
|
|
5,512 |
|
|
|
76,498 |
|
|
|
(52,477 |
) |
|
|
104,776 |
|
Total assets |
|
|
291,324 |
|
|
|
34,424 |
|
|
|
369,029 |
|
|
|
130,413 |
|
|
|
825,190 |
|
Goodwill |
|
|
6,804 |
|
|
|
794 |
|
|
|
6,565 |
|
|
|
|
|
|
|
14,163 |
|
For the Nine Months Ended September 29, 2006 and September 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer |
|
|
|
|
|
Unallocated |
|
|
|
|
U.S. Wholesale |
|
Direct |
|
International |
|
Corporate |
|
Consolidated |
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
414,263 |
|
|
$ |
112,157 |
|
|
$ |
552,976 |
|
|
$ |
|
|
|
$ |
1,079,396 |
|
Operating income/(loss) |
|
|
108,904 |
|
|
|
2,944 |
|
|
|
124,753 |
|
|
|
(134,423 |
) |
|
|
102,178 |
|
Income/(loss) before income taxes |
|
|
108,904 |
|
|
|
2,944 |
|
|
|
124,753 |
|
|
|
(130,873 |
) |
|
|
105,728 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
438,036 |
|
|
$ |
119,899 |
|
|
$ |
542,458 |
|
|
$ |
|
|
|
$ |
1,100,393 |
|
Operating income/(loss) |
|
|
139,616 |
|
|
|
12,746 |
|
|
|
140,588 |
|
|
|
(117,522 |
) |
|
|
175,428 |
|
Income/(loss) before income taxes |
|
|
139,616 |
|
|
|
12,746 |
|
|
|
140,588 |
|
|
|
(114,550 |
) |
|
|
178,400 |
|
Page 13
Note 7. Inventory
Inventory, net of reserves, consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 29, 2006 |
|
|
September 30, 2005 |
|
|
December 31, 2005 |
|
Materials |
|
$ |
4,469 |
|
|
$ |
3,792 |
|
|
$ |
3,483 |
|
Work-in-process |
|
|
998 |
|
|
|
2,068 |
|
|
|
762 |
|
Finished goods |
|
|
245,055 |
|
|
|
236,762 |
|
|
|
162,887 |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
250,522 |
|
|
$ |
242,622 |
|
|
$ |
167,132 |
|
|
|
|
|
|
|
|
|
|
|
Note 8. Notes Payable
We have an unsecured committed revolving credit agreement with a group of banks which matures on
June 2, 2011 (Agreement). The Agreement provides for $200,000 of committed borrowings, of which
up to $125,000 may be used for letters of credit. 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 Agreement, we may borrow at interest rates based on Eurodollar rates (5.3% as of September 29,
2006), 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 September 29, 2006, the applicable margin under
the facility was 27 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 will 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 September 29, 2006, the commitment fee was 8 basis points. The
Agreement places certain limitations on additional debt, stock repurchases, acquisitions, amount of
dividends we may pay and certain other financial and non-financial covenants. The primary
financial covenants relate to maintaining a minimum fixed charge coverage of 3:1 and a leverage
ratio of 2:1. We measure compliance with the financial and non-financial covenants and ratios as
required by the terms of the Agreement on a fiscal quarter basis.
We had uncommitted lines of credit available from certain banks totaling $50,000 as of September
29, 2006. Borrowings under these lines are at prevailing money market rates (5.8% as of September
29, 2006). 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 the Company.
As of September 29, 2006, we had short-term borrowings outstanding of $54,200, comprised of $45,000
from our revolving credit agreement and $9,200 from our uncommitted lines of credit. As of
September 29, 2006, the weighted-average interest rate on these borrowings was 5.6%. As of
September 30, 2005, we had no short-term borrowings outstanding under any of our credit facilities.
Note 9. Nonvested Share Awards and Other
In 2004, our Board of Directors approved
awards of nonvested share grants of Class A Common
Stock under the Companys 1997 Incentive Plan, as amended, and a cash incentive award. The award
of these nonvested share grants and the cash incentive award are based on achieving certain
performance targets for the periods occurring between January 1, 2004 through December 31, 2006.
Based on the achievement of 2005 performance targets, 377,770 of nonvested shares with a value of
$10,000 were issued on July 5, 2006 and will fully vest three
years from that date. Based on
the achievement of 2004 performance targets, 275,117 of nonvested shares with a value of $10,873
were issued on July 5, 2005 and will vest equally over three
years from that date. An
additional award, based on the achievement of a separate performance target, of 200,000 nonvested
shares with a value of $7,904 was also issued on July 5, 2005
and will vest two years after that date. All of these shares are subject to restrictions on sale and transferability, a risk of
forfeiture and certain other terms and conditions. Through December 31, 2005, we recorded deferred
compensation in stockholders equity on our unaudited condensed consolidated balance sheet to
reflect these awards. Under the provisions of SFAS 123(R), we are no longer permitted to record
deferred compensation in stockholders equity for unvested awards. For the measurement period from
January 1, 2006 through December 31, 2006, an award of $8,732 may be made in 2007 if certain
targeted performance goals are achieved. The award amount will vary based upon the degree to which
these performance goals are attained. As of September 29, 2006, we estimate the award amount will
be approximately $1,424.
Page 14
The number of shares to be awarded will be determined by the share price
on the issuance date. Additionally, a cash incentive award of up to $3,000 may be awarded in 2007
based on the achievement of a performance target over a three year measurement period from January
1, 2004 through December 31, 2006. As of September 29, 2006, we estimate the performance target
for the cash incentive award will not be achieved.
In March 2005, our Board of Directors approved an additional cash incentive
award of $1,250, which
will be paid in 2007 and was based on the achievement of a performance target over a one year
measurement period from January 1, 2005
through December 31, 2005. This award is recorded in other long-term liabilities on the unaudited
condensed consolidated balance sheet as of September 29, 2006.
In September 2006, our Board of Directors approved an additional future award of $1,000 of
nonvested share grants of Class A Common Stock under the Companys 1997 Incentive Plan, as amended,
and a $2,000 cash incentive award. These awards may be issued in 2007 based on the achievement
of a revenue target over a twelve month measurement period from September 30, 2006 through
September 28, 2007.
Note 10. Restructuring Costs
During the first quarter of 2006, we initiated a plan to create a European finance shared service
center in Schaffhausen, Switzerland. This shared service center will be responsible for all
transactional and statutory financial activities for which certain activities are currently
performed by our locally based finance organizations.
On July 6, 2005, the Company announced plans to consolidate our Caribbean manufacturing operations.
We ceased operations in our Puerto Rico manufacturing facility at the end of 2005 and are
expanding our manufacturing volume in the Dominican Republic.
The following table sets forth our restructuring activity for the nine months ended September 29,
2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
|
|
|
|
|
|
|
|
Restructuring |
|
|
|
Liabilities as of |
|
|
|
|
|
|
Cash |
|
|
Liabilities as of |
|
|
|
December 31, 2005 |
|
|
Charges |
|
|
Payments |
|
|
September 29, 2006 |
|
Severance and employment related
charges |
|
$ |
3,784 |
|
|
$ |
612 |
|
|
$ |
(3,562 |
) |
|
$ |
834 |
|
Other charges |
|
|
179 |
|
|
|
208 |
|
|
|
(373 |
) |
|
|
14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
3,963 |
|
|
$ |
820 |
|
|
$ |
(3,935 |
) |
|
$ |
848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Severance and employment related charges consist primarily of severance, health benefits and other
employee related costs incurred due to these two restructuring plans. Other charges consist of
fees related to the closing of our manufacturing facility in Puerto Rico only. Credits recorded
for the three months ended September 29, 2006 reflect adjustments to our estimated restructuring
liabilities related to the closing of the Puerto Rico manufacturing facility. The following tables
detail the charges and payments by location:
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
|
For the Nine |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
September 29, 2006 |
|
|
September 29, 2006 |
|
Severance and employment related charges: |
|
|
|
|
|
|
|
|
European shared service center |
|
$ |
91 |
|
|
$ |
596 |
|
Puerto Rico manufacturing facility |
|
|
(153 |
) |
|
|
16 |
|
|
|
|
|
|
|
|
Total severance and employment related charges |
|
|
(62 |
) |
|
|
612 |
|
Other charges |
|
|
(30 |
) |
|
|
208 |
|
|
|
|
|
|
|
|
Total |
|
$ |
(92 |
) |
|
$ |
820 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three |
|
|
For the Nine |
|
|
|
Months Ended |
|
|
Months Ended |
|
|
|
September 29, 2006 |
|
|
September 29, 2006 |
|
Severance and employment related cash payments: |
|
|
|
|
|
|
|
|
European shared service center |
|
$ |
270 |
|
|
$ |
270 |
|
Puerto Rico manufacturing facility |
|
|
42 |
|
|
|
3,292 |
|
|
|
|
|
|
|
|
Total severance and employment related cash payments |
|
|
312 |
|
|
|
3,562 |
|
Other cash payments |
|
|
90 |
|
|
|
373 |
|
|
|
|
|
|
|
|
Total |
|
$ |
402 |
|
|
$ |
3,935 |
|
|
|
|
|
|
|
|
Page 15
European finance shared service center restructuring activity will continue through the second
quarter of 2007. The Puerto Rico closure was completed in the second quarter of 2006, but we will
continue to make cash payments for severance benefits through the second quarter of 2007.
Total additional charges of approximately $200 are expected to be incurred in the fourth quarter of
2006 and $100 in 2007, which are expected to cover the remaining severance and employment related
charges for the European finance shared service center restructuring activity.
Note 11. Income Taxes
The effective tax rate for the three and nine months ended September 29, 2006 was 35.9% and 35.6%,
respectively. The effective tax rate was adjusted in the third quarter of 2006 to increase our
full year 2006 tax rate estimate from 34.5% to 35.6%. This increase reflects updated estimates of
the geographic mix of our profits and provisions for specific tax
reserves. The effective tax rate for the three and nine months ended September 30, 2005 was 34.0%.
Note 12. Share Repurchase
On February 7, 2006, our Board of Directors approved an additional repurchase of 6,000,000 shares
of our Class A Common Stock. As of September 29, 2006, 4,370,203 shares remained under this
authorization. Shares repurchased totaled 928,735 during the quarter ended September 29, 2006.
We may use repurchased shares to offset future issuances under the Companys stock-based employee
incentive plans. From time to time, we use Rule 10b5-1 plans to facilitate share repurchases.
Note 13. Litigation
We are involved in various litigation and legal matters that 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 consolidated financial statements.
Note 14. New Accounting Pronouncements
In June 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes an interpretation of FASB Statement No.
109, which clarifies the accounting for uncertainty in income tax positions. FIN 48 requires a
company to recognize in its financial statements the impact of a tax position, if that position is
more likely than not of being sustained upon examination by the appropriate taxing authority, based
on the technical merits of the position. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently
evaluating the impact FIN 48 will have on our consolidated financial position and results of
operations.
In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS) 157, Fair
Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value
in generally accepted accounting principles (GAAP) and expands disclosures about fair value
measurements. SFAS is effective for fiscal years beginning after November 15, 2007 and interim
periods within those fiscal years. The Company is currently evaluating the effect SFAS 157 will
have on our consolidated financial position and results of operations.
In September 2006, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB)
108 which provides interpretations regarding the process of quantifying prior year financial
statement misstatements for the purposes of a materiality assessment. SAB 108 provides guidance
that the following two methodologies should be used to quantify prior year income statement
misstatements: i) the error is quantified as the amount by which the current period income
statement is misstated and ii) the error is quantified as the cumulative amount by which the
current year balance sheet is misstated.
Page 16
SAB 108 concludes that a Company should evaluate whether
a misstatement is material using both of these methodologies. The interpretation is effective for
evaluations made on or after November 15, 2006. The adoption of SAB 108 is not expected to have a
material effect on the Companys consolidated financial position or results of operations.
Page 17
Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discusses The Timberland Companys (we, our, us, Timberland or the Company)
results of operations and liquidity and capital resources. The discussion, including known trends
and uncertainties identified by management, should be read in conjunction with the unaudited
condensed consolidated financial statements and related notes. Included herein are discussions and
reconciliations of (i) total Company and International revenue changes to constant dollar revenue
changes and (ii) diluted EPS to diluted EPS excluding restructuring and related costs and including
share-based employee compensation costs related to stock option and employee stock purchase plans
for 2005. Constant dollar revenue changes, which exclude the impact of changes in foreign exchange
rates, and diluted EPS to diluted EPS excluding restructuring and related costs and including
share-based employee compensation costs related to stock option and employee stock purchase plans
are not Generally Accepted Accounting Principle (GAAP) performance measures. We provide constant
dollar revenue changes for total Company and International results because we use the measure to
understand revenue changes excluding any impact from foreign exchange rate changes. Management
provides diluted EPS excluding restructuring and related costs and including share-based employee
compensation costs related to stock option and employee stock
purchase plans for 2005 to understand earnings excluding
restructuring and related costs and to provide
comparability to reported results that include share-based employee compensation costs as
prescribed by Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment.
Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations are based upon our
unaudited condensed consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America. The preparation of these
financial statements requires us to make estimates and judgments that affect the reported amounts
of assets, liabilities, revenues, expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates, including those related to sales
returns and allowances, realization of outstanding accounts receivable, the carrying value of
inventories, derivatives, other contingencies, impairment of assets, incentive compensation
accruals, share-based compensation and the provision for income taxes. We base our estimates on
historical experience and on various other assumptions that are believed 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. The Company is not aware of any reasonably likely events or circumstances
that would result in materially different amounts being reported. Our significant accounting
policies are described in Note 1 to the Companys consolidated financial statements of our Annual
Report on Form 10-K for the year ended December 31, 2005, except for the Companys accounting for
share-based compensation in connection with the adoption of SFAS 123(R) which is noted below. Our
estimates, assumptions and judgments involved in applying the critical accounting policies are
described in the Managements Discussion and Analysis of Financial Condition and Results of
Operations section of our Annual Report on Form 10-K for the year ended December 31, 2005.
Under SFAS 123(R), the Company estimates the fair value of its stock option awards and employee
stock purchase plan (the ESP Plan) 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 ESP Plan 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. As a result, if other assumptions
had been used, share-based compensation expense, as calculated and recorded under SFAS 123(R) 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
3 for additional information regarding the Companys adoption of SFAS 123(R).
Recent Developments
European Union (EU) Duties
On March 22, 2006, the European Commission imposed provisional duties on leather upper footwear
originating from China and Vietnam and imported into European Member States. These provisional
duties, which began on April 7, 2006, were effective for a six month period and were phased in over
a period of five months, beginning at a rate of about 4% and ending at a 19.4% rate for China
sourced footwear and at a 16.8% rate for Vietnam sourced footwear. These duties became definitive
on October 7, 2006, for a period of two years, with a final 16.5% rate for China sourced footwear
and a 10% rate for
Page 18
Vietnam sourced footwear. Pursuant to EU regulations, only provisional duties
which do not exceed the definitive duty rates will be collected. Childrens footwear with leather
uppers was excluded from the provisional duties, but is subject to definitive duties. Our estimate
is that the implementation of these duties will likely reduce our 2006 operating profits in the
range of $6-$7 million and our 2007 operating profits in the range of $9-$10 million. The
implementation of these duties, which results in additional expenses in lower tax rate
jurisdictions, has also had a negative impact on the Companys
effective tax rate, which is estimated at 35.6% for 2006.
Overview
Our principal strategic goal is to become the authentic outdoor brand of choice globally. We
continue to develop a diverse portfolio of footwear, apparel and accessories that reinforces the
functional performance, benefits and classic styling that consumers have come to expect from our
brand. We sell our products to consumers who embrace an outdoor-inspired lifestyle through
high-quality distribution channels, including our own retail stores, which reinforce the premium
positioning of the Timberlandâ brand.
To deliver against our long-term goals, we are focused on driving progress on key strategic fronts.
These include enhancing our leadership position in our core footwear business, capturing the
opportunity that we see for outdoor-inspired apparel, extending enterprise reach through
development of new brand platforms and brand building licensing arrangements, expanding
geographically and driving operational and financial excellence while setting the standard for
commitment to the community and striving to be a global employer of choice.
Highlights of our third quarter 2006 financial performance, compared to the third quarter of
2005, include the following:
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|
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Third quarter revenue of $503.0 million was down slightly versus the prior year period
as gains in new brands (including SmartWool®), Timberland® apparel,
casual footwear and Timberland PRO® footwear were offset by anticipated declines
in boots and kids sales. |
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Operating profit for the quarter was $80.8 million compared to $105.1 million in the
third quarter of 2005. Profit declines reflected gross margin pressures from business mix
impacts and higher comparable product costs, as well as increased operating expenses
associated with new businesses, global business expansion and growth category development. |
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Gross margin decreased from 48.9% to 47.1%, reflecting higher comparable product costs,
including effects from anti-dumping duties on footwear imported into the European Union,
unfavorable foreign exchange hedge rate changes and lower U.S. outlet store margins. |
|
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|
|
Operating expenses increased 9.6% to $155.9 million with growth primarily attributed to
investments in new businesses and global category development, International business
expansion and higher share-based compensation costs, reflecting new accounting
requirements. Excluding restructuring, operating expenses increased 11.6%. |
|
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Diluted EPS decreased from $1.02 to $.82. |
|
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Cash at the end of the quarter was $61.9 million. |
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Short-term debt outstanding at the end of the quarter was $54.2 million. |
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We continue to maintain our focus on serving as a reference for socially responsible
companies through our commitment to community. In September, we hosted our ninth annual
Serva-a-palooza, mobilizing over 6,300 employees, consumers and community partners in
projects that impacted 150 communities in 32 countries. In addition, six employees spent
three weeks conducting environmental research in the Rift Valley of Kenya in conjunction
with Earthwatch Institute. We are also pleased to report that for the third consecutive
year, we have been recognized by Working Mother as one of the top companies to work for in
the U.S. |
Based on current trends, we are modifying our outlook for full year 2006 financial results,
reflecting expectations for more moderate growth in the fourth quarter. We are now targeting
fourth quarter revenue growth in the mid-single digit range, reflecting goals for relatively flat
U.S. growth which will offset targeted double digit gains in our International business. We also
expect continued pressure on operating margins. We expect that gross margin will be approximately
200 basis points
Page 19
below prior year levels, reflecting anticipated business mix impacts and effects
from the implementation of anti-dumping duties on EU footwear sourced in China and Vietnam which
will lower gross profit by approximately $3 million in the fourth quarter of 2006. We plan to
continue to support investment against our growth strategies, including continued global expansion
and development of Timberlands business portfolio, which will drive fourth quarter operating
expense growth in the 10% range. These factors contribute to our updated outlook for a decline in
comparable EPS performance this year in the 30% range. For the purpose of comparison, we estimate
that our 2005 EPS would have been approximately $2.35 after excluding restructuring and related
costs and including costs related to stock options and our employee stock purchase plan.
As we look ahead to 2007, we anticipate continued pressure on operating profits in the first half
of next year. We expect
that soft sell-through rates in boots and kids products in the first half of 2006 will contribute
to lower overall U.S. Wholesale sales in the first half of 2007 and will continue to constrain
European growth results during this period. These factors will likely constrain first half revenue
growth to the low single digit range. We also expect continued pressure on gross margins next year
related to higher comparable product costs, reflecting rising material costs and wage cost
pressures in Asia in 2007. We also expect gross margin pressures related to the implementation of
anti-dumping duties on EU sourced footwear from China and Vietnam. The implementation of these
duties will add an estimated $9-$10 million to product costs next year, with a likely $5 million
impact in the first half of 2007. While we are targeting positive earnings gains in the second
half of 2007, first half pressures will likely limit full year 2007 earnings per share to prior
year levels.
Results of Operations for the Three Months Ended September 29, 2006 and September 30, 2005
Revenue
Consolidated revenue was $503.0 million in the third quarter of 2006, down 0.6% from the prior year
period. Revenue results reflected gains in new brands, including the addition of SmartWool which
added $15.3 million to third quarter revenues. Revenue results also reflected progress in
developing key growth categories for Timberland including
Timberland®
apparel and womens
and mens casual and Timberland PRO® footwear. These gains were offset by declines
in boots and kids sales, primarily driven by lower sales in the U.S. and northern European
markets.
Segments Review
We have three reportable business segments (see Note 6): U.S. Wholesale, U.S. Consumer Direct and
International.
U.S. Wholesale revenues for the third quarter of 2006 were $202.1 million, down 8.4% in comparison
to the prior year period, driven primarily by declines in kids footwear and boots. U.S. Wholesale
revenues benefited from the addition of SmartWool, which added $12.0 million to third quarter 2006
revenues, and strong growth in Timberland PRO® footwear and Timberland® brand
apparel sales.
U.S. Consumer Direct posted revenues of $45.9 million, down 1.6% from the prior year period. Sales
results were driven primarily by lower comparable store sales at outlet stores, which were impacted
by our decision to remove classic boot product from these stores as part of our strategy to
strengthen overall pricing for these products in the U.S. market. U.S. specialty stores recorded
solid comparable store gains in the third quarter of 2006. Our e-commerce business also posted
strong gains over the prior year period. During the third quarter of 2006, we opened two new
outlet stores in the U.S.
International revenues grew 6.9% to $255.0 million in the third quarter of 2006, reflecting 3.6%
constant dollar growth, supported by gains across Asia, Canada and Europe. Overall, International
revenues increased to 50.7% of total consolidated revenues for the quarter. European revenues
increased 4.4%, or 0.4% on a constant dollar basis to $205.3 million. European sales results
reflected strong gains in sales of casual footwear and apparel which were offset by lower sales of
boots and kids footwear product, particularly in northern Europe, reflecting comparisons to very
strong prior year sell-in levels for these categories. We continued to expand our retail presence
in Europe with the third quarter 2006 addition of our new flagship store on Regent Street in
London, which focuses on our new store format targeted at the casual engager consumer. For the
fourth quarter of 2006, we are targeting solid revenue gains in Europe. This outlook reflects
expectations for more favorable sell-in comparisons, as the prior year second half sell-in was
weighted more heavily towards the third quarter.
In Asia, revenues grew 12.9%, or 14.9% in constant dollars, to $36.7 million, driven by strong
gains in Japan and our Asian distributor business, which benefited from our continued expansion in
China. Asias growth reflected gains in apparel and accessories,
boots and casual footwear,
supported by continued expansion of our integrated brand presence
Page 20
across the region. Our Asian retail business continued to expand in the third quarter of 2006
with the addition of six new stores and shops.
Products
Worldwide
footwear revenue was $368.0 million in the third quarter of 2006, down 7.8% from the prior
year period. Footwear results were driven primarily by declines in boots and kids footwear sales
which offset gains in Timberland PRO® and womens and mens casual footwear. Footwear
unit sales declined 15.1% primarily reflecting lower sales of kids footwear. The average selling
price increased 8.6%, driven primarily by business mix impacts including lower kids sales, higher
sales in international markets and benefits from favorable foreign exchange rate changes.
Worldwide apparel and accessories revenue expanded 27.5% to $129.4 million. This increase was
supported by the addition of SmartWool, which added $15.3 million to global apparel and accessories
revenue, and strong gains in Timberland® brand apparel sales globally. Apparel and
accessories unit sales increased 48.4%, while the average selling price decreased by 14.1%,
reflecting impacts from the addition of SmartWools products, which have lower average selling
prices.
Channels
Worldwide
wholesale revenues decreased 1.0% to $416.2 million as declines in sales of boots and kids
footwear offset increases in apparel and accessories, Timberland
PRO®
footwear and womens and
mens casual footwear. Global consumer direct revenues increased 1.3% over the prior year period
to $86.8 million. Benefits from global door expansion and growth in our e-commerce business offset
a 4.1% decline in global comparable store sales, which was driven primarily by a decline in
comparable outlet store performance. During the quarter, we opened nine stores, shops and outlets
and closed three worldwide.
Gross Profit
Gross profit as a percentage of sales, or gross margin, was 47.1% for the third quarter of 2006,
down 180 basis points from the prior year period. This decrease reflects higher product costs,
including effects from anti-dumping duties on EU footwear, unfavorable foreign exchange hedge rate
changes and lower U.S. outlet store margins.
We include the costs of procuring inventory (inbound freight and duty, overhead and other similar
costs) in cost of goods sold. These costs amounted to $29.9 million and $32.7 million for the third
quarters of 2006 and 2005, respectively.
Operating Expense
Operating expense for the third quarter of 2006 was $155.9 million, up $13.6 million or 9.6% from
the $142.3 million reported in the third quarter of 2005. As a percentage of revenue, operating
expense increased 290 basis points to 31.0% compared to 28.1% in the prior year period. Operating
expense growth was driven by $7.0 million of incremental costs associated with new businesses and
category development, including the addition of SmartWool, $4.6 million of constant dollar cost
growth related to International expansion and $2.5 million of incremental costs associated with
share-based compensation, reflecting new accounting requirements. We anticipate fourth quarter
operating expense growth in the range of 10% as we continue to support our investment in global
expansion and develop Timberlands business portfolio.
Third quarter 2006 selling expense was $123.7 million, an increase of $12.4 million or 11.1%
compared to the prior year period. The increase was driven by $5.6 million in costs related to
new businesses and category development, $4.6 million in International business expansion, $1.6
million in share-based employee compensation costs and $1.3 million in distribution costs,
partially offset by a reduction in marketing expenses of $2.6 million. Foreign exchange rate
changes added $1.7 million, or 1.5%, to overall selling expense growth.
We include the costs of physically managing inventory (warehousing and handling costs) in selling
expense. These costs totaled
$10.7 million and $9.9 million in the third quarters of 2006 and
2005, respectively.
Advertising expense, which is also included in selling expense, was $6.5 million and $8.5 million
in the third quarters of 2006 and 2005, respectively. Advertising costs are expensed at the time
the advertising is used, predominantly in the season that the advertising costs are incurred. The
decrease in advertising expense reflects shifts in spending towards other brand
Page 21
building activities. Prepaid advertising recorded on our unaudited condensed consolidated balance
sheets was $3.7 million as of both September 29, 2006 and September 30, 2005.
General and administrative expense for the third quarter of 2006 was $32.3 million, $3.8 million or
13.5% higher than the prior year period. The increase was driven by $1.4 million related to new
business initiatives, $1.3 million in costs
associated with operating the new European finance shared service center and $0.9 million in
share-based employee compensation costs. Foreign exchange rate changes contributed to overall
general and administrative expense growth by $0.3 million or 1.0%.
Operating Income
Third quarter 2006 operating income was $80.8 million, down 23.1% in comparison to the $105.1
million recorded in the prior year period. Operating income as a percentage of revenue decreased
from 20.8% to 16.1% reflecting gross margin pressures and increased expenses associated with
investments against new businesses and growth category development,
International expansion and effects from the implementation of new accounting
requirements related to share-based
compensation.
Operating income for our U.S. Wholesale segment was $61.8 million, down 17.8% from the third
quarter of 2005. Revenue decreased 8.4%, driven by lower sales of kids footwear and boots.
Operating profit margins were pressured by negative product mix impacts and moderate cost growth
over a smaller revenue base.
Third quarter operating income for our U.S. Consumer Direct segment declined $2.6 million to $2.9
million. Revenue decreased 1.6%, impacted by a comparable store sales decline of 4.5%, partially
offset by 30.0% growth in our e-commerce business. Operating profits were impacted by a 310 basis
point decrease in gross margin resulting from negative mix impacts and increased promotions in
outlet stores.
International operating income was $71.3 million, down 6.8% from the prior year period.
International profit margins were pressured by a decline in gross margins impacted by negative
product mix impacts from lower boot sales and higher comparable product costs, including effects
from EU anti-dumping duties.
Our Unallocated Corporate expenses, which include central support and administrative costs, not
allocated to our business segments, increased 5.8% to $55.2 million. Unallocated Corporate
expenses as a percentage of total revenue increased 70 basis points to 11.0% of total revenue.
Excluding restructuring costs in both the third quarters of 2006 and 2005 and increased share-based
employee compensation costs of $2.9 million, Unallocated Corporate expenses increased $2.7 million
or 5.5% from the prior year and represent 10.4% of total revenue. This increase was driven by $1.5
million in unfavorable product cost variances and $0.9 million in costs associated with operating
the new European finance shared service center.
Other Income and Taxes
Interest income/(expense), net is comprised of interest income offset by fees related to the
establishment and maintenance of our revolving credit facility and interest paid on short-term
borrowings. For the third quarter of 2006, we incurred $0.3 million of interest expense related to
our short-term borrowings used for our seasonal working capital needs. For the third quarter of
2005, we had net interest income of $0.6 million resulting from higher cash balances prior to our
acquisition of SmartWool.
Other, net, included $0.1 million and $(0.9) million of foreign exchange gains/(losses) for the
third quarters of 2006 and 2005, respectively, resulting from the timing of settlement of local
currency denominated receivables and payables. These gains/(losses) were driven by the volatility
of exchange rates within the third quarters of 2006 and 2005 and should not be considered
indicative of expected future results.
The effective income tax rate for the third quarter of 2006 was 35.9% compared to 34.0% for the
prior year period. The effective tax rate was adjusted in the third quarter of 2006 to increase
our full year 2006 tax rate estimate from 34.5% to 35.6%. This increase reflects updated estimates
of the geographic mix of our profits and provisions for specific tax reserves.
Results of Operations for the Nine Months Ended September 29, 2006 and September 30, 2005
Page 22
Revenue
Consolidated revenues of $1,079.4 million declined 1.9%, or 1.3% on a constant dollar basis, when
compared to the first nine months of 2005. These results reflect declines in boots and kids
sales, primarily in the U.S. and northern Europe, which offset progress in expanding key growth
categories including mens and womens casual footwear,
Timberland
PRO® footwear and
Timberland® brand apparel. Results also include benefits from new brands, including
SmartWool which added $31.7 million to year-to-date sales.
Segments Review
Timberlands U.S. Wholesale revenues for the first nine months of 2006 were $414.3 million, down
5.4% from the prior year period, driven primarily by declines in boots and kids footwear sales.
These decreases were partially offset by the addition of SmartWool, which added $25.3 million to
U.S. Wholesale revenues, and double-digit growth in Timberland PRO® footwear and
Timberland® brand apparel.
U.S. Consumer Direct revenues were $112.2 million, down 6.5% from the prior year. The decrease was
driven by a 7.7% decline in comparable store sales, reflecting soft first half results and comparable store sales declines at outlet stores, which were impacted by our decision to remove
classic boot product from these stores as part of our strategy to strengthen overall pricing for
these products in the market place.
International revenues for the first nine months of 2006 increased 1.9% to $553.0 million, despite
unfavorable foreign exchange rate changes of $6.3 million. On a constant dollar basis,
International revenues grew 3.1%, reflecting continued growth in Asia, Canada and Europe. Overall,
International revenues increased to 51.2% of total consolidated revenues for the first nine months
of 2006.
European revenues decreased 0.3% to $430.8 million, impacted by unfavorable foreign exchange rate
changes. On a constant dollar basis, European revenues increased 0.7%, driven by strong growth in
the key southern European markets of Italy and Spain and gains in our European distributor
business, which offset soft sales results in France, Benelux and the U.K. Double digit growth in
mens and womens casual footwear and solid gains in apparel and accessories were partially offset
by declines in boots and outdoor performance and kids footwear, particularly in northern European
markets.
Asia posted revenues of $96.2 million, up 4.8%, or 8.2% in constant dollars, in comparison to the
prior year period. Gains in Japan, our Asian distributor business, reflecting our expansion in
China, and Taiwan were responsible for most of the constant dollar increase. Asias growth is
supported by sales gains in apparel and accessories, boots, mens and womens casual footwear and
kids footwear.
Canada contributed significant growth to our International business with year-to-date revenues of
$19.3 million, representing a 49.1% increase over 2005. Sales results reflect increased footwear
revenues and benefits from the re-acquisition of distribution rights for apparel in Canada in 2006.
Products
Worldwide footwear revenue was $772.7 million in the first nine months of 2006, down 8.3% from the
prior year period. Footwear results reflected declines in boots and kids footwear sales which
were partially offset by gains in mens and womens casual
footwear and Timberland
PRO®
footwear.
Footwear unit sales decreased 10.8% primarily reflecting lower sales of boots and kids footwear.
Average selling price increased 2.9% largely due to business mix impacts, including lower kids
sales and higher sales in international markets.
Worldwide apparel and accessories revenue expanded 19.0% to $292.4 million. This increase was
supported by the addition of SmartWool, which added $31.7 million to global apparel and accessories
revenue, and strong gains in Timberland® brand apparel sales. Apparel and accessories
unit sales increased 42.7%, while the average selling price decreased by 16.6%, reflecting impacts
from of the addition of SmartWools products, which have lower average selling prices.
Channels
Worldwide wholesale revenues decreased 1.5% to $851.8 million as declines in sales of boots and
kids footwear offset
Page 23
increases
in apparel and accessories, Timberland
PRO®
footwear and mens casual footwear. Global consumer direct revenues decreased 3.5% to $227.6 million. Benefits from
global door expansion and growth in our e-commerce business were more than offset by a 6.7% decline
in worldwide comparable store sales, impacted by soft U.S. results and declines in outlet store
sales globally. During the first nine months of 2006, we opened twenty-two stores, shops and
outlets and closed ten worldwide.
Page 24
Gross Profit
Gross profit as a percentage of sales, or gross margin, was 47.8% for the first nine months of
2006, down 240 basis points from the prior year period. The decrease was primarily driven by
product mix impacts, including lower sales of boots and kids
footwear; higher product costs,
including effects from anti-dumping duties on EU footwear; and impacts from higher levels of
off-price and discounted sales.
We include the costs of procuring inventory (inbound freight and duty, overhead and other similar
costs) in cost of goods sold. These costs amounted to $70.5 million and $75.9 million in the first
nine months of 2006 and 2005, respectively.
Operating Expense
Operating expense for the first nine months of 2006 was $413.4 million, $36.3 million or 9.6%
higher than the $377.1 million reported in the prior year period. As a percentage of revenue,
operating expense was 38.3%, up 400 basis points from the 34.3% reported in the first nine months
of 2005. Operating expense growth was driven by $18.5 million of incremental costs associated with
new businesses and category development, including the addition of SmartWool, $11.7 million of cost
growth related to International expansion and $10.6 million of incremental costs associated with
share-based compensation, reflecting new accounting requirements.
Selling expense for the first nine months of 2006 was $324.0 million, up $26.8 million or 9.0%
compared to the prior year period. The increase was driven by $14.8 million in costs related to
new businesses and category development, $11.7 million in International business expansion, $6.8
million in share-based employee compensation costs and $3.1 million in distribution expenses.
These increases were partially offset by decreases of $6.1 million in marketing costs and $1.3
million in product development expenses. Foreign exchange rate changes further reduced selling
expense growth by $2.6 million or 0.9%.
We include the costs of physically managing inventory (warehousing and handling costs) in selling
expense. These costs totaled $28.3 million and $27.5 million in the first nine months of 2006 and
2005, respectively.
Advertising expense, which is also included in selling expense, was $14.9 million and $19.8 million
in the first nine months of 2006 and 2005, respectively. The decrease reflects shifts in spending
towards other brand building activities.
General and administrative expense was $88.6 million, an increase of $11.3 million or 14.6% higher
than the prior year period. The increase was driven by $3.9 million of share-based employee
compensation costs, $3.7 million related to new business initiatives, $3.0 million in global
support services and $2.4 million in costs associated with operating the new European finance
shared service center. These increases were offset by a $4.0 million decline in worldwide
incentive compensation costs. Foreign exchange rate changes had little impact on general and
administrative expense.
Operating Income
Operating income for the first nine months of 2006 was $102.2 million compared to $175.4 million in
the prior year period. Operating income as a percentage of revenue decreased from 15.9% to 9.5%
reflecting gross margin pressures and increased expenses associated with investments against new
businesses and growth category development, International expansion
and effects from the
implementation of new accounting requirements related to share-based employee compensation costs.
The U.S. Wholesale segments operating income decreased 22.0% to $108.9 million in the first nine
months of 2006, driven by declines in both revenue and gross margin and increased operating
expense. Revenue was down 5.4%, driven by decreases in boots and kids footwear sales. Gross
margin fell 160 basis points impacted by negative mix effects from decreased sales of boots and
kids footwear, higher product costs and increased off-price sales. Operating expense increased
26.2%, primarily due to the impact of SmartWool and moderate cost growth over a lower revenue
base.
Operating income for our U.S. Consumer Direct segment was $2.9 million for the first nine months of
2006 compared to
$12.7 million in the prior year period. Revenue decreased 6.5%, reflecting a 7.7%
decline in comparable store sales. Gross margin was down 350 basis points primarily due to
negative product mix impacts. During the first nine months of 2006, U.S. Consumer Direct operated
five additional stores contributing to a 4.9% increase in operating expense.
Page 25
International operating income was $124.8 million, down 11.3% from the prior year period.
International profit margins were pressured by a decline in gross margins impacted by negative
product mix impacts from lower boot sales and higher comparable product costs, including effects
from EU anti-dumping duties.
Our Unallocated Corporate expenses increased 14.4% to $134.4 million. Unallocated Corporate
expenses as a percentage of total revenue increased 180 basis points to 12.5% of total revenue.
Excluding restructuring costs in the first nine months of 2006 and 2005 and increased share-based
employee compensation costs of $12.5 million, Unallocated Corporate expenses increased $6.1 million
or 5.3% from the prior year and represent 11.2% of total revenue. This increase was driven by $4.5
million in unfavorable product cost variances, $2.1 million in costs related to operating the new
European finance shared service center, $1.6 million of expenses associated with strategic
initiatives, $1.5 million of legal and compliance costs and $1.4 million in product management expenses,
offset by a $6.0 million reduction in worldwide incentive compensation costs.
Other Income and Taxes
Interest income, net is comprised of interest income offset by fees related to the establishment
and maintenance of our revolving credit facility and interest paid on short-term borrowings. For
the first nine months of 2006, interest income, net was $1.5 million compared to $2.7 million for
the prior year period. The decrease is primarily due to higher levels of short-term borrowings to
meet our seasonal working capital needs and lower cash balances, largely attributable to our
SmartWool acquisition.
Other, net included $0.8 million and $(0.6) million of foreign exchange gains/(losses) for the
first nine months of 2006 and 2005, respectively, resulting from the timing of settlement of local
currency denominated receivables and payables. These gains/(losses) were driven by the volatility
of exchange rates within the first nine months of 2006 and 2005 and should not be considered indicative
of expected future results.
The effective income tax rate for the first nine months of 2006 was 35.6% compared to 34.0% for the
prior year period. The effective tax rate was adjusted in the third quarter of 2006 to increase
our full year 2006 tax rate estimate from 34.5% to 35.6%. This increase reflects updated estimates
of the geographic mix of our profits and provisions for specific tax reserves.
Reconciliation of Total Company and International Revenue Changes to Constant Dollar Revenue
Changes
Total Company Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
For the Nine Months Ended |
|
|
Ended September 29, 2006 |
|
September 29, 2006 |
|
|
$ Change |
|
|
|
|
|
$ Change |
|
|
|
|
(in Millions) |
|
% Change |
|
(in Millions) |
|
% Change |
|
|
|
|
|
Revenue (decrease) |
|
$ |
(2.9 |
) |
|
|
-0.6 |
% |
|
$ |
(21.0 |
) |
|
|
-1.9 |
% |
Increase/(decrease) due to foreign
exchange rate changes |
|
|
7.9 |
|
|
|
1.5 |
% |
|
|
(6.3 |
) |
|
|
-0.6 |
% |
|
|
|
|
|
Revenue (decrease) in constant dollars |
|
$ |
(10.8 |
) |
|
|
-2.1 |
% |
|
$ |
(14.7 |
) |
|
|
-1.3 |
% |
International Revenue Reconciliation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months |
|
For the Nine Months Ended |
|
|
Ended September 29, 2006 |
|
September 29, 2006 |
|
|
$ Change |
|
|
|
|
|
$ Change |
|
|
|
|
(in Millions) |
|
% Change |
|
(in Millions) |
|
% Change |
|
|
|
|
|
Revenue increase |
|
$ |
16.4 |
|
|
|
6.9 |
% |
|
$ |
10.5 |
|
|
|
1.9 |
% |
Increase/(decrease) due to foreign
exchange rate changes |
|
|
7.9 |
|
|
|
3.3 |
% |
|
|
(6.3 |
) |
|
|
-1.2 |
% |
|
|
|
|
|
Revenue increase in constant dollars |
|
$ |
8.5 |
|
|
|
3.6 |
% |
|
$ |
16.8 |
|
|
|
3.1 |
% |
Management provides constant dollar revenue changes for total Company and International results
because we use the measure to understand revenue changes excluding any impact from foreign
exchange rate changes.
Page 26
Reconciliation of Diluted EPS to Diluted EPS Excluding Restructuring and Related Costs and
Including Share-Based Employee Compensation Costs Related to Stock Option and Employee Stock
Purchase Plans
|
|
|
|
|
|
|
For the Twelve Months |
|
|
|
Ended December 31, 2005 |
|
Diluted EPS,
as reported |
|
$ |
2.43 |
|
Per share impact of restructuring and related costs |
|
|
.04 |
|
|
|
|
|
Diluted EPS excluding restructuring and related costs |
|
|
2.47 |
|
Per share impact of share-based employee
compensation costs related to stock option and
employee stock purchase plans |
|
|
(.12 |
) |
|
|
|
|
Diluted EPS excluding restructuring and related
costs and including share-based employee
compensation costs related to stock option and
employee stock purchase plans |
|
$ |
2.35 |
|
|
|
|
|
Management provides diluted
EPS excluding restructuring and related costs and including share-based employee compensation
costs to understand earnings excluding restructuring and related costs
and to provide comparability to reported results that include share-based employee compensation
costs as prescribed by SFAS 123(R).
Accounts Receivable and Inventory
Accounts receivable was $330.4 million as of September 29, 2006. Excluding SmartWools $12.9
million, accounts receivable increased 6.5% to $317.5 million as of September 29, 2006, compared
with $298.2 million as of September 30, 2005. The increase in comparable receivables in the third
quarter of 2006 reflected the timing of sales in the quarter compared to the prior year and the
impacts of foreign exchange. Days sales outstanding were 59 days as of September 29, 2006,
compared with 53 days as of September 30, 2005. Wholesale days sales outstanding were 63 days and
56 days for the third quarters ended 2006 and 2005, respectively.
Inventory was $250.5 million as of September 29, 2006. Excluding SmartWools $13.1 million,
inventory decreased 2.1% to $237.4 million as of September 29, 2006, compared with $242.6 million
as of September 30, 2005. The reduction in comparable inventories in the third quarter of 2006
reflected continued efforts to reduce excess inventory as a percentage of overall mix.
Liquidity and Capital Resources
Net cash used by operations for the first nine months of 2006 was $101.2 million, compared with
$57.5 million for the first nine months of 2005. The increase in the use of cash in the first nine
months of 2006 compared with 2005 was primarily due to reduced net income and an increase in our
investment in working capital. In the first nine months of 2006, our net investment in working
capital was $204.9 million, compared to $202.2 million in 2005. Working capital increases primarily
reflect higher quarter-end receivables balances, impacted by sales timing, and higher inventory
levels related to the addition of new businesses, including SmartWool. The increase in accrued
expenses is primarily related to increased accruals for freight and duty and the timing of value
added tax (VAT) payments, offset by lower payroll related accruals as of September 29, 2006,
compared with December 31, 2005, than in the comparable period for the prior year. The increase in
prepaids was driven by the timing of VAT payments and increased investment in concept shop
fixturing and samples. The reduction in income taxes payable is due to reduced net income.
Net cash used for investing activities amounted to $26.1 million in the first nine months of 2006,
compared with $15.6 million in the first nine months of 2005. Capital expenditures accounted for
$21.9 million of this increase with growth primarily driven by investments in information systems,
manufacturing equipment and retail stores. The increase in other investing activities primarily
relates to our acquisition of certain assets of GoLite LLC, including trademarks.
Net cash used for financing activities was $25.3 million in the first nine months of 2006, compared
with $111.2 million in the first nine months of 2005. Cash flows from financing activities
reflected share repurchases of $95.5 million in the first nine months of 2006, compared with $128.9
million in the first nine months of 2005. As of September 29, 2006, we had outstanding balances
under our short-term credit facilities of $54.2 million, compared with no borrowings as of
September 30, 2005. We received cash inflows of $13.5 million in the first nine months of 2006
from the issuance of common stock related
Page 27
to the exercise of employee stock options and employee stock purchases, compared with $17.7
million in the first nine months of 2005.
We have an unsecured committed revolving credit agreement with a group of banks which matures on
June 2, 2011 (Agreement). The Agreement provides for $200 million of committed borrowings, of
which up to $125 million may be used for letters of credit. Upon approval of the bank group, we
may increase the committed borrowing limit by $100 million for a total commitment of $300 million.
Under the terms of the Agreement, we may borrow at interest rates based on Eurodollar rates (5.3%
as of September 29, 2006), 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 September 29, 2006, the applicable
margin under the facility was 27 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 will 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 September 29, 2006, the commitment
fee was 8 basis points. The Agreement places certain limitations on additional debt, stock
repurchases, acquisitions, amount of dividends we may pay and certain other financial and
non-financial covenants. The primary financial covenants relate to maintaining a minimum fixed
charge coverage of 3:1 and a leverage ratio of 2:1. We measure compliance with the financial and
non-financial covenants and ratios as required by the terms of the Agreement on a fiscal quarter
basis.
On December 20, 2005, we entered into a $4.5 million committed revolving credit agreement that
matures on December 19, 2006 to provide for SmartWools working capital requirements. Up to $3
million of the facility may be used for letters of credit.
We had uncommitted lines of credit available from certain banks totaling $50 million as of
September 29, 2006. Borrowings under these lines are at prevailing money market rates (5.8% as of
September 29, 2006). 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 the Company.
As of September 29, 2006, we had short-term debt outstanding of $54.2 million and no long-term debt
outstanding under our credit facilities. As of September 30, 2005, we had no short-term or
long-term debt outstanding under any of our credit facilities.
Management believes that our capital needs and our share repurchase program for the balance of 2006
will be funded through our current cash balances, our existing credit facilities and cash from
operations, without the need for additional permanent financing. However, as discussed in Item 1A,
Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2005 and in Part
II, Item 1A, Risk Factors, of this report, several risks and uncertainties could cause the Company
to need to 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. The availability and terms of any such financing would be subject to
prevailing market conditions and other factors at that time.
Off Balance Sheet Arrangements
As of September 29, 2006 and September 30, 2005, we had letters of credit outstanding of $25.4
million and $14.0 million, respectively. These letters of credit were issued predominantly for the
purchase of inventory. The increase in letters of credit outstanding was driven by higher apparel
purchases and obligations associated with provisional anti-dumping duties on European Union
footwear sourced in China and Vietnam. As of September 29, 2006, the Company had $224.4 million in
foreign currency contracts outstanding, all of which are due to settle within the next 16 months.
We have the following off balance sheet arrangements:
(Dollars in Millions)
|
|
|
|
|
|
|
Total Amounts |
|
September 29, 2006 |
|
Committed |
|
|
Lines of credit |
|
$ |
|
|
Letters of credit |
|
|
25.4 |
|
Foreign
currency contracts |
|
|
224.4 |
|
|
|
|
|
Total |
|
$ |
249.8 |
|
|
|
|
|
Page 28
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. We anticipate that capital requirements for the balance of 2006 will be met through
the use of our current cash balances, through 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 through cash flow
from operations, without the need for additional permanent 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.
New
Accounting Pronouncements
A
discussion of new accounting pronouncements is included in
Note 14.
Page 29
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position and results of operations are routinely
subject to a variety of risks, including market risk associated with interest rate movements on
borrowings and investments and currency rate movements on non-U.S. dollar denominated assets,
liabilities and income. We regularly assess these risks and have established policies and business
practices that should result in an appropriate level of protection against 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 in our hedging of foreign currency transactions. These debt
instruments and 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 September 29, 2006, we had short-term debt outstanding of $54.2 million
and no long-term debt outstanding. As of September 30, 2005, 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 minimize the impact
of these foreign currency fluctuations by hedging the related transactions with foreign currency
forward contracts. These foreign currency forward contracts will expire in 16 months or less.
Based upon sensitivity analysis as of September 29, 2006, a 10% change in foreign exchange rates
would cause the fair value of our financial instruments to increase/decrease by approximately $22.3
million, compared with $20.4 million as of September 30, 2005. The increase as of September 29,
2006, compared with September 30, 2005, is primarily related to an increase in our foreign currency
denominated net assets as of September 29, 2006, compared with September 30, 2005.
Item 4. CONTROLS AND PROCEDURES
We maintain a system of disclosure controls and procedures which are designed to ensure that
information required to be disclosed by us in reports we file or submit under the Securities
Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and forms. These
disclosure controls and procedures include controls and procedures designed to ensure that
information required to be disclosed under the federal securities laws is accumulated and
communicated to our management on a timely basis to allow decisions regarding required disclosure.
Based on their evaluation as of September 29, 2006, 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.
Other than the changes noted below, 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 September 29, 2006, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
The Company implemented certain new financial system modules to record financial data at our
European subsidiary offices during the third quarter of 2006. Additionally, the Company
transferred certain transactional and statutory financial activities from our locally based
European finance organizations to our European finance shared service center during the third
quarter of 2006. The implementations of the new financial system modules and European finance
shared service center were undertaken to further standardize accounting systems, realize process
efficiencies and improve our internal control over financial reporting. The Company intends to
extend the implementation of certain new financial system modules to our U.S. locations in the
future and will assess its impact on our internal control over financial reporting at that time.
Page 30
Part II OTHER INFORMATION
Item 1A. RISK FACTORS
This Quarterly Report on Form 10-Q contains forward-looking statements. As discussed in Part
I, Item 1A, Risk Factors, entitled Cautionary Statements for Purposes of the Safe Harbor
Provisions of the Private Securities Litigation Reform Act of 1995 of our Annual Report on Form
10-K for the year ended December 31, 2005, investors should be aware of certain risks,
uncertainties and assumptions that could affect our actual results and could cause such results to
differ materially from those contained in forward-looking statements made by or on behalf of us in
our periodic reports filed with the Securities and Exchange Commission, in our annual report to
shareholders, in our proxy statement, in press releases and other written materials and statements
made by our officers, directors or employees to third parties. Such statements are based on
current expectations only and actual future results may differ materially from those expressed or
implied by such forward-looking statements due to certain risks, uncertainties and assumptions. We
discuss below any material changes in the risks, uncertainties and assumptions previously disclosed
in our Annual Report on Form 10-K for the year ended December 31, 2005. We encourage you to refer
to our Form 10-K to carefully consider these risks, uncertainties and assumptions. We undertake no
obligation to update publicly any forward-looking statements, whether as a result of new
information, future events or otherwise.
Risks Related to our Business
We conduct business outside of the United States which exposes us to foreign currency, import
restrictions and duties and other risks.
On March 22, 2006, the European Commission imposed provisional duties on leather upper
footwear originating from China and Vietnam and imported into European Member States. These
provisional duties, which began on April 7, 2006, were effective for a six month period and were
phased in over a period of five months, beginning at a rate of about 4% and ending at a 19.4% rate
for China sourced footwear and at a 16.8% rate for Vietnam sourced footwear. These duties became
definitive on October 7, 2006, for a period of two years, with a final 16.5% rate for China
sourced footwear and a 10% rate for Vietnam sourced footwear. Pursuant to EU regulations, only
provisional duties which do not exceed the definitive duty rates will be collected. Childrens
footwear with leather uppers was excluded from the provisional duties, but is subject to
definitive duties. The Company is advancing strategies in response to this action, including
potential price increases on footwear products sold in Europe. Our estimate is that the
implementation of such duties will likely reduce our 2006 operating profits in the range of $6-$7
million and our 2007 operating profits in the range of $9-$10 million. The implementation of
these duties, which results in additional expenses in lower tax rate jurisdictions, has also had a
negative impact on the Companys effective tax rate, which is estimated at 35.6% for 2006.
Page 31
Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
ISSUER PURCHASES OF EQUITY SECURITIES(1)
For the Three Fiscal Months Ended September 29, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
of Shares |
|
|
|
|
|
|
|
|
|
|
|
Purchased as Part |
|
|
That May Yet |
|
|
|
Total Number |
|
|
|
|
|
|
of Publicly |
|
|
be Purchased |
|
|
|
of Shares |
|
|
Average Price |
|
|
Announced |
|
|
Under the Plans |
|
Period* |
|
Purchased ** |
|
|
Paid per Share |
|
|
Plans or Programs |
|
|
or Programs |
|
July 1 July 28 |
|
|
291,704 |
|
|
$ |
26.03 |
|
|
|
291,704 |
|
|
|
5,007,234 |
|
July 29 August 25 |
|
|
302,636 |
|
|
|
26.40 |
|
|
|
302,636 |
|
|
|
4,704,598 |
|
August 26 September 29 |
|
|
334,395 |
|
|
|
28.68 |
|
|
|
334,395 |
|
|
|
4,370,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q3 Total |
|
|
928,735 |
|
|
$ |
27.10 |
|
|
|
928,735 |
|
|
|
|
|
Footnote (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved |
|
|
|
|
Announcement |
|
Program |
|
Expiration |
|
|
Date |
|
Size (Shares) |
|
Date |
Program 1 |
|
|
02/09/2006 |
|
|
|
6,000,000 |
|
|
None |
No existing programs expired or were terminated during the reporting period. See Note 12 to our unaudited condensed consolidated financial statements in this Form 10-Q for additional
information.
|
|
|
* |
|
Fiscal month |
|
** |
|
Based on trade date not settlement date |
Page 32
Item 6. EXHIBITS
|
Exhibits. |
|
|
|
|
Exhibit 10. 1 |
|
The Timberland Company 2006 COO Incentive Program, filed herewith. |
|
|
Exhibit 31.1 |
|
Principal Executive Officer Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
Exhibit 31.2 |
|
Principal Financial Officer Certification Pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
Exhibit 32.1 |
|
Chief Executive Officer Certification Pursuant to Section 1350, Chapter
63 of Title 18, United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished herewith. |
|
|
Exhibit 32.2 |
|
Chief Financial Officer Certification Pursuant to Section 1350, Chapter
63 of Title 18, United States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished herewith. |
Page 33
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
THE TIMBERLAND COMPANY |
|
|
(Registrant) |
|
|
|
|
|
|
|
By: |
|
/s/ BRIAN P. MCKEON |
|
|
|
|
|
|
|
|
|
Brian P. McKeon |
Date: November 8, 2006
|
|
|
|
Executive Vice President-Finance and Administration, Chief |
|
|
|
|
Financial Officer |
|
|
|
|
|
|
|
By: |
|
/s/ JOHN CRIMMINS |
|
|
|
|
|
Date: November 8, 2006
|
|
|
|
John Crimmins |
|
|
|
|
Vice President, Corporate Controller and Chief Accounting Officer |
Page 34
EXHIBIT INDEX
|
|
|
Exhibit |
|
Description |
Exhibit 10. 1
|
|
The Timberland Company 2006 COO Incentive Program, filed herewith. |
|
|
|
Exhibit 31.1
|
|
Principal Executive Officer Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
|
Exhibit 31.2
|
|
Principal Financial Officer Certification Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002, filed herewith. |
|
|
|
Exhibit 32.1
|
|
Chief Executive Officer Certification Pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, furnished
herewith. |
|
|
|
Exhibit 32.2
|
|
Chief Financial Officer Certification Pursuant to Section 1350,
Chapter 63 of Title 18, United States Code, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, furnished
herewith. |