e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, DC
20549
Form 10-K
|
|
|
(Mark One)
|
|
|
|
þ
|
|
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the fiscal year ended
December 31, 2009
|
OR
|
o
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
|
|
|
For the transition period
from to
|
Commission File Number 1-9548
The Timberland
Company
(Exact Name of Registrant as
Specified in Its Charter)
|
|
|
Delaware
(State or Other
Jurisdiction
of Incorporation or Organization)
|
|
02-0312554
(I.R.S. Employer
Identification No.)
|
|
|
|
200 Domain Drive, Stratham,
New Hampshire
(Address of Principal
Executive Offices)
|
|
03885
(Zip Code)
|
Registrants telephone number, including area code:
(603) 772-9500
Securities registered pursuant to Section 12(b) of the
Act:
|
|
|
Title of Each Class
|
|
Name of Each Exchange on Which Registered
|
|
Class A Common Stock, par value $.01 per share
|
|
New York Stock Exchange
|
Securities registered pursuant to Section 12(g) of the
Act:
None
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. þ Yes o No
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. o Yes þ No
Indicate by check mark whether the registrant: (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past
90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any,
every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of
Regulation S-T
(§ 232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant
was required to submit and post such
files). o Yes o No
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
(§ 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of the registrants
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this
Form 10-K
or any amendment to this
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
|
|
|
|
Large
accelerated
filer þ
|
Accelerated
filer o
|
Non-accelerated
filer o
|
Smaller
reporting
company o
|
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the
Act). o Yes þ No
The aggregate market value of Class A Common Stock of the
Company held by non-affiliates of the Company was $558,020,796
on July 3, 2009, which was the last business day of the
Companys second fiscal quarter in 2009. For purposes of
the foregoing sentence, the term affiliate includes
each director and executive officer of the Company. See
Item 12 of this Annual Report on
Form 10-K.
On February 19, 2010, 43,208,234 shares of the
Companys Class A Common Stock and
11,089,160 shares of Class B Common Stock were
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions of the Companys definitive Proxy Statement for
the 2010 Annual Meeting of Stockholders to be filed pursuant to
Regulation 14A are incorporated by reference in
Part III, Items 10, 11, 12, 13 and 14, of this Annual
Report on
Form 10-K.
CAUTIONARY
STATEMENTS FOR PURPOSES
OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The Timberland Company (the Company) wishes to take
advantage of The Private Securities Litigation Reform Act of
1995 and Section 21E of the Securities Exchange Act of
1934, which provide a safe harbor for certain
written and oral forward-looking statements to encourage
companies to provide prospective information. Prospective
information is based on managements then current
expectations or forecasts. Such information is subject to the
risk that such expectations or forecasts, or the assumptions
used in making such expectations or forecasts, may become
inaccurate. The discussion in Part I, Item 1A, Risk
Factors, of this Annual Report on
Form 10-K
identifies important factors that could affect the
Companys actual results and could cause such results to
differ materially from those contained in forward-looking
statements made by or on behalf of the Company. The risks
included in Part I, Item 1A, Risk Factors, of this
Annual Report on
Form 10-K
are not exhaustive. Other sections of this report may include
additional factors which could adversely affect the
Companys business and financial performance. Moreover, the
Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is
not possible for management to predict all such risk factors,
nor can it assess the impact of all such risk factors on the
Companys business or the extent to which any factor, or
combination of factors, may cause actual results to differ
materially from those contained in any forward-looking
statements. Given these risks and uncertainties, investors
should not place undue reliance on forward-looking statements as
a prediction of actual results. The Company undertakes no
obligation to update publicly any forward-looking statements,
whether as a result of new information, future events or
otherwise.
Forward-looking
Information
As discussed above and in Part I, Item 1A, Risk
Factors, of this Annual Report on
Form 10-K,
investors should be aware of certain risks, uncertainties and
assumptions that could affect our actual results and could cause
such results to differ materially from those contained in
forward-looking statements made by or on behalf of us.
Statements containing the words may,
assumes, forecasts,
positions, predicts,
strategy, will, expects,
estimates, anticipates,
believes, projects, intends,
plans, budgets, potential,
continue, target and variations thereof,
and other statements contained in this Annual Report regarding
matters that are not historical facts are forward-looking
statements. Such statements are based on current expectations
only and actual future results may differ materially from those
expressed or implied by such forward-looking statements due to
certain risks, uncertainties and assumptions. These risks,
uncertainties and assumptions include, but are not limited to:
|
|
|
|
|
Our ability to successfully market and sell our products in a
highly competitive industry and in view of changing consumer
trends and preferences, consumer acceptance of products, and
other factors affecting retail market conditions, including the
current global economic environment and global political
uncertainties resulting from the continuing war on terrorism;
|
|
|
|
Our ability to execute key strategic initiatives;
|
|
|
|
Our ability to adapt to potential changes in duty structures in
countries of import and export, including anti-dumping measures
imposed by the European Union with respect to leather footwear
imported from China and Vietnam;
|
|
|
|
Our ability to manage our foreign exchange rate risks, and
taxes, duties, import restrictions and other risks related to
doing business internationally;
|
|
|
|
Our ability to locate and retain independent manufacturers to
produce lower cost, high-quality products with rapid turnaround
times;
|
|
|
|
Our reliance on a limited number of key suppliers and a global
supply chain;
|
|
|
|
Our ability to obtain adequate materials at competitive prices;
|
|
|
|
Our reliance on the financial health of, and the appeal of our
products to, our customers;
|
2
|
|
|
|
|
Our reliance on the financial stability of third parties with
which we do business, including customers, suppliers and
distributors;
|
|
|
|
Our ability to successfully invest in our infrastructure and
products based upon advance sales forecasts;
|
|
|
|
Our ability to recover our investment in, and expenditures of,
our retail organization through adequate sales at such retail
locations; and
|
|
|
|
Our ability to respond to actions of our competitors, some of
whom have substantially greater resources than we have.
|
We undertake no obligation to update publicly any
forward-looking statements, whether as a result of new
information, future events or otherwise.
3
PART I
Overview
The Timberland Company was incorporated in Delaware on
December 20, 1978. We are the successor to the Abington
Shoe Company, which was incorporated in Massachusetts in 1933.
We refer to The Timberland Company, together with its
subsidiaries, as we, our,
us, its, Timberland or the
Company.
We design, develop and market premium quality footwear, apparel
and accessories products for men, women and children under the
Timberland®,
Timberland
PRO®,
Timberland Boot
Company®,
SmartWool®,
howies®
and
IPATH®
brands. We sell our products to retail accounts through our
wholesale channel, through Timberland-owned retail including
stores and Internet sales, and through a mix of independent
distributors, franchisees and licensees worldwide.
Our principal strategic goal is to become the authentic outdoor
brand of choice globally by offering an integrated product
selection that equips consumers to enjoy the experience of being
in the outdoors. Our ongoing efforts to achieve this goal
include (i) enhancing our leadership position in our core
Timberland®
footwear business through an increased focus on technological
innovation and big idea initiatives like
Earthkeeperstm,
(ii) expanding our global apparel and accessories business
by leveraging the brands equity and initiatives through a
combination of in-house development and licensing arrangements
with trusted partners, (iii) expanding our brands
geographically, (iv) driving operational and financial
excellence, (v) setting the standard for social and
environmental responsibility and (vi) striving to be an
employer of choice.
Products
Our products fall into two primary categories: (1) footwear
and (2) apparel and accessories. We also derive royalty
revenue from third party licensees and distributors that produce
and/or sell
our products under license. The following summarizes the
percentage of our revenues derived from each of these categories
for the past three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Footwear
|
|
|
72.4
|
%
|
|
|
71.4
|
%
|
|
|
70.0
|
%
|
Apparel and Accessories
|
|
|
25.6
|
%
|
|
|
26.9
|
%
|
|
|
28.6
|
%
|
Royalty and Other
|
|
|
2.0
|
%
|
|
|
1.7
|
%
|
|
|
1.4
|
%
|
Footwear
In 1973, we produced our first pair of waterproof leather boots
under the
Timberland®
brand. We now offer a broad variety of footwear products for
men, women and children, featuring premium materials and
state-of-the-art
design and construction. Our
Timberland®
mens footwear products harness the power of the outdoors,
emphasizing durability, comfort, rugged performance and
craftsmanship. Our
Timberland®
womens footwear line is rooted in creating stylish outdoor
products that combine beautiful styling, performance and
eco-conscious materials. Our
Timberland®
kids footwear products are designed and engineered
specifically for kids with the same high-quality standards and
materials as our adult footwear products, combining the rugged
heritage of premium leathers and craftsmanship with a primary
focus on fit, functionality and convenience.
Timberland®
brand footwear offerings within each of our mens,
womens and kids lines fall into three distinct
categories: boots, casual and outdoor performance. The
Timberland
PRO®
series for skilled tradespeople and working professionals is an
additional footwear category we developed to address a consumer
groups distinct needs. IPATH, which we acquired in 2007,
designs, develops and markets skateboarding-inspired casual
footwear, apparel and accessories.
Boots
Our key boots line includes the 6 basic, premium and
chukka boots, including roll-tops. Another important line is our
sport boots, which include our Field Boot, Euro Hiker, and Euro
Sprint Hiker. Some of the principal features of our classic boot
products include premium waterproof leather, direct-attach and
seam-
4
sealed waterproof construction, rubber lug outsoles for superior
traction and abrasion resistance, shock diffusion plates,
durable laces, padded collars for comfortable fit, enhanced
insulation, rustproof hardware for durability and
moisture-wicking components for comfort and breathability.
Casual
Our
Timberland®
casual footwear series is rooted in craftsmanship and
innovation, which results in products made from superior
materials and characterized by enhanced comfort. Featured
footwear products include authentic rugged handsewn oxfords,
boat shoes and casual bucks for commuting, at home or the
outdoors. Our Timberland Boot
Company®
and Abington collections are premium-priced elite
collections within our casual footwear category which we
distribute via very selective boutique channels in
major markets.
Outdoor
Performance
Our
Timberland®
Outdoor Performance footwear continues to address the needs of
outdoor recreationalists and enthusiasts of all levels, offering
technical, end-use driven products for outdoor adventures from
summit to sea and everywhere in between.
Footwear
Initiatives
Rooted in each of the key
Timberland®
brand footwear categories are important strategic initiatives
that demonstrate our highest level of shoemaking and story
telling. Our big ideas highlight the best of
Timberland®
product and are intended to complement our core
Timberland®
footwear business and strengthen our position as a leading
global brand.
Launched in 2007, the
Earthkeeperstm
collection, which falls within our boots and casual categories,
was broadly expanded in 2008 and 2009. It is available for men,
women and children and now represents one of our fastest growing
product collections. The
Earthkeeperstm
collection incorporates organic, renewable and recycled
materials combining the rugged heritage of Timberland with the
most environmentally conscious materials, processes and
technologies, including exclusive Green
Rubbertm
outsoles made from 42% recycled rubber. In fall 2009, we also
introduced our first recyclable
Earthkeeperstm
boot, designed to be returned and disassembled so that most of
its parts can be recycled after use.
Our classic styles, which cross all our footwear categories,
represent Timberlands enduring brand essence led by our
iconic yellow boot and handsewn boat shoes and feature products
that are rugged, handsome and outdoor proven, wrapped in a New
England aesthetic. Over the past few years, we have reintroduced
consumers to the heritage of the
Timberland®
brand through reinterpretations of classic styles that signify
the next generation of iconic
Timberland®
products. In 2008, we introduced the scuff-proof collection of
iconic products that features leather that is resistant to
scuffing, abrasion and heat. We collaborated with key premium
accounts in 2009 like Saks 5th Avenue in New York, Collette in
Paris, and White Mountaineering in Tokyo to create exclusive
collections of classic product for their stores.
In 2009, we re-launched the
Timberland®
Mountain
Athletics®
series, which is a decidedly more progressive approach to
outdoor performance footwear targeting a younger consumer.
Mountain
Athletics®
products are built for speed and are considerably lighter and
more flexible with a much more vibrant and progressive
aesthetic. They also feature recycled materials, including
outsoles containing Green
Rubbertm
compound, which is a material made from at least 85% recycled
rubber. All products are tested against competitive shoes using
a battery of tests that make up our functional performance
index.
Timberland
PRO®
Series
The Timberland
PRO®
series targets working professionals whose jobs demand footwear
that stands up to the harshest working conditions. Timberland
PRO continues to expand from Industrial to Occupational,
complementing the offering of safety boots for tradesmen to
include products for other consumers who have workplace footwear
requirements. New product lines include the
Renovatm
series, a line of footwear designed for those employed in the
healthcare industry that addresses the need for comfort during
extended wear. This system incorporates Anti-Fatigue Technology,
a unique technology that increases standing tolerance for those
who work on their feet for long hours, via enhanced shock
absorption and high energy return. The core
5
Industrial business also continues to build on the marketplace
success of Anti-Fatigue Technology, by expanding it across
additional styles in the Timberland
PRO®
Endurance line of products. Timberland PRO serves customers in
Canada with a line of occupational products built specifically
for the Canadian market, and continues to expand its
occupational offering internationally, with a licensing
agreement with Sperian Protection for Europe, as well as parts
of the Middle East and Africa.
IPATH
IPATH designs, develops and markets skateboarding-inspired
casual footwear, apparel and accessories. The
IPATH®
brand mantra is Follow Your Path and represents a
confluence of youth lifestyles, drawing strong influence from
music, art and culture. IPATH bridges the gap between skate and
lifestyle, offering consumers product with performance features
and the styling to meet their needs. Natural materials are used
in many of the styles, affording the brand a unique position in
the market. Distribution for IPATH is worldwide, and focuses on
core skate and surf shops, online retailers, and national youth
fashion chains. IPATH continues to have success with classic
styles, including the Cat and the Grasshopper that have been in
existence since the companys inception, and infuses new
trend-right styling into the line each season.
Footwear
Technology
Our advanced concepts footwear team focuses on developing the
next innovations in our footwear technologies, including
materials, constructions and processes. A few of our most
frequently used technological innovations are the Smart
Comfort®
system which incorporates a multi-density footbed and allows
footwear to expand and contract with the changing shape of the
foot during the walking motion while preserving the essential
style of the footwear, the
Timberland®
Agile IQ system which delivers improved stability, shock
absorption and fit in our Outdoor Adventure line, and the
Anti-Fatigue platform, first developed for Timberland PRO
consumers who spend many hours on their feet every day. In
addition, we have recently introduced Green
Rubbertm
compound, which is made of at least 85% recycled rubber, into
the outsoles of shoes in our
Earthkeeperstm
and Mountain
Athletics®
lines, and the Design for Disassembly technology,
which is a strategy for making products that can be taken apart
for the purpose of recycling. We maintain numerous patented and
other technologies for use in our footwear, apparel and
accessories.
Apparel
and Accessories
Timberland®
and Timberland
PRO®
Series
Timberlands apparel for men, women and kids continues to
offer outdoor adventure and outdoor leisure products that
combine performance benefits and versatile styling. We believe
that continuing to develop and expand our apparel business is
important to our global brand aspirations, and that experienced
licensing partners will help us maximize our brand potential in
apparel. We have licensing arrangements with Phillips-Van Heusen
Corporation for mens apparel in North America and
Mediterranea S.r.l. for womens apparel in Europe and Asia.
Fall 2008 marked the first season that Phillips-Van Heusen
offered
Timberland®
mens apparel in North America. Mediterranea launched its
Timberland®
womens offering in Spring 2009. Our kids apparel in
Europe and Asia continues to be made, marketed and distributed
by our longstanding licensing partner, Childrens Worldwide
Fashion S.A.S. In North America, our kids apparel is made,
marketed and distributed by a division of LF USA Inc. In late
2009, LF USA Inc. acquired the assets of our former licensing
partner, Wear Me Apparel LLC (which did business under the name
Kids Headquarters). We design and market
Timberland®
mens apparel for our European and Asian operations through
our London-based International Design Center, which enables us
to remain close to our target consumers. In 2008, we engaged
Li & Fung (Trading) Limited as our buying agent to
source this apparel for us. We offer Timberland
PRO®
apparel in Europe pursuant to a licensing arrangement that has
been in effect since 2004.
A key driver of our mens and womens apparel lines is
our
Earthkeeperstm
initiative, launched in Fall 2008 and expanded in Fall 2009,
that reflects the intersection of product design and
environmental stewardship. Organic cotton, recycled yarns, and
lower impact materials have all been introduced into the lines
to further our ongoing commitment to minimize our environmental
impact and appeal to an environmentally-aware consumer.
6
SmartWool
SmartWool extends our enterprises reach by offering
apparel and accessories to the active outdoor consumer.
SmartWool is a leading provider of premium performance merino
wool-based socks, apparel and accessories for men, women and
children. SmartWools key product categories are
performance socks, lifestyle socks and
Next-to-Skin
Baselayers.
SmartWool®
performance socks range from core basic outdoor styles to the
premium, technical, industry-leading
PhD®
line that includes Outdoor, Run, Cycle and Ski for the outdoor
and snow-sports consumer.
SmartWool has also expanded its apparel line to include
technical cycling jerseys and shorts, as well as a complete line
of performance and lifestyle sweaters. Additionally, SmartWool
has a growing line of performance and lifestyle accessories
including hats, scarves, technical ski gloves and infant socks
and booties. SmartWools Merino wool fiber is superior at
moisture management, temperature control and is naturally odor
free.
SmartWool®
products are sold through outdoor and ski specialty retailers,
outdoor chains, better department stores and online at
www.smartwool.com.
howies
Limited
howies Limited is an active sports apparel brand founded on the
idea of designing and manufacturing clothing for the socially
engaged and environmentally conscious action sports and outdoor
consumer. howies uses high quality materials and pursues lower
impact building processes and sourcing strategies, all of which
help howies make innovative product while minimizing its impact
on the environment. We sell
howies®
products through seasonal catalogs, howies-owned retail,
including stores and the Internet, and through a mix of
independent retailers. howies main office is located in
Cardigan Bay, Wales, U.K.
Third-party
Licensing
Third-party licensing enables us to expand our brand reach to
appropriate and well-defined categories and to benefit from the
expertise of the licensees in a manner that reduces the risks to
us associated with pursuing these opportunities. We receive a
royalty on sales of our licensed products. We continue to focus
on closely aligning our licensed products and distribution to
our strategic brand initiatives and long range strategies and to
build better integration across these products to present a
seamless brand worldwide. Our licensed
Timberland®
products for men, women and children include apparel and
accessories. We license rights to childrens apparel
worldwide, mens apparel in North America, and womens
apparel in Europe. The accessories products include packs and
travel gear, womens handbags, belts, wallets, socks,
headwear, gloves, watches, sunglasses, eyewear and ophthalmic
frames and various other small leather goods, and are designed,
manufactured and distributed pursuant to licensing agreements
with third parties. We also offer Timberland
PRO®
footwear and apparel in Europe under a license agreement.
Product
Sales: Business Segments and Operations by Geographic
Area
Our products are sold by us as well as our distributor partners
in the United States and internationally primarily through
independent outdoor retailers, independent footwear retailers,
better-grade department stores, athletic stores and other
national retailers, which reinforce the high level of quality,
performance and service associated with the
Timberland®
brand and business. In addition, our products are sold by us as
well as our distributor and franchise partners in
Timberland®
specialty stores,
Timberland®
factory outlet stores and
Timberland®
footwear plus stores dedicated exclusively to selling
Timberland®
products and
Timberland®
sub-branded
products. We also sell our products in the United States online
at www.timberland.com, www.smartwool.com and www.ipath.com, and
in the United Kingdom online at www.timberlandonline.co.uk and
www.howies.co.uk.
We operate in an industry that includes the designing,
engineering, marketing and distribution of footwear, apparel and
accessories products for men, women and children. We manage our
business in the following three reportable segments, each
segment sharing similar product, distribution and marketing:
North America, Europe and Asia.
The North America segment is comprised of the sale of products
to wholesale customers in the United States and Canada, as well
as the Company-operated specialty, factory outlet and footwear
plus stores in the United States and our
U.S. e-commerce
businesses. This segment also includes royalties from licensed
7
products sold worldwide, the management costs and expenses
associated with our worldwide licensing efforts and certain
marketing expenses and value added services. The Europe and Asia
segments consist of the marketing, selling and distribution of
footwear, apparel and accessories and licensed products outside
of North America. Products are sold outside of the United States
through our subsidiaries (which use wholesale and retail
channels, including
e-commerce
in the United Kingdom, to sell footwear, apparel and
accessories), independent distributors, franchisees and
licensees.
The following table presents the percentage of our total revenue
generated by each of these reportable segments for the past
three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
|
47.4
|
%
|
|
|
47.8
|
%
|
|
|
50.7
|
%
|
Europe
|
|
|
41.2
|
%
|
|
|
40.5
|
%
|
|
|
38.5
|
%
|
Asia
|
|
|
11.4
|
%
|
|
|
11.7
|
%
|
|
|
10.8
|
%
|
More detailed information regarding these reportable segments,
and each of the geographic areas in which we operate, is set
forth in Note 15 to our consolidated financial statements,
entitled Business Segments and Geographic
Information, in Part II, Item 8 of this Annual
Report on
Form 10-K.
North
America
Our wholesale customer accounts within North America include
independent outdoor retailers, independent footwear retailers,
better-grade department stores, national athletic accounts,
general sporting goods retailers and other national accounts.
Many of these wholesale accounts merchandise our products in
selling areas dedicated exclusively to our products. These
concept shops display the breadth of our product
line and brand image to consumers, and are serviced through a
combination of field and corporate-based sales teams responsible
for these distribution channels. We also service our wholesale
accounts through our principal showroom in New York City and
regional showrooms in Atlanta, Georgia, Dallas, Texas and Miami,
Florida. We have continued our efforts to expand the brand
geographically by penetrating markets in areas beyond our
traditional strength in the Northeast U.S.
SmartWool®
products are sold in the United States through sales agents and
in Canada through distributors.
SmartWool®
products are also available in Company-owned
Timberland®
specialty stores in the United States, as well as online at
www.smartwool.com.
At December 31, 2009, in the United States we operated 6
specialty stores, which carry current season, first quality
merchandise, including footwear, apparel and accessories; 59
factory outlet stores, which serve as a primary channel for the
sale of excess, damaged or discontinued products from our
specialty stores and also sell products specifically made for
them; and 4 footwear plus stores, which are smaller, 1,200 to
1,500 square foot, stores that primarily sell our most
popular footwear products along with a smaller assortment of our
apparel products. We also sell products online through our
Internet store at www.timberland.com. Our online store allows
U.S. consumers to purchase current season, first quality
merchandise over the Internet. This Internet site also provides
information about Timberland, including the reports we file with
or furnish to the Securities and Exchange Commission, investor
relations, corporate governance, community involvement
initiatives and employment opportunity information.
Additionally, the site serves to reinforce our marketing
efforts. We also sell products online through our Internet
stores at www.smartwool.com and www.ipath.com.
Europe
We sell our products in Europe through our sales subsidiaries in
the United Kingdom, Italy, France, Germany, Switzerland,
Austria, Belgium, the Netherlands and Spain. All of these sales
subsidiaries provide support for the sale of our products to
wholesale customers
and/or
operate
Timberland®
stores in their respective countries. At December 31, 2009,
we operated 44 company-owned specialty stores and shops and
16 factory outlet stores in Europe. In 2007, we opened our first
international online store in the United Kingdom,
www.timberlandonline.co.uk.
Timberland®
products are also sold in Europe, the Middle East, Africa,
Central America and South America by distributors, franchisees
and commissioned agents, some of which may also operate
Timberland®
stores located in their respective countries.
8
SmartWool®
products are sold in Europe, the Middle East and Africa through
a combination of agents and distributors, and are also available
in Company-owned Timberland stores, as well as online at
www.timberlandonline.co.uk.
Located in the United Kingdom, howies Limited develops and
markets active sports apparel and sells its products through 3
howies-owned retail stores, catalogs, online at
www.howies.co.uk, and through independent retailers.
Asia
We sell our products in Asia through our sales subsidiaries in
Japan, Hong Kong, Singapore, Taiwan, China and Malaysia. Most of
these sales subsidiaries provide support for the sale of our
products to wholesale customers and operate
Timberland®
stores in their respective countries. One such wholesale
customer accounted for approximately 19% of the segments
revenue during the year ended December 31, 2009. At
December 31, 2009, we operated 67 company-owned
specialty stores and shops and 19 factory outlet stores in Asia.
Timberland®
products are sold elsewhere in Asia and Australasia by
distributors, franchisees and commissioned agents, some of which
may also operate
Timberland®
stores located in their respective countries. We continued our
expansion of the
Timberland®
brand in China and India during 2009 and, in early 2010, we
opened our first Company-owned retail store in China. We intend
to continue expanding the
Timberland®
brand into new markets and consumer segments to strengthen our
position as a leading global brand.
SmartWool®
products are sold in Asia through distributors and are also
available in Company-owned Timberland stores.
Distribution
We distribute our products through three Company-managed
distribution facilities, which are located in Danville,
Kentucky; Ontario, California and Enschede, Netherlands and
through third-party managed distribution facilities, which are
located in Canada and Asia.
Advertising
and Marketing
The Companys overall marketing strategy is to develop
category and consumer-specific plans and advertising, and
related promotional materials for U.S. and international
markets to foster a differentiated approach with a consistent
image for each of the Companys big product ideas.
Marketing campaigns and strategies vary by product idea and may
target accounts
and/or end
users as they strive to increase overall brand awareness and
purchase intent. The Companys advertisements typically
emphasize outdoor performance, environmental features, quality,
durability and other performance and lifestyle aspects of the
Companys products. Components of the category and
consumer-specific plans vary and may include online, print,
radio and television advertising, events, public relations,
in-store point of purchase displays, promotional materials, and
sales and technical assistance.
Seasonality
In 2009, our revenue was higher in the last two quarters of the
year than in the first two quarters, which is consistent with
our historical experience. Accordingly, the amount of fixed
costs related to our operations represented a larger percentage
of revenue in the first two quarters of 2009 than in the last
two quarters of 2009. We expect this seasonality to continue in
2010.
Backlog
At December 31, 2009, our backlog of orders from our
customers was $277 million compared to $282 million at
December 31, 2008 and $324 million at
December 31, 2007. While all orders in the backlog are
subject to cancellation by customers, we expect that the
majority of such orders will be filled in 2010. We believe that
backlog at year-end is an imprecise indicator of total revenue
that may be achieved for the full year because backlog relates
to only wholesale orders for the next season, is affected by the
timing of customers orders, and excludes potential sales
at Timberland-owned retail during the year. Backlog was
essentially flat in 2009 compared to 2008. Backlog declined
globally from 2007 to 2008 in a weakened
9
economic environment, where the timing of orders was impacted as
demonstrated by a higher percentage of at once
orders.
Manufacturing
We operate a manufacturing facility in the Dominican Republic
where we manufacture four different construction footwear types
for both
Timberland®
boots and shoes as well as our Timberland
PRO®
series footwear. We believe we benefit from our internal
manufacturing capability which provides us with sourcing for our
core assortment, planning efficiencies and lead time reduction,
refined production techniques and favorable duty rates and tax
benefits. We manufactured approximately 10% of our footwear unit
volume in the Dominican Republic during 2009, compared to
approximately 11% in each of 2008 and 2007. The remainder of our
footwear products and all of our apparel and accessories
products were produced by independent manufacturers and
licensees in Asia, Europe, Africa, the Middle East, and North,
South and Central America. Approximately 90% of the
Companys 2009 footwear unit volume was produced by
independent manufacturers in China, Vietnam, Thailand and India.
Three of these manufacturing partners together produced
approximately 60% of the Companys 2009 footwear volume.
The Company continually evaluates footwear production sources in
other countries to maximize cost efficiencies and to keep pace
with advanced production techniques.
We maintain a product quality management group, which develops,
reviews and updates our quality and production standards. To
help ensure such standards are met, the group also conducts
product quality audits at our factories and distribution centers
and our independent manufacturers factories and
distribution centers. We have offices in Bangkok, Thailand; Zhu
Hai, China; Ho Chi Minh City, Vietnam; and Chennai, India to
supervise our footwear sourcing activities conducted in the
Asia-Pacific region. Li & Fung (Trading) Limited, our
apparel buying agent in Asia, also performs such functions in
certain locations.
Materials
In 2009, ten suppliers provided, in the aggregate, approximately
90% of our leather purchases. Three of these suppliers together
provided approximately 50% of our leather purchases in 2009. We
historically have not experienced significant difficulties in
obtaining leather or other materials in quantities sufficient
for our operations. However, our gross profit margins are
adversely affected to the extent that the selling prices of our
products do not increase proportionately with increases in the
costs of leather and other materials. Any significant,
unanticipated increase or decrease in the prices of these
commodities could materially affect our results of operations.
We attempt to manage this risk, as we do with all other footwear
and non-footwear materials, on an ongoing basis by monitoring
related market prices, working with our suppliers to achieve the
maximum level of stability in their costs and related pricing,
seeking alternative supply sources when necessary and passing
increases in commodity costs to our customers, to the maximum
extent possible, when they occur. We cannot assure you that such
factors will protect us from future changes in the prices for
such materials.
In addition, we have established a central network of suppliers
through which our footwear manufacturing facilities and
independent footwear manufacturers can purchase materials. We
seek sources of materials local to manufacturers in an effort to
reduce lead times while maintaining our high quality standards.
We believe that key strategic alliances with leading materials
vendors help reduce the cost and provide greater consistency of
materials procured to produce
Timberland®
products and improve compliance with our production standards.
We continue to work to offset cost increases with cost savings
by reducing complexity, utilizing new lower cost suppliers and
consolidating existing suppliers. In 2009, we maintained
contracts with global vendors for leather, thread for hand-sewn
styles, leather laces, waterproof membrane gasket material,
waterproof seam-seal adhesives, topline reinforcement tape,
packaging, laces, box toes and counters, cellulose and nonwoven
insole board,
Ströbel®
construction insole materials and thread, synthetic suede lining
materials, soling components and compounds, and packaging labels.
Trademarks
and Trade Names; Patents; Research &
Development
Our principal trade name is The Timberland Company and our
principal trademarks are Timberland and our tree design logo,
which have been registered in the United States and many foreign
countries. In addition,
10
we own many other trademarks that we utilize in marketing our
products. Some of the more frequently used marks include: the
PRO design, Timberland PRO, Timberland Boot Company,
Earthkeepers, Green Index, Mountain Athletics, SmartWool, howies
and Ipath.
We regard our trade name and trademarks as valuable assets and
believe that they are important factors in marketing our
products. We seek to protect and vigorously defend our trade
name and trademarks against infringement under the laws of the
United States and other countries. In addition, we seek to
protect and vigorously defend our patents, designs, copyrights
and all other proprietary rights covering components and
features used in various footwear, apparel and accessories under
applicable laws.
We conduct research, design and development efforts for our
products on a continual basis, including field testing of a
number of our products to evaluate and improve product
performance. In addition, we engage in research and development
related to new production techniques and to improving the
function, performance, reliability and quality of our footwear.
We have also dedicated resources to an international design and
development team based in Europe. Our expenses relating to
research, design and development have not represented a material
expenditure relative to our other expenses.
Competition
Our footwear, apparel and accessories products are marketed in
highly competitive environments that are subject to changes in
consumer preference. Product quality, performance, design,
styling and pricing, as well as consumer awareness, are all
important elements of competition in the footwear, apparel and
accessories markets served by us. Although the footwear industry
is fragmented to a great degree, many of our competitors are
larger and have substantially greater resources than us,
including athletic shoe companies, several of which compete
directly with some of our products. In addition, we face
competition from retailers that have established products under
private labels and from direct mail companies in the United
States. The competition from some of these competitors is
particularly strong where such competitors business is
focused on one or a few product categories or geographic regions
in which we also compete. However, we do not believe that any of
our principal competitors offers a complete line of products
that provides the same quality and performance as the complete
line of
Timberland®,
Timberland
PRO®,
SmartWool®,
Timberland Boot
Company®,
howies®,
and
IPATH®
footwear, apparel and accessories products.
Environmental
Matters
Compliance with federal, state and local environmental
regulations has not had, nor is it expected to have, any
material effect on our capital expenditures, earnings or
competitive position based on information and circumstances
known to us at this time.
Employees
We had approximately 5,700 full and part-time employees
worldwide at December 31, 2009. Our management considers
our employee relations to be good. None of our employees are
represented by a labor union, and we have never suffered a
material interruption of business caused by labor disputes
involving our own employees.
Available
Information
Our annual report on
Form 10-K,
quarterly reports on
Form 10-Q,
current reports on
Form 8-K,
exhibits and amendments to those reports that are filed with or
furnished to the Securities and Exchange Commission are made
available free of charge through our website,
www.timberland.com, as soon as reasonably practicable after we
electronically file them with, or furnish them to, the
Securities and Exchange Commission. The charters for the Audit
Committee, Governance and Nominating Committee, Management
Development and Compensation Committee, and Corporate Social
Responsibility Committee, as well as our Corporate Governance
Principles and Code of Ethics and other corporate information
are available free of charge through our website,
www.timberland.com. You may request a copy of any of the above
documents by writing to the Companys Secretary at The
Timberland Company, 200 Domain Drive, Stratham, New Hampshire
03885.
We submitted to the New York Stock Exchange in 2009 the
certification required by Section 303A.12 of the New York
Stock Exchange Listed Company Manual.
11
Executive
Officers of the Registrant
The following table lists the names, ages and principal
occupations during the past five years of our executive
officers. All executive officers serve at the discretion of our
Companys Board of Directors. Except as otherwise noted
below, all positions listed for a particular officer are
positions with The Timberland Company or one of its subsidiaries.
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Principal Occupation During the Past Five Years
|
|
Sidney W. Swartz
|
|
|
73
|
|
|
Chairman of the Board since June 1986; Chief Executive Officer
and President, June 1986 June 1998.
|
Jeffrey B. Swartz
|
|
|
49
|
|
|
President and Chief Executive Officer since June 1998. Jeffrey
Swartz is the son of Sidney Swartz.
|
Carden N. Welsh
|
|
|
56
|
|
|
Senior Vice President and Chief Administrative Officer since
September 2007; Treasurer of a New Hampshire U.S. Congressional
Campaign, 2007; Advisory Board, The Trust for Public Land-New
Hampshire, a conservation organization devoted to conserving
land as parks, gardens and other natural places, 2006-2007;
Masters studies at University of New Hampshire, 2003-2006;
Senior Vice President, International, 1998-2003.
|
Michael J. Harrison
|
|
|
49
|
|
|
Chief Brand Officer since July 2009; Co-President,
Timberland®
brand since December 2007; President Casual Gear,
February 2007 December 2007; Senior Vice President -
Worldwide Sales and Marketing, February 2006
February 2007; Senior Vice President and General Manager -
International, November 2003 - February 2006.
|
Carrie W. Teffner
|
|
|
43
|
|
|
Vice President and Chief Financial Officer since September 2009;
Senior Vice President and Chief Financial Officer, Sara Lee
International Household and Body Care, 2008-2009; Senior Vice
President and Chief Financial Officer, Sara Lee Foodservice,
2007-2008; Senior Vice President, Financial Planning &
Analysis and Treasurer, Sara Lee Corporation, 2005-2007;
Assistant Treasurer and Executive Director, Sara Lee
Corporation, 2003-2004. Sara Lee Corporation is a global
manufacturer and marketer of high quality, brand name consumer
products.
|
John J. Fitzgerald, Jr.
|
|
|
47
|
|
|
Vice President, Corporate Controller and Chief Accounting
Officer since December 2008; Vice President, Finance for
Worldwide Sales and Marketing, January 2006-December 2008; Vice
President, U.S. and Global Support, November 2001
January 2006.
|
John P. Pazzani
|
|
|
46
|
|
|
Chief Culture Officer since June 2007; Vice President, U.S.
Retail and Ecommerce, 2001 June 2007.
|
Danette Wineberg
|
|
|
63
|
|
|
Vice President and General Counsel since October 1997 and
Secretary since July 2001.
|
12
Risks
Related to Our Business
We
operate in a highly competitive industry.
We market our products in highly competitive environments. Many
of our competitors are larger and have substantially greater
resources for marketing, research and development and other
purposes. These competitors include athletic and other footwear
companies, branded apparel companies and private labels
established by retailers. Furthermore, efforts by our
competitors to dispose of their excess inventory could put
downward pressure on retail prices and could cause our wholesale
customers to redirect some of their purchases away from our
products.
We may
have difficulty matching our products and inventory levels to
consumer preferences and demand.
As we continue to market established products and develop new
products, our success depends in large part on our ability to
anticipate, understand and react to changing consumer demands.
We believe that our more fashion-focused boots, mens
apparel and womens footwear products are more susceptible
to changing fashion trends and consumer preferences than our
other products. Our products must appeal to a broad range of
consumers whose preferences cannot be predicted with certainty
and are subject to rapid change. The success of our products and
marketing strategy will also depend on a favorable reception by
our wholesale customers. We cannot ensure that any existing
products or brands will continue to be favorably received by
consumers or our wholesale customers, nor can we ensure that any
new products or brands that we introduce will be favorably
received by consumers or our wholesale customers. Any failure on
our part to anticipate, identify and respond effectively to
changing consumer demands and fashion trends could adversely
affect retail and consumer acceptance of our products and leave
us with unsold inventory or missed opportunities. If that
occurs, we may be forced to rely on markdowns or promotional
sales to dispose of excess, slow-moving inventory, which may
harm our business. At the same time, our focus on the management
of inventory may result, from time to time, in not having an
adequate supply of products to meet consumer demand and cause us
to lose sales.
We may
be unable to execute key strategic initiatives.
We continue to take actions to restructure our business
operations to maximize operating effectiveness and efficiency
and to reduce costs. Achievement of the targeted benefits
depends in part on our ability to appropriately identify,
develop and effectively execute strategies and initiatives. We
cannot assure you that we will achieve the targeted benefits
under these programs within a targeted timeframe or within
targeted costs or that the benefits, even if achieved, will be
adequate.
We
conduct business outside the United States, which exposes us to
foreign currency, import restrictions, taxes, duties and other
risks.
We manufacture and source a majority of our products outside the
United States. Our products are sold in the U.S. and
internationally. Accordingly, we are subject to the risks of
doing business abroad, including, among other risks, foreign
currency exchange rate risks, import restrictions, anti-dumping
investigations, political or labor disturbances, expropriation
and acts of war. Additionally, as a global company, our
effective tax rate is highly dependent upon the geographic
composition of worldwide earnings and tax regulations governing
each region. Recently, the Obama Administration has proposed
legislation that would fundamentally change how
U.S. multinational corporations are taxed on their global
income. Although the scope of the proposed changes is unclear,
it is possible that these or other changes in the U.S. tax
laws could increase our U.S. income tax liability and
adversely affect our profitability.
On October 7, 2006, the European Commission imposed
definitive duties on leather upper footwear originating from
China and Vietnam and imported into European Member States.
These duties were effective for a two year period with a final
16.5% rate for China sourced footwear and a 10% rate for Vietnam
sourced footwear. On October 3, 2008, the European
Commission initiated an expiry review of the duties to determine
whether they should be extended for a period beyond the original
expiration date. In December 2009, upon the conclusion of the
expiry review, the European Commission extended the duties at
the same definitive rates for an additional period of fifteen
months beginning on January 1, 2010.
13
Although we pay for the purchase and manufacture of our products
primarily in U.S. dollars, we are routinely subject to
currency rate movements on
non-U.S. denominated
assets, liabilities and income as we sell goods in local
currencies through our foreign subsidiaries. We cannot assure
you that we will be protected from future changes in foreign
currency exchange rates that may impact our financial condition
or performance. Currency exchange rate fluctuations could also
disrupt the business of the independent manufacturers that
produce our products by making their purchases of raw materials
more expensive and more difficult to finance. Foreign currency
fluctuations could have an adverse effect on our results of
operations and financial condition.
We engage in hedging activities to mitigate the impact of
foreign currencies on our financial results (see Note 3 to
our consolidated financial statements, entitled
Derivatives, in Part II, Item 8 of this
Annual Report on
Form 10-K).
Our hedging activities are designed to reduce, but cannot and
will not eliminate, the effects of foreign currency
fluctuations. Factors that could affect the effectiveness of our
hedging activities include accuracy of sales forecasts,
volatility of currency markets, and the availability of hedging
instruments. Because the hedging activities are designed to
reduce volatility, they not only reduce the negative impact of a
stronger U.S. dollar, but they also reduce the positive
impact of a weaker U.S. dollar. Our future financial
results could be significantly affected by the value of the
U.S. dollar in relation to the foreign currencies in which
we conduct business. The degree to which our financial results
are affected for any given time period will depend in part upon
our hedging activities.
We
depend on independent manufacturers to produce the majority of
our products, and our business could suffer if we need to
replace manufacturers or suppliers or find additional
capacity.
During 2009, we manufactured approximately 10% of our footwear
unit volume. Independent manufacturers and licensees in Asia,
Europe, Mexico, Africa and South and Central America produced
the remainder of our footwear products and all of our apparel
and accessories products. Independent manufacturers in China,
Vietnam, Thailand and India produced approximately 90% of our
2009 footwear unit volume. Three of these manufacturing partners
together produced approximately 60% of our 2009 footwear volume.
If we experience a significant increase in demand or a
manufacturer is unable to ship orders of our products in a
timely manner or to meet our quality standards, then we could
miss customer delivery date requirements for those items, which
could result in cancellation of orders, refusal to accept
deliveries or a reduction in purchase prices, any of which could
have a material adverse effect on our financial condition and
results of operations. We compete with other companies for the
production capacity of our manufacturers and import quota
capacity. Any long-term economic downturn could cause our
suppliers to fail to make and ship orders placed by us. We
cannot assure you that we will be able to maintain current
relationships with our current manufacturers or locate
additional manufacturers that can meet our requirements or
manufacture on terms that are acceptable to us.
Further, these independent manufacturers agree to comply with a
code of conduct and other environmental, health and safety
standards for the benefit of workers. However, from time to
time, such manufacturers may fail to comply with such standards
or applicable local law. Significant or continuing noncompliance
with such standards and laws by one or more of such
manufacturers could harm our reputation and, as a result, have
an adverse effect on our business and financial condition.
The
loss of one or more of our major suppliers for materials may
interrupt our supplies.
We depend on a limited number of key sources for leather, our
principal material, and other proprietary materials used in our
products. In 2009, ten suppliers provided, in the aggregate,
approximately 90% of our leather purchases. Three of these
suppliers provided approximately 50% of our leather purchases in
2009. While historically we have not experienced significant
difficulties in obtaining leather or other materials in
quantities sufficient for our operations, there have been
significant changes in the prices for these materials. Our gross
profit margins are adversely affected to the extent that the
selling prices of our products do not increase proportionately
with increases in the costs of leather and other materials. Any
significant unanticipated increase or decrease in the prices of
these commodities could materially affect our results of
operations. Increasing oil-related product costs, such as
manufacturing and transportation costs, could also adversely
impact gross margins.
14
Our
business could be adversely impacted by any disruption to our
supply chain.
Independent manufacturers manufacture a majority of our products
outside of our principal sales markets, which requires us to
transport our products via third parties over large geographic
distances. Delays in the shipment or delivery of our products
due to the availability of transportation, work stoppages or
other factors could adversely impact our financial performance.
In addition, manufacturing delays or unexpected demand for our
products may require us to use faster, but more expensive,
transportation methods such as aircraft, which could adversely
affect our profit margins. The cost of fuel is a significant
component in manufacturing and transportation costs, so
increases in the price of oil-related products could adversely
affect our profit margins.
Additionally, if contract manufacturers of our products or other
participants in our supply chain experience difficulty obtaining
financing to purchase raw materials or to finance general
working capital needs due to volatility or disruption in the
capital and credit markets, it may result in delays or
non-delivery of shipments of our products.
Our
business is dependent upon our customers and their financial
health.
Our financial success is directly related to the willingness of
our wholesale customers to continue to purchase our products. We
do not typically have long-term contracts with customers. Sales
to our customers are generally on an
order-by-order
basis and are subject to rights of cancellation and rescheduling
by the customers. Failure to fill customers orders in a
timely manner could harm our relationships with our customers.
Furthermore, if any of our major customers experience a
significant downturn in its business, or fails to remain
committed to our products or brands, then these customers may
reduce or discontinue purchases from us, which could have an
adverse effect on our business, results of operations and
financial condition.
We sell our products to wholesale customers and extend credit
based on an evaluation of each customers financial
condition, usually without requiring collateral. The financial
difficulties of a customer could cause us to stop doing business
with that customer or reduce our business with that customer.
Our inability to collect from our customers or a cessation or
reduction of sales to certain customers because of credit
concerns could have an adverse effect on our business, results
of operations and financial condition.
Our products are sold in many international markets through
independent licensees, franchisees, and distributors. Failure by
such parties to meet planned annual sales goals could have an
adverse effect on our business, results of operations and
financial condition, and it may be difficult and costly to
locate an acceptable substitute. If a change in licensees,
franchisees or distributors becomes necessary, we may experience
increased costs, as well as substantial disruption and a
resulting loss of sales and brand equity in that market.
In addition, changes in the channels of distribution, such as
the growth of Internet commerce and the trend toward the sale of
private label products by major retailers, could have an adverse
effect on our business, results of operations and financial
condition.
Our
business could be impacted by global capital and credit market
conditions and resulting declines in consumer confidence and
spending.
Volatility and disruption in the global capital and credit
markets have led to a tightening of business credit and
liquidity, a contraction of consumer credit, business failures,
higher unemployment, and declines in consumer confidence and
spending in the United States and internationally. If global
economic and financial market conditions deteriorate or remain
weak for an extended period of time, the following factors could
have a material adverse effect on our business, operating
results and financial condition: slower consumer spending may
result in reduced demand for our products, reduced orders from
customers for our products, order cancellations, lower revenues,
increased inventories and lower gross margins; we may be unable
to access financing in the credit and capital markets at
reasonable rates in the event we find it desirable to do so;
continued volatility in the markets and prices for commodities
and raw materials we use in our products and in our supply chain
could have a material adverse effect on our costs, gross margins
and profitability; if customers experience declining revenues or
experience difficulty obtaining financing in the capital and
credit markets to purchase our products, this could result in
reduced orders for our products, order cancellations,
15
inability of customers to timely meet their payment obligations
to us, extended payment terms, higher accounts receivable,
reduced cash flows, greater expense associated with collection
efforts, and increased bad debt expense; and if customers
experience severe financial difficulty, some may become
insolvent and cease business operations, which could reduce the
availability of our products to consumers.
Our
business could be adversely impacted by the financial
instability of third parties with which we do
business.
Distress in the financial markets has had an adverse impact on
the availability of credit and liquidity resources. Continued
market deterioration could jeopardize our ability to rely on and
benefit from certain counterparty obligations, including those
of financial institutions party to our credit agreements and
derivative contracts and those of other parties with which we do
business. The failure of any of these counterparties to honor
their obligations to us, or the continued deterioration of the
global economy, could have a material adverse effect on our
financial condition and results of operations. In addition, our
ability to replace such credit agreements on the same or similar
terms may be limited if market and general economic conditions
continue to deteriorate.
We
depend on sales forecasts which may not be accurate and may
result in higher than necessary infrastructure and product
investments.
We base our investments in infrastructure and product, in part,
on sales forecasts. We do business in highly competitive
markets, and our business is affected by a variety of factors,
including brand awareness, product innovations, retail market
conditions, economic and other factors, changing consumer
preferences, fashion trends, seasonality and weather conditions.
One of our principal challenges is to predict these factors to
enable us to match the production of our products with demand.
If sales forecasts are not achieved, these investments could
represent a higher percentage of revenue, and we may experience
higher inventory levels and associated carrying costs, and
decreased profit margins if we are forced to dispose of
resulting excess or slow-moving inventory, all of which could
adversely affect our financial performance.
Declines
in revenue in our retail stores could adversely affect
profitability.
We have made significant capital investments in opening retail
stores and incur significant expenditures in operating these
stores. The higher level of fixed costs related to our retail
organization can adversely affect profitability, particularly in
the first half of the year, as our revenue historically has been
more heavily weighted to the second half of the year. Our
ability to recover the investment in and expenditures of our
retail organization can be adversely affected if sales at our
retail stores are lower than anticipated. Our gross margin could
be adversely affected if off-price sales increase as a
percentage of revenue.
We
rely on our licensing partners to help us preserve the value of
our brand.
We have entered into several licensing agreements which enable
us to expand our brand to product categories and geographic
territories in which we have not had an appreciable presence. We
have licensed our mens North American
Timberland®
apparel product line to Phillips-Van Heusen Corporation as we
believe they have the capabilities to help us maximize our brand
potential through an improved apparel offering and strengthened
distribution. The risks associated with our own products also
apply to our licensed products. There are also any number of
possible risks specific to a licensing partners business,
including, for example, risks associated with a particular
licensing partners ability to obtain capital, manage its
labor relations, maintain relationships with its suppliers,
manage its credit risk effectively, control quality and maintain
relationships with its customers. Although our license
agreements prohibit licensing partners from entering into
licensing arrangements with certain of our competitors,
generally our licensing partners are not precluded from
offering, under other brands, the types of products covered by
their license agreements with us. A substantial portion of sales
of the licensed products by our domestic licensing partners are
also made to our largest customers. While we have significant
control over our licensing partners products and
advertising, we rely on our licensing partners for, among other
things, operational and financial control over their businesses.
16
The
loss of key executives could cause our business to suffer, and
control by members of the Swartz family and the anti-takeover
effect of multiple classes of stock could discourage attempts to
acquire us.
Sidney W. Swartz, our Chairman, Jeffrey B. Swartz, our President
and Chief Executive Officer, and other executives have been key
to the success of our business to date. The loss or retirement
of these or other key executives could adversely affect us.
Sidney W. Swartz, Jeffrey B. Swartz and various trusts
established for the benefit of their families or for charitable
purposes, hold approximately 73% of the combined voting power of
our capital stock in the aggregate, enabling them to control our
affairs. Members of the Swartz family will, unless they sell
shares of Class B common stock that would reduce the number
of shares of Class B common stock outstanding to 12.5% or
less of the total number of shares of Class A and
Class B common stock outstanding, have the ability, by
virtue of their stock ownership, to prevent or cause a change in
control of the Company. This could discourage an attempt to
acquire the Company that might provide stockholders with a
premium to the market price of their common shares.
Our
charter documents and Delaware law may inhibit a change of
control that stockholders may consider favorable.
Under our Certificate of Incorporation, the Board of Directors
has the ability to issue and determine the terms of preferred
stock. The ability to issue preferred stock, coupled with the
anti-takeover provisions of Delaware law, could delay or prevent
a change of control or change in management that might provide
stockholders with a premium to the market price of their common
stock.
Our
inability to attract and retain qualified employees could impact
our business.
We compete for talented employees within our industry. We must
maintain competitive compensation packages to recruit and retain
qualified employees. Our failure to attract and retain qualified
employees could adversely affect the sales, design and
engineering of our products.
Our
ability to protect our trademarks and other intellectual
property rights may be limited.
We believe that our trademarks and other proprietary rights are
important to our success and our competitive position. We devote
substantial resources to the establishment and protection of our
trademarks on a worldwide basis. We cannot ensure that the
actions we have taken to establish and protect our trademarks
and other proprietary rights will be adequate to prevent
imitation of our products by others or to prevent others from
seeking to block sales of our products as a violation of the
trademarks and proprietary rights of others. Also, we cannot
ensure that others will not assert rights in, or ownership of,
trademarks and other proprietary rights of ours or that we will
be able to successfully resolve these types of conflicts to our
satisfaction. We are also susceptible to injury from parallel
trade and counterfeiting of our products. In addition, the laws
of certain foreign countries, including some countries in which
we currently do business, may not protect proprietary rights to
the same extent as do the laws of the United States.
The
value of our brand, and our sales, could be diminished if we are
associated with negative publicity.
While our staff and third-party compliance auditors periodically
visit and monitor the operations of our vendors, independent
manufacturers and licensees, we do not control these vendors or
independent manufacturers or their labor practices. A violation
of our vendor policies, labor laws or other laws, including
consumer and product safety laws, by us, such vendors or
independent manufacturers, or any inaccuracy with respect to
claims we may make about our business or products, including
environmental and consumer and product safety claims, could
interrupt or otherwise disrupt our sourcing or damage our brand
image. Negative publicity, for these or other reasons, regarding
our Company, brand or products, including licensed products,
could adversely affect our reputation and sales.
Our
business is affected by seasonality, which could result in
fluctuations in our operating results and stock
price.
We experience fluctuations in aggregate sales volume during the
year. Historically, revenue in the second half of the year has
exceeded revenue in the first half of the year. However, the mix
of product sales may vary considerably from time to time as a
result of changes in seasonal and geographic demand for
particular types of footwear, apparel and accessories. As a
result, we may not be able to accurately predict our quarterly
sales.
17
Accordingly, our results of operations are likely to fluctuate
significantly from period to period. Results of operations in
any period should not be considered indicative of the results to
be expected for any future period.
Our
success depends on our global distribution
facilities.
We distribute our products to customers directly from the
factory and through distribution centers located throughout the
world. Our ability to meet customer expectations, manage
inventory, complete sales and achieve objectives for operating
efficiencies depends on the proper operation of our distribution
facilities, the development or expansion of additional
distribution capabilities, and the timely performance of
services by third parties (including those involved in shipping
product to and from our distribution facilities). Our
distribution facilities could be interrupted by information
technology problems and disasters such as earthquakes or fires.
Any significant failure in our distribution facilities could
result in an adverse effect on our business. We maintain
business interruption insurance, but it may not adequately
protect us from any adverse effects that could be caused by
significant disruptions in our distribution facilities.
We
rely significantly on information technology, and any failure,
inadequacy, interruption or security failure of that technology
could harm our ability to effectively operate our
business.
We are heavily dependent on information technology systems,
including for design, production, forecasting, ordering,
manufacturing, transportation, sales, and distribution. Our
ability to manage and maintain our inventory effectively and to
ship and sell products to customers on a timely basis depends
significantly on the reliability of these systems. The failure
of these systems to operate effectively, problems with
transitioning to upgraded or replacement systems, or a breach in
security of these systems could cause delays in product
fulfillment and reduced efficiency of our operations, could
require significant capital investments to remediate the
problem, and may have an adverse effect on our results of
operations and financial condition.
Our
business could be adversely affected by governmental policies
and regulation.
Our business is affected by changes in government and regulatory
policies in the United States and in other countries. Changes in
interest rates, tax laws, duties, tariffs and quotas could have
a negative impact on our ability to produce and market our
products at competitive prices.
Our
business could be adversely affected by global political and
economic uncertainty.
Concerns regarding acts of terrorism, the wars in Iraq,
Afghanistan and the Middle East and related events have created
significant global economic and political uncertainties that may
have material and adverse effects on consumer demand, foreign
sourcing of footwear, shipping and transportation, product
imports and exports and the sale of products in foreign markets.
The Company is subject to risks in doing business in developing
countries and economically and politically volatile areas.
Risks
Related to Our Industry
We
face intense competition in the worldwide footwear and apparel
industry, which may impact our sales.
We face a variety of competitive challenges from other domestic
and foreign footwear and apparel producers, some of which may be
significantly larger and more diversified and have greater
financial and marketing resources than we have. We compete with
these companies primarily on the basis of anticipating and
responding to changing consumer demands in a timely manner,
maintaining favorable brand recognition, developing innovative,
high-quality products in sizes, colors and styles that appeal to
consumers, providing strong and effective marketing support,
creating an acceptable value proposition for retail customers,
ensuring product availability and optimizing supply chain
efficiencies with manufacturers and retailers, and obtaining
sufficient retail floor space and effective presentation of our
products at retail. Increased competition in the worldwide
footwear and apparel industries, including Internet-based
competitors, could reduce our sales, prices and margins and
adversely affect our results of operations.
18
A
downturn in the economy may affect consumer purchases of
discretionary items and retail products, which could adversely
affect our sales.
The industries in which we operate are cyclical. Many factors
affect the level of consumer spending in the footwear and
apparel industries, including, among others, general business
conditions, interest rates, the availability of consumer credit,
weather, taxation and consumer confidence in future economic
conditions. Consumer purchases of discretionary items, including
our products, may decline during recessionary periods and also
may decline at other times when disposable income is lower. A
downturn in the economies in which we, or our licensing and
distributor partners, sell our products, whether in the United
States or abroad, may adversely affect our sales. Our gross
margin could also be adversely affected if off-price sales
increase as a percentage of revenue.
Retail
trends could result in downward pressure on our
prices.
With the growing trend toward retail trade consolidation, we
increasingly depend upon a reduced number of key retailers whose
bargaining strength is growing. Changes in the policies of these
retail trade customers, such as increased at-once ordering,
limitations on access to shelf space and other conditions may
result in lower net sales. Further consolidations in the retail
industry could result in price and other competition that could
damage our business.
|
|
ITEM 1B.
|
UNRESOLVED
STAFF COMMENTS
|
None.
We lease our worldwide headquarters located in Stratham, New
Hampshire. The lease for this property expires in December 2020.
We consider our headquarters facilities adequate and suitable
for our current needs.
We lease our manufacturing facilities located in Santiago,
Dominican Republic, under leasing arrangements, which expire on
various dates through 2013. We own our distribution facility in
Danville, Kentucky, and we lease our facilities in Ontario,
California and Enschede, Holland. The Company and its
subsidiaries lease all of their specialty, factory outlet and
footwear plus stores. Our subsidiaries also lease office and
warehouse space to meet their individual requirements.
Our headquarters, manufacturing facilities and United States
distribution facilities are included in Unallocated Corporate
for purposes of segment reporting. Our distribution facility in
Enschede is included in our Europe segment. Specialty, factory
outlet and footwear plus stores are included in each of our
North America, Europe and Asia segments, as are office and
warehouse space.
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
We are involved in various legal matters, including litigation,
which have arisen in the ordinary course of business. We believe
that the ultimate resolution of any existing matter will not
have a material adverse effect on our business or our
consolidated financial statements.
|
|
ITEM 4.
|
SUBMISSION
OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
During the fourth quarter of the fiscal year ended
December 31, 2009, no matter was submitted to a vote of
security holders through the solicitation of proxies or
otherwise.
19
PART II
|
|
ITEM 5.
|
MARKET
FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Our Class A Common Stock is traded on the New York Stock
Exchange under the symbol TBL. There is no market for shares of
our Class B Common Stock; however, shares of Class B
Common Stock may be converted into shares of Class A Common
Stock on a
one-for-one
basis and will automatically be converted upon any transfer
(except for estate planning transfers and transfers approved by
the Board of Directors).
The following table presents the high and low closing sales
prices of our Class A Common Stock for the past two years,
as reported by the New York Stock Exchange.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
High
|
|
|
Low
|
|
|
High
|
|
|
Low
|
|
|
First Quarter
|
|
$
|
14.05
|
|
|
$
|
8.84
|
|
|
$
|
17.49
|
|
|
$
|
13.12
|
|
Second Quarter
|
|
|
16.24
|
|
|
|
12.28
|
|
|
|
19.05
|
|
|
|
13.22
|
|
Third Quarter
|
|
|
15.00
|
|
|
|
12.42
|
|
|
|
18.80
|
|
|
|
14.34
|
|
Fourth Quarter
|
|
|
18.37
|
|
|
|
13.31
|
|
|
|
17.37
|
|
|
|
7.92
|
|
As of February 19, 2010, the number of record holders of
our Class A Common Stock was 728 and the number of record
holders of our Class B Common Stock was 7. The closing
sales price of our Class A Common Stock on
February 19, 2010 was $18.21 per share.
We have never declared a dividend on either the Companys
Class A or Class B Common Stock. Our ability to pay
cash dividends is limited pursuant to loan agreements (see
Note 10 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K).
The Company has no plans to declare or pay any dividends at this
time.
20
Performance
Graph
The following graph shows the five year cumulative total return
of Class A Common Stock as compared with the
Standard & Poors (S&P) 500 Stock Index and
the weighted average of the S&P 500 Footwear Index and the
S&P 500 Apparel, Accessories and Luxury Goods Index. The
total return for the Footwear and Apparel, Accessories and
Luxury Goods indices is weighted in proportion to the percent of
the Companys revenue derived from sales of footwear and
from apparel and accessories (excluding royalties on products
sold by licensees), respectively, for each year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2004(1)
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
Timberland
|
|
|
|
100.00
|
|
|
|
|
103.88
|
|
|
|
|
100.78
|
|
|
|
|
57.70
|
|
|
|
|
36.86
|
|
|
|
|
57.22
|
|
S&P 500 Index
|
|
|
|
100.00
|
|
|
|
|
104.91
|
|
|
|
|
121.48
|
|
|
|
|
128.16
|
|
|
|
|
80.74
|
|
|
|
|
102.11
|
|
Weighted Average of S&P 500 Footwear Index and S&P 500
Apparel, Accessories & Luxury Goods Index
|
|
|
|
100.00
|
|
|
|
|
101.19
|
|
|
|
|
122.43
|
|
|
|
|
137.28
|
|
|
|
|
107.89
|
|
|
|
|
148.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Indexed to December 31, 2004.
21
ISSUER
PURCHASES OF EQUITY SECURITIES(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Fiscal Months Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
Total Number
|
|
|
Maximum Number
|
|
|
|
|
|
|
|
|
|
of Shares
|
|
|
of Shares
|
|
|
|
|
|
|
|
|
|
Purchased as Part
|
|
|
that May Yet
|
|
|
|
Total Number
|
|
|
|
|
|
of Publicly
|
|
|
Be Purchased
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
Announced
|
|
|
Under the Plans
|
|
Period*
|
|
Purchased **
|
|
|
Paid per Share
|
|
|
Plans or Programs
|
|
|
or Programs
|
|
|
October 3 October 30
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
2,196,063
|
|
October 31 November 27
|
|
|
401,600
|
|
|
|
16.91
|
|
|
|
401,600
|
|
|
|
1,794,463
|
|
November 28 December 31
|
|
|
470,204
|
|
|
|
17.50
|
|
|
|
470,204
|
|
|
|
7,324,259
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Q4 Total
|
|
|
871,804
|
|
|
$
|
17.23
|
|
|
|
871,804
|
|
|
|
|
|
Footnote(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Approved
|
|
|
|
|
Announcement
|
|
Program
|
|
Expiration
|
|
|
Date
|
|
Size (Shares)
|
|
Date
|
|
Program 1
|
|
|
03/10/2008
|
|
|
|
6,000,000
|
|
|
|
None
|
|
Program 2
|
|
|
12/09/2009
|
|
|
|
6,000,000
|
|
|
|
None
|
|
|
|
|
* |
|
Fiscal month |
|
** |
|
Based on trade date not settlement date |
All shares purchased in 2009 were purchased under Program 1. The
maximum number of shares available for repurchase at
December 31, 2009 includes shares available under Programs
1 and 2. No existing programs expired or were terminated during
the reporting period. See Note 12 to our consolidated
financial statements, entitled Stockholders
Equity, in Item 8 of this Annual Report on
Form 10-K
for additional information.
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following selected financial data should be read in
conjunction with our consolidated financial statements and
related notes, included in Part II, Item 8 of this
Annual Report on
Form 10-K.
Selected
Statement of Income Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006(1)
|
|
|
2005
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
Revenue
|
|
$
|
1,285,876
|
|
|
$
|
1,364,550
|
|
|
$
|
1,436,451
|
|
|
$
|
1,567,619
|
|
|
$
|
1,565,681
|
|
Net income
|
|
|
56,644
|
|
|
|
42,906
|
|
|
|
39,999
|
|
|
|
101,205
|
|
|
|
180,216
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
|
$
|
1.62
|
|
|
$
|
2.72
|
|
Diluted
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
|
$
|
1.59
|
|
|
$
|
2.66
|
|
|
|
|
(1) |
|
Effective January 1, 2006, the Company adopted the
provisions of Accounting Standards Codification Topic 718,
Compensation Stock Compensation. |
Selected
Consolidated Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
(Dollars in thousands)
|
|
|
Cash and equivalents
|
|
$
|
289,839
|
|
|
$
|
217,189
|
|
|
$
|
143,274
|
|
|
$
|
181,698
|
|
|
$
|
213,163
|
|
Working capital
|
|
|
442,530
|
|
|
|
417,829
|
|
|
|
399,122
|
|
|
|
363,143
|
|
|
|
369,176
|
|
Total assets
|
|
|
859,907
|
|
|
|
849,399
|
|
|
|
836,345
|
|
|
|
860,377
|
|
|
|
790,699
|
|
Total long-term obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
595,617
|
|
|
|
576,538
|
|
|
|
577,160
|
|
|
|
561,685
|
|
|
|
527,921
|
|
22
|
|
ITEM 7.
|
MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following is managements discussion and analysis of
the financial condition and results of operations of The
Timberland Company and its subsidiaries (we,
our, us, its,
Timberland or the Company), as well as
our liquidity and capital resources. The discussion, including
known trends and uncertainties identified by management, should
be read in conjunction with the consolidated financial
statements and related notes included in this Annual Report on
Form 10-K.
Included herein with respect to 2009 versus 2008 and 2008 versus
2007 comparisons are discussions and reconciliations of
(i) Total Company, Europe and Asia revenue changes to
constant dollar revenue changes; and, with respect to 2008
versus 2007, (ii) net income and diluted earnings per share
(EPS) to net income excluding restructuring and
related costs and diluted EPS excluding restructuring and
related costs, respectively. We did not provide comparisons or
discussions of net income and diluted EPS excluding
restructuring and related costs for 2009 versus 2008 as the
amounts of restructuring and related costs in both periods were
not material.
Constant dollar revenue changes, which exclude the impact of
changes in foreign exchange rates, and net income and diluted
EPS, each excluding restructuring and related costs are not
performance measures recognized under generally accepted
accounting principles in the United States (GAAP).
The difference between changes in reported revenue (the most
comparable GAAP measure) and constant dollar revenue changes is
the impact of movement in foreign currencies. We calculate
constant dollar revenue changes by recalculating current year
revenue using the prior years exchange rates and comparing
it to prior year revenue reported on a GAAP basis. We provide
constant dollar revenue changes for Total Company, Europe and
Asia results because we use the measure to understand the
underlying changes in our growth of revenue excluding the impact
of items that are not under managements direct control,
such as changes in foreign exchange rates. The limitation of
this measure is that it excludes items that have an impact on
the Companys revenue. This limitation is best addressed by
using constant dollar revenue changes in combination with the
GAAP numbers. We provide net income and diluted EPS excluding
restructuring and related costs because we use these measures to
analyze the earnings of the Company. Management believes these
measures are a reasonable reflection of the underlying earnings
levels and trends from core business activities, as well as more
indicative of future results. The difference between net income
and diluted EPS excluding restructuring and related costs and
their most comparable GAAP measures (net income and diluted EPS)
is the impact of restructuring and related charges that may mask
our underlying operating results
and/or
business trends. The limitation of these measures is that they
exclude items that would otherwise decrease the Companys
net income and diluted EPS. These limitations are best addressed
by using such measures in combination with the most comparable
GAAP measures in order to better understand the amounts,
character and impact, if any, of any increase or decrease on
reported results.
Overview
Our principal strategic goal is to become the authentic outdoor
brand of choice globally by offering an integrated product
selection that equips consumers to enjoy the experience of being
in the outdoors. We sell our products to consumers who embrace
an outdoor-inspired lifestyle through high-quality distribution
channels, including our own retail stores, which reinforce the
premium positioning of the
Timberland®
brand.
Our ongoing efforts to achieve this goal include
(i) enhancing our leadership position in our core
Timberland®
footwear business through an increased focus on technological
innovation and big idea initiatives like
Earthkeepers, (ii) expanding our global apparel and
accessories business by leveraging the brands equity and
initiatives through a combination of in-house development and
licensing arrangements with trusted partners,
(iii) expanding our brands geographically,
(iv) driving operational and financial excellence,
(v) setting the standard for social and environmental
responsibility and (vi) striving to be an employer of
choice.
A summary of our 2009 financial performance, compared to 2008,
follows:
|
|
|
|
|
Revenue decreased 5.8%, or 3.6% on a constant dollar basis, to
$1,285.9 million.
|
|
|
|
Gross margin increased 140 basis points to 46.9%.
|
|
|
|
Operating expenses were down 4.7% to $525.4 million.
|
23
|
|
|
|
|
Operating income increased 11.3% to $77.5 million, or 6.0%
of revenue compared to 5.1% of revenue.
|
|
|
|
Net income increased from $42.9 million to
$56.6 million.
|
|
|
|
Diluted earnings per share increased from $0.73 to $1.01.
|
|
|
|
Net cash provided by operating activities decreased from
$147.7 million to $135.9 million.
|
|
|
|
Cash at the end of 2009 was $289.8 million, with no debt
outstanding.
|
Critical
Accounting Policies
Our discussion and analysis of our financial condition and
results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial
statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues,
expenses and related disclosure of contingent assets and
liabilities. On an on-going basis, we evaluate our estimates,
including those related to sales returns and allowances,
realization of outstanding accounts receivable, the carrying
value of inventories, derivatives, other contingencies,
impairment of assets, incentive compensation accruals,
shared-based compensation and the provision for income taxes. We
base our estimates on historical experience and on various other
assumptions that 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. Our significant accounting
policies are described in Note 1 to the Companys
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K.
We have identified the following as critical accounting
policies, based on the significant judgments and estimates used
in determining the amounts reported in our consolidated
financial statements:
Sales
Returns and Allowances
Our revenue consists of sales to wholesale customers (including
distributors and franchisees), retail and
e-commerce
customers, and license fees and royalties. We record wholesale
and
e-commerce
revenues when title passes and the risks and rewards of
ownership have passed to our customer, based on the terms of
sale. Title passes generally upon shipment to or upon receipt by
our customer, depending on the country of sale and the agreement
with our customer. Retail store revenues are recorded at the
time of the sale. License fees and royalties are recognized as
earned per the terms of our licensing and royalty agreements. We
also sell gift cards, the revenue from which is recognized at
the time of redemption.
We record reductions to revenue for estimated wholesale and
retail customer returns and allowances in the same period the
related sales are recorded. We base our estimates on historical
rates of customer returns and allowances, as well as the
specific identification of outstanding returns and allowances,
which are known to us but which have not yet been received. Our
total reserves for sales returns and allowances were
$27.1 million and $26.5 million at December 31,
2009 and 2008, respectively. The actual amount of customer
returns and allowances may differ from our estimates. If we
determine that increases or decreases to sales returns and
allowances are appropriate, we record either a reduction or an
increase in sales in the period in which we make such a
determination.
Allowance
for Doubtful Accounts
We make ongoing estimates for losses relating to our allowance
for uncollectible accounts receivable resulting from the
potential inability of our customers to make required payments.
We estimate potential losses primarily based upon our historical
rate of credit losses and our knowledge of the financial
condition of our customers. Our allowance for doubtful accounts
totaled $12.2 million and $14.5 million at
December 31, 2009 and 2008, respectively. Historically,
losses have been within our expectations. If the financial
condition of our customers were to change, adjustments may be
required to these estimates. If we determine that increases or
decreases to the allowance for doubtful accounts are
appropriate, we record either an increase or decrease to selling
expense in the period in which we make such a determination.
24
Inventory
Valuation
We value our inventory at the lower of cost
(first-in,
first-out) or market value. Market value is estimated based upon
assumptions made about future demand and retail market
conditions. If we determine that the estimated market value of
our inventory is less than the carrying value of the inventory,
we provide a reserve for the difference as a charge to cost of
sales. Our reserves related to inventory valuation totaled
$5.4 million and $6.2 million at December 31,
2009 and 2008, respectively. If actual market conditions are
more or less favorable than our estimates, adjustments to our
inventory reserves may be required. The adjustments would
decrease or increase our cost of sales in the period in which
they are recognized.
Derivatives
We are routinely subject to currency rate movements on
non-U.S. dollar
denominated assets, liabilities and cash flows as we purchase
and sell goods in foreign markets in their local currencies. We
use derivative instruments, specifically forward contracts, to
mitigate the impact of foreign currency fluctuations on a
portion of our forecasted foreign currency exposures. These
derivatives are carried at fair value on our consolidated
balance sheet. Changes in fair value of derivatives not
designated as hedge instruments are recorded in other
income/(expense), net in our consolidated statements of income
(see Notes 1 and 3 to our consolidated financial statements
in Part II, Item 8 of this Annual Report on
Form 10-K).
For our derivative contracts that have been designated as hedge
instruments, the effective portion of gains and losses resulting
from changes in the fair value of the instruments are deferred
in accumulated other comprehensive income and reclassified to
earnings, in cost of goods sold, in the period that the
transaction that is subject to the related hedge contract is
recognized in earnings. The ineffective portion of the hedge is
reported in other income/(expense), net in our consolidated
statements of income. We use our operating budget and forecasts
to estimate future economic exposure and to determine the levels
and timing of derivative transactions intended to mitigate such
exposures in accordance with our risk management policies. We
closely monitor our foreign currency exposure and adjust our
derivative positions accordingly. Our estimates of anticipated
transactions could fluctuate over time and could vary from the
ultimate transactions. Future operating results could be
impacted by adjustments to these estimates and changes in
foreign currency forward rates.
Contingencies
In the ordinary course of business, we are involved in legal
proceedings involving contractual and employment relationships,
product liabilities, trademark rights and a variety of other
matters. We record contingent liabilities when it is probable
that a liability has been incurred and the amount of the loss
can be estimated. We record a contingent liability when there is
at least a reasonable possibility that a loss has been incurred.
Estimating probable losses requires analysis and judgment about
the potential actions. Therefore, actual losses in any future
period are inherently uncertain. We do not believe that any
pending legal proceeding or claims will have a material impact
on our consolidated financial statements. However, if actual or
estimated probable future losses exceed our recorded liability,
we would record additional expense during the period in which
the loss or change in estimate occurred.
Goodwill
and Indefinite-lived Intangible Assets
The Company evaluates goodwill and indefinite-lived intangible
assets for impairment annually (at the end of our second fiscal
quarter) and when events occur or circumstances change that may
reduce the value of the asset below its carrying amount, using
forecasts of discounted future cash flows. Events or
circumstances that might require an interim evaluation include
unexpected adverse business conditions, economic factors,
technological changes and loss of key personnel. Goodwill and
indefinite-lived intangible assets totaled $44.4 million
and $35.8 million, respectively, at December 31, 2009.
Estimates of future cash flows require assumptions related to
revenue and operating income growth, asset-related expenditures,
working capital levels and other factors. Different assumptions
from those made in the Companys analysis could materially
affect projected cash flows and the Companys evaluation of
goodwill and indefinite-lived intangible assets for impairment.
Those estimates of discounted cash flows could differ from
actual cash flows due to, among other things, economic
conditions, changes to business operations or technological
changes. Should the fair value of the Companys goodwill or
indefinite-lived intangible assets decline because of reduced
operating performance, market declines, or other indicators of
impairment, or as a result of changes in the discount rate,
25
charges for impairment may be necessary. No impairment of
goodwill or indefinite-lived assets occurred in 2009, 2008 and
2007 (see Note 8 to our consolidated financial statements
in Part II, Item 8 of this Annual Report on
Form 10-K).
Long-lived
Assets
When events or circumstances indicate that the carrying value of
a long-lived asset may be impaired, we estimate the future
undiscounted cash flows to be derived from the asset to
determine whether or not a potential impairment exists. If the
carrying value exceeds the estimate of future undiscounted cash
flows, impairment is calculated as the excess of the carrying
value of the asset over the estimate of its fair market value.
We estimate future undiscounted cash flows using assumptions
about expected future operating performance. Those estimates of
undiscounted cash flows could differ from actual cash flows due
to, among other things, economic conditions, changes to business
operations or technological change. In 2009, an impairment
charge of $3.0 million was recorded related to the carrying
value of certain fixed assets (see Note 5 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K).
In 2009 and 2008, an impairment of $0.9 million and
$2.1 million, respectively, related to the carrying value
of an intangible asset was recorded (see Note 8 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K).
For 2007, we recorded impairment charges of $5.8 million
associated with the closure of certain of our retail stores (see
Note 17 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K
for additional information regarding the Companys Global
Retail Portfolio Review).
Incentive
Compensation Accruals
We use incentive compensation plans to link compensation to the
achievement of specific annual performance targets. We accrue
for this liability during each year based on certain estimates
and assumptions. The amount paid, based on actual performance,
could differ from our accrual.
Share-based
Compensation
The Company estimates the fair value of its stock option awards
and employee stock purchase plan (the ESPP) rights
on the date of grant using the Black-Scholes option valuation
model. The Black-Scholes model includes various assumptions,
including the expected volatility for stock options and ESPP
rights and the expected term of stock options. These assumptions
reflect the Companys best estimates, but they involve
inherent uncertainties based on market conditions generally
outside of the Companys control. Additionally, we make
certain estimates about the number of awards which will be made
under performance-based incentive plans. As a result, if other
assumptions or estimates had been used, share-based compensation
expense could have been materially impacted. Furthermore, if the
Company uses different assumptions in future periods,
share-based compensation expense could be materially impacted in
future periods. See Note 13 to our consolidated financial
statements in Part II, Item 8 of this Annual Report on
Form 10-K
for additional information regarding the Companys
share-based compensation.
Income
Taxes
We record deferred tax assets and liabilities based upon
temporary book to tax differences and to recognize tax
attributes, such as tax loss carryforwards and credits. The
carrying value of our net deferred tax assets assumes that we
will be able to generate sufficient future taxable income in
certain tax jurisdictions to realize the value of these assets.
If we were unable to generate sufficient future taxable income
in these jurisdictions, an adjustment could be required in the
net carrying value of the deferred tax assets, which would
result in additional income tax expense in our consolidated
statements of income. Management evaluates the realizability of
the deferred tax assets and assesses the need for any valuation
allowance quarterly.
We estimate the effective tax rate for the full fiscal year and
record a quarterly income tax provision in accordance with the
anticipated annual rate. As the fiscal year progresses, the
estimate is refined based upon actual events and earnings by
jurisdiction during the year. This continual estimation process
periodically results in a change to the expected effective tax
rate for the fiscal year. When this occurs, we adjust the income
tax provision during the quarter in which the change in estimate
occurs so that the
year-to-date
provision reflects the expected annual rate.
26
The Company recognizes the impact of a tax position in our
financial statements if that position is more likely than not to
be sustained upon examination by the appropriate taxing
authority, based on its technical merits. We exercise our
judgment in determining whether a position meets the more likely
than not threshold for recognition, based on the individual
facts and circumstances of that position in light of all
available evidence. In measuring the liability, we consider
amounts and probabilities of outcomes that could be realized
upon settlement with taxing authorities using the facts,
circumstances and information available at the balance sheet
date. These reflect the Companys best estimates, but they
involve inherent uncertainties. As a result, if new information
becomes available, the Companys judgments and estimates
may change. A change in judgment relating to a tax position
taken in a prior annual period will be recognized as a discrete
item in the period in which the change occurs. A change in
judgment relating to a tax position taken in a prior interim
period within the same fiscal year will be reflected through our
effective tax rate.
Results
of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Revenue
|
|
$
|
1,285,876
|
|
|
|
100.0
|
%
|
|
$
|
1,364,550
|
|
|
|
100.0
|
%
|
|
$
|
1,436,451
|
|
|
|
100.0
|
%
|
Gross profit
|
|
|
602,922
|
|
|
|
46.9
|
|
|
|
620,733
|
|
|
|
45.5
|
|
|
|
664,728
|
|
|
|
46.3
|
|
Operating expense
|
|
|
525,448
|
|
|
|
40.9
|
|
|
|
551,097
|
|
|
|
40.4
|
|
|
|
605,549
|
|
|
|
42.2
|
|
Operating income
|
|
|
77,474
|
|
|
|
6.0
|
|
|
|
69,636
|
|
|
|
5.1
|
|
|
|
59,179
|
|
|
|
4.1
|
|
Interest income, net
|
|
|
405
|
|
|
|
|
|
|
|
1,719
|
|
|
|
0.1
|
|
|
|
835
|
|
|
|
0.1
|
|
Other income/(expense), net
|
|
|
3,506
|
|
|
|
0.3
|
|
|
|
5,455
|
|
|
|
0.4
|
|
|
|
(289
|
)
|
|
|
(-
|
)
|
Net income
|
|
$
|
56,644
|
|
|
|
4.4
|
|
|
$
|
42,906
|
|
|
|
3.1
|
|
|
$
|
39,999
|
|
|
|
2.8
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.01
|
|
|
|
|
|
|
$
|
0.73
|
|
|
|
|
|
|
$
|
0.65
|
|
|
|
|
|
Diluted
|
|
$
|
1.01
|
|
|
|
|
|
|
$
|
0.73
|
|
|
|
|
|
|
$
|
0.65
|
|
|
|
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
56,034
|
|
|
|
|
|
|
|
58,442
|
|
|
|
|
|
|
|
61,087
|
|
|
|
|
|
Diluted
|
|
|
56,352
|
|
|
|
|
|
|
|
58,786
|
|
|
|
|
|
|
|
61,659
|
|
|
|
|
|
2009
Compared to 2008
Revenue
Consolidated revenue for 2009 was $1,285.9 million, a
decrease of $78.7 million, or 5.8%, compared to 2008. These
results were driven primarily by declines in casual footwear,
Timberland®
apparel and the strengthening of the U.S. dollar against
the British Pound and the Euro versus the prior year, partially
offset by strong growth in boots internationally as well as
SmartWool®
products. On a constant dollar basis, consolidated revenues were
down 3.6%. North America revenue totaled $610.2 million, a
6.5% decline from 2008. Europe revenues were $529.3 million
for 2009, a decrease of 4.3% from 2008, but up 2.0% on a
constant dollar basis. Asia revenues were $146.4 million
for 2009, a decrease of 8.0% from 2008, and a decline of 12.0%
on a constant dollar basis.
Products
Worldwide footwear revenue was $931.2 million for 2009,
down $43.1 million, or 4.4%, from 2008, driven by global
declines in casual footwear and our mens boot business in
North America. Internationally, we continue to see signs that
our boot business is strengthening in Europe and Asia. Worldwide
apparel and accessories revenue fell 10.5% to
$328.6 million, as growth from SmartWool was offset by a
decline in
Timberland®
brand apparel and accessories, reflecting softness in
international markets, the strengthening of the U.S. dollar
relative to the British Pound and the Euro, and, to a lesser
extent, the impact of transitioning our North America wholesale
mens apparel business to a licensing arrangement. The
Company ceased sales of in-house
Timberland®
brand apparel in North America through the wholesale channel
during the second
27
quarter of 2008. Royalty and other revenue increased 12.7% in
2009 to $26.1 million, reflecting increased sales of
apparel in North America under our licensing agreement
established in 2008.
Channels
Wholesale revenue was $918.8 million, a 7.1% decrease
compared to 2008. Softness in the North America and Asia
markets, the strengthening of the U.S. dollar relative to
the British Pound and Euro and, to a lesser degree, the
transition of our North America wholesale mens apparel
business to a licensing arrangement drove the year over year
wholesale decline.
Retail revenues fell 2.1% to $367.1 million, driven by
unfavorable foreign exchange rate impacts and a retail market in
North America that continues to be challenging. Overall, global
comparable store sales were down 2.4% compared to 2008, with
favorable comparable store results in Europe offset by declines
in our North America and Asia stores. We had 218 Company-owned
stores, shops and outlets worldwide at the end of 2009 compared
to 219 at December 31, 2008.
Gross
Profit
Gross profit as a percentage of sales, or gross margin, was
46.9% in 2009 compared to 45.5% in 2008. The improvement in
gross margin reflects favorable channel and pricing mix within
our operating segments, as well as lower sales returns and
allowances, partially offset by strengthening of the
U.S. dollar relative to the British Pound and Euro and
lower margins on close-out sales. On a consolidated basis,
higher product costs were offset by favorable purchase price and
other manufacturing variances, as well as savings from sourcing
cost initiatives.
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 $60.6 million and
$78.6 million in 2009 and 2008, respectively. The decrease
was primarily driven by lower overhead and other apparel
sourcing costs, as well as decreased freight and duty costs
related to our footwear sourcing operations.
Operating
Expense
Total operating expense was $525.4 million in 2009,
$25.6 million, or 4.7% lower than 2008. The change is
attributable to a $29.7 million decrease in selling expense
and a $1.2 million decrease in restructuring charges,
partially offset by an increase in general and administrative
costs of $3.8 million. Operating expense in 2009 and 2008
also included an impairment charge of $0.9 million and
$2.1 million, respectively, related to an intangible asset.
Operating expense in 2008 was favorably impacted by a
$2.6 million litigation settlement. Overall, changes in
foreign exchange rates reduced operating expense by
approximately $13.9 million in 2009.
Selling expense for 2009 was $408.0 million, a decrease of
$29.7 million, or 6.8%, compared to the prior year. This
decline was driven by a $20.7 million reduction in sales,
marketing and distribution expenses, due, in part, to the
strengthening of the U.S. dollar relative to the Euro and
British Pound, lower distribution costs, and a decrease in
provisions for bad debts. Additionally, we had an
$8.8 million reduction in retail expenses primarily as a
result of the closure of certain underperforming stores in Asia
and the benefit of foreign exchange impacts in Europe, and a
$4.3 million reduction in discretionary spending. These
savings were partially offset by an increase of
$3.2 million in incentive-based compensation costs due to
the achievement of certain performance targets in 2009, and
$1.7 million associated with the write-off of certain
retail-related fixed assets.
We include the costs of physically managing inventory
(warehousing and handling costs) in selling expense. These costs
totaled $37.4 million and $41.3 million in 2009 and
2008, respectively.
Advertising expense, which is included in selling expense, was
$40.7 million and $43.1 million in 2009 and 2008,
respectively. We maintained our commitment to strengthening our
premium brand position despite adverse economic conditions
during 2009. Increased investment in consumer-facing marketing
programs such as Internet and other digital and social media
initiatives was offset by lower levels of co-op advertising as
well as television and magazine advertising. Television
advertising in 2008 included a global campaign which coincided
with the summer Olympics. Our commitment to strengthen our
premium brand position through consumer-facing advertising
initiatives remains key to driving our strategy forward.
28
General and administrative expense was $116.8 million, an
increase of 3.3% over the $113.0 million recorded in 2008.
Increases in employee-related costs of $6.5 million,
including higher incentive-based compensation costs, as well as
employee benefit-related costs, were partially offset by a
reduction of $2.5 million in discretionary spending.
Total operating expense in 2009 included a charge of
$0.9 million to reflect the impairment of a trademark,
compared to $2.1 million in 2008 of which $1.9 million
was recorded in the fourth quarter of 2008. Operating expense in
2008 was also reduced by a $2.6 million favorable legal
settlement recorded in the fourth quarter of 2008.
We recorded net restructuring credits of $0.2 million in
2009 compared to charges of $0.9 million in 2008. Credits
in 2009 reflect the completion of our 2007 restructuring
programs. Charges in 2008 reflect incremental costs associated
with the execution of restructuring programs initiated in 2007
to close certain underperforming retail locations and streamline
our global operations.
Operating
Income
Operating income was $77.5 million in 2009, compared to
operating income of $69.6 million in 2008. Operating income
in 2009 and 2008 included an intangible asset impairment charge
of $0.9 million and $2.1 million, respectively, and
restructuring charges/(credits) of $(0.2) million and
$0.9 million, respectively. Operating income in 2008 also
included the benefit of a $2.6 million favorable legal
settlement.
Other
Income/(Expense) and Taxes
Interest income was $0.9 million and $2.4 million in
2009 and 2008, respectively, as an increase in average cash
balances was more than offset by lower interest rates. Interest
expense, which is comprised of fees related to the establishment
and maintenance of our revolving credit facility, bank
guarantees and interest paid on short-term borrowings, was
$0.5 million and $0.7 million in 2009 and 2008,
respectively. The reduction in expense was driven by lower
borrowings throughout the year.
Other income/(expense), net, included $1.5 million and
$5.8 million of foreign exchange gains for 2009 and 2008,
respectively, reflecting changes in the fair value of financial
derivatives, specifically forward contracts not designated as
cash flow hedges, and the currency gains and losses incurred on
the settlement of local currency denominated receivables and
payables. These results were driven by the volatility of
exchange rates during the respective reporting periods and
should not be considered indicative of expected future results.
The effective tax rate was 30.4% in 2009, compared to 44.1% in
2008. The 2009 rate was impacted by a tax benefit of
approximately $7.3 million due to the closure of audits or
lapsing of certain statutes of limitation in 2009.
In December of 2009, we received a Notice of Assessment from the
Internal Revenue Department of Hong Kong for approximately
$17.6 million with respect to the tax years 2004 through
2008. In connection with the assessment, the Company is required
to make payments to the Internal Revenue Department of Hong Kong
of approximately $2.5 million and $5.9 million in the
first and second quarters of 2010, respectively. We believe we
have a sound defense to the proposed adjustment and will
continue to firmly oppose the assessment. We believe that the
assessment does not impact the level of liabilities for our
income tax contingencies. However, actual resolution may differ
from our current estimates, and such differences could have a
material impact on our future effective tax rate and our results
of operations. See Note 11 to our consolidated financial
statements in Part II, Item 8 of this Annual Report on
Form 10-K.
2008
Compared to 2007
Revenue
Consolidated revenue for 2008 was $1,364.5 million, a
decrease of $71.9 million, or 5.0%, compared to 2007, as
gains from foreign exchange rates and strong growth in
Timberland
PRO®
footwear and
SmartWool®
apparel and accessories were offset by anticipated declines in
Timberland®
brand apparel, as well as in casual footwear and in boots. On a
constant dollar basis, consolidated revenues were lower by 6.5%.
North America revenue totaled $652.4 million for 2008, a
10.4% decline from 2007. The impact of foreign exchange rate
changes in North America was not material. Europe revenue was
$553.0 million for 2008, flat when compared
29
to 2007, but down 1.6% on a constant dollar basis. Asia revenue
increased 2.3% to $159.1 million in 2008, but declined 5.5%
on a constant dollar basis over 2007.
Products
Worldwide footwear revenue was $974.3 million in 2008, down
$30.5 million, or 3.0%, from 2007. Declines in casual
footwear and boots were partially offset by growth from the
Timberland
PRO®
series. Worldwide apparel and accessories revenue fell 10.8% to
$367.0 million, as strong growth from SmartWool and
Timberland PRO was offset by a decline in
Timberland®
brand apparel, driven in part by the transition of the North
American mens apparel business to a licensing arrangement,
and by a generally soft retail environment. Royalty and other
revenue, which consists primarily of royalties from third party
licensees and distributors, increased 15.8% in 2008 to
$23.2 million, primarily as a result of our apparel
licensing arrangement in North America.
Channels
Wholesale revenue was $989.5 million, a 5.2% decrease
compared to 2007. A soft wholesale market worldwide was the
primary driver of sales declines in mens casual footwear
globally, as well as declines in boots in North America.
Anticipated declines in
Timberland®
brand apparel were due in part to the transition of the North
American apparel business to a licensing arrangement. These
declines were partially offset by the benefit of foreign
exchange rate changes on revenues in Europe and Asia.
Retail revenue decreased 4.6% to $375.0 million. Comparable
store sales decreased by 3.7% globally, as increases in Europe
were more than offset by a decline in North America. Europe and
Asia also benefited from the impact of favorable foreign
exchange rate changes, which helped to offset revenue declines
associated with our decision to close certain retail locations.
We had 219 Company-owned stores, shops and outlets worldwide at
the end of 2008 compared to 245 at December 31, 2007.
Gross
Profit
Gross profit as a percentage of sales, or gross margin, was
45.5% in 2008 compared to 46.3% in 2007. The decline in gross
margins was driven principally by higher product costs, related
to both cost increases and design changes, and unfavorable
changes in channel mix internationally. These impacts were
partially offset by favorable changes in our sales channel and
product mix in North America, as well as the impact of lower
close-out and off-price channel activity reflecting the benefit
of actions taken earlier in the year to drive down excess and
obsolete inventory levels. We also realized a slight benefit
from foreign exchange rate changes.
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 $78.6 million and
$91.0 million in 2008 and 2007, respectively. The decrease
was primarily driven by lower costs associated with our apparel
sourcing as we transitioned to a licensing arrangement in North
America.
Operating
Expense
Total operating expense was $551.1 million in 2008,
$54.4 million, or 9.0% lower as compared to 2007. The
change is attributable to a $27.0 million decrease in
selling expense, a $23.7 million decrease in restructuring
charges, and a decrease in general and administrative costs of
$3.2 million. Operating expense in 2008 also included a
$2.1 million impairment charge related to an intangible
asset, and was reduced by $2.6 million related to a
litigation settlement. Overall, changes in foreign exchange
rates added approximately $1.3 million to operating expense
in 2008.
Selling expense for 2008 was $437.7 million, a decrease of
$27.0 million, or 5.8%, compared to the prior year. This
decline was driven by $22.8 million in selling,
distribution and product management cost savings, a
$10.0 million reduction in retail expenses primarily as a
result of store closures in the United States and Asia, and
$6.3 million in savings associated with the transition of
our North American mens apparel business to a licensing
arrangement and the winding down of certain specialty brands.
These savings were partially offset by an increase of
$5.2 million in incentive compensation costs due to the
achievement of certain performance targets in 2008,
$4.8 million of incremental investment in our global
marketing and branding initiatives, and $1.5 million in
severance costs related to our ongoing initiatives to streamline
our operations. Investments in
30
our global marketing and branding initiatives, primarily through
consumer-facing advertising programs, were partially offset by
reduced spending in other areas of marketing as a result of our
efforts to rationalize our operating expense structure. These
investments demonstrate our continued commitment to strengthen
our premium brand position despite adverse economic conditions.
We include the costs of physically managing inventory
(warehousing and handling costs) in selling expense. These costs
totaled $41.3 million and $43.0 million in 2008 and
2007, respectively.
Advertising expense, which is included in selling expense, was
$43.1 million and $35.0 million in 2008 and 2007,
respectively. The increase in advertising expense reflects
higher consumer-facing marketing spending, primarily print,
television (such as our Podium and
Friends commercials) and other media.
General and administrative expense was $113.0 million, a
decrease of 2.8% over the $116.2 million recorded in 2007.
These savings were driven primarily by reductions in corporate
support and administrative costs of $8.5 million and
reduced costs associated with our retail operations of
$1.8 million. These cost reductions were partially offset
by increases of $5.0 million in incentive compensation
costs, due to the achievement of certain performance targets in
2008, severance costs associated with our ongoing initiatives to
streamline our operations of $0.9 million, and increased
compensation costs in our international business.
Total operating expense also included a charge of
$2.1 million to reflect the impairment of a trademark and a
credit of $2.6 million to reflect a favorable legal
settlement. The total legal settlement and $1.9 million of
the impairment were recorded in the fourth quarter.
We recorded net restructuring charges of $0.9 million in
2008, compared to $24.7 million in 2007. Charges in 2008
reflect incremental costs associated with programs initiated in
2007 to close certain retail locations and streamline our global
operations. The 2007 charges relate to costs associated with our
decision to close certain retail stores in the U.S., Europe and
Asia, the decision to license our
Timberland®
mens apparel business in North America, and exit costs
associated with our global reorganization.
Operating
Income
Operating income was $69.6 million in 2008, compared to
operating income of $59.2 million in 2007. Operating income
included restructuring charges of $0.9 million in 2008,
compared to $24.7 million in 2007. In addition, operating
income in 2008 included a favorable legal settlement of
$2.6 million, as well as a $2.1 million charge for the
impairment of an intangible asset.
Other
Income/(Expense) and Taxes
Interest income was $2.4 million and $2.5 million in
2008 and 2007, respectively, as an increase in average cash
balances was offset by lower interest rates. Interest expense,
which is comprised of fees related to the establishment and
maintenance of our revolving credit facility, bank guarantees
and interest paid on short-term borrowings, was
$0.7 million and $1.7 million in 2008 and 2007,
respectively. The reduction in expense was driven by lower
borrowings throughout the year and lower interest rates on those
borrowings.
Other income/(expense), net, included $5.8 million and
$0.5 million of foreign exchange gains for 2008 and 2007,
respectively, resulting from changes in the fair value of
financial derivatives, specifically forward contracts not
designated as cash flow hedges, and the currency gains and
losses incurred on the settlement of local currency denominated
receivables and payables. These results were driven by the
volatility of exchange rates during the respective reporting
periods and should not be considered indicative of expected
future results.
The effective income tax rate was 44.1% in 2008, compared to
33.0% in 2007. This increase reflects a non-deductible loss from
a significant decline in the market value of certain
Company-owned life insurance assets related to the
Companys deferred compensation plan and the impact of a
non-cash intangible asset impairment charge. These items, which
were recorded in the fourth quarter of 2008, increased tax
expense by approximately $1.8 million. Additionally, the
tax rate in 2007 was favorably impacted by the release of
approximately $8.0 million of specific tax reserves due to
the closure of certain audits in the fourth quarter of 2007. See
Note 11 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
31
Segments
Review
We have three business segments (see Note 15 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K):
North America, Europe and Asia.
Revenue by segment for each of the last three years ended
December 31 is as follows (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
Percentage Change
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2009
|
|
|
2008
|
|
|
North America
|
|
$
|
610.2
|
|
|
$
|
652.4
|
|
|
$
|
728.2
|
|
|
|
(6.5
|
)%
|
|
|
(10.4
|
)%
|
Europe
|
|
|
529.3
|
|
|
|
553.0
|
|
|
|
552.7
|
|
|
|
(4.3
|
)
|
|
|
0.1
|
|
Asia
|
|
|
146.4
|
|
|
|
159.1
|
|
|
|
155.5
|
|
|
|
(8.0
|
)
|
|
|
2.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,285.9
|
|
|
$
|
1,364.5
|
|
|
$
|
1,436.4
|
|
|
|
(5.8
|
)
|
|
|
(5.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income/(loss) by segment and as a percentage of
segment revenue for each of the last three years ended December
31 are included in the table below (dollars in millions).
Segment operating income is presented as a percentage of its
respective segment revenue. Unallocated corporate expenses are
presented as a percentage of total revenue.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
$
|
115.7
|
|
|
|
19.0
|
%
|
|
$
|
127.9
|
|
|
|
19.6
|
%
|
|
$
|
122.2
|
|
|
|
16.8
|
%
|
Europe
|
|
|
76.6
|
|
|
|
14.5
|
|
|
|
84.8
|
|
|
|
15.3
|
|
|
|
84.1
|
|
|
|
15.2
|
|
Asia
|
|
|
10.9
|
|
|
|
7.4
|
|
|
|
3.0
|
|
|
|
1.9
|
|
|
|
7.5
|
|
|
|
4.8
|
|
Unallocated Corporate
|
|
|
(125.7
|
)
|
|
|
(9.8
|
)
|
|
|
(146.1
|
)
|
|
|
(10.7
|
)
|
|
|
(154.6
|
)
|
|
|
(10.8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
77.5
|
|
|
|
6.0
|
|
|
$
|
69.6
|
|
|
|
5.1
|
|
|
$
|
59.2
|
|
|
|
4.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The number of Company-owned retail stores at December 31,
2009, 2008 and 2007 by segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
North America
|
|
|
69
|
|
|
|
71
|
|
|
|
79
|
|
Europe
|
|
|
63
|
|
|
|
54
|
|
|
|
54
|
|
Asia
|
|
|
86
|
|
|
|
94
|
|
|
|
112
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
218
|
|
|
|
219
|
|
|
|
245
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
America
The Companys North America revenue decreased 6.5% to
$610.2 million in 2009, driven by softness in our wholesale
business, where we saw declines in mens boots and casual
footwear, as well as
Timberland®
apparel, due in part to anticipated declines from the decision
in 2008 to transition our North America wholesale mens
apparel business to a licensing arrangement. The decline in
these areas was partially offset by growth in performance
footwear and
SmartWool®
accessories. Within North America, our retail business had
revenue declines of 4.9%, driven by an 8.7% decrease in
comparable store sales, principally related to our outlet
stores, partially offset by growth in our
e-commerce
business.
The Companys North America revenue decreased 10.4% to
$652.4 million in 2008, primarily driven by anticipated
sales declines in boots and kids footwear, driven in part
by a reduction of sales through off-price channels in the
wholesale market as compared to 2007, declines in
Timberland®
brand apparel, due in part to the transition of the North
American mens apparel business to a licensing arrangement,
and lower sales of mens casual and performance footwear.
These declines were partially offset by strong growth in
Timberland
PRO®
footwear and apparel, and
SmartWool®
apparel and accessories. Within North America, our retail
revenue decreased 13.4% to $165.8 million from
$191.4 million in 2007, driven primarily by decreases in
Timberland®
apparel and accessories and boots. The impact of our decision to
close certain retail locations
32
was compounded by a soft retail environment, which contributed
to a decline of 11.1% in comparable store sales.
Operating income for our North America segment decreased 9.5% to
$115.7 million in 2009, driven by an 8.5% decline in gross
margin, partially offset by a 7.7% reduction in operating
expenses. The decrease in gross profit was primarily driven by
revenue declines of 6.5% combined with a 90 basis point
decline in gross margin rate, as product cost increases and
higher provisions for inventory were partially offset by
favorable pricing and channel mix. The lower operating expenses
were principally a result of a decrease in selling and
distribution expenses of $6.6 million, driven by lower
volume related costs, as well as savings from our cost reduction
and efficiency initiatives, a $4.4 million decline in
employee-related costs, resulting from reduced headcount and
severance associated with streamlining our operations in 2008
and a $1.6 million decrease in discretionary spending.
Write-offs of certain fixed assets related to our retail
business offset savings associated with the exiting of certain
specialty brands in 2008.
Operating income for our North America segment increased 4.7% to
$127.9 million in 2008, driven by a 14.2% decrease in
operating expenses. The lower operating expenses were a result
of a decrease in restructuring expenses of $11.4 million
over the prior year, a $9.3 million reduction in retail
expenses primarily related to the closure of certain retail
locations, a $7.2 million reduction in selling,
distribution and product management costs, and $5.9 million
in savings associated with the transition of our mens
apparel business to a licensing arrangement and the winding down
of certain specialty brands. These reductions were partially
offset by $1.6 million in severance costs related to our
ongoing initiatives to streamline our operations, as well as
investments in consumer-facing marketing. Benefits from changes
in product and channel mix, and the non-recurring impact of
product recall expenses incurred in 2007, offset increased
product costs to result in a 180 basis point improvement in
gross margin, which helped to partially offset the impact of a
10.4% revenue decline on gross profit.
Europe
Our Europe revenues decreased to $529.3 million in 2009
from the $553.0 million reported in 2008 due to foreign
exchange rate impacts. Europe revenues increased 2.0% on a
constant dollar basis. Strong growth in our retail business,
where we experienced comparable store sales growth of 6.7% as
well as the net addition of 9 stores, offset softness in
wholesale sales, primarily in the UK, Spain and our distributor
markets.
Europes revenue was $553.0 million in 2008, flat when
compared to 2007, but down 1.6% on a constant dollar basis.
Softness in wholesale sales was partially offset by strong
comparable store revenue growth in our retail business. A
difficult wholesale market across the European Union,
particularly France, Spain and the Benelux region, was partially
offset by growth in our distributor business, primarily in
Eastern Europe.
Europes operating income was $76.6 million in 2009,
compared to $84.8 million in 2008, reflecting a
210 basis point decline in gross margin, which was driven
by the impact of foreign exchange rate fluctuations, higher
product costs, and reduced margin on close-outs, partially
offset by favorable channel and product mix. This decrease was
partially offset by a 7.5% decrease in operating expenses, which
was driven by the impact of foreign exchange rate movements. A
decrease in sales, marketing and distribution costs, including a
decrease in provisions for bad debt, lower discretionary
spending and the impact of a lower intangible asset write-off in
2009 as compared to 2008 were substantially offset by increased
rent, occupancy and compensation costs associated with
additional stores, government taxes on certain foreign
investments and higher compensation costs.
Europes operating income was $84.8 million in 2008,
compared to $84.1 million in 2007. Restructuring expenses
were $6.2 million lower in 2008 than 2007, in part due to
credits which reflect favorable experience relative to our
previous estimate of certain store closure costs. These savings,
combined with decreased selling and distribution expenses of
$4.4 million, lower bad debt expense of $2.2 million
due to specific provisions made for certain franchisees in 2007,
and lower occupancy and compensation costs in our retail
business of $2.2 million were offset by a $2.1 million
charge for the impairment of an intangible asset, an increase of
$1.3 million in incentive compensation costs, due to the
achievement of certain performance targets in 2008, and
$0.4 million in severance costs related to our ongoing
initiatives to streamline our operations. Gross margin decreased
185 basis points driven by higher product costs and
unfavorable changes in channel mix.
33
Asia
Asia revenues for 2009 were $146.4 million, compared to
$159.1 million for 2008, a decline of 8.0%, or 12.0% in
constant dollars, due to softness in both our retail and
wholesale businesses. The retail declines were due to decreases
in comparable store sales of 2.2% combined with the net closure
of 8 stores, while wholesale markets continued to be soft in
Hong Kong and the distributor businesses.
Asia revenues for 2008 were $159.1 million, compared to
$155.5 million for 2007. On a constant dollar basis, Asia
revenues decreased by 5.5%. Growth in our distributor markets
was offset by a slight decline in comparable store sales and the
impact of store closures, particularly in Japan.
Asias operating income was $10.9 million in 2009,
compared to $3.0 million in 2008, driven by a 12.2%
reduction in operating expenses due principally to lower costs
in our retail business of $6.3 million resulting from the
closure of certain underperforming stores and $2.2 million
in reduced distribution and marketing costs due to lower volume
and the absence of a major television campaign in 2009. Our
gross margin rate improved by 330 basis points due to
favorable foreign exchange rate impacts as well as lower sales
returns and allowances.
Asias operating income was $3.0 million in 2008,
compared to $7.5 million in 2007, driven by a
540 basis point decrease in gross margin principally as a
result of higher product costs, declining margins in retail, in
part related to store closures, and expansion into China.
Operating expenses decreased by 2.6% in 2008 as compared to
2007, as declines in selling, distribution and occupancy
expenses were partially offset by an increase in incentive
compensation costs, due to the achievement of certain
performance targets in 2008, and severance costs related to our
ongoing initiatives to streamline our operations.
Unallocated
Corporate
Our Unallocated Corporate expenses, which include central
support and administrative costs not allocated to our business
segments, decreased 13.9% to $125.7 million in 2009. The
lower expenses reflect favorable variances from standard costs,
sourcing cost initiatives and other cost variances. These items
are not allocated to the Companys reportable segments.
Corporate operating expenses increased 9.1% due to an increase
in employee-related costs, including both incentive-based
compensation costs of $5.3 million and certain
employee-related benefits, as well as the impact of a favorable
legal settlement of $2.6 million reported in 2008.
Our Unallocated Corporate expenses, which include central
support and administrative costs not allocated to our business
segments, decreased 5.5% in 2008 to $146.1 million. The
lower expenses were driven primarily by a decrease in corporate
support and administrative costs, as well as the impact from
certain activities that were undertaken to achieve operating
expense savings and rationalize our operating expense structure,
reduced restructuring charges as the reorganizations and
rationalization programs undertaken in 2007 were effectively
completed, and a favorable legal settlement. These savings were
partially offset by increases in incentive compensation costs,
due to the achievement of certain performance targets in 2008,
and investments in global branding initiatives.
34
Reconciliation
of Total Company, Europe and Asia Revenue Changes to Constant
Dollar Revenue Changes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended December 31, 2009
|
|
|
For the Year Ended December 31, 2008
|
|
|
|
$ Change
|
|
|
|
|
|
$ Change
|
|
|
|
|
|
|
(in millions)
|
|
|
% Change
|
|
|
(in millions)
|
|
|
% Change
|
|
|
Total Company
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue decrease (GAAP)
|
|
$
|
(78.7
|
)
|
|
|
(5.8
|
)%
|
|
$
|
(71.9
|
)
|
|
|
(5.0
|
)%
|
(Decrease)/increase due to foreign exchange rate changes
|
|
|
(29.5
|
)
|
|
|
(2.2
|
)%
|
|
|
20.9
|
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue decrease in constant dollars
|
|
$
|
(49.2
|
)
|
|
|
(3.6
|
)%
|
|
$
|
(92.8
|
)
|
|
|
(6.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (decrease)/increase (GAAP)
|
|
$
|
(23.7
|
)
|
|
|
(4.3
|
)%
|
|
$
|
0.3
|
|
|
|
0.1
|
%
|
(Decrease)/increase due to foreign exchange rate changes
|
|
|
(34.7
|
)
|
|
|
(6.3
|
)%
|
|
|
9.3
|
|
|
|
1.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue increase/(decrease) in constant dollars
|
|
$
|
11.0
|
|
|
|
2.0
|
%
|
|
$
|
(9.0
|
)
|
|
|
(1.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asia
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue (decrease)/increase (GAAP)
|
|
$
|
(12.7
|
)
|
|
|
(8.0
|
)%
|
|
$
|
3.5
|
|
|
|
2.3
|
%
|
Increase due to foreign exchange rate changes
|
|
|
6.3
|
|
|
|
4.0
|
%
|
|
|
12.1
|
|
|
|
7.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue decrease in constant dollars
|
|
$
|
(19.0
|
)
|
|
|
(12.0
|
)%
|
|
$
|
(8.6
|
)
|
|
|
(5.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between changes in reported revenue (the most
comparable GAAP measure) and constant dollar revenue changes is
the impact of foreign currency. We calculate constant dollar
revenue changes by recalculating current year revenue using the
prior years exchange rates and comparing it to prior year
revenue reported on a GAAP basis. We provide constant dollar
revenue changes for Total Company, Europe and Asia results
because we use the measure to understand the underlying growth
rate of revenue excluding the impact of items that are not under
managements direct control, such as changes in foreign
exchange rates.
Reconciliation
of Net Income to Net Income Excluding Restructuring and Related
Costs
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
Dollars in Millions
|
|
2008
|
|
|
2007
|
|
|
Net income, as reported
|
|
$
|
42.9
|
|
|
$
|
40.0
|
|
Add: Restructuring and related costs included in reported net
income, net of related tax effect
|
|
|
0.5
|
|
|
|
16.5
|
|
|
|
|
|
|
|
|
|
|
Net income excluding restructuring and related costs
|
|
$
|
43.4
|
|
|
$
|
56.5
|
|
|
|
|
|
|
|
|
|
|
Management provides net income excluding restructuring and
related costs because it is used to analyze the net income of
the Company. Management believes this measure is a reasonable
reflection of the underlying net income levels and trends from
core business activities. We did not provide a discussion or
reconciliation of net income excluding restructuring and related
costs for the year ended December 31, 2009 as the impact of
such costs was not material.
35
Reconciliation
of Diluted EPS to Diluted EPS Excluding Restructuring and
Related Costs
|
|
|
|
|
|
|
|
|
|
|
For the Year Ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2007
|
|
|
Diluted EPS, as reported
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
Per share impact of restructuring and related costs
|
|
|
0.01
|
|
|
|
0.27
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS excluding restructuring and related costs
|
|
$
|
0.74
|
|
|
$
|
0.92
|
|
|
|
|
|
|
|
|
|
|
Management provides diluted EPS excluding restructuring and
related costs because it is used to analyze the earnings of the
Company. Management believes this measure is a reasonable
reflection of the underlying earnings levels and trends from
core business activities. We did not provide a discussion or
reconciliation of diluted EPS excluding restructuring and
related costs for the year ended December 31, 2009 as the
impact of such costs was not material.
Accounts
Receivable and Inventory
Accounts receivable were $149.2 million as of
December 31, 2009, compared to $168.7 million as of
December 31, 2008 and $188.1 million as of
December 31, 2007. Days sales outstanding were 35 days
as of December 31, 2009, 39 days as of
December 31, 2008 and 38 days as of December 31,
2007. Wholesale days sales outstanding were 45 days,
48 days and 49 days at the end of 2009, 2008 and 2007,
respectively. We maintained our strong collection discipline
despite reductions in sales and the difficult macro-economic
environment that began in 2008 and continued through 2009.
Inventory decreased 11.8% to $158.5 million as of
December 31, 2009 from $179.7 million as of
December 31, 2008 and $201.9 million as of
December 31, 2007. The decreases in 2009 and 2008 were
attributable to improved demand planning against lower revenue,
resulting in reduced excess inventory creation.
Liquidity
and Capital Resources
2009
Compared to 2008
Net cash provided by operations for 2009 was
$135.9 million, compared with $147.7 million in 2008.
The decrease in cash provided in 2009 compared with 2008 was
primarily due to increased usage of cash for accounts payable,
associated with the timing of inventory payments in 2008. This
impact was partially offset by an increase in accrued expenses,
primarily related to incentive compensation. We also continued
our focus on balance sheet management through the collection of
accounts receivable and improved inventory planning, and expect
to continue to emphasize these areas in 2010. In 2009, we
generated $40.1 million from operating assets and
liabilities, compared to $52.1 million in 2008.
Net cash used for investing activities amounted to
$20.1 million in 2009, compared with $21.2 million in
2008. Net cash used for investing activities in 2009 included
approximately $1.5 million paid in connection with the
acquisition of Glaudio, while 2008 included approximately
$1.0 million of cash received as a purchase price
adjustment related to the IPATH acquisition in 2007. Capital
expenditures in 2009 were $17.7 million, compared to
$22.3 million in 2008. The decrease was primarily
attributable to reduced retail store investment in Europe and
Asia.
Net cash used for financing activities was $43.1 million in
2009, compared with $44.2 million in 2008. Cash flows from
financing activities reflected share repurchases of
$43.9 million in 2009, compared with $46.3 million in
2008. We received cash inflows of $2.0 million in 2009 from
the issuance of common stock related to the exercise of employee
stock options and employee stock purchases, compared with
$1.9 million in 2008.
2008
Compared to 2007
Net cash provided by operations for 2008 was
$147.7 million, compared with $38.6 million in 2007.
The increase in cash provided in 2008 compared with 2007 was
primarily due to cash generated from working capital, resulting
from reduced revenue which led to lower working capital
requirements, as well as disciplined balance sheet management
and improvements in profitability compared with 2007. We focused
our balance sheet management efforts on the collection of
accounts receivable and improved inventory planning. In 2008,
36
we generated $52.1 million from operating assets and
liabilities, compared to an investment of $55.9 million in
2007.
Net cash used for investing activities amounted to
$21.2 million in 2008, compared with $44.4 million in
2007. Net cash used for investing activities in 2008 included
approximately $1.0 million of cash received as an
adjustment to the purchase price of the IPATH assets we acquired
in 2007, while net cash used for investing activities in 2007
included $12.8 million, net of cash acquired, primarily
related to the acquisition of the assets of IPATH, LLC. Capital
expenditures in 2008 were $22.3 million, compared to
$30.5 million in 2007. The decrease was primarily
attributable to reduced investments in retail stores, facilities
investment and product tooling.
Net cash used for financing activities was $44.2 million in
2008, compared with $34.1 million in 2007. Cash flows from
financing activities reflected share repurchases of
$46.3 million in 2008, compared with $47.7 million in
2007. We received cash inflows of $1.9 million in 2008 from
the issuance of common stock related to the exercise of employee
stock options and employee stock purchases, compared with
$12.6 million in 2007.
Credit
Risks
We are exposed to the credit risk of those with whom we do
business, including counterparties on our derivative contracts
and our customers. Derivative instruments expose us to credit
and market risk. The market risk associated with these
instruments resulting from currency exchange movements is
expected to offset the market risk of the underlying
transactions being hedged. As a matter of policy, we only enter
into derivative contracts with counterparties having a minimum
investment-grade or better credit rating. Credit risk is managed
through the continuous monitoring of exposures to such
counterparties. We do not believe there is a significant risk of
loss in the event of non-performance by the counterparties
associated with these instruments because these transactions are
executed with a group of major financial institutions and have
varying maturities through January 2011.
Additionally, consumer spending is being affected by the current
macro-economic environment, particularly the disruption of the
credit and stock markets. Continued deterioration, or lack of
improvement, in the markets could adversely impact our customers
and their ability to access credit.
We may utilize our committed and uncommitted lines of credit to
fund our seasonal working capital needs. We have not experienced
any restrictions on the availability of these lines and the
adverse capital and credit market conditions are not expected to
significantly affect our ability to meet our liquidity needs.
Credit
Facilities
We have an unsecured committed revolving credit agreement with a
group of banks which matures on June 2, 2011 (the
Agreement). The Agreement provides for
$200 million of committed borrowings, of which up to
$125 million may be used for letters of credit. Any letters
of credit outstanding under the Agreement ($1.8 million at
December 31, 2009) reduce the amount available for
borrowing under the Agreement. Upon approval of the bank group,
we may increase the committed borrowing limit by
$100 million for a total commitment of $300 million.
Under the terms of the Agreement, we may borrow at interest
rates based on Eurodollar rates (approximately 0.3% at
December 31, 2009), plus an applicable margin of between
13.5 and 47.5 basis points, based on a fixed charge
coverage grid that is adjusted quarterly. As of
December 31, 2009, the applicable margin under the facility
was 47.5 basis points. We will pay a utilization fee of an
additional 5 basis points if our outstanding borrowings
under the facility exceed $100 million. We also pay a
commitment fee of 6.5 to 15 basis points per annum on the
total commitment, based on a fixed charge coverage grid that is
adjusted quarterly. As of December 31, 2009, the commitment
fee was 15 basis points. The Agreement places certain
limitations on additional debt, stock repurchases, acquisitions,
and the amount of dividends we may pay, and includes certain
other financial and non-financial covenants. The primary
financial covenants relate to maintaining a minimum fixed charge
coverage ratio of 2.25:1 and a maximum leverage ratio of 2:1. We
measure compliance with the financial and non-financial
covenants and ratios as required by the terms of the Agreement
on a fiscal quarter basis, and were in compliance for the
quarter ended December 31, 2009.
We had uncommitted lines of credit available from certain banks
totaling $30 million as of December 31, 2009. Any
borrowings under these lines would be at prevailing money market
rates. Further, we had an uncommitted letter of credit facility
of $80 million to support inventory purchases. These
arrangements may be terminated at any time at the option of the
banks or at our option.
37
As of December 31, 2009 and 2008, we had no borrowings
outstanding under any of our credit facilities. We did not
utilize our borrowing capability under the facilities at any
point during 2009.
Management believes that our operating costs, capital
requirements and funding for our share repurchase program for
2010 will be funded through our current cash balances, our
existing credit facilities (which place certain limitations on
additional debt, stock repurchases, acquisitions and on the
amount of dividends we may pay, and also contain certain other
financial and operating covenants) and cash from operations,
without the need for additional financing. However, as discussed
in Part I, Item 1A, Risk Factors, of this Annual
Report on
Form 10-K,
several risks and uncertainties could require that the Company
raise additional capital through equity
and/or debt
financing. From time to time, the Company considers acquisition
opportunities which, if pursued, could also result in the need
for additional financing. However, if the need arises, our
ability to obtain any additional credit facilities will depend
upon prevailing market conditions, our financial condition and
the terms and conditions of such additional facilities. The
continued volatility in the credit markets could result in
significant increases in borrowing costs for any new debt we may
require.
Aggregate
Contractual Obligations
At December 31, 2009, we have the following contractual
obligations due by period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than
|
|
|
|
|
|
|
|
|
More Than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(Dollars in millions)
|
|
|
Operating leases(1)
|
|
$
|
231.1
|
|
|
$
|
50.9
|
|
|
$
|
77.5
|
|
|
$
|
45.5
|
|
|
$
|
57.2
|
|
Production purchase obligations(2)
|
|
|
170.3
|
|
|
|
170.3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-production purchase obligations(3)
|
|
|
6.0
|
|
|
|
6.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan(4)
|
|
|
6.6
|
|
|
|
0.4
|
|
|
|
0.9
|
|
|
|
0.5
|
|
|
|
4.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(5)
|
|
$
|
414.0
|
|
|
$
|
227.6
|
|
|
$
|
78.4
|
|
|
$
|
46.0
|
|
|
$
|
62.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Note 18 to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K. |
|
(2) |
|
Production purchase obligations consist of open production
purchase orders for sourced footwear, apparel and accessories
and materials used to manufacture footwear. |
|
(3) |
|
Non-production purchase obligations consist of open purchase
orders for operating expense purchases relating to goods or
services ordered in the normal course of business. |
|
(4) |
|
Our deferred compensation plan liability was $6.6 million
at December 31, 2009. See Note 9 to our consolidated
financial statements in Part II, Item 8 of this Annual
Report on
Form 10-K. |
|
(5) |
|
We had $24.7 million of gross liability for uncertain tax
positions recorded in other long-term liabilities on our
consolidated balance sheet at December 31, 2009. We are not
able to reasonably estimate in which future periods these
amounts will ultimately be settled. See Note 11 to our
consolidated financial statements in Part II, Item 8
of this Annual Report on
Form 10-K. |
Off
Balance Sheet Arrangements
Letters
of Credit
As of December 31, 2009, 2008 and 2007, we had letters of
credit outstanding of $16.6 million, $16.1 million and
$24.5 million, respectively. These letters of credit were
issued principally in support of retail commitments in 2009 and
2008. In 2007, the letters of credit included the purchase of
inventory. The decrease in letters of credit outstanding in 2008
compared to 2007 was driven by reduced purchases resulting from
lower sales and the elimination of letters of credit for most of
our vendors.
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.
38
Selected
Quarterly Financial Data (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Amounts in Thousands, Except Per Share Data)
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 Quarter Ended
|
|
April 3
|
|
|
July 3
|
|
|
October 2
|
|
|
December 31
|
|
|
Revenue
|
|
$
|
296,648
|
|
|
$
|
179,702
|
|
|
$
|
421,766
|
|
|
$
|
387,760
|
|
Gross profit
|
|
|
136,689
|
|
|
|
75,508
|
|
|
|
194,512
|
|
|
|
196,213
|
|
Net income/(loss)
|
|
|
15,877
|
|
|
|
(19,244
|
)
|
|
|
37,757
|
|
|
|
22,254
|
|
Basic earnings/(loss) per share
|
|
$
|
.28
|
|
|
$
|
(.34
|
)
|
|
$
|
.68
|
|
|
$
|
.40
|
|
Diluted earnings/(loss) per share
|
|
$
|
.27
|
|
|
$
|
(.34
|
)
|
|
$
|
.68
|
|
|
$
|
.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Quarter Ended
|
|
March 28
|
|
|
June 27
|
|
|
September 26
|
|
|
December 31
|
|
|
Revenue
|
|
$
|
340,402
|
|
|
$
|
209,916
|
|
|
$
|
423,606
|
|
|
$
|
390,626
|
|
Gross profit
|
|
|
157,604
|
|
|
|
92,200
|
|
|
|
197,011
|
|
|
|
173,918
|
|
Net income/(loss)
|
|
|
18,039
|
|
|
|
(18,929
|
)
|
|
|
30,658
|
|
|
|
13,138
|
|
Basic earnings/(loss) per share
|
|
$
|
.30
|
|
|
$
|
(.32
|
)
|
|
$
|
.53
|
|
|
$
|
.23
|
|
Diluted earnings/(loss) per share
|
|
$
|
.30
|
|
|
$
|
(.32
|
)
|
|
$
|
.52
|
|
|
$
|
.23
|
|
New
Accounting Pronouncements
A discussion of new accounting pronouncements, none of which had
a material impact on our operations, financial condition or
liquidity, is included in Note 1, Summary of Significant
Accounting Policies, to our consolidated financial statements in
Part II, Item 8 of this Annual Report on
Form 10-K.
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
In the normal course of business, our financial position and
results of operations are routinely subject to a variety of
risks, including market risk associated with interest rate
movements on borrowings and investments and currency rate
movements on
non-U.S. dollar
denominated assets, liabilities and cash flows. We regularly
assess these risks and have established policies and business
practices that should mitigate a portion of the adverse effect
of these and other potential exposures.
We utilize cash from operations and U.S. dollar denominated
borrowings to fund our working capital and investment needs.
Short-term debt, if required, is used to meet working capital
requirements and long-term debt, if required, is generally used
to finance long-term investments. In addition, we use derivative
instruments to mitigate the impact of foreign currency
fluctuations on a portion of our foreign currency transactions.
These derivative instruments are viewed as risk management tools
and are not used for trading or speculative purposes. Cash
balances are invested in high-grade securities with terms less
than three months.
We have available unsecured committed and uncommitted lines of
credit as sources of financing for our working capital
requirements. Borrowings under these credit agreements bear
interest at variable rates based on either lenders cost of
funds, plus an applicable spread, or prevailing money market
rates. As of December 31, 2009, 2008 and 2007, we had no
short-term or long-term debt outstanding.
Our foreign currency exposure is generated primarily from our
European operating subsidiaries and, to a lesser degree, our
Asian and Canadian operating subsidiaries. We seek to mitigate
the impact of these foreign currency fluctuations through a risk
management program that includes the use of derivative financial
instruments, primarily foreign currency forward contracts. These
derivative instruments are carried at fair value on our balance
sheet. The Company has implemented a program that qualifies for
hedge accounting treatment to aid in mitigating our foreign
currency exposures and decrease the volatility of our earnings.
We began hedging the Companys 2008 foreign currency
exposure under this new hedging program in the third quarter of
2007. The foreign currency forward contracts under this program
will expire in 13 months or less. Based upon sensitivity
analysis as of December 31, 2009, a 10% change in foreign
exchange rates would cause the fair value of our financial
instruments to increase/decrease by approximately
$12.2 million, compared with an increase/decrease of
$15.1 million as of December 31, 2008. The decrease as
of December 31, 2009, compared to December 31, 2008,
is primarily related to a reduction in our foreign currency
denominated exposures as of December 31, 2009 compared with
December 31, 2008.
39
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Timberland
Company
Stratham, New Hampshire:
We have audited the accompanying consolidated balance sheets of
The Timberland Company and subsidiaries (the
Company) as of December 31, 2009 and 2008, and
the related consolidated statements of income, changes in
stockholders equity, and cash flows for each of the three
years in the period ended December 31, 2009. Our audits
also included the financial statement schedule listed in the
Index at Item 15. These consolidated financial statements
and financial statement schedule are the responsibility of the
Companys management. Our responsibility is to express an
opinion on the financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of The
Timberland Company and subsidiaries at December 31, 2009
and 2008, and the results of their operations and their cash
flows for each of the three years in the period ended
December 31, 2009, in conformity with accounting principles
generally accepted in the United States of America. Also, in our
opinion, such financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as
a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
Companys internal control over financial reporting as of
December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission and our report dated February 26, 2010 expressed
an unqualified opinion on the Companys internal control
over financial reporting.
/S/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 26, 2010
40
THE
TIMBERLAND COMPANY
As of December 31, 2009 and 2008
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
|
(Dollars in thousands, except per share data)
|
|
|
ASSETS
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
289,839
|
|
|
$
|
217,189
|
|
Accounts receivable, net of allowance for doubtful accounts
|
|
|
|
|
|
|
|
|
of $12,175 in 2009 and $14,482 in 2008
|
|
|
149,178
|
|
|
|
168,666
|
|
Inventory, net
|
|
|
158,541
|
|
|
|
179,688
|
|
Prepaid expenses
|
|
|
32,863
|
|
|
|
37,139
|
|
Prepaid income taxes
|
|
|
11,793
|
|
|
|
16,687
|
|
Deferred income taxes
|
|
|
26,769
|
|
|
|
23,425
|
|
Derivative assets
|
|
|
1,354
|
|
|
|
7,109
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
670,337
|
|
|
|
649,903
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
69,820
|
|
|
|
78,526
|
|
Deferred income taxes
|
|
|
14,903
|
|
|
|
18,528
|
|
Goodwill
|
|
|
44,353
|
|
|
|
43,870
|
|
Intangible assets, net
|
|
|
45,532
|
|
|
|
47,996
|
|
Other assets, net
|
|
|
14,962
|
|
|
|
10,576
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
859,907
|
|
|
$
|
849,399
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
79,911
|
|
|
$
|
96,901
|
|
Accrued expense
|
|
|
|
|
|
|
|
|
Payroll and related
|
|
|
43,512
|
|
|
|
32,587
|
|
Other
|
|
|
81,988
|
|
|
|
79,503
|
|
Income taxes payable
|
|
|
22,007
|
|
|
|
20,697
|
|
Derivative liabilities
|
|
|
389
|
|
|
|
2,386
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
227,807
|
|
|
|
232,074
|
|
|
|
|
|
|
|
|
|
|
Other long-term liabilities
|
|
|
36,483
|
|
|
|
40,787
|
|
Commitments and contingencies (See Note 18)
|
|
|
|
|
|
|
|
|
Stockholders equity
|
|
|
|
|
|
|
|
|
Preferred Stock, $.01 par value; 2,000,000 shares
authorized; none issued
|
|
|
|
|
|
|
|
|
Class A Common Stock, $.01 par value (1 vote per
share); 120,000,000 shares authorized;
74,570,388 shares issued at December 31, 2009 and
73,806,026 shares issued at December 31, 2008
|
|
|
746
|
|
|
|
738
|
|
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; 11,089,160 shares
issued and outstanding at December 31, 2009 and
11,529,160 shares issued and outstanding at
December 31, 2008
|
|
|
111
|
|
|
|
115
|
|
Additional paid-in capital
|
|
|
266,457
|
|
|
|
260,267
|
|
Retained earnings
|
|
|
974,683
|
|
|
|
918,039
|
|
Accumulated other comprehensive income
|
|
|
15,048
|
|
|
|
12,543
|
|
Treasury Stock at cost; 31,131,253 Class A shares at
December 31, 2009 and 27,766,651 Class A shares at
December 31, 2008
|
|
|
(661,428
|
)
|
|
|
(615,164
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
595,617
|
|
|
|
576,538
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
859,907
|
|
|
$
|
849,399
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
41
THE
TIMBERLAND COMPANY
CONSOLIDATED
STATEMENTS OF INCOME
For the Years Ended December 31, 2009,
2008 and 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Amounts in thousands, except per share data)
|
|
|
Revenue
|
|
$
|
1,285,876
|
|
|
$
|
1,364,550
|
|
|
$
|
1,436,451
|
|
Cost of goods sold
|
|
|
682,954
|
|
|
|
743,817
|
|
|
|
771,723
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
602,922
|
|
|
|
620,733
|
|
|
|
664,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expense
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling
|
|
|
407,987
|
|
|
|
437,730
|
|
|
|
464,689
|
|
General and administrative
|
|
|
116,772
|
|
|
|
113,011
|
|
|
|
116,201
|
|
Litigation settlement
|
|
|
|
|
|
|
(2,630
|
)
|
|
|
|
|
Impairment of intangible asset
|
|
|
925
|
|
|
|
2,061
|
|
|
|
|
|
Restructuring and related costs/(credits)
|
|
|
(236
|
)
|
|
|
925
|
|
|
|
24,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expense
|
|
|
525,448
|
|
|
|
551,097
|
|
|
|
605,549
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
77,474
|
|
|
|
69,636
|
|
|
|
59,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income/(expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
903
|
|
|
|
2,371
|
|
|
|
2,545
|
|
Interest expense
|
|
|
(498
|
)
|
|
|
(652
|
)
|
|
|
(1,710
|
)
|
Other income/(expense), net
|
|
|
3,506
|
|
|
|
5,455
|
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income/(expense), net
|
|
|
3,911
|
|
|
|
7,174
|
|
|
|
546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
81,385
|
|
|
|
76,810
|
|
|
|
59,725
|
|
Provision for income taxes
|
|
|
24,741
|
|
|
|
33,904
|
|
|
|
19,726
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
56,644
|
|
|
$
|
42,906
|
|
|
$
|
39,999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
Diluted
|
|
$
|
1.01
|
|
|
$
|
0.73
|
|
|
$
|
0.65
|
|
Weighted-average shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
56,034
|
|
|
|
58,442
|
|
|
|
61,087
|
|
Diluted
|
|
|
56,352
|
|
|
|
58,786
|
|
|
|
61,659
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
42
THE
TIMBERLAND COMPANY
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
For the Years Ended December 31, 2009, 2008 and
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Class A
|
|
|
Class B
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
Common
|
|
|
Common
|
|
|
Paid-in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Treasury
|
|
|
Comprehensive
|
|
|
Stockholders
|
|
|
|
|
|
|
Stock
|
|
|
Stock
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(Loss)
|
|
|
Stock
|
|
|
Income
|
|
|
Equity
|
|
|
|
|
|
|
(Dollars in thousands)
|
|
|
Balance, January 1, 2007
|
|
$
|
727
|
|
|
$
|
117
|
|
|
$
|
224,611
|
|
|
$
|
838,462
|
|
|
$
|
15,330
|
|
|
$
|
(517,562
|
)
|
|
|
|
|
|
$
|
561,685
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of adoption of ASC 740
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,328
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,328
|
)
|
|
|
|
|
Issuance of shares of common stock
|
|
|
7
|
|
|
|
|
|
|
|
13,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,103
|
|
|
|
|
|
Cancellation/surrender of shares of common stock
|
|
|
|
|
|
|
|
|
|
|
4,381
|
|
|
|
|
|
|
|
|
|
|
|
(7,371
|
)
|
|
|
|
|
|
|
(2,990
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45,060
|
)
|
|
|
|
|
|
|
(45,060
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,969
|
|
|
|
|
|
Tax benefit from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,999
|
|
|
|
|
|
|
|
|
|
|
$
|
39,999
|
|
|
|
39,999
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,401
|
|
|
|
|
|
|
|
8,401
|
|
|
|
8,401
|
|
|
|
|
|
Change in fair value of cash flow hedges, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,625
|
)
|
|
|
|
|
|
|
(3,625
|
)
|
|
|
(3,625
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
44,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
734
|
|
|
|
117
|
|
|
|
251,063
|
|
|
|
875,133
|
|
|
|
20,106
|
|
|
|
(569,993
|
)
|
|
|
|
|
|
|
577,160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/conversion of shares of common stock
|
|
|
4
|
|
|
|
(2
|
)
|
|
|
2,121
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,123
|
|
|
|
|
|
Cancellation/surrender of shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
|
|
(410
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,761
|
)
|
|
|
|
|
|
|
(44,761
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,166
|
|
|
|
|
|
Tax deficiency from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
(1,083
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,083
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,906
|
|
|
|
|
|
|
|
|
|
|
$
|
42,906
|
|
|
|
42,906
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,955
|
)
|
|
|
|
|
|
|
(15,955
|
)
|
|
|
(15,955
|
)
|
|
|
|
|
Change in fair value of cash flow hedges, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,254
|
|
|
|
|
|
|
|
8,254
|
|
|
|
8,254
|
|
|
|
|
|
Other adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
138
|
|
|
|
|
|
|
|
138
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,343
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
738
|
|
|
|
115
|
|
|
|
260,267
|
|
|
|
918,039
|
|
|
|
12,543
|
|
|
|
(615,164
|
)
|
|
|
|
|
|
|
576,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance/conversion of shares of common stock
|
|
|
8
|
|
|
|
(4
|
)
|
|
|
1,958
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,962
|
|
|
|
|
|
Cancellation/surrender of shares of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
(1,284
|
)
|
|
|
|
|
Repurchase of common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(44,980
|
)
|
|
|
|
|
|
|
(44,980
|
)
|
|
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
6,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,295
|
|
|
|
|
|
Tax deficiency from share-based compensation
|
|
|
|
|
|
|
|
|
|
|
(2,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,063
|
)
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56,644
|
|
|
|
|
|
|
|
|
|
|
|
56,644
|
|
|
|
56,644
|
|
|
|
|
|
Translation adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,877
|
|
|
|
|
|
|
|
5,877
|
|
|
|
5,877
|
|
|
|
|
|
Change in fair value of cash flow hedges, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,725
|
)
|
|
|
|
|
|
|
(3,725
|
)
|
|
|
(3,725
|
)
|
|
|
|
|
Other adjustment, net of taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
353
|
|
|
|
|
|
|
|
353
|
|
|
|
353
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
$
|
746
|
|
|
$
|
111
|
|
|
$
|
266,457
|
|
|
$
|
974,683
|
|
|
$
|
15,048
|
|
|
$
|
(661,428
|
)
|
|
|
|
|
|
$
|
595,617
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
43
THE
TIMBERLAND COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2009, 2008 and
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
(Dollars in thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
56,644
|
|
|
$
|
42,906
|
|
|
$
|
39,999
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
|
450
|
|
|
|
2,784
|
|
|
|
1,007
|
|
Share-based compensation
|
|
|
5,942
|
|
|
|
8,518
|
|
|
|
9,051
|
|
Depreciation and amortization
|
|
|
28,783
|
|
|
|
32,345
|
|
|
|
31,307
|
|
Provision for losses on accounts receivable
|
|
|
3,224
|
|
|
|
7,575
|
|
|
|
7,406
|
|
Impairment of intangible asset
|
|
|
925
|
|
|
|
2,061
|
|
|
|
|
|
Impairment of other long-lived assets
|
|
|
3,023
|
|
|
|
1,154
|
|
|
|
5,817
|
|
Litigation settlement
|
|
|
|
|
|
|
(2,630
|
)
|
|
|
|
|
Tax expense from share-based compensation, net of excess benefit
|
|
|
(2,214
|
)
|
|
|
(1,254
|
)
|
|
|
(1,095
|
)
|
Unrealized (gain)/loss on derivatives
|
|
|
333
|
|
|
|
(131
|
)
|
|
|
(2,749
|
)
|
Other non-cash charges, net
|
|
|
(1,381
|
)
|
|
|
2,274
|
|
|
|
3,798
|
|
Increase/(decrease) in cash from changes in operating assets and
liabilities, net of the effect of business combinations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
18,206
|
|
|
|
3,847
|
|
|
|
17,247
|
|
Inventory
|
|
|
24,178
|
|
|
|
20,789
|
|
|
|
(12,010
|
)
|
Prepaid expenses and other assets
|
|
|
1,479
|
|
|
|
4,963
|
|
|
|
154
|
|
Accounts payable
|
|
|
(17,762
|
)
|
|
|
11,533
|
|
|
|
(26,155
|
)
|
Accrued expense
|
|
|
11,846
|
|
|
|
3,809
|
|
|
|
(16,496
|
)
|
Prepaid income taxes
|
|
|
4,894
|
|
|
|
674
|
|
|
|
(5,008
|
)
|
Income taxes payable
|
|
|
(2,093
|
)
|
|
|
7,270
|
|
|
|
(18,127
|
)
|
Other liabilities
|
|
|
(626
|
)
|
|
|
(767
|
)
|
|
|
4,462
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
135,851
|
|
|
|
147,720
|
|
|
|
38,608
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of business and purchase price adjustments, net of
cash acquired
|
|
|
(1,554
|
)
|
|
|
970
|
|
|
|
(12,843
|
)
|
Additions to property, plant and equipment
|
|
|
(17,677
|
)
|
|
|
(22,316
|
)
|
|
|
(30,479
|
)
|
Other
|
|
|
(849
|
)
|
|
|
141
|
|
|
|
(1,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by investing activities
|
|
|
(20,080
|
)
|
|
|
(21,205
|
)
|
|
|
(44,395
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock repurchases
|
|
|
(43,905
|
)
|
|
|
(46,261
|
)
|
|
|
(47,748
|
)
|
Issuance of common stock
|
|
|
1,962
|
|
|
|
1,875
|
|
|
|
12,574
|
|
Excess tax benefit from share-based compensation
|
|
|
151
|
|
|
|
183
|
|
|
|
1,101
|
|
Other
|
|
|
(1,284
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used by financing activities
|
|
|
(43,076
|
)
|
|
|
(44,203
|
)
|
|
|
(34,073
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and equivalents
|
|
|
(45
|
)
|
|
|
(8,397
|
)
|
|
|
1,436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and equivalents
|
|
|
72,650
|
|
|
|
73,915
|
|
|
|
(38,424
|
)
|
Cash and equivalents at beginning of year
|
|
|
217,189
|
|
|
|
143,274
|
|
|
|
181,698
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and equivalents at end of year
|
|
$
|
289,839
|
|
|
$
|
217,189
|
|
|
$
|
143,274
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
331
|
|
|
$
|
486
|
|
|
$
|
1,564
|
|
Income taxes paid
|
|
$
|
23,513
|
|
|
$
|
24,863
|
|
|
$
|
40,453
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
44
THE
TIMBERLAND COMPANY
(Amounts
in Thousands, Except Share and Per Share Data)
|
|
1.
|
Summary
of Significant Accounting Policies
|
Basis
of Consolidation
The consolidated financial statements include the accounts of
The Timberland Company and its subsidiaries (we,
our, us, its,
Timberland or the Company). All
intercompany transactions have been eliminated in consolidation.
Fiscal
Calendar
The Companys fiscal quarters end on the Friday closest to
the calendar quarter end, except that the fourth quarter and
fiscal year always end on December 31.
Nature
of Operations
We design, develop and market premium quality footwear, apparel
and accessories products for men, women and children under the
Timberland®,
Timberland
PRO®,
Timberland Boot
Company®,
SmartWool®,
howies®
and
IPATH®
brands. We sell our products through independent retailers,
better-grade department stores, athletic stores and other
national retailers, through Timberland-owned retail including
stores and Internet sales, and through a mix of independent
distributors, franchisees and licensees worldwide.
We manage our business in three major segments, each sharing
similar product, distribution and marketing: North America,
Europe and Asia. See Note 15 for additional information
regarding our revenues by product and geography.
We sourced approximately 90% of our footwear products from
unrelated manufacturing vendors in 2009 and 89% of our footwear
products from unrelated manufacturing vendors in each of 2008
and 2007. The remainder was produced in our manufacturing
facilities in the Dominican Republic. All of our apparel and
accessories products are sourced from unrelated manufacturing
vendors.
Use of
Estimates
The preparation of consolidated financial statements in
accordance with accounting principles generally accepted in the
United States of America requires us to make estimates and
assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Actual results may
differ from these estimates. The significant estimates in the
consolidated financial statements include sales returns and
allowances, allowance for doubtful accounts receivable,
realizable value of inventory, derivatives, incentive
compensation accruals, share-based compensation, contingent
liabilities, impairment of long-lived assets and goodwill and
income taxes.
Revenue
Recognition
Our revenue consists of sales to wholesale customers (including
distributors and franchisees), retail store and
e-commerce
revenues, license fees and royalties. We record wholesale and
e-commerce
revenues when title passes and the risks and rewards of
ownership have passed to our customer, based on the terms of
sale. Title passes generally upon shipment to or upon receipt by
our customer, depending on the country of sale and the agreement
with our customer. Retail store revenues are recorded at the
time of the sale. License fees and
45
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
royalties are recognized as earned per the terms of our
licensing agreements. We also sell gift cards. Revenue from gift
cards, which is not material to total revenue, is recognized at
the time of redemption.
Taxes collected from customers and remitted to governmental
authorities, such as sales, use and value added taxes, are
recorded on a net basis.
In 2009, 2008 and 2007 we recorded $2,320, $2,848 and $3,349 of
reimbursed shipping expenses within revenues and the related
shipping costs within selling expense, respectively. Shipping
costs are included in selling expense and were $16,012, $18,658
and $17,847 for 2009, 2008 and 2007, respectively. Our cost of
sales may not be comparable with the cost of sales of other
companies as our shipping costs are not included in costs of
sales.
We record reductions to revenue for estimated wholesale and
retail customer returns and allowances in the same period the
related sales are recorded. We base our estimates on historical
rates of customer returns and allowances, as well as the
specific identification of outstanding returns and allowances,
which are known to us but which have not yet been received or
paid. Our total reserves for sales returns and allowances were
$27,139 and $26,451 at December 31, 2009 and 2008,
respectively.
Allowance
for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated
losses resulting from the potential inability of our customers
to make required payments. We estimate potential losses
primarily based on our historical rate of credit losses and our
knowledge of the financial condition of our customers. Our
allowance for doubtful accounts totaled $12,175 and $14,482 at
December 31, 2009 and 2008, respectively.
During 2008, the Company was assigned the lease on two retail
locations from a franchisee. As part of this transaction, the
Company recorded a non-cash exchange of a key money asset
totaling $2,700 in partial settlement of certain overdue
accounts receivable balances from this franchisee.
Advertising
Advertising costs are expensed at the time the advertising is
used, predominantly in the season that the advertising costs are
incurred. As of December 31, 2009 and 2008, we had $958 and
$3,220, respectively of prepaid advertising costs recorded on
our consolidated balance sheets. Advertising expense, which is
included in selling expense in our consolidated statements of
income, was $40,680, $43,123 and $34,999 in 2009, 2008 and 2007,
respectively. Advertising expense includes co-op advertising
costs, consumer-facing advertising costs such as print,
television and Internet campaigns, production costs including
agency fees, and catalog costs. The decrease in advertising
expense from 2008 to 2009 is primarily due to lower co-op
advertising spending as well as television and magazine
advertising. Television advertising in 2008 included a global
campaign which coincided with the summer Olympics. The increase
from 2007 to 2008 reflects an increased investment in
consumer-facing marketing programs and the launch of multiple
television advertising campaigns.
Translation
of Foreign Currencies
The majority of our subsidiaries have adopted their local
currencies as their functional currencies. We translate
financial statements denominated in foreign currencies by
translating balance sheet accounts at the end of period exchange
rates and statement of income accounts at the average exchange
rates for the period. Cumulative translation gains and losses
are recorded in accumulated other comprehensive income in
stockholders equity and changes in cumulative translation
gains and losses are reflected in comprehensive income. Realized
gains and losses on transactions are reflected in earnings.
46
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Cash
and Equivalents
Cash and equivalents consist of short-term, highly liquid
investments that have original maturities to the Company of
three months or less.
Inventory
Inventory is stated at the lower of cost
(first-in,
first-out) or market. Cost includes materials, labor, and
manufacturing overhead related to the purchase and production of
inventories. Market value is estimated based upon assumptions
made about future demand and retail market conditions. If we
determine that the actual market value differs from the carrying
value of our inventory, we make an adjustment to reduce the
value of our inventory to its net realizable value. Our reserves
related to inventory valuation totaled $5,354 and $6,153 at
December 31, 2009 and 2008, respectively.
Derivatives
We are exposed to foreign currency exchange risk when we
purchase and sell goods in foreign currencies. It is our policy
and business practice to manage a portion of this risk through
forward purchases and sales of foreign currencies, thereby
locking in the future exchange rates. These derivative
instruments are viewed as risk management tools and are not used
for trading or speculative purposes. We use our operating budget
and forecasts to estimate our economic exposure and to determine
our hedging strategy.
Derivatives settling within the next twelve months are
recognized at fair value and included in either current
derivative assets or current derivative liabilities on our
consolidated balance sheets. Changes in fair value of
derivatives not designated or effective as hedges are recorded
in other income/(expense), net. The Company had no derivative
instruments that qualified for hedge accounting during the first
two quarters of 2007.
During the third quarter of 2007, the Company implemented a
program that qualifies for hedge accounting treatment to aid in
mitigating the Companys foreign currency exposures and to
decrease the volatility in earnings. The Company began hedging
its 2008 foreign currency exposure under this new hedging
program in the third quarter of 2007. Under this hedging
program, the Company performs a quarterly assessment of the
effectiveness of the hedge relationship and measures and
recognizes any hedge ineffectiveness in earnings. A hedge is
effective if the changes in the fair value of the derivative
provide offset of at least 80 percent and not more than
125 percent of the changes in fair value or cash flows of
the hedged item attributable to the risk being hedged. The
Companys hedging strategy uses forward contracts as cash
flow hedging instruments which are recorded in the consolidated
balance sheets at fair value. The effective portion of gains and
losses resulting from changes in the fair value of these hedge
instruments are deferred in accumulated other comprehensive
income and reclassified to earnings in the period that the
transaction that is subject to the related hedge contract is
recognized in earnings. Hedge ineffectiveness is evaluated using
the hypothetical derivative method and the ineffective portion
of the hedge is reported in other income/(expense), net in our
consolidated statements of income.
Property,
Plant and Equipment
We record property, plant and equipment at cost. We provide for
depreciation using the straight-line method over the estimated
useful lives of the assets or over the terms of the related
leases, if such periods are shorter. The principal estimated
useful lives are 3 to 20 years for building and
improvements, 3 to 12 years for machinery and equipment and
3 years for lasts, patterns and dies.
47
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Goodwill
and Indefinite-lived Intangible Assets
Goodwill and indefinite-lived intangible assets are evaluated
for impairment at least annually (at the end of our second
fiscal quarter), or when events occur or circumstances change
that would more likely than not reduce the fair value of the
reporting unit or asset below its carrying amount using
forecasts of discounted future cash flows. Events or
circumstances that might require an interim evaluation include
unexpected adverse business conditions, material changes in
market capitalization, economic factors, technological changes
and loss of key personnel. Should the fair value of the
Companys goodwill or indefinite-lived intangible assets
decline because of a decline in operating performance, market
declines, or other indicators of impairment, or as a result of
changes in the discount rate, charges for impairment may be
necessary.
Long-lived
Assets
We periodically evaluate the carrying values and estimated
useful lives of our long-lived assets, primarily property, plant
and equipment and finite-lived intangible assets. When factors
indicate that such assets should be evaluated for possible
impairment, we use estimates of undiscounted future cash flows
to determine whether the assets are recoverable. If the
undiscounted cash flows are insufficient to recover the carrying
value, an impairment loss is recognized.
Contingencies
In the ordinary course of business, we are involved in legal
proceedings involving contractual and employment relationships,
product liability claims, trademark rights and a variety of
other matters. We record contingent liabilities resulting from
claims when it is probable that a liability has been incurred
and the amount of the loss is reasonably estimable (see
Note 18).
Income
Taxes
Deferred income taxes are recognized based on temporary
differences between the financial statement and tax bases of
assets and liabilities. Deferred tax assets and liabilities are
measured using the statutory tax rates and laws expected to
apply to taxable income in the years in which the temporary
differences are expected to reverse. Valuation allowances are
provided against net deferred tax assets if, based upon the
available evidence, it is more likely than not that some or all
of the deferred tax assets will not be realized. The ultimate
realization of deferred tax assets is dependent upon the
generation of future taxable income and the timing of the
temporary differences becoming deductible. Management considers,
among other available information, scheduled reversals of
deferred tax liabilities, projected future taxable income,
limitations of availability of net operating loss
carry-forwards, and other matters in making this assessment.
On January 1, 2007, the Company adopted the provisions of
Accounting Standards Codification Topic 740, Income
Taxes (ASC 740) which clarify the accounting
for uncertainty in income tax positions. Under this accounting
standard, the Company recognizes the impact of a tax position in
its financial statements if that position is more likely than
not to be sustained upon examination by the appropriate taxing
authority, based on its technical merits. This accounting
standard also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition.
As a result of the adoption of ASC 740, we recognized a $3,328
increase in our liability for unrecognized tax benefits, which
was recorded as a reduction to the January 1, 2007 retained
earnings balance.
We recognize interest expense on the amount of underpaid taxes
associated with our tax positions beginning in the first period
in which interest starts accruing under the tax law, and
continuing until the tax positions are settled. We classify
interest associated with underpayments of taxes within the
income tax provision in our statement of income and in income
taxes payable and other long-term liabilities on our
consolidated balance sheet.
48
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
If a tax position taken does not meet the minimum statutory
threshold to avoid the payment of a penalty, an accrual for the
amount of the penalty that may be imposed under the tax law is
recorded. Penalties are classified within the income tax
provision in our statement of income and in other long-term
liabilities on our consolidated balance sheet.
Earnings
Per Share (EPS)
Basic earnings per share excludes common stock equivalents and
is computed by dividing net income by the weighted-average
number of common shares outstanding for the periods presented.
Diluted earnings per share reflects the potential dilution that
would occur if potentially dilutive securities such as stock
options were exercised and nonvested shares vested, to the
extent such securities would not be anti-dilutive.
In June 2008, the FASB issued ASC
260-10-45-60,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities, which
became effective for the Company beginning January 1, 2009.
This accounting standard requires share-based payment awards
that entitle their holders to receive nonforfeitable dividends
before vesting, regardless of whether paid or unpaid, to be
considered participating securities and included in the
computation of earnings per share pursuant to the two-class
method. The adoption of this guidance did not have a material
impact on the Companys consolidated financial statements.
The following is a reconciliation of the number of shares (in
thousands) included in the basic and diluted EPS computations
for the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
|
|
Weighted-
|
|
|
Per-
|
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
Net
|
|
|
Average
|
|
|
Share
|
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Income
|
|
|
Shares
|
|
|
Amount
|
|
|
Basic EPS
|
|
$
|
56,644
|
|
|
|
56,034
|
|
|
$
|
1.01
|
|
|
$
|
42,906
|
|
|
|
58,442
|
|
|
$
|
0.73
|
|
|
$
|
39,999
|
|
|
|
61,087
|
|
|
$
|
0.65
|
|
Dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and employee stock purchase plan shares
|
|
|
|
|
|
|
58
|
|
|
|
|
|
|
|
|
|
|
|
51
|
|
|
|
|
|
|
|
|
|
|
|
260
|
|
|
|
|
|
Nonvested shares
|
|
|
|
|
|
|
260
|
|
|
|
|
|
|
|
|
|
|
|
293
|
|
|
|
|
|
|
|
|
|
|
|
312
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
318
|
|
|
|
|
|
|
|
|
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
572
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
56,644
|
|
|
|
56,352
|
|
|
$
|
1.01
|
|
|
$
|
42,906
|
|
|
|
58,786
|
|
|
$
|
0.73
|
|
|
$
|
39,999
|
|
|
|
61,659
|
|
|
$
|
0.65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following stock options and nonvested shares (in thousands)
were outstanding as of December 31, 2009, 2008 and 2007,
but were not included in the computation of diluted EPS as their
inclusion would be anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
Anti-dilutive securities
|
|
|
3,967
|
|
|
|
4,405
|
|
|
|
3,778
|
|
Share-based
Compensation
The Company measures the grant date fair value of equity awards
given to employees in exchange for services and recognizes that
cost over the period that such services are performed. The
Company recognizes the cost of share-based awards on a
straight-line basis over the awards requisite service
period, with the exception of certain stock options for
officers, directors and key employees granted prior to, but not
yet vested as of, January 1, 2006, and awards granted under
certain long-term incentive plans, for which expense continues
to be recognized on a graded schedule over the vesting period of
the award. The Company estimates the fair value of its stock
option awards and employee stock purchase plan rights on the
date of grant using the Black-Scholes option valuation model.
See Note 13 for additional information.
49
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Comprehensive
Income
Comprehensive income is the combination of reported net income
and other comprehensive income/(loss), which is comprised
primarily of foreign currency translation adjustments and
changes in the fair value of cash flow hedges.
The components of accumulated other comprehensive income/(loss)
as of December 31, 2009 and 2008 were:
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
Cumulative translation adjustment
|
|
$
|
13,653
|
|
|
$
|
7,776
|
|
Fair value of cash flow hedges, net of taxes of $47 at
December 31, 2009 and $244 at December 31, 2008
|
|
|
904
|
|
|
|
4,629
|
|
Other adjustment, net of taxes of $147 at December 31, 2009
and $7 at December 31, 2008
|
|
|
491
|
|
|
|
138
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
15,048
|
|
|
$
|
12,543
|
|
|
|
|
|
|
|
|
|
|
New
Accounting Pronouncements
The Financial Accounting Standards Board (FASB)
Accounting Standards Codification Topic (ASC) 105,
Generally Accepted Accounting Principles (ASC 105),
establishes the FASB Standards Accounting Codification
(Codification) as the source of authoritative
U.S. generally accepted accounting principles
(GAAP) recognized by the FASB to be applied to
nongovernmental entities, and rules and interpretive releases of
the SEC as authoritative GAAP for SEC registrants. The
Codification supersedes all the existing non-SEC accounting and
reporting standards effective for financial statements issued
for annual and interim periods ending after September 15,
2009, and subsequently, the FASB will not issue new standards in
the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. ASC 105 is not intended to change or alter
existing U.S. GAAP. The Codification changes the references of
financial standards in effect for the Company. Beginning with
the third quarter of 2009, all references made to U.S. GAAP
use the new Codification numbering system prescribed by the
FASB. This accounting standard did not have any impact on the
Companys financial position, results of operations and
cash flows.
ASC 805, Business Combinations, was revised to improve the
relevance, representational faithfulness and comparability of
the information that a reporting entity provides in its
financial reports about a business combination and its effects.
It establishes principles and requirements for how an acquirer
recognizes and measures in its financial statements the
identifiable assets acquired, liabilities assumed and any
noncontrolling interest in the acquiree; recognizes and measures
the goodwill acquired in the business combination or a gain from
a bargain purchase; and determines what information to disclose
to enable users of the financial statements to evaluate the
nature and financial effects of the business combination. This
accounting standard was effective for business combinations made
by the Company on or after January 1, 2009.
ASC 815, Derivatives and Hedging, sets forth the disclosure
requirements for derivative instruments and hedging activities
to provide enhanced disclosures about (a) how and why an
entity uses derivative instruments; (b) how derivative
instruments and related hedged items are accounted for under ASC
815; and (c) how derivative instruments and related hedged
items affect an entitys financial position, financial
performance and cash flows. The Company adopted the disclosures
required by this accounting standard effective with the interim
financial statements for the quarter ending April 3, 2009.
ASC 820, Fair Value Measurements and Disclosures, requires
disclosures about fair value of financial instruments in interim
reporting periods as well as in annual financial statements. The
Company adopted the interim disclosure provisions of this
accounting standard as of July 3, 2009. Although the
adoption did not
50
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
impact the Companys financial condition, results of
operations, or cash flow, the Company is now required to provide
additional disclosures, which are included in Note 5.
ASC 855, Subsequent Events (ASC 855), defines the
period after the balance sheet date during which management
shall evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements,
the circumstances under which such events or transactions should
be recognized, and disclosures regarding subsequent events or
transactions. This accounting standard is effective for interim
or annual periods ending after June 15, 2009. The adoption
of this accounting standard did not have a material impact on
the Companys condensed consolidated financial statements.
The FASB recently issued Accounting Standards Update
No. 2009-05,
Fair Value Measurement and Disclosures: Measuring Liabilities at
Fair Value, (ASC 820 10). The guidance in this
accounting standard update provides clarification on measuring
liabilities at fair value when a quoted price in an active
market is not available. This accounting standard update was
effective for the Company beginning with the quarter ending
December 31, 2009, and its adoption did not have a material
impact on the Companys condensed consolidated financial
statements.
The FASB recently issued Accounting Standards Update
No. 2010-06
(ASU
No. 2010-06),
Improving Disclosures About Fair Value Measurements. This
accounting standard update adds new requirements for fair value
measurement disclosures about transfers into and out of
Levels 1 and 2 and separate disclosures about purchases,
sales, issuances, and settlements relating to Level 3
measurements. It also clarifies existing fair value disclosures
about the level of disaggregation and about inputs and valuation
techniques used to measure fair value. ASU
No. 2010-06
is effective for the first reporting period (including interim
periods) beginning after December 15, 2009. The Company
does not expect the adoption of this accounting standard update
to have a material impact on its existing disclosures.
Inventory, net of valuation allowances, consists of the
following:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
Materials
|
|
$
|
7,944
|
|
|
$
|
7,708
|
|
Work-in-process
|
|
|
740
|
|
|
|
825
|
|
Finished goods
|
|
|
149,857
|
|
|
|
171,155
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
158,541
|
|
|
$
|
179,688
|
|
|
|
|
|
|
|
|
|
|
In the normal course of business, the financial position and
results of operations of the Company are impacted by currency
rate movements in foreign currency denominated assets,
liabilities and cash flows as we purchase and sell goods in
local currencies. We have established policies and business
practices that are intended to mitigate a portion of the effect
of these exposures. We use derivative financial instruments,
specifically forward contracts, to manage our currency
exposures. These derivative instruments are viewed as risk
management tools and are not used for trading or speculative
purposes. Derivatives entered into by the Company are either
designated as cash flow hedges of forecasted foreign currency
transactions or are undesignated economic hedges of existing
intercompany assets and liabilities, certain third party assets
and liabilities and
non-U.S. dollar-denominated
cash balances.
Derivative instruments expose us to credit and market risk. The
market risk associated with these instruments resulting from
currency exchange movements is expected to offset the market
risk of the underlying transactions being hedged. As a matter of
policy, we enter into these derivative contracts only with
51
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
counterparties having a minimum investment-grade or better
credit rating. Credit risk is managed through the continuous
monitoring of exposures to such counterparties. We do not
believe there is a significant risk of loss in the event of
non-performance by the counterparties associated with these
instruments because these transactions are executed with a group
of major financial institutions and have varying maturities
through January 2011.
Cash
Flow Hedges
The Company principally uses foreign currency forward contracts
as cash flow hedges to offset the effects of exchange rate
fluctuations on certain of its forecasted foreign currency
denominated sales transactions. The Companys cash flow
exposures include anticipated foreign currency transactions,
such as foreign currency denominated sales, costs, expenses,
inter-company charges, as well as collections and payments. The
risk in these exposures is the potential for losses associated
with the remeasurement of non-functional currency cash flows
into the functional currency. During the quarter ended
September 28, 2007, the Company developed a program that
qualifies for hedge accounting treatment to aid in mitigating
the Companys foreign currency exposures and to decrease
the volatility in earnings. The Company began hedging a portion
of its 2008 foreign currency cash flow exposure under this new
hedging program in the third quarter of 2007. Under this hedging
program, the Company performs a quarterly assessment of the
effectiveness of the hedge relationship and measures and
recognizes any hedge ineffectiveness in earnings. A hedge is
considered effective if the changes in the fair value of the
derivative provide offset of at least 80 percent and not
more than 125 percent of the changes in the fair value or
cash flows of the hedged item attributable to the risk being
hedged. The Company uses regression analysis to assess the
effectiveness of a hedge relationship.
The Companys hedging strategy uses forward contracts as
cash flow hedging instruments, which are recorded in our
consolidated balance sheet at fair value. The effective portion
of gains and losses resulting from changes in the fair value of
these hedge instruments are deferred in accumulated other
comprehensive income (OCI) and reclassified to
earnings, in cost of goods sold, in the period that the
transaction that is subject to the related hedge contract is
recognized in earnings. Hedge ineffectiveness is evaluated using
the hypothetical derivative method and the ineffective portion
of the hedge is reported in our consolidated statement of income
in other income/(expense), net. The amount of hedge
ineffectiveness for the years ended December 31, 2009, 2008
and 2007 was not material.
As of December 31, 2009, we had forward contracts maturing
at various dates through January 2011 to sell the equivalent of
$101,138 in foreign currencies at contracted rates. As of
December 31, 2008, we had forward contracts maturing at
various dates through January 2010 to sell the equivalent of
$122,367 in foreign currencies at contracted rates. The contract
amount represents the net amount of all purchase and sale
contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
Fair
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
Fair
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Value
|
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Value
|
|
|
Pounds Sterling
|
|
$
|
18,216
|
|
|
|
2010
|
|
|
$
|
55
|
|
|
Pounds Sterling
|
|
$
|
20,748
|
|
|
|
2009
|
|
|
$
|
3,546
|
|
Pounds Sterling
|
|
|
2,441
|
|
|
|
2011
|
|
|
|
22
|
|
|
Pounds Sterling
|
|
|
1,934
|
|
|
|
2010
|
|
|
|
474
|
|
Euro
|
|
|
62,168
|
|
|
|
2010
|
|
|
|
648
|
|
|
Euro
|
|
|
75,170
|
|
|
|
2009
|
|
|
|
3,195
|
|
Euro
|
|
|
2,230
|
|
|
|
2011
|
|
|
|
86
|
|
|
Euro
|
|
|
1,382
|
|
|
|
2010
|
|
|
|
(7
|
)
|
Japanese Yen
|
|
|
12,766
|
|
|
|
2010
|
|
|
|
58
|
|
|
Japanese Yen
|
|
|
20,141
|
|
|
|
2009
|
|
|
|
(2,019
|
)
|
Japanese Yen
|
|
|
3,317
|
|
|
|
2011
|
|
|
|
73
|
|
|
Japanese Yen
|
|
|
2,992
|
|
|
|
2010
|
|
|
|
(344
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
101,138
|
|
|
|
|
|
|
$
|
942
|
|
|
December 31, 2008
|
|
$
|
122,367
|
|
|
|
|
|
|
$
|
4,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Other
Derivative Contracts
We also enter into derivative contracts to manage foreign
currency exchange risk on intercompany accounts receivable and
payable, third-party accounts receivable and payable, and
non-U.S. dollar-denominated
cash balances using forward contracts. These forward contracts,
which are undesignated hedges of economic risk, are recorded at
fair value in the balance sheet, with changes in the fair value
of these instruments recognized in earnings immediately. The
gains or losses related to the contracts largely offset the
remeasurement of those assets and liabilities.
As of December 31, 2009, we had forward contracts maturing
at various dates through April 2010 to sell the equivalent of
$44,293 in foreign currencies at contracted rates and to buy the
equivalent of $(22,572) in foreign currencies at contracted
rates. As of December 31, 2008, we had forward contracts
maturing at various dates through April 2009 to sell the
equivalent of $59,751 in foreign currencies at contracted rates
and to buy the equivalent of $(26,671) at contracted rates. The
contract amount represents the net amount of all purchase and
sale contracts of a foreign currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
|
Contract
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
Fair
|
|
|
|
|
(U.S.$
|
|
|
Maturity
|
|
|
Fair
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Value
|
|
|
Currency
|
|
Equivalent)
|
|
|
Date
|
|
|
Value
|
|
|
Pounds Sterling
|
|
$
|
(12,922
|
)
|
|
|
2010
|
|
|
$
|
1
|
|
|
Pounds Sterling
|
|
$
|
(12,834
|
)
|
|
|
2009
|
|
|
$
|
(10
|
)
|
Euro
|
|
|
14,122
|
|
|
|
2010
|
|
|
|
94
|
|
|
Euro
|
|
|
9,250
|
|
|
|
2009
|
|
|
|
56
|
|
Japanese Yen
|
|
|
8,013
|
|
|
|
2010
|
|
|
|
59
|
|
|
Japanese Yen
|
|
|
27,726
|
|
|
|
2009
|
|
|
|
122
|
|
Canadian Dollar
|
|
|
8,204
|
|
|
|
2010
|
|
|
|
23
|
|
|
Canadian Dollar
|
|
|
6,534
|
|
|
|
2009
|
|
|
|
(42
|
)
|
Norwegian Kroner
|
|
|
2,335
|
|
|
|
2010
|
|
|
|
16
|
|
|
Norwegian Kroner
|
|
|
852
|
|
|
|
2009
|
|
|
|
(6
|
)
|
Swedish Krona
|
|
|
1,969
|
|
|
|
2010
|
|
|
|
12
|
|
|
Swedish Krona
|
|
|
1,552
|
|
|
|
2009
|
|
|
|
20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
21,721
|
|
|
|
|
|
|
$
|
205
|
|
|
December 31, 2008
|
|
$
|
33,080
|
|
|
|
|
|
|
$
|
140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Fair
Values of Derivative Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
|
|
Liability Derivatives
|
|
As of December 31, 2009
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Balance Sheet Location
|
|
Fair Value
|
|
|
Derivatives designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Derivative assets
|
|
$
|
1,313
|
|
|
Derivative liabilities
|
|
$
|
335
|
|
Foreign exchange forward contracts
|
|
Derivative liabilities
|
|
|
6
|
|
|
Derivative assets
|
|
|
224
|
|
Foreign exchange forward contracts
|
|
Other assets
|
|
|
184
|
|
|
Other long-term liabilities
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives designated as hedging instruments
|
|
|
|
$
|
1,503
|
|
|
|
|
$
|
561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated as hedging instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange forward contracts
|
|
Derivative assets
|
|
$
|
265
|
|
|
Derivative liabilities
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives not designa-
ted as hedging instruments
|
|
|
|
$
|
265
|
|
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total derivatives
|
|
|
|
$
|
1,768
|
|
|
|
|
$
|
621
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Certain of our derivative contracts are covered under a master
netting arrangement (see Note 5).
The
Effect of Derivative Instruments on the Statement of Operations
for the Years Ended December 31, 2009, 2008 and
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain/(Loss)
|
|
|
|
|
|
|
|
|
Recognized in
|
|
Location of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
|
|
OCI on
|
|
Reclassified from
|
|
Reclassified from
|
|
|
Derivatives, Net of Taxes
|
|
Accumulated OCI into
|
|
Accumulated OCI into Income
|
Derivatives in Cash Flow
|
|
(Effective Portion)
|
|
Income
|
|
(Effective Portion)
|
Hedging Relationships
|
|
2009
|
|
2008
|
|
(Effective Portion)
|
|
2009
|
|
2008
|
|
Foreign exchange forward contracts
|
|
$
|
904
|
|
|
$
|
4,629
|
|
|
|
Cost of goods sold
|
|
|
$
|
1,398
|
|
|
$
|
(3,390
|
)
|
There were no reclassifications from accumulated other
comprehensive income for the year ended December 31, 2007.
The Company expects to reclassify pre-tax gains of $942 to the
statement of income in cost of goods sold within the next twelve
months.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Location of Gain/(Loss)
|
|
Amount of Gain/(Loss)
|
|
|
Recognized in
|
|
Recognized in
|
Derivatives not Designated
|
|
Income on
|
|
Income on Derivatives
|
as Hedging Instruments
|
|
Derivatives
|
|
2009
|
|
2008
|
|
2007
|
|
Foreign exchange forward contracts
|
|
|
Other income/(expense
|
), net
|
|
$
|
1,371
|
|
|
$
|
(727
|
)
|
|
$
|
(9,174
|
)
|
54
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
During the quarter ended July 3, 2009, the Company
de-designated certain cash flow hedges due to settle in the
quarter that related to its Japanese Yen exposure. Included in
other income/(expense), net above is a net loss of approximately
$14 related to these contracts.
|
|
4.
|
Concentration
of Credit Risk
|
Financial instruments, which potentially subject us to
concentrations of credit risk, consist principally of temporary
cash investments, trade receivables and derivative instruments.
We place our temporary cash investments and derivative
instruments with a variety of high credit quality financial
institutions, thereby minimizing exposure to concentration of
credit risk. As a matter of policy, we enter into derivative
contracts only with counterparties having a minimum
investment-grade or better credit rating. Credit risk is managed
through the continuous monitoring of exposures to such
counterparties. Credit risk with respect to trade receivables is
limited due to the large number of customers included in our
customer base.
|
|
5.
|
Fair
Value of Financial Instruments
|
The provisions of ASC 820 relating to the Companys
financial assets and liabilities and nonfinancial assets and
liabilities that are recognized or disclosed at fair value in
the financial statements at least annually became effective
January 1, 2008, and the provisions relating to its
nonfinancial assets and nonfinancial liabilities that are
recognized and disclosed at fair value in the financial
statements on a non-recurring basis became effective
January 1, 2009. The Companys adoption of ASC 820 did
not have a material impact on the consolidated financial
statements of the Company.
ASC 820 establishes a fair value hierarchy that ranks the
quality and reliability of the information used to determine
fair value. In general, fair values determined by Level 1
inputs utilize quoted prices (unadjusted) in active markets for
identical assets or liabilities that the Company has the ability
to access. Fair values determined by Level 2 inputs utilize
data points that are observable such as quoted prices, interest
rates and yield curves. Level 3 inputs are unobservable
data points for the asset or liability, and include situations
where there is little, if any, market activity for the asset or
liability. For the years ended December 31, 2009 and 2008,
the Company did not have any financial assets or liabilities or
nonfinancial assets or liabilities recognized or disclosed at
fair value on a recurring basis for which significant
unobservable inputs (Level 3) were used to measure
fair value. The following tables present information about our
assets and liabilities measured at fair value on a recurring
basis as of December 31, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
|
2009
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
|
|
|
$
|
165,912
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
165,912
|
|
Derivative contracts
|
|
$
|
|
|
|
$
|
1,768
|
|
|
$
|
|
|
|
$
|
(230
|
)
|
|
$
|
1,538
|
|
Cash surrender value of life insurance
|
|
$
|
|
|
|
$
|
8,036
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
8,036
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
|
|
|
$
|
621
|
|
|
$
|
|
|
|
$
|
(230
|
)
|
|
$
|
391
|
|
55
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of
|
|
|
2008
|
|
Description
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Netting
|
|
|
Total
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash equivalents
|
|
$
|
|
|
|
$
|
131,052
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
131,052
|
|
Derivative contracts
|
|
$
|
|
|
|
$
|
8,196
|
|
|
$
|
|
|
|
$
|
(613
|
)
|
|
$
|
7,583
|
|
Cash surrender value of life insurance
|
|
$
|
|
|
|
$
|
6,359
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
6,359
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative contracts
|
|
$
|
|
|
|
$
|
3,351
|
|
|
$
|
|
|
|
$
|
(613
|
)
|
|
$
|
2,738
|
|
Cash equivalents include money market funds and time deposits,
placed with a variety of high credit quality financial
institutions, for which cost approximates fair value. The
carrying values of accounts receivable and accounts payable
approximate their fair values due to their short-term maturities.
The fair value of the derivative contracts in the tables above
is reported on a gross basis by level based on the fair value
hierarchy with a corresponding adjustment for netting for
financial statement presentation purposes, where appropriate. As
of December 31, 2009 and 2008, the derivative contracts
above include $184 and $474, respectively, of assets included in
other assets, net on our consolidated balance sheet and $2 and
$352, respectively, of liabilities included in other long-term
liabilities on our consolidated balance sheet. The Company often
enters into derivative contracts with a single counterparty and
certain of these contracts are covered under a master netting
agreement. The fair values of our foreign currency forward
contracts are based on quoted market prices or pricing models
using current market rates.
The cash surrender value of life insurance represents insurance
contracts held as assets in a rabbi trust to fund the
Companys deferred compensation plan. These assets are
included in other assets, net on our consolidated balance sheet.
The cash surrender value of life insurance is based on the net
asset values of the underlying funds available to plan
participants.
During 2009, the Company evaluated the carrying value of the
GoLite®
trademark, which is licensed to a third party, for events or
changes in circumstances indicating that the carrying value of
the asset may not be recoverable. Considering such Level 3 input
factors as the ability of the licensee to obtain necessary
financing, the impact of changes in economic conditions and an
assessment of the Companys ability to recover all
contractual payments when due under the licensing arrangement,
the Company determined that the carrying value of the
GoLite®
trademark was impaired and recorded a pre-tax non-cash charge of
approximately $925, which reduced the carrying value of the
trademark to zero. The charge is reflected in our Europe
segment. See Note 8 for additional information.
During 2009, the Company evaluated the carrying value of certain
long-lived fixed assets, specifically certain footwear molds
used in our production process. Based on an evaluation that
included Level 3 input factors such as actual and planned
production levels and style changes, the Company determined that
the carrying value of certain molds was impaired and we recorded
a pre-tax non-cash charge of approximately $800, which reduced
the carrying value of these molds to zero. The charge is
reflected in cost of goods sold in our consolidated statement of
income and in Unallocated Corporate in our segment reporting. We
also evaluated the carrying value of certain long-lived fixed
assets, primarily related to certain of our retail locations,
including leasehold improvements and certain software associated
with our
e-commerce
platform. With respect to store level assets, the Companys
evaluation of potential impairment includes Level 3 input
factors such as estimates of future cash flows based on past and
expected future performance, intended future use of the assets
and knowledge of the market in which the store is located. Based
on this evaluation we determined that the carrying value of
these assets was impaired and we recorded a pre-tax non-cash
charge of approximately $2,125, of which $1,800 is reflected in
selling expense in our consolidated statement of income, and
$325 is reflected in general and administrative expense. The
charge reduced the carrying value of these
56
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
assets to zero. $1,800 of the charge is in our North America
segment, $165 is in our Europe segment, and $160 is in our Asia
segment.
|
|
6.
|
Property,
Plant and Equipment
|
Property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
Land and improvements
|
|
$
|
501
|
|
|
$
|
501
|
|
Building and improvements
|
|
|
47,800
|
|
|
|
48,511
|
|
Machinery and equipment
|
|
|
162,515
|
|
|
|
156,246
|
|
Lasts, patterns and dies
|
|
|
30,090
|
|
|
|
27,611
|
|
|
|
|
|
|
|
|
|
|
Total cost
|
|
|
240,906
|
|
|
|
232,869
|
|
Less: accumulated depreciation
|
|
|
(171,086
|
)
|
|
|
(154,343
|
)
|
|
|
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
69,820
|
|
|
$
|
78,526
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense was $24,654, $28,005 and $28,272 for the
years ended December 31, 2009, 2008 and 2007, respectively.
On March 16, 2009, we acquired 100% of the stock of Glaudio
Fashion B.V. (Glaudio) for approximately $1,500, net
of cash acquired. Glaudio operates 9
Timberland®
retail stores in the Netherlands and Belgium which sell
Timberland®
footwear, apparel and accessories for men, women and kids. The
acquisition was effective March 1, 2009, and the financial
position and results of operations of Glaudio have been included
in our Europe segment from the effective date of the
acquisition. The acquisition of Glaudio was not material to the
results of operations, financial position or cash flows of the
Company.
On April 25, 2007, we acquired substantially all of the
assets of IPATH, LLC, and put them into a newly formed
subsidiary, IPATH Footwear Inc. (IPATH). IPATH
designs, develops and markets skateboarding-inspired casual
footwear, apparel and accessories. IPATHs results are
reported in our North America, Europe and Asia segments from the
date of acquisition. The purchase price was $12,588, subject to
adjustment, including transaction fees. The Company completed
its purchase price allocation related to the fair value of
IPATHs intangible assets as of December 31, 2007, and
recorded $330 for net assets acquired, and allocated $4,570 of
the purchase price to the value of trademarks associated with
the business, $2,600 to customer related intangible assets, and
$5,088 to goodwill. Goodwill and intangible assets related to
the IPATH acquisition are recorded in our North America segment.
The Company expects the goodwill to be deductible for tax
purposes. During 2008, we received approximately $970 from the
prior owners as a purchase price adjustment, which reduced the
goodwill recorded.
On December 1, 2006, we acquired 100% of the stock of
howies Limited (howies), a private company
incorporated in England and Wales. howies is based in Cardigan
Bay, Wales, and was founded in 1995. howies is an active sports
apparel brand founded on the idea of designing and manufacturing
clothing for the socially engaged and environmentally conscious
action sports and outdoor customer. howies results of
operations are included in our Europe segment from the date of
acquisition. The purchase price consisted of an initial payment
of $6,351, which includes the retirement of debt at closing and
transaction fees. Under the purchase agreement, additional
consideration of up to $4,800, based on current exchange rates,
may be due based on the achievement of certain net sales and
earnings levels in each year from 2007 to 2010. No contingent
consideration is due with respect to sales and earnings levels
achieved in 2009, 2008 or 2007. Additionally, a selling
shareholder of howies, who is also an employee, is eligible to
earn additional consideration based on
57
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
earnings levels for one annual period elected by the shareholder
beginning with 2011, provided she is employed through 2011. We
will estimate this potential payment beginning in 2011. The
Company recorded $768 for net assets acquired, and allocated
$5,582 of the purchase price to the value of trademarks
associated with the business and $812 to customer related and
other intangible assets. The excess of fair value over cost, as
a result of contingent consideration issuable under the purchase
agreement, is recorded in other long-term liabilities on our
consolidated balance sheet.
|
|
8.
|
Goodwill
and Other Intangible Assets
|
Intangible assets consist of trademarks and other intangible
assets. Other intangible assets consist of customer, patent and
non-competition related intangible assets.
Intangible assets consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
|
|
Accumulated
|
|
|
Net Book
|
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
Gross
|
|
|
Amortization
|
|
|
Value
|
|
|
Trademarks (indefinite-lived)
|
|
$
|
35,841
|
|
|
$
|
|
|
|
$
|
35,841
|
|
|
$
|
35,387
|
|
|
$
|
|
|
|
$
|
35,387
|
|
Trademarks (finite-lived)
|
|
|
10,239
|
|
|
|
(4,149
|
)
|
|
|
6,090
|
|
|
|
11,877
|
|
|
|
(4,530
|
)
|
|
|
7,347
|
|
Other intangible assets (finite-lived)
|
|
|
10,723
|
|
|
|
(7,122
|
)
|
|
|
3,601
|
|
|
|
10,790
|
|
|
|
(5,528
|
)
|
|
|
5,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
56,803
|
|
|
$
|
(11,271
|
)
|
|
$
|
45,532
|
|
|
$
|
58,054
|
|
|
$
|
(10,058
|
)
|
|
$
|
47,996
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We amortize intangible assets with finite useful lives assuming
no expected residual value. The weighted-average amortization
period for all intangible assets subject to amortization was
8.6 years as of both December 31, 2009 and 2008. The
weighted-average amortization period for trademarks subject to
amortization was 11.7 years and 11.2 years as of
December 31, 2009 and 2008, respectively. The
weighted-average amortization period for other intangible assets
was 5.7 years as of both December 31, 2009 and 2008.
Amortization expense related to all intangible assets was
$2,883, $3,366 and $3,101 in 2009, 2008 and 2007, respectively.
We estimate future amortization expense from intangible assets
held as of December 31, 2009 to be $2,537, $2,099, $1,267,
$650 and $319 in 2010, 2011, 2012, 2013 and 2014, respectively.
On an on-going basis, the Company evaluated the carrying value
of the
GoLite®
trademark, which was licensed to a third party, for events or
changes in circumstances indicating that the carrying value of
the asset may not be recoverable. Factors considered included
the ability of the licensee to obtain necessary financing, the
impact of changes in economic conditions and an assessment of
the Companys ability to recover all contractual payments
when due under the licensing arrangement. During 2008, we
evaluated the useful life and carrying value of the
GoLite®
indefinite-lived trademark in response to our decision to
license the trademark to a third party. We concluded that the
trademark no longer met the definition of an indefinite-lived
intangible asset and began amortizing the trademark over a
10-year
period, or the initial license term. We evaluated its carrying
value using forecasts of undiscounted future cash flows and,
during 2008, recorded $2,061 of impairment charges related to
this intangible asset, which reduced its carrying value to
approximately $1,000 at December 31, 2008. During 2009,
using the factors noted above, the Company determined that the
carrying value of the
GoLite®
trademark was further impaired and recorded a charge of
approximately $925, which reduced the carrying value of the
trademark to zero. The charges are reflected in our Europe
segment.
58
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
A summary of goodwill activity follows:
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2009
|
|
|
2008
|
|
|
Balance at beginning of year
|
|
$
|
43,870
|
|
|
$
|
44,840
|
|
Additions from acquisitions (Note 7)
|
|
|
483
|
|
|
|
|
|
Other adjustments (Note 7)
|
|
|
|
|
|
|
(970
|
)
|
|
|
|
|
|
|
|
|
|
Balance at end of year
|
|
$
|
44,353
|
|
|
$
|
43,870
|
|
|
|
|
|
|
|
|
|
|
|
|
9.
|
Deferred
Compensation Plan
|
We have established an irrevocable grantors trust to hold
assets to fund benefit obligations under the Companys
Deferred Compensation Plan (the Plan). Our
obligations under the Plan consist of our unsecured contractual
commitment to deliver, at a future date, any of the following:
(i) deferred compensation credited to an account under the
Plan, (ii) additional amounts, if any, that we may, from
time to time, credit to the Plan, and (iii) notional
earnings on the foregoing amounts based upon investment
elections made by the participants. The obligations are payable
in cash upon retirement, termination of employment
and/or at
certain other times in a lump-sum distribution or in
installments, as elected by the participant in accordance with
the Plan. The Plan assets, which reside in other assets, net on
our consolidated balance sheets, were $8,036 and $6,361 as of
December 31, 2009 and 2008, respectively. The securities
that comprise the Plan assets are Company-owned life insurance
policies. These assets are subject to the claims of the general
creditors of the Company in the event of insolvency. Our
deferred compensation liability, which is included in other
long-term liabilities on our consolidated balance sheet, was
$6,617 and $4,967 as of December 31, 2009 and 2008,
respectively.
We have an unsecured committed revolving credit agreement with a
group of banks which matures on June 2, 2011 (the
Agreement). The Agreement provides for $200,000 of
committed borrowings, of which up to $125,000 may be used for
letters of credit. Any letters of credit outstanding under the
Agreement ($1.8 million at December 31,
2009) reduce the amount available for borrowing under the
Agreement. Upon approval of the bank group, we may increase the
committed borrowing limit by $100,000 for a total commitment of
$300,000. Under the terms of the Agreement, we may borrow at
interest rates based on Eurodollar rates (approximately 0.3% as
of December 31, 2009), plus an applicable margin of between
13.5 and 47.5 basis points, based on a fixed charge
coverage grid that is adjusted quarterly. As of
December 31, 2009, the applicable margin under the facility
was 47.5 basis points. We will pay a utilization fee of an
additional 5 basis points if our outstanding borrowings
under the facility exceed $100,000. We also pay a commitment fee
of 6.5 to 15 basis points per annum on the total
commitment, based on a fixed charge coverage grid that is
adjusted quarterly. As of December 31, 2009, the commitment
fee was 15 basis points. The Agreement places certain
limitations on additional debt, stock repurchases, acquisitions,
and the amount of dividends we may pay, and includes certain
other financial and non-financial covenants. The primary
financial covenants relate to maintaining a minimum fixed charge
coverage ratio of 2.25:1 and a maximum leverage ratio of 2:1. We
measure compliance with the financial and non-financial
covenants and ratios as required by the terms of the Agreement
on a fiscal quarter basis.
We had uncommitted lines of credit available from certain banks
totaling $30,000 as of December 31, 2009. Any borrowings
under these lines would be at prevailing money market rates.
Further, we had an uncommitted letter of credit facility of
$80,000 to support inventory purchases. These arrangements may
be terminated at any time at the option of the banks or at our
option.
As of December 31, 2009 and 2008, we had no borrowings
outstanding under any of our credit facilities.
59
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The components of income before taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Domestic
|
|
$
|
51,432
|
|
|
$
|
51,779
|
|
|
$
|
47,680
|
|
International
|
|
|
29,953
|
|
|
|
25,031
|
|
|
|
12,045
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
81,385
|
|
|
$
|
76,810
|
|
|
$
|
59,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the provision for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
|
Current
|
|
|
Deferred
|
|
|
Current
|
|
|
Deferred
|
|
|
Current
|
|
|
Deferred
|
|
|
Federal
|
|
$
|
13,417
|
|
|
$
|
1,834
|
|
|
$
|
21,434
|
|
|
$
|
3,983
|
|
|
$
|
9,801
|
|
|
$
|
(149
|
)
|
State
|
|
|
3,494
|
|
|
|
557
|
|
|
|
3,648
|
|
|
|
774
|
|
|
|
3,210
|
|
|
|
(74
|
)
|
Foreign
|
|
|
7,252
|
|
|
|
(1,813
|
)
|
|
|
6,115
|
|
|
|
(2,050
|
)
|
|
|
5,708
|
|
|
|
1,230
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,163
|
|
|
$
|
578
|
|
|
$
|
31,197
|
|
|
$
|
2,707
|
|
|
$
|
18,719
|
|
|
$
|
1,007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount computed
using the statutory federal income tax rate of 35.0% due to the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Federal income tax at statutory rate
|
|
$
|
28,485
|
|
|
|
35.0
|
%
|
|
$
|
26,884
|
|
|
|
35.0
|
%
|
|
$
|
20,904
|
|
|
|
35.0
|
%
|
State taxes, net of applicable federal benefit
|
|
|
2,633
|
|
|
|
3.2
|
|
|
|
2,874
|
|
|
|
3.7
|
|
|
|
2,038
|
|
|
|
3.4
|
|
Foreign
|
|
|
(5,556
|
)
|
|
|
(6.8
|
)
|
|
|
(3,932
|
)
|
|
|
(5.1
|
)
|
|
|
2,775
|
|
|
|
4.6
|
|
Tax examination settlements
|
|
|
(6,417
|
)
|
|
|
(7.9
|
)
|
|
|
|
|
|
|
|
|
|
|
(8,970
|
)
|
|
|
(15.0
|
)
|
Uncertain tax positions
|
|
|
4,677
|
|
|
|
5.8
|
|
|
|
5,974
|
|
|
|
7.8
|
|
|
|
6,142
|
|
|
|
10.3
|
|
Other, net
|
|
|
919
|
|
|
|
1.1
|
|
|
|
2,104
|
|
|
|
2.7
|
|
|
|
(3,163
|
)
|
|
|
(5.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,741
|
|
|
|
30.4
|
%
|
|
$
|
33,904
|
|
|
|
44.1
|
%
|
|
$
|
19,726
|
|
|
|
33.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The tax effects of temporary differences and carry-forwards that
give rise to deferred tax assets and liabilities consist of the
following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Assets
|
|
|
Liabilities
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
$
|
2,193
|
|
|
$
|
|
|
|
$
|
1,161
|
|
|
$
|
|
|
Receivable allowances
|
|
|
8,570
|
|
|
|
|
|
|
|
9,045
|
|
|
|
|
|
Employee benefits accruals
|
|
|
4,643
|
|
|
|
|
|
|
|
2,094
|
|
|
|
|
|
Interest
|
|
|
4,783
|
|
|
|
|
|
|
|
3,897
|
|
|
|
|
|
Other
|
|
|
6,514
|
|
|
|
|
|
|
|
7,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
$
|
26,703
|
|
|
$
|
|
|
|
$
|
23,324
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-current:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated depreciation and amortization
|
|
$
|
|
|
|
$
|
(4,774
|
)
|
|
$
|
|
|
|
$
|
(2,758
|
)
|
Tax credits on undistributed foreign earnings
|
|
|
2,088
|
|
|
|
|
|
|
|
1,571
|
|
|
|
|
|
Deferred compensation
|
|
|
3,075
|
|
|
|
|
|
|
|
4,105
|
|
|
|
|
|
Share-based compensation
|
|
|
7,339
|
|
|
|
|
|
|
|
7,110
|
|
|
|
|
|
Other
|
|
|
1,386
|
|
|
|
|
|
|
|
1,931
|
|
|
|
|
|
Net operating loss carry-forwards
|
|
|
4,990
|
|
|
|
|
|
|
|
5,375
|
|
|
|
|
|
Less valuation allowance
|
|
|
(4,990
|
)
|
|
|
|
|
|
|
(4,430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total non-current
|
|
$
|
13,888
|
|
|
$
|
(4,774
|
)
|
|
$
|
15,662
|
|
|
$
|
(2,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The valuation allowance relates to foreign net operating loss
carry-forwards that may not be realized. The valuation allowance
at December 31, 2009 of $4,990 includes $805 provided for
during 2009 relating primarily to net operating loss
carry-forwards in Luxembourg. The valuation allowance at
December 31, 2008 of $4,430 includes approximately $900
provided for during 2008 relating primarily to net operating
loss carry-forwards in Luxembourg.
Losses before income taxes from foreign operations were
$(3,659), $(4,045) and $(10,807) for the years ended
December 31, 2009, 2008 and 2007, respectively. At
December 31, 2009, the Company had $22,360 of foreign
operating loss carry-forwards available to offset future foreign
taxable income. Of these operating loss carry-forwards, $426
will expire in various years from 2012 through 2014, and $21,934
relates to operating loss carry-forwards that may be carried
forward indefinitely.
As of December 31, 2009, the Company has indefinitely
reinvested approximately $140,526 of the cumulative
undistributed earnings of certain foreign subsidiaries. Such
earnings would be subject to U.S. taxes if repatriated to
the U.S. The amount of unrecognized deferred tax liability
associated with the permanently reinvested cumulative
undistributed earnings was approximately $27,495.
61
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table reconciles the total amount recorded for
unrecognized tax benefits for the years ended December 31,
2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Unrecognized tax benefits at January 1
|
|
$
|
23,751
|
|
|
$
|
19,046
|
|
|
$
|
22,384
|
|
Gross increases tax positions in prior period
|
|
|
207
|
|
|
|
824
|
|
|
|
1,832
|
|
Gross decreases tax positions in prior period
|
|
|
(7,062
|
)
|
|
|
(4
|
)
|
|
|
(7,151
|
)
|
Gross increases current-period tax positions
|
|
|
3,888
|
|
|
|
4,317
|
|
|
|
3,465
|
|
Settlements
|
|
|
(295
|
)
|
|
|
|
|
|
|
(1,157
|
)
|
Lapse in statute of limitations
|
|
|
(782
|
)
|
|
|
(432
|
)
|
|
|
(327
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits at December 31
|
|
$
|
19,707
|
|
|
$
|
23,751
|
|
|
$
|
19,046
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We had a $24,748 and $28,305 gross liability for uncertain
tax positions and accrued interest and penalties included in
other long-term liabilities on our balance sheet as of
December 31, 2009 and 2008, respectively. We had a $48 and
$443 gross liability for uncertain tax positions and
accrued interest and penalties included in accrued income taxes
payable on our balance sheet as of December 31, 2009 and
2008, respectively. Of the total gross liability at the end of
2009, $19,018 represents the amount of unrecognized tax benefits
that, if recognized, would affect the Companys effective
tax rate.
We recognize interest expense on the amount of taxes associated
with our tax positions beginning in the first period in which
interest starts accruing under the tax law, and continuing until
the tax positions are settled. We classify interest associated
with underpayments of taxes as income tax expense in our
consolidated statement of income and in other long-term
liabilities and in accrued income taxes payable on the
consolidated balance sheet. The gross amount of interest expense
included in our income tax provision was $1,276 $1,714 and
$1,650 for the years ended December 31, 2009, 2008 and
2007, respectively. The total amount of accrued interest
included in other long-term liabilities as of December 31,
2009 and 2008 was $4,868 and $4,620, respectively. The total
amount of interest included in accrued income taxes payable as
of December 31, 2009 and 2008 is $48 and $258, respectively.
If a tax position taken does not meet the minimum statutory
threshold to avoid the payment of a penalty, an accrual for the
amount of the penalty that may be imposed under the tax law is
recorded. Penalties are classified as income tax expense in our
consolidated statement of income and in other long-term
liabilities on our consolidated balance sheet. There were
penalties of $53 and $120 included in our income tax provision
for the years ended December 31, 2009 and 2008,
respectively. There were no penalties included in our income tax
provision for the year ended December 31, 2007. The total
amount of penalties included in other long-term liabilities as
of December 31, 2009 and 2008 is $173 and $120,
respectively.
We conduct business globally and, as a result, the Company or
one or more of our subsidiaries files income tax returns in the
U.S. federal jurisdiction and various state and foreign
jurisdictions. In the normal course of business, we are subject
to examination by taxing authorities throughout the world,
including such major jurisdictions as China, France, Germany,
Hong Kong, Italy, Japan, Spain, Switzerland, the U.K. and the
United States. With the exception of China, which is open for
examination from 1997, we are no longer subject to
U.S. federal, state and local, or
non-U.S. income
tax examinations for years before 2002.
In 2009, we concluded audits internationally which resulted in
settlements of $295 and decreases in prior year tax positions of
$7,062. In 2008, we did not conclude any audits. In 2007, we
concluded audits in the United States and internationally which
resulted in settlements of $1,157 and decreases in prior year
tax positions of $6,697. It is reasonably possible that
unrecognized tax benefits related to federal, state and foreign
tax positions may decrease by $10,000 by December 31, 2010
if audits are completed or tax years close during 2010.
62
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
In December of 2009, we received a Notice of Assessment from the
Internal Revenue Department of Hong Kong for approximately
$17,600 with respect to the tax years 2004 through 2008. In
connection with the assessment, the Company is required to make
payments to the Internal Revenue Department of Hong Kong of
approximately $2,500 and $5,900 in the first and second quarters
of 2010, respectively. We believe we have a sound defense to the
proposed adjustment and will continue to firmly oppose the
assessment. We believe that the assessment does not impact the
level of liabilities for our income tax contingencies. However,
actual resolution may differ from our current estimates, and
such differences could have a material impact on our future
effective tax rate and our results of operations.
Our Class A Common Stock and Class B Common Stock are
identical in virtually all respects, except that shares of
Class A Common Stock carry one vote per share, while shares
of Class B Common Stock carry ten votes per share. In
addition, holders of Class A Common Stock have the right,
voting separately as a class, to elect 25% of the directors of
the Company, and vote together with the holders of Class B
Common Stock for the remaining directors. Class B Common
Stock may be converted to Class A Common Stock on a
one-for-one
basis. In 2009, 440,000 shares of Class B Common Stock
were converted to Class A Common Stock. In 2008,
214,500 shares of Class B Common Stock were converted
to Class A Common Stock.
On February 7, 2006, our Board of Directors approved a
repurchase of 6,000,000 shares of our Class A Common
Stock. During 2008 and 2007, we repurchased 1,281,602 and
2,264,383 shares under this authorization, respectively. No
shares remain under this authorization.
On March 10, 2008, our Board of Directors approved the
repurchase of up to an additional 6,000,000 shares of our
Class A Common Stock. Shares repurchased under this
authorization totaled 3,244,643 and 1,431,098 for the years
ended December 31, 2009 and 2008, respectively. As of
December 31, 2009, 1,324,259 shares remained under
this authorization.
On December 3, 2009, our Board of Directors approved the
repurchase of up to an additional 6,000,000 shares of our
Class A Common Stock, all of which remained available for
repurchase as of December 31, 2009.
From time to time, we use plans adopted under
Rule 10b5-1
promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934, as amended, to facilitate share
repurchases.
During 2009 and 2008, certain employees surrendered restricted
shares, valued at approximately $1,284 and $410, respectively,
to the Company to satisfy tax withholding obligations.
|
|
13.
|
Share-based
Compensation
|
The Company accounts for share-based compensation in accordance
with ASC 718, Stock Compensation (ASC 718), 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. 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 of ASC 718, and awards granted under
certain long-term incentive plans, for which expense continues
to be recognized on a graded schedule over the vesting period of
the award. Under the provisions of this accounting standard, the
Company is required to estimate the number of all share-based
awards that will be forfeited. The Company uses historical data
to estimate forfeitures.
63
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Share-based compensation costs were recorded in cost of good
sold, selling expense, general and administrative expense, and
restructuring and related costs as follows for the years ended
December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Cost of goods sold
|
|
$
|
700
|
|
|
$
|
1,385
|
|
|
$
|
1,531
|
|
Selling expense
|
|
|
2,837
|
|
|
|
4,529
|
|
|
|
4,756
|
|
General and administrative expense
|
|
|
2,405
|
|
|
|
2,604
|
|
|
|
3,212
|
|
Restructuring and related costs
|
|
|
|
|
|
|
|
|
|
|
(448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
5,942
|
|
|
$
|
8,518
|
|
|
$
|
9,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive
Plans
In February 2007, our Board of Directors adopted The Timberland
Company 2007 Incentive Plan (the 2007 Plan), which
was subsequently approved by shareholders on May 17, 2007.
The 2007 Plan was established to provide for grants of awards to
key employees and directors of, and consultants and advisors to,
the Company or its affiliates who, in the opinion of the
Management Development and Compensation Committee of the Board
of Directors (MDCC), are in a position to make
significant contributions to the success of the Company and its
affiliates. The 2007 Plan replaced the Companys 1997
Incentive Plan, as amended (the 1997 Plan), and no
new awards have been issued under the 1997 Plan. Awards under
the 2007 Plan may take the form of stock options, stock
appreciation rights, restricted stock, unrestricted stock, stock
units, including restricted stock units, performance awards,
cash and other awards that are convertible into, or otherwise
based on, the Companys stock. A maximum of
4,000,000 shares may be issued under the 2007 Plan, subject
to adjustment as provided in the 2007 Plan. The 2007 Plan also
contains limits with respect to the awards that can be made to
any one person. Stock options granted under the 2007 Plan will
be granted with an exercise price equal to fair market value at
date of grant. All options expire ten years from date of grant.
Awards granted under the 2007 Plan will become exercisable or
vest as determined by the Administrator of the Plan.
Under the Companys 1997 Plan, 16,000,000 shares of
Class A Common Stock were reserved for issuance to
officers, directors and key employees. In addition to stock
options, any of the following incentives may have been awarded
to participants under the 1997 Plan: stock appreciation rights,
nonvested shares, unrestricted stock, awards entitling the
recipient to delivery in the future of Class A Common Stock
or other securities, securities that are convertible into, or
exchangeable for, shares of Class A Common Stock and cash
bonuses. Option grants and vesting periods under the 1997 Plan
were determined by the MDCC. Outstanding stock options granted
under the 1997 Plan were granted with an exercise price equal to
fair market value at date of grant and became exercisable either
in equal installments over three years, beginning one year after
the grant date, or became exercisable two years after the grant
date. Prior to 2007, most stock options granted under the 1997
Plan were exercisable in equal installments over four years. All
options expire ten years after the grant date. Upon approval of
the 2007 Plan, no new awards were issued under the 1997 Plan.
Under our 2001 Non-Employee Directors Stock Plan, as amended
(the 2001 Plan), we reserved 400,000 shares of
Class A Common Stock for the granting of stock options to
eligible non-employee directors of the Company. Under the terms
of the 2001 Plan, stock option grants were awarded on a
predetermined formula basis. Unless terminated by our Board of
Directors, the 2001 Plan will be in effect until all options
issued thereunder expire or are exercised. The exercise price of
options granted under the 2001 Plan is the fair market value of
the stock on the date of the grant. Initial awards of stock
options granted under the 2001 Plan to new directors become
exercisable in equal installments over three years and annual
awards of options granted under the 2001 Plan become fully
exercisable one year from the date of grant and, in each case,
expire ten years after the grant date. Stock options granted
under the 2001 Plan prior to December 31, 2004 became
64
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
exercisable in equal installments over four years, beginning one
year after the grant date, and expire ten years after the grant
date.
Options to purchase an aggregate of 3,208,571, 3,110,208 and
3,083,410 shares were exercisable under all option
arrangements as of December 31, 2009, 2008 and 2007,
respectively. Under the 2007 Plan, the only Plan from which we
are actively issuing equity awards, there were 1,153,937,
3,121,365 and 3,830,597 shares available for future grants
as of December 31, 2009, 2008 and 2007, respectively. The
shares available at December 31, 2009 reflect the
assumption that awards granted under the Companys 2009
Executive Long Term Incentive Program discussed below will be
earned at the target level for performance stock units and the
maximum level for performance vested stock options.
The Company received $1,962 in proceeds on the exercise of stock
options under the Companys stock option and employee stock
purchase plans and recorded a tax benefit of $138 related to
these stock option exercises during the year ended
December 31, 2009.
Shares issued upon the exercise of stock options under the
Companys stock option and employee stock purchase plans
are from authorized but unissued shares of the Companys
Class A Common Stock.
Long
Term Incentive Programs
On March 4, 2009, the MDCC approved the terms of The
Timberland Company 2009 Executive Long Term Incentive Program
(2009 LTIP) with respect to equity awards to be made
to certain of the Companys executives and management team.
On March 5, 2009, the Board of Directors also approved the
2009 LTIP with respect to the Companys Chief Executive
Officer. The 2009 LTIP was established under the 2007 Plan. The
awards are subject to future performance, and consist of
performance stock units (PSUs) equal in value to one
share of the Companys Class A Common Stock, and
performance vested stock options (PVSOs) with an
exercise price of $9.34 (the closing price of the Companys
Class A Common Stock as quoted on the New York Stock
Exchange on March 5, 2009, the date of grant). On
May 21, 2009, additional awards were made under the 2009
LTIP consisting of PSUs equal in value to one share of the
Companys Class A Common Stock, and PVSOs with an
exercise price of $12.93 (the closing price of the
Companys Class A Common Stock as quoted on the New
York Stock Exchange on May 21, 2009, the date of grant).
Shares with respect to the PSUs will be granted and will vest
following the end of the applicable performance period and
approval by the Board of Directors, or a committee thereof, of
the achievement of the applicable performance metric. The PVSOs
will vest in three equal annual installments following the end
of the applicable performance period and approval by the Board
of Directors, or a committee thereof, of the achievement of the
applicable performance metric. The payout of the performance
awards will be based on the Companys achievement of
certain levels of earnings before interest, taxes, depreciation
and amortization (EBITDA), with threshold, budget,
target and maximum award levels based upon actual EBITDA of the
Company during the applicable performance periods equaling or
exceeding such levels. The performance period for the PSUs is
the three-year period from January 1, 2009 through
December 31, 2011, and the performance period for the PVSOs
is the twelve-month period from January 1, 2009 through
December 31, 2009. No awards shall be made or earned, as
the case may be, unless the threshold goal is attained, and the
maximum payout may not exceed 200% of the target award.
The maximum number of shares to be awarded with respect to PSUs
under the 2009 LTIP is 805,000, which, if earned, will be
settled in early 2012. Based on current estimates of the
performance metrics, unrecognized compensation expense with
respect to PSUs was $2,102 as of December 31, 2009. This
expense is expected to be recognized over a weighted-average
period of 2.2 years.
The maximum number of shares subject to exercise with respect to
PVSOs under the 2009 LTIP is 1,073,334, which, if earned, will
be settled, subject to the vesting schedule noted above, in
early 2010. The
65
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Company estimates the fair value of its PVSOs on the date of
grant using the Black-Scholes option valuation model, which
employs the following assumptions:
|
|
|
|
|
Year Ended December 31,
|
|
2009
|
|
Expected volatility
|
|
|
41.9
|
%
|
Risk-free interest rate
|
|
|
1.9
|
%
|
Expected life (in years)
|
|
|
6.4
|
|
Expected dividends
|
|
|
|
|
Based on current estimates of the performance metrics,
unrecognized compensation expense related to PVSOs was $1,552 as
of December 31, 2009. This expense is expected to be
recognized over a weighted-average period of 3.2 years.
In March 2008, the MDCC approved the terms of The Timberland
Company 2008 Executive Long Term Incentive Program (2008
LTIP) with respect to equity awards to be made to certain
Company executives, and in March 2008, the Board of Directors
also approved the 2008 LTIP with respect to the Companys
Chief Executive Officer. The 2008 LTIP was established under the
2007 Plan. The awards were based on the achievement of certain
net income goals for the Company for the twelve-month period
from January 1, 2008 through December 31, 2008, with
threshold, budget, target and maximum award values based on
actual net income of the Company for 2008 equaling or exceeding
specified percentages of budgeted net income. No awards were to
be made unless the threshold goal was attained and in no event
could the payout exceed 150% of the target award. The total
potential grant date value of the maximum awards under the 2008
LTIP was $7,500. Awards earned under the 2008 LTIP were $1,453,
and were paid in early 2009. The awards were settled 60% in
stock options, subject to a three-year vesting schedule, and 40%
in restricted stock, subject to a two-year vesting schedule. For
purposes of the payout, the number of shares subject to the
options was based on the value of the option as of the date of
issuance using the Black-Scholes option pricing model, and the
number of restricted shares issued was based on the fair market
value of the Companys Class A Common Stock on the
date of issuance. The Company had $352 included in accrued
payroll and related expense related to these awards at
December 31, 2008.
In February 2007, the MDCC approved the terms of The Timberland
Company 2007 Executive Long Term Incentive Program (2007
LTIP) with respect to equity awards to be made to certain
Company executives, and in February 2007 the Board of Directors
also approved the 2007 LTIP with respect to the Companys
Chief Executive Officer. The 2007 LTIP was established under the
2007 Plan. The settlement of the awards was based on the
achievement of net income targets for the twelve month period
from January 1, 2007 through December 31, 2007. If the
threshold performance goal, as defined in the 2007 LTIP, was not
met, a minimum settlement was to be awarded. The threshold
performance goal, as defined in the 2007 LTIP, was not met
during 2007; therefore, the minimum settlement of $1,000 was
awarded in the first quarter of 2008. The awards were settled
60% in stock options, which will vest equally over a three year
vesting schedule, and 40% in restricted stock, which will vest
equally over a two year vesting schedule. For purposes of the
settlement, the number of shares subject to the options was
based on the value of the option as of the date of issuance of
the option using the Black-Scholes option pricing model, and the
number of restricted shares issued was based on the fair market
value of the Companys stock on the date of issuance.
Stock
Options
The Company estimates the fair value of its stock option awards
on the date of grant using the Black-Scholes option pricing
model that uses the assumptions noted in the following table,
for stock option awards excluding the PVSO awards described
above, for which performance conditions have not been met.
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
66
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
the contractual life of the option is based on the
U.S. Treasury yield curve corresponding to the stock
options average life.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
Expected volatility
|
|
|
43.5
|
%
|
|
|
32.2
|
%
|
|
|
29.2
|
%
|
Risk-free interest rate
|
|
|
2.1
|
%
|
|
|
3.0
|
%
|
|
|
4.6
|
%
|
Expected life (in years)
|
|
|
6.1
|
|
|
|
6.4
|
|
|
|
4.7
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
The following summarizes transactions under stock option
arrangements for the year ended December 31, 2009,
excluding the PVSO awards described above for which performance
conditions have not been met:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual Term
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
(Years)
|
|
|
Value
|
|
|
Outstanding at January 1, 2009
|
|
|
4,163,628
|
|
|
$
|
26.03
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
423,879
|
|
|
$
|
11.69
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(108,032
|
)
|
|
$
|
8.72
|
|
|
|
|
|
|
|
|
|
Expired or forfeited
|
|
|
(571,205
|
)
|
|
$
|
25.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
3,908,270
|
|
|
$
|
25.05
|
|
|
|
5.33
|
|
|
$
|
3,692
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at December 31, 2009
|
|
|
3,861,623
|
|
|
$
|
25.19
|
|
|
|
5.28
|
|
|
$
|
3,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2009
|
|
|
3,208,571
|
|
|
$
|
27.21
|
|
|
|
4.61
|
|
|
$
|
757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $4.39, $5.73 and $8.52 for the years
ended December 31, 2009, 2008 and 2007, respectively. The
total intrinsic values of stock options exercised during the
years ended December 31, 2009, 2008 and 2007 were $354,
$476 and $5,032, respectively.
Total unrecognized share-based compensation expense related to
nonvested stock options was $1,993 as of December 31, 2009.
The cost is expected to be recognized over the weighted-average
remaining period of 1.4 years.
Nonvested
Shares Restricted Stock and Restricted Stock
Units
As noted above, the Companys 1997 Plan and 2007 Plan
provide for grants of nonvested shares. Under the 1997 Plan, the
Company generally granted restricted stock with a three year
vesting period, which is the same as the contractual term. Under
the 2007 Plan, restricted stock awards will vest in equal annual
installments over a two-year period and restricted stock units
will vest in equal annual installments over a one to three-year
period. Expense is recognized over the awards requisite
service period, which begins on the first day of the measurement
period and ends on the last day of the vesting period. The fair
value of nonvested share grants is determined by the fair market
value at the date of grant.
67
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Changes in the Companys nonvested shares, excluding the
PSU awards described above, for the year ended December 31,
2009 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Stock
|
|
|
Average Grant
|
|
|
|
|
|
Average Grant
|
|
|
|
Awards
|
|
|
Date Fair Value
|
|
|
Stock Units
|
|
|
Date Fair Value
|
|
|
Nonvested at January 1, 2009
|
|
|
278,553
|
|
|
$
|
25.39
|
|
|
|
182,600
|
|
|
$
|
14.45
|
|
Awarded
|
|
|
62,399
|
|
|
|
9.34
|
|
|
|
190,271
|
|
|
|
13.25
|
|
Vested
|
|
|
(239,644
|
)
|
|
|
25.64
|
|
|
|
(58,594
|
)
|
|
|
14.41
|
|
Forfeited
|
|
|
(15,206
|
)
|
|
|
10.99
|
|
|
|
(16,519
|
)
|
|
|
13.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at December 31, 2009
|
|
|
86,102
|
|
|
$
|
15.59
|
|
|
|
297,758
|
|
|
$
|
13.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected to vest at December 31, 2009
|
|
|
86,102
|
|
|
$
|
15.59
|
|
|
|
275,809
|
|
|
$
|
13.74
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The total fair value of stock awards vested during the years
ended December 31, 2009, 2008 and 2007 was $3,017, $1,913
and $10,059, respectively. Unrecognized compensation expense
related to nonvested restricted stock awards was $204 as of
December 31, 2009, and the expense is expected to be
recognized over a weighted-average remaining period of
0.8 years. The total fair value of stock units vested
during the year ended December 31, 2009 was $618. No stock
units vested during 2008 and 2007. Unrecognized compensation
expense related to nonvested restricted stock units was $2,426
as of December 31, 2009, and the expense is expected to be
recognized over a weighted-average remaining period of
1.3 years.
In February 2007, we announced that Kenneth P. Pucker, a former
Executive Vice President and Chief Operating Officer, would be
leaving the Company effective March 31, 2007. When
Mr. Pucker left the Company, he vested in certain shares
previously awarded under the Companys incentive
compensation plans and forfeited certain other shares awarded
but not vested upon termination. An award, based on the
achievement of a 2004 performance target, of 200,000 nonvested
shares with a value of $7,904 was issued on July 5, 2005
and was to vest two years after that date. This award vested
when he separated, per the terms of the award agreement. As part
of our global reorganization, $593 was recorded as a
restructuring charge, which represents the expense that would
have been recorded for these shares in the second and third
quarters of 2007 had Mr. Pucker remained with the Company.
Additionally, upon his departure, Mr. Pucker forfeited
35,819 shares granted in March 2004 that would have
cliff-vested in March 2008. The Company recorded a credit of
approximately $792 in restructuring and related costs,
reflecting the reversal of expense associated with these shares
recorded through December 2006.
In 2004, our Board of Directors approved awards of nonvested
share grants of Class A Common Stock under the
Companys 1997 Plan based on achieving certain performance
targets for the periods occurring between January 1, 2004
through December 31, 2006. Based on the achievement of 2006
performance targets, 36,232 nonvested shares with a value of
$934 were issued on July 10, 2007. The number of shares
issued was determined by the share price on the issuance date.
These shares will fully vest three years from the issuance date.
During 2007, 4,579 of these nonvested shares with a value of
$118 were forfeited by certain executives when they left the
Company. Based on the achievement of 2005 performance targets,
377,770 nonvested shares with a value of $10,000 were issued on
July 5, 2006 and will fully vest three years from that
date. During 2007, 130,162 of these nonvested shares with a
value of $3,445 were forfeited by certain executives when they
left the Company. All of these shares are subject to
restrictions on sale and transferability, forfeiture risk and
certain other terms and conditions.
Employee
Stock Purchase Plan
Pursuant to the terms of our 1991 Employee Stock Purchase Plan,
as amended (the ESPP), we are authorized to issue up
to an aggregate of 2,600,000 shares of our Class A
Common Stock to eligible employees electing to participate in
the ESPP. Eligible employees may contribute, through payroll
68
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
withholdings, from 2% to 10% of their regular base compensation
during six-month participation periods beginning January 1 and
July 1 of each year. At the end of each participation period,
the accumulated deductions are applied toward the purchase of
Class A Common Stock at a price equal to 85% of the market
price at the beginning or end of the participation period,
whichever is lower.
The fair value of the ESPP purchase rights was estimated on the
date of grant using the Black-Scholes option valuation model
that uses the assumptions in the following table. Expected
volatility is based on the six-month participation period (the
options contractual and expected life). The risk-free
interest rate is based on the six-month U.S. Treasury rate.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
2009
|
|
2008
|
|
2007
|
|
Expected volatility
|
|
|
76.5
|
%
|
|
|
49.6
|
%
|
|
|
24.7
|
%
|
Risk-free interest rate
|
|
|
0.3
|
%
|
|
|
2.8
|
%
|
|
|
5.1
|
%
|
Expected life (in months)
|
|
|
6
|
|
|
|
6
|
|
|
|
6
|
|
Expected dividends
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee purchases totaled 95,337, 87,365 and 80,151 shares
in 2009, 2008 and 2007, respectively, at prices ranging from
$9.82 to $21.42 per share. As of December 31, 2009, a total
of 172,802 shares were available for future purchases. The
weighted-average fair values of the Companys ESPP purchase
rights were approximately $4.20, $4.65 and $6.42 per share for
the years ended December 31, 2009, 2008 and 2007,
respectively.
As of December 31, 2009, there was no unrecognized
compensation expense with respect to purchase rights under the
ESPP.
|
|
14.
|
Cash
Incentive Awards
|
The Company maintains a short-term incentive plan for all
employees whereby a cash bonus is paid for the achievement of
operating income and operating working capital targets in the
fiscal year. During the fourth quarter of 2007, the Company
reversed approximately $7,000 in expense accrued through the
first three quarters of fiscal 2007 when it was determined it
was not probable that the target would be achieved.
|
|
15.
|
Business
Segments and Geographic Information
|
The Companys reportable segments are North America, Europe
and Asia. The composition of segments is consistent with that
used by the Companys chief operating decision maker.
The North America segment is comprised of the sale of products
to wholesale and retail customers in North America. It includes
Company-operated specialty and factory outlet stores in the
United States and our United States
e-commerce
business. This segment also includes royalties from licensed
products sold worldwide, the related management costs and
expenses associated with our worldwide licensing efforts, and
certain marketing expenses and value added services.
The Europe and Asia segments each consist of the marketing,
selling and distribution of footwear, apparel and accessories
outside of the United States. Products are sold outside of the
United States through our subsidiaries (which use wholesale,
retail and
e-commerce
channels to sell footwear, apparel and accessories), franchisees
and independent distributors.
The Unallocated Corporate component of segment reporting
consists primarily of corporate support and administrative
functions, costs related to share-based compensation, United
States distribution expenses, global marketing support expenses,
worldwide product development and other costs incurred in
support of Company-wide activities. Certain region-specific
marketing expenses for prior periods have been reclassified from
Unallocated Corporate to North America for comparability to
current year presentation. Unallocated Corporate
69
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
also includes total other income/(expense), net, which is
comprised of interest income, interest expense and other
miscellaneous income/(expense), net, which includes foreign
exchange gains and losses resulting from changes in the fair
value of financial derivatives not accounted for as hedges and
the timing and settlement of local currency denominated assets
and liabilities and other miscellaneous non-operating
income/(expense). Such income/(expense) is not allocated among
the reportable business segments.
The accounting policies of the segments are the same as those
described in the summary of significant accounting policies. We
evaluate segment performance based on revenue and operating
income. Intersegment revenues, which are eliminated in
consolidation, are not material. Total assets are disaggregated
to the extent that assets apply specifically to a single
segment. Unallocated Corporate assets primarily consist of cash
and equivalents, manufacturing/sourcing assets, computers and
related equipment, and United States transportation and
distribution equipment.
The following tables present the segment information as of and
for the years ended December 31, 2009, 2008 and 2007,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
610,164
|
|
|
$
|
529,302
|
|
|
$
|
146,410
|
|
|
$
|
|
|
|
$
|
1,285,876
|
|
Operating income/(loss)
|
|
|
115,744
|
|
|
|
76,583
|
|
|
|
10,859
|
|
|
|
(125,712
|
)
|
|
|
77,474
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
903
|
|
|
|
903
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(498
|
)
|
|
|
(498
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,506
|
|
|
|
3,506
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
$
|
115,744
|
|
|
$
|
76,583
|
|
|
$
|
10,859
|
|
|
$
|
(121,801
|
)
|
|
$
|
81,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
241,692
|
|
|
$
|
353,520
|
|
|
$
|
56,552
|
|
|
$
|
208,143
|
|
|
$
|
859,907
|
|
Goodwill
|
|
|
36,876
|
|
|
|
7,477
|
|
|
|
|
|
|
|
|
|
|
|
44,353
|
|
Expenditures for capital additions
|
|
|
5,912
|
|
|
|
1,891
|
|
|
|
1,151
|
|
|
|
8,723
|
|
|
|
17,677
|
|
Depreciation and amortization
|
|
|
5,740
|
|
|
|
5,600
|
|
|
|
1,770
|
|
|
|
15,673
|
|
|
|
28,783
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
652,435
|
|
|
$
|
553,044
|
|
|
$
|
159,071
|
|
|
$
|
|
|
|
$
|
1,364,550
|
|
Operating income/(loss)
|
|
|
127,855
|
|
|
|
84,835
|
|
|
|
3,007
|
|
|
|
(146,061
|
)
|
|
|
69,636
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,371
|
|
|
|
2,371
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(652
|
)
|
|
|
(652
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,455
|
|
|
|
5,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
$
|
127,855
|
|
|
$
|
84,835
|
|
|
$
|
3,007
|
|
|
$
|
(138,887
|
)
|
|
$
|
76,810
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
265,862
|
|
|
$
|
267,947
|
|
|
$
|
115,880
|
|
|
$
|
199,710
|
|
|
$
|
849,399
|
|
Goodwill
|
|
|
36,876
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
43,870
|
|
Expenditures for capital additions
|
|
|
4,532
|
|
|
|
5,632
|
|
|
|
1,707
|
|
|
|
10,445
|
|
|
|
22,316
|
|
Depreciation and amortization
|
|
|
5,496
|
|
|
|
7,382
|
|
|
|
2,588
|
|
|
|
16,879
|
|
|
|
32,345
|
|
70
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North
|
|
|
|
|
|
|
|
|
Unallocated
|
|
|
|
|
|
|
America
|
|
|
Europe
|
|
|
Asia
|
|
|
Corporate
|
|
|
Consolidated
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
728,187
|
|
|
$
|
552,725
|
|
|
$
|
155,539
|
|
|
$
|
|
|
|
$
|
1,436,451
|
|
Operating income/(loss)
|
|
|
122,166
|
|
|
|
84,126
|
|
|
|
7,503
|
|
|
|
(154,616
|
)
|
|
|
59,179
|
|
Interest income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,545
|
|
|
|
2,545
|
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,710
|
)
|
|
|
(1,710
|
)
|
Other, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(289
|
)
|
|
|
(289
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income taxes
|
|
$
|
122,166
|
|
|
$
|
84,126
|
|
|
$
|
7,503
|
|
|
$
|
(154,070
|
)
|
|
$
|
59,725
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
309,724
|
|
|
$
|
275,950
|
|
|
$
|
71,966
|
|
|
$
|
178,705
|
|
|
$
|
836,345
|
|
Goodwill
|
|
|
37,846
|
|
|
|
6,994
|
|
|
|
|
|
|
|
|
|
|
|
44,840
|
|
Expenditures for capital additions
|
|
|
6,495
|
|
|
|
13,467
|
|
|
|
2,697
|
|
|
|
7,820
|
|
|
|
30,479
|
|
Depreciation and amortization
|
|
|
5,395
|
|
|
|
6,800
|
|
|
|
2,751
|
|
|
|
16,361
|
|
|
|
31,307
|
|
The following summarizes our operations in different geographic
areas for the years ended December 31, 2009, 2008 and 2007,
respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
|
|
|
|
|
|
Other
|
|
|
|
|
States
|
|
Europe
|
|
Asia
|
|
Foreign
|
|
Consolidated
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
575,495
|
|
|
$
|
499,709
|
|
|
$
|
146,891
|
|
|
$
|
63,781
|
|
|
$
|
1,285,876
|
|
Long-lived assets
|
|
|
134,677
|
|
|
|
30,713
|
|
|
|
4,697
|
|
|
|
4,580
|
|
|
|
174,667
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
615,897
|
|
|
$
|
527,429
|
|
|
$
|
159,580
|
|
|
$
|
61,644
|
|
|
$
|
1,364,550
|
|
Long-lived assets
|
|
|
138,376
|
|
|
|
35,360
|
|
|
|
2,347
|
|
|
|
4,885
|
|
|
|
180,968
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
691,838
|
|
|
$
|
530,312
|
|
|
$
|
155,810
|
|
|
$
|
58,491
|
|
|
$
|
1,436,451
|
|
Long-lived assets
|
|
|
147,508
|
|
|
|
44,428
|
|
|
|
2,904
|
|
|
|
4,897
|
|
|
|
199,737
|
|
Other Foreign revenue above consists of revenue in Canada, the
Middle East, Latin America and Africa. Revenues from external
customers are reflected in the geographic regions based on where
the products are sold. Licensing revenue, which is included in
our North America reporting segment, has been allocated to the
geographic regions above based on where the products are sold.
Long-lived assets in the table above include property, plant and
equipment, goodwill, intangible assets, net and other assets,
net. Other Foreign assets consist primarily of the
Companys manufacturing assets in the Caribbean.
For segment reporting, Canada is included in our North America
segment. The Middle East, Latin America and Africa are included
in our Europe segment.
71
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following summarizes our revenue by product group for the
years ended December 31, 2009, 2008 and 2007, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
Footwear
|
|
$
|
931,179
|
|
|
$
|
974,326
|
|
|
$
|
1,004,808
|
|
Apparel and accessories
|
|
|
328,571
|
|
|
|
367,032
|
|
|
|
411,620
|
|
Royalty and other
|
|
|
26,126
|
|
|
|
23,192
|
|
|
|
20,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,285,876
|
|
|
$
|
1,364,550
|
|
|
$
|
1,436,451
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We maintain a contributory 401(k) Retirement Earnings Plan (the
401(k) Plan) for eligible U.S. salaried and
hourly employees who are at least 18 years of age. Under
the provisions of the 401(k) Plan, employees may contribute up
to 40% of their base salary up to certain limits. The 401(k)
Plan provides for Company matching contributions not to exceed
3% of the employees compensation or, if less, 50% of the
employees contribution. Vesting of our contribution begins
at 25% after one year of service and increases by 25% each year
until full vesting occurs. We maintain a non-contributory profit
sharing plan for eligible hourly employees not covered by the
401(k) Plan. Our contribution expense under these
U.S. retirement plans was $1,586, $1,648 and $1,912 in
2009, 2008 and 2007, respectively.
|
|
17.
|
Restructuring
and Related Costs
|
The Company incurred net restructuring and related
charges/(credits) of $(236), $925 and $24,659 in the years ended
2009, 2008 and 2007, respectively. The components of these
charges are discussed below.
Global
Efficiency Review
As part of our ongoing initiative to rationalize our operating
expense structure, in the fourth quarter of 2007, we undertook a
review of each function in our entire global organization and
announced plans to transition to a reorganized, more efficient
organization. This included changes to the U.S. sales team,
a streamlined global product development organization, and
reorganized support organizations around the globe. We incurred
a net restructuring charge of approximately $28 in 2008 and
$6,800 in the fourth quarter of 2007, primarily related to
severance. In 2009, credits of $(2) were recorded in the
Unallocated Corporate segment, and the restructuring program was
completed. In 2008, charges/(credits) of $400, $(276) and $(94),
were recorded in the Unallocated Corporate, Europe, and North
America segments, respectively. In 2007, charges of $3,100,
$2,200, $1,100 and $400 were reported in the Unallocated
Corporate, Europe, North America and Asia segments, respectively.
Global
Retail Portfolio Review
During the third quarter of 2007, we announced our decision to
close approximately 40, principally larger, specialty retail
stores in the U.S., Europe and Asia, along with several
underperforming U.S. factory outlet stores. This action was
consistent with the Companys plan to continue to develop
smaller, footwear-focused stores in the U.S. and certain
international markets. We closed 44 stores by the first half of
2009, and six stores identified under the original plan will
remain open. The Company evaluated the carrying value of
property and equipment related to the stores to be closed using
estimates of future operating results and undiscounted cash
flows. A liability was recorded for lease termination costs when
the Company terminated the lease contract in accordance with the
contract terms or had negotiated a termination with the
counterparty. During 2009, we recorded credits of $(41) and
$(91) in the North America and Europe segments, respectively,
and the program was completed. For the year ended
December 31, 2008, the Company recorded total net
restructuring charges of $1,170. The Asia segment incurred lease
termination costs of $720 and severance and
72
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
related costs for field employees of $370; the North America
segment incurred $550 for lease termination costs and credits of
$(20) for severance and related costs for field employees; and
the Europe segment recorded lease termination costs of $270 and
credits related to severance and related costs for field
employees of $(720). For the year ended December 31, 2007,
the Company recorded total net restructuring charges of $10,400,
of which the North America segment incurred restructuring
charges of $7,500, comprised of impairment charges related to
property and equipment of $3,900, $2,100 for lease termination
costs, and severance and related costs for field employees of
$1,500; the Europe segment incurred impairment charges related
to property and equipment of $1,100 and severance and related
costs for field employees of $800; and the Asia segment incurred
impairment charges related to property and equipment of $800 and
severance and related costs for field employees of $200.
North
American Apparel Licensing
During the first quarter of 2007, we entered into a five year
licensing agreement with Phillips-Van Heusen for the design,
sourcing and marketing of mens apparel in North America
under the
Timberland®
brand, beginning with the Fall 2008 line. We incurred a
restructuring charge of $3,111 in our North America segment in
the year ended December 31, 2007 to reflect employee
severance, outplacement services and asset disposal costs
associated with the implementation of this strategy. During 2009
and 2008 we recorded credits of $(102) and $(121) related to
this program, which was completed in 2009.
Executive
Departure
During the first quarter of 2007, we also announced that Kenneth
P. Pucker, a former Executive Vice President and Chief Operating
Officer, would be leaving the Company effective March 31,
2007. Mr. Pucker entered into a separation agreement with
the Company, which provided for a cash payment and, pursuant to
a prior award agreement, the vesting of certain shares
previously awarded under the Companys incentive
compensation plans. In connection with our Global Reorganization
discussed below, the Company recorded a restructuring charge of
approximately $3,593 in the first quarter of 2007 to record
these costs. Additionally, a credit of approximately $792 was
recorded to restructuring associated with the forfeiture of
other shares awarded to Mr. Pucker but not vested upon
termination. See Note 13 to our consolidated financial
statements for details of the impact of share-based awards
included in this restructuring charge. Of the total charge,
$3,000 was a cash item that was paid in the second quarter of
2007. The remaining $593 charge and the $(792) credit were
recorded as a net reduction to equity. The total net charge of
$2,801 is reflected in our Unallocated Corporate component for
segment reporting.
Global
Reorganization
During the fourth quarter of 2006, the Company announced a
global reorganization to better align our organizational
structure with our key consumer categories. During the year
ended December 31, 2007, we incurred charges of $1,602, of
which approximately $1,400 is included in our Europe segment and
$200 is included in Unallocated Corporate, for severance and
employment related items. In 2006, we recorded $2,969, which is
primarily included in Unallocated Corporate, for severance and
employment related items. This restructuring plan was completed
in 2008.
Puerto
Rico Manufacturing Facility
During fiscal 2005, the Company consolidated its Caribbean
manufacturing operations. We ceased operations in our Puerto
Rico manufacturing facility and expanded our manufacturing
volume in the Dominican Republic. The Puerto Rico facility
closure was completed in the second quarter of 2006. Severance
and employee related credits recorded in connection with this
restructuring plan were $(152) in the year ended
December 31, 2008. This restructuring plan was completed in
2008.
73
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
The following table sets forth the cash components of our
restructuring reserve activity for the years ended
December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at
|
|
|
2009
|
|
|
|
|
|
Liability at
|
|
|
|
December 31,
|
|
|
Charges and
|
|
|
2009
|
|
|
December 31,
|
|
|
|
2008
|
|
|
(Credits)
|
|
|
Cash Payments
|
|
|
2009
|
|
|
Restructuring Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Efficiency Review
|
|
$
|
96
|
|
|
$
|
(2
|
)
|
|
$
|
(94
|
)
|
|
$
|
|
|
Global Retail Portfolio Review
|
|
|
142
|
|
|
|
(132
|
)
|
|
|
(10
|
)
|
|
|
|
|
North American Apparel Licensing
|
|
|
102
|
|
|
|
(102
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
340
|
|
|
$
|
(236
|
)
|
|
$
|
(104
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liability at
|
|
|
2008
|
|
|
|
|
|
Liability at
|
|
|
|
December 31,
|
|
|
Charges and
|
|
|
2008
|
|
|
December 31,
|
|
|
|
2007
|
|
|
(Credits)
|
|
|
Cash Payments
|
|
|
2008
|
|
|
Restructuring Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global Efficiency Review
|
|
$
|
5,638
|
|
|
$
|
28
|
|
|
$
|
(5,570
|
)
|
|
$
|
96
|
|
Global Retail Portfolio Review
|
|
|
2,470
|
|
|
|
1,170
|
|
|
|
(3,498
|
)
|
|
|
142
|
|
North American Apparel Licensing
|
|
|
1,171
|
|
|
|
(121
|
)
|
|
|
(948
|
)
|
|
|
102
|
|
Global Reorganization
|
|
|
33
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
|
|
Puerto Rico Manufacturing Facility
|
|
|
160
|
|
|
|
(152
|
)
|
|
|
(8
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
$
|
9,472
|
|
|
$
|
925
|
|
|
$
|
(10,057
|
)
|
|
$
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charges and credits in the tables above consist primarily of
severance, health benefits and other employee related costs. The
cash payments in the table above are principally comprised of
severance and related costs.
|
|
18.
|
Commitments
and Contingencies
|
Leases
We lease our corporate headquarters facility and other
management offices, manufacturing facilities, retail stores,
showrooms, two distribution facilities and certain equipment
under non-cancelable operating leases expiring at various dates
through 2020. The approximate minimum rental commitments under
all non-cancelable leases as of December 31, 2009 are as
follows:
|
|
|
|
|
2010
|
|
$
|
50,870
|
|
2011
|
|
|
43,768
|
|
2012
|
|
|
33,724
|
|
2013
|
|
|
26,442
|
|
2014
|
|
|
19,134
|
|
Thereafter
|
|
|
57,193
|
|
|
|
|
|
|
Total
|
|
$
|
231,131
|
|
|
|
|
|
|
Most of the leases for retail space provide for renewal options,
contain normal escalation clauses and require us to pay real
estate taxes, maintenance and other expenses. The aggregate base
rent obligation for a lease is expensed on a straight-line basis
over the term of the lease. Base rent expense for all operating
leases was $54,915, $58,338 and $57,732 for the years ended
December 31, 2009, 2008 and 2007, respectively. Percentage
rent, based on sales levels, for the years ended
December 31, 2009, 2008 and 2007 was $8,983, $10,213 and
$10,597, respectively.
74
THE
TIMBERLAND COMPANY
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS (Continued)
Product
Recall
In the third quarter of 2007, the Company announced the
voluntary recall of certain Timberland
PRO®
Direct Attach Steel Toe Series products due to a potential
safety issue. The Company recorded a charge of $2,765 in the
third quarter ended September 28, 2007 related to the
recall based on an estimate of retailer inventory returns and
consumer product replacement costs. In the fourth quarter of
2007, the Company reversed $1,067 of expense, as actual returns
were lower than estimated, and incurred incremental air freight
and other costs associated with the recall of approximately
$435. As of December 31, 2009 and 2008, there were no
reserves remaining related to the recall.
Litigation
We are involved in various legal matters, including litigation,
which have arisen in the ordinary course of business. Management
believes that the ultimate resolution of any existing matter
will not have a material adverse effect on our business or our
consolidated financial statements. In December 2008, we settled
certain litigation involving infringement of our intellectual
property rights by a third party, which resulted in a pre-tax
gain of approximately $2,630. The cash associated with the
settlement was received in 2007.
On January 29, 2010, the Company received $1.5 million
to terminate a licensing arrangement associated with its North
America womens wholesale apparel business. The gain
realized from the termination of the licensing arrangement will
be recorded in the Companys first quarter 2010 results of
operations.
75
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
None.
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Managements
Evaluation of Disclosure Controls and Procedures
We maintain a system of disclosure controls and procedures which
are designed to ensure that information required to be disclosed
by us in reports we file or submit under the Securities Exchange
Act of 1934 (the Exchange Act) is recorded,
processed, summarized and reported within the time periods
specified in the Securities and Exchange Commissions rules
and forms. These disclosure controls and procedures include
controls and procedures designed to ensure that information
required to be disclosed under the federal securities laws is
accumulated and communicated to our management on a timely basis
to allow decisions regarding required disclosure.
Based on their evaluation, our principal executive officer and
principal financial officer have concluded that our disclosure
controls and procedures, as defined in
Rules 13a-15(e)
and
15d-15(e)
under the Exchange Act, were effective as of the end of the
period covered by this report.
There were no changes in our internal control over financial
reporting, as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act, that occurred during the quarter ended
December 31, 2009, that have materially affected, or are
reasonably likely to materially affect, our internal control
over financial reporting.
Managements
Annual Report on Internal Control Over Financial
Reporting
Our management is responsible for establishing and maintaining
adequate internal control over financial reporting as such term
is defined in Exchange Act
Rules 13a-15(f)
and
15d-15(f).
Timberlands internal control over financial reporting is
designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles.
Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of Timberlands
internal control over financial reporting as of the end of the
period covered by this report. In making this assessment,
management used the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in
Internal Control Integrated Framework. Based
on our assessment and those criteria, management believes that
Timberlands internal control over financial reporting was
effective as of the end of the period covered by this report.
Timberlands independent registered public accounting firm
has issued their report on the effectiveness of
Timberlands internal control over financial reporting,
which appears below.
76
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of The Timberland
Company
Stratham, New Hampshire
We have audited the internal control over financial reporting of
The Timberland Company and subsidiaries (the
Company) as of December 31, 2009 based on
criteria established in Internal Control
Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. The Companys
management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting,
included in the accompanying Managements Annual Report on
Internal Control over Financial Reporting. Our responsibility is
to express an opinion on the Companys internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control
over financial reporting was maintained in all material
respects. Our audit included obtaining an understanding of
internal control over financial reporting, assessing the risk
that a material weakness exists, testing and evaluating the
design and operating effectiveness of internal control based on
the assessed risk, and performing such other procedures as we
considered necessary in the circumstances. We believe that our
audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a
process designed by, or under the supervision of, the
companys principal executive and principal financial
officers, or persons performing similar functions, and effected
by the companys board of directors, management, and other
personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with
generally accepted accounting principles. A companys
internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of
management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the
companys assets that could have a material effect on the
financial statements.
Because of the inherent limitations of internal control over
financial reporting, including the possibility of collusion or
improper management override of controls, material misstatements
due to error or fraud may not be prevented or detected on a
timely basis. Also, projections of any evaluation of the
effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may
become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as
of December 31, 2009, based on the criteria established in
Internal Control Integrated Framework issued
by the Committee of Sponsoring Organizations of the Treadway
Commission.
We have also audited, in accordance with the standards of the
Public Company Accounting Oversight Board (United States), the
consolidated financial statements and financial statement
schedule as of and for the year ended December 31, 2009 of
the Company and our report dated February 26, 2010
expressed an unqualified opinion on those financial statements
and financial statement schedule.
/S/ DELOITTE & TOUCHE LLP
Boston, Massachusetts
February 26, 2010
77
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
PART III
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
Please refer to the information set forth under the caption
Executive Officers of the Registrant in Part I,
Item 1 of this Annual Report on
Form 10-K
and to the information under the captions Required Votes
and Method of Tabulation, Item 1. Election of
Directors, Information with Respect to
Nominees, Corporate Governance and Code of
Ethics, The Audit Committee and
Section 16(a) Beneficial Ownership Reporting
Compliance in our definitive Proxy Statement (the
2010 Proxy Statement) relating to our 2010 Annual
Meeting of Stockholders, that will be filed with the Securities
and Exchange Commission within 120 days after the close of
our fiscal year ended December 31, 2009, which information
is incorporated herein by reference.
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
Please refer to the information set forth under the captions
Directors Compensation for Fiscal Year 2009,
Executive Compensation and all
sub-captions
thereunder, and Compensation Committee Interlocks and
Insider Participation in our 2010 Proxy Statement, which
information is incorporated herein by reference.
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
Please refer to the information set forth under the captions
Equity Compensation Plan Information and
Security Ownership of Certain Beneficial Owners and
Management in our 2010 Proxy Statement, which information
is incorporated herein by reference.
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
Please refer to the information set forth under the captions
The Audit Committee (introductory paragraph),
Board Independence, and Certain Relationships
and Related Transactions in our 2010 Proxy Statement,
which information is incorporated herein by reference.
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTANT FEES AND SERVICES
|
Please refer to the information set forth under the captions
Audit and Non-Audit Fees and Audit Committee
Pre-Approval of Audit and Non-Audit Services in our 2010
Proxy Statement, which information is incorporated herein by
reference.
78
PART IV
|
|
ITEM 15.
|
EXHIBITS AND
FINANCIAL STATEMENT SCHEDULES
|
(a)(1) FINANCIAL STATEMENTS. The following consolidated
financial statements are included in Part II, Item 8
of this Annual Report on
Form 10-K
and appear on the pages shown below:
|
|
|
|
|
|
|
Form 10-K Page
|
|
|
|
|
40
|
|
|
|
|
41
|
|
For the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
42
|
|
|
|
|
43
|
|
|
|
|
44
|
|
|
|
|
45-75
|
|
(a)(2) FINANCIAL STATEMENT SCHEDULE. The
following additional financial data appearing on the pages shown
below should be read in conjunction with the consolidated
financial statements:
|
|
|
|
|
|
|
Form 10-K Page
|
|
Schedule II Valuation and Qualifying
Accounts
|
|
|
83
|
|
All other schedules for which provision is made in the
applicable accounting regulations of the Securities and Exchange
Commission are not required under the related instructions or
are inapplicable and have, therefore, been omitted.
(b) EXHIBITS. Listed below are the
Exhibits filed or furnished as part of this report, some of
which are incorporated by reference from documents previously
filed by us with the Securities and Exchange Commission in
accordance with the provisions of
Rule 12b-32
of the Exchange Act.
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
(3
|
)
|
|
ARTICLES OF INCORPORATION AND BY-LAWS
|
|
3
|
.1
|
|
(a) Restated Certificate of Incorporation dated
May 14, 1987(8)
|
|
|
|
|
(b) Certificate of Amendment of Restated Certificate of
Incorporation dated May 22, 1987(8)
|
|
|
|
|
(c) Certificate of Ownership Merging The Nathan Company
into The Timberland Company dated July 31, 1987(8)
|
|
|
|
|
(d) Certificate of Amendment of Restated Certificate of
Incorporation dated June 14, 2000(8)
|
|
|
|
|
(e) Certificate of Amendment of Restated Certificate of
Incorporation dated September 27, 2001(9)
|
|
3
|
.2
|
|
Amended and Restated By-Laws, dated February 28, 2007(7)
|
|
(4
|
)
|
|
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES (See also Exhibits 3.1 and 3.2)
|
|
4
|
.1
|
|
Revised specimen stock certificate for shares of the
Companys Class A Common Stock(14)
|
|
(10
|
)
|
|
MATERIAL CONTRACTS
|
|
10
|
.1
|
|
Agreement dated as of August 29, 1979 between The
Timberland Company and Sidney W. Swartz(1)
|
|
10
|
.2
|
|
The Companys 1997 Incentive Plan, as amended(10)
|
|
10
|
.3
|
|
The Companys 1991 Employee Stock Purchase Plan, as
amended(5)
|
|
10
|
.4
|
|
(a) The Companys 1991 Stock Option Plan for
Non-Employee Directors(6)
|
|
|
|
|
(b) Amendment No. 1 dated December 7, 2000(8)
|
|
10
|
.5
|
|
The Companys 2001 Non-Employee Directors Stock Plan, as
amended(13)
|
|
10
|
.6
|
|
Summary of Compensation for Non-Management Members of the Board
of Directors of The Timberland Company, effective
January 1, 2009(3)
|
79
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
10
|
.7
|
|
Second Amended and Restated Revolving Credit Agreement dated as
of June 2, 2006 among The Timberland Company, certain banks
listed therein and Bank of America, N.A., as administrative
agent(11)
|
|
10
|
.8
|
|
First Amendment to the Second Amended and Restated Revolving
Credit Agreement, dated as of September 4, 2007 among The
Timberland Company, certain lending institutions listed therein
and Bank of America, N.A., as a lender and as administrative
agent.(15)
|
|
10
|
.9
|
|
The Timberland Company Deferred Compensation Plan, as amended(2)
|
|
10
|
.10
|
|
Amended and Restated Change of Control Severance Agreement(4)
|
|
10
|
.11
|
|
The Timberland Company 2007 Executive Long Term Incentive
Program(16)
|
|
10
|
.12
|
|
The Timberland Company 2007 Incentive Plan (2007
IP)(17)
|
|
10
|
.13
|
|
The Timberland Company 2008 Executive Long Term Incentive
Program(18)
|
|
10
|
.14
|
|
The Timberland Company 2009 Executive Long Term Incentive
Program(3)
|
|
10
|
.15
|
|
Form of Performance Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.16
|
|
Form of Performance Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.17
|
|
Form of Non-Qualified Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.18
|
|
Form of Restricted Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.19
|
|
Form of Restricted Stock Award Agreement under the 2007 IP(3)
|
|
10
|
.20
|
|
Form of Director Restricted Stock Unit Agreement under the 2007
IP(12)
|
|
10
|
.21
|
|
The Timberland Company 2004 Executive Long Term Incentive
Program(13)
|
|
10
|
.22
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program(13)
|
|
10
|
.23
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program dated November 30, 2005(19)
|
|
(21
|
)
|
|
SUBSIDIARIES
|
|
21
|
.1
|
|
List of subsidiaries of the registrant, filed herewith
|
|
(23
|
)
|
|
CONSENT OF EXPERTS AND COUNSEL
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche LLP, filed herewith
|
|
(31
|
)
|
|
RULE 13a-14(a)/15d
14(a) CERTIFICATIONS
|
|
31
|
.1
|
|
Principal Executive Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
31
|
.2
|
|
Principal Financial Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
(32
|
)
|
|
SECTION 1350 CERTIFICATIONS
|
|
32
|
.1
|
|
Chief Executive Officer certification pursuant to
Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished herewith
|
|
32
|
.2
|
|
Chief Financial Officer certification pursuant to
Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished herewith
|
We agree to furnish to the Commission, upon its request, copies
of any omitted schedule or exhibit to any Exhibit filed herewith.
|
|
|
(1) |
|
Filed as an exhibit to Registration Statement on
Form S-1,
numbered
33-14319,
and incorporated herein by reference. |
|
(2) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference. |
|
(3) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended April 3, 2009, and incorporated
herein by reference. |
|
(4) |
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on December 22, 2008, and incorporated herein by
reference. |
80
|
|
|
(5) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended October 2, 2009, and
incorporated herein by reference. |
|
(6) |
|
Filed on August 18, 1992, as an exhibit to Registration
Statement on
Form S-8,
numbered
33-50998,
and incorporated herein by reference. |
|
(7) |
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on March 2, 2007, and incorporated herein by
reference. |
|
(8) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2000, and
incorporated herein by reference. |
|
(9) |
|
Filed on October 26, 2001, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-72248,
and incorporated herein by reference. |
|
(10) |
|
Filed on January 15, 2004, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-111949,
and incorporated herein by reference. |
|
(11) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended June 30, 2006, and incorporated
herein by reference. |
|
(12) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended July 3, 2009, and incorporated
herein by reference. |
|
(13) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004, as amended,
and incorporated herein by reference. |
|
(14) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 (filed on
March 1, 2007), and incorporated herein by reference. |
|
(15) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended September 29, 2007, and
incorporated herein by reference. |
|
(16) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 30, 2007, and
incorporated herein by reference. |
|
(17) |
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on March 2, 2007, and incorporated herein by
reference. |
|
(18) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 28, 2008, and
incorporated herein by reference. |
|
(19) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, and
incorporated herein by reference. |
81
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
THE TIMBERLAND COMPANY
February 26, 2010
|
|
|
|
By:
|
/s/ JEFFREY
B. SWARTZ
|
Jeffrey B. Swartz
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the
dates indicated.
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ SIDNEY
W. SWARTZ
Sidney
W. Swartz
|
|
Chairman of the Board of Directors
|
|
February 26, 2010
|
|
|
|
|
|
/s/ JEFFREY
B. SWARTZ
Jeffrey
B. Swartz
|
|
President, Chief Executive Officer and Director (Principal
Executive Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ CARRIE
W. TEFFNER
Carrie
W. Teffner
|
|
Chief Financial Officer and Vice President (Principal Financial
Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ JOHN
J. FITZGERALD, JR.
John
J. Fitzgerald, Jr.
|
|
Chief Accounting Officer and Vice President, Corporate
Controller
(Principal Accounting Officer)
|
|
February 26, 2010
|
|
|
|
|
|
/s/ IAN
W. DIERY
Ian
W. Diery
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ JOHN
A. FITZSIMMONS
John
A. Fitzsimmons
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ VIRGINIA
H. KENT
Virginia
H. Kent
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ KENNETH
T. LOMBARD
Kenneth
T. Lombard
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ EDWARD
W. MONEYPENNY
Edward
W. Moneypenny
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ PETER
R. MOORE
Peter
R. Moore
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ BILL
SHORE
Bill
Shore
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ TERDEMA
L. USSERY, II
Terdema
L. Ussery, II
|
|
Director
|
|
February 26, 2010
|
|
|
|
|
|
/s/ CARDEN
N. WELSH
Carden
N. Welsh
|
|
Senior Vice President, Chief Administrative Officer and Director
|
|
February 26, 2010
|
82
SCHEDULE II
THE TIMBERLAND COMPANY
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
Balance at
|
|
Additions
|
|
Charged
|
|
Write-Offs,
|
|
Balance at
|
|
|
Beginning
|
|
Charged to
|
|
to Other
|
|
Net of
|
|
End of
|
Description
|
|
of Period
|
|
Costs and Expenses
|
|
Accounts(a)
|
|
Recoveries
|
|
Period
|
|
|
(Dollars in thousands)
|
|
Allowance for doubtful accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
$
|
14,482
|
|
|
$
|
3,224
|
|
|
$
|
328
|
|
|
$
|
5,859
|
|
|
$
|
12,175
|
|
December 31, 2008
|
|
|
14,762
|
|
|
|
7,575
|
|
|
|
(636
|
)
|
|
|
7,219
|
|
|
|
14,482
|
|
December 31, 2007
|
|
|
12,493
|
|
|
|
7,406
|
|
|
|
637
|
|
|
|
5,774
|
|
|
|
14,762
|
|
|
|
|
(a) |
|
Impact of foreign exchange rate changes |
83
Timberland, the Tree Design logo, Earthkeepers, howies, IPATH,
Mountain Athletics, Smart Comfort, SmartWool, Timberland Boot
Company, Timberland PRO, Renova and PhD are trademarks of The
Timberland Company or its affiliated companies. Green Rubber is
a trademark of Elastomer Technologies Ltd. Ströbel is a
trademark of Ströbel Und Söhne GmbH & Co.
All other trademarks or logos used in this Annual Report on
Form 10-K
are the property of their respective owners.
©
2010 The Timberland Company
All Rights Reserved
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
(3)
|
|
|
ARTICLES OF INCORPORATION AND BY-LAWS
|
|
3
|
.1
|
|
(a) Restated Certificate of Incorporation dated
May 14, 1987(8)
|
|
|
|
|
(b) Certificate of Amendment of Restated Certificate of
Incorporation dated May 22, 1987(8)
|
|
|
|
|
(c) Certificate of Ownership Merging The Nathan Company
into The Timberland Company dated July 31, 1987(8)
|
|
|
|
|
(d) Certificate of Amendment of Restated Certificate of
Incorporation dated June 14, 2000(8)
|
|
|
|
|
(e) Certificate of Amendment of Restated Certificate of
Incorporation dated September 27, 2001(9)
|
|
3
|
.2
|
|
Amended and Restated By-Laws, dated February 28, 2007(7)
|
|
(4)
|
|
|
INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES (See also Exhibits 3.1 and 3.2)
|
|
4
|
.1
|
|
Revised specimen stock certificate for shares of the
Companys Class A Common Stock(14)
|
|
(10)
|
|
|
MATERIAL CONTRACTS
|
|
10
|
.1
|
|
Agreement dated as of August 29, 1979 between The
Timberland Company and Sidney W. Swartz(1)
|
|
10
|
.2
|
|
The Companys 1997 Incentive Plan, as amended(10)
|
|
10
|
.3
|
|
The Companys 1991 Employee Stock Purchase Plan, as
amended(5)
|
|
10
|
.4
|
|
(a) The Companys 1991 Stock Option Plan for
Non-Employee Directors(6)
|
|
|
|
|
(b) Amendment No. 1 dated December 7, 2000(8)
|
|
10
|
.5
|
|
The Companys 2001 Non-Employee Directors Stock Plan, as
amended(13)
|
|
10
|
.6
|
|
Summary of Compensation for Non-Management Members of the Board
of Directors of The Timberland Company, effective
January 1, 2009(3)
|
|
10
|
.7
|
|
Second Amended and Restated Revolving Credit Agreement dated as
of June 2, 2006 among The Timberland Company, certain banks
listed therein and Bank of America, N.A., as administrative
agent(11)
|
|
10
|
.8
|
|
First Amendment to the Second Amended and Restated Revolving
Credit Agreement, dated as of September 4, 2007 among The
Timberland Company, certain lending institutions listed therein
and Bank of America, N.A., as a lender and as administrative
agent.(15)
|
|
10
|
.9
|
|
The Timberland Company Deferred Compensation Plan, as amended(2)
|
|
10
|
.10
|
|
Amended and Restated Change of Control Severance Agreement(4)
|
|
10
|
.11
|
|
The Timberland Company 2007 Executive Long Term Incentive
Program(16)
|
|
10
|
.12
|
|
The Timberland Company 2007 Incentive Plan (2007
IP)(17)
|
|
10
|
.13
|
|
The Timberland Company 2008 Executive Long Term Incentive
Program(18)
|
|
10
|
.14
|
|
The Timberland Company 2009 Executive Long Term Incentive
Program(3)
|
|
10
|
.15
|
|
Form of Performance Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.16
|
|
Form of Performance Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.17
|
|
Form of Non-Qualified Stock Option Agreement under the 2007 IP(3)
|
|
10
|
.18
|
|
Form of Restricted Stock Unit Agreement under the 2007 IP(3)
|
|
10
|
.19
|
|
Form of Restricted Stock Award Agreement under the 2007 IP(3)
|
|
10
|
.20
|
|
Form of Director Restricted Stock Unit Agreement under the 2007
IP(12)
|
|
10
|
.21
|
|
The Timberland Company 2004 Executive Long Term Incentive
Program(13)
|
|
10
|
.22
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program(13)
|
|
10
|
.23
|
|
Amendment to The Timberland Company 2004 Executive Long Term
Incentive Program dated November 30, 2005(19)
|
|
(21)
|
|
|
SUBSIDIARIES
|
|
21
|
.1
|
|
List of subsidiaries of the registrant, filed herewith
|
|
(23)
|
|
|
CONSENT OF EXPERTS AND COUNSEL
|
|
23
|
.1
|
|
Consent of Independent Registered Public Accounting Firm,
Deloitte & Touche LLP, filed herewith
|
|
(31)
|
|
|
RULE 13a-14(a)/15d
14(a) CERTIFICATIONS
|
|
31
|
.1
|
|
Principal Executive Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
|
|
|
|
Exhibit
|
|
Description
|
|
|
31
|
.2
|
|
Principal Financial Officer Certification Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002, filed
herewith
|
|
(32)
|
|
|
SECTION 1350 CERTIFICATIONS
|
|
32
|
.1
|
|
Chief Executive Officer certification pursuant to
Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished herewith
|
|
32
|
.2
|
|
Chief Financial Officer certification pursuant to
Section 1350, Chapter 63 of Title 18, United
States Code, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, furnished herewith
|
We agree to furnish to the Commission, upon its request, copies
of any omitted schedule or exhibit to any Exhibit filed herewith.
|
|
|
(1) |
|
Filed as an exhibit to Registration Statement on
Form S-1,
numbered
33-14319,
and incorporated herein by reference. |
|
(2) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2007, and
incorporated herein by reference. |
|
(3) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended April 3, 2009, and incorporated
herein by reference. |
|
(4) |
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on December 22, 2008, and incorporated herein by
reference. |
|
(5) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended October 2, 2009, and
incorporated herein by reference. |
|
(6) |
|
Filed on August 18, 1992, as an exhibit to Registration
Statement on
Form S-8,
numbered
33-50998,
and incorporated herein by reference. |
|
(7) |
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on March 2, 2007, and incorporated herein by
reference. |
|
(8) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2000, and
incorporated herein by reference. |
|
(9) |
|
Filed on October 26, 2001, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-72248,
and incorporated herein by reference. |
|
(10) |
|
Filed on January 15, 2004, as an exhibit to Registration
Statement on
Form S-8,
numbered
333-111949,
and incorporated herein by reference. |
|
(11) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended June 30, 2006, and incorporated
herein by reference. |
|
(12) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended July 3, 2009, and incorporated
herein by reference. |
|
(13) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2004, as amended,
and incorporated herein by reference. |
|
(14) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2006 (filed on
March 1, 2007), and incorporated herein by reference. |
|
(15) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended September 29, 2007, and
incorporated herein by reference. |
|
(16) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 30, 2007, and
incorporated herein by reference. |
|
(17) |
|
Filed as an exhibit to the Current Report on
Form 8-K
filed on March 2, 2007, and incorporated herein by
reference. |
|
(18) |
|
Filed as an exhibit to the Quarterly Report on
Form 10-Q
for the fiscal period ended March 28, 2008, and
incorporated herein by reference. |
|
(19) |
|
Filed as an exhibit to the Annual Report on
Form 10-K
for the fiscal year ended December 31, 2005, and
incorporated herein by reference. |