Timberland Reports Third-Quarter 2009 Results: Financial News

STRATHAM, N.H.--(BUSINESS WIRE)--The Timberland Company (NYSE: TBL - News) today reported third-quarter 2009 net income of $37.8 million and diluted earnings per share of $0.68. These results compare to third-quarter 2008 net income of $30.7 million and diluted earnings per share of $0.52.

Third-Quarter 2009 Results Summary:

Revenue remained relatively flat at $421.8 million compared to the prior year but was up 1.7% on a constant dollar basis, reflecting strong growth in the boots business in Europe and SmartWool^® brand offset by declines in casual footwear and Timberland^®brand apparel. Foreign exchange rate changes decreased third-quarter 2009 revenue by approximately $9 million due to the strength of the U.S. dollar relative to the British Pound and the Euro versus last year.
North America revenue increased 2.0% to $188.2 million, reflecting strong growth in the kids’ boot business and in the SmartWool^®brand. Europe revenue decreased 2.3% to $195.2 million but increased 3.3% on a constant dollar basis. European results reflect strong increases in the boots business across all categories which partially offset declines in the casual and apparel businesses. Asia revenue decreased 2.3% to $38.3 million, and decreased 9.1% on a constant dollar basis, driven by declines in casual footwear and apparel, partially offset by strengthening of the men’s and kids’ boots businesses.
Global footwear revenue increased 1.8% to $319.1 million, primarily due to strength in the boots business across all markets. Apparel and accessories revenue decreased 6.7% to $95.8 million, due to softness across all regions.
Global wholesale revenue was relatively flat at $342.2 million. Worldwide consumer direct revenue decreased 4.2% to $79.5 million, reflecting the adverse impact of foreign exchange and weakness in the North America outlet stores.
Operating income for the third quarter of 2009 was $58.5 million, compared to operating income of $53.2 million in the prior year period. In the quarter, foreign exchange rate changes decreased operating income by approximately $7 million.
In the third quarter of 2009, the effective tax rate was 38.2%. For the full-year 2009, the Company anticipates that its effective tax rate will be approximately 28.5%.
In connection with its stock buyback program, the Company repurchased approximately 755 thousand shares in the third quarter of 2009 at a cost of approximately $10 million.
The Company ended the quarter with $112.9 million in cash and no debt. Inventory at quarter end was $201.7 million, down 7.8% versus 2008 third-quarter levels, reflecting the Company’s continued focus on maintaining clean inventory levels. Accounts receivable increased 1.1% to $270.3 million, compared to the prior year.

Jeffrey B. Swartz, Timberland’s President and Chief Executive Officer, stated, “I am optimistic about what I am seeing this fall. Our product is better than ever, our marketing is loud and distinct and our team is focused and energized by the progress we have made against our strategic initiatives. We are finding new and unique ways to link commerce and justice with products like our Earthkeepers™ line and with marketing initiatives like Timberland PRO’s “Stay On Your Feet” campaign, dedicated to supporting workers with the highest quality footwear for their trade and, in addition, helping them stay on their feet by providing online job search capabilities. Given the overall economic conditions, we have a lot to feel good about but realize we still have hard work ahead of us before the Timberland^® brand and enterprise has reached its full potential.”

Note that comments made by the Company and Mr. Swartz are based on current expectations. These comments may be forward-looking, and actual results may differ materially.

As previously announced, the Company will be hosting a conference call to discuss third-quarter results today at 8:25 AM Eastern Time. Interested parties may listen to this call through the investor relations section of the Company’s website, www.timberland.com, or by calling 706.643.2916 and providing access code number 80626074. Replays of this conference call will be available through the investor relations section of the Company’s website.

Timberland (NYSE: TBL - News) is a global leader in the design, engineering and marketing of premium-quality footwear, apparel and accessories for consumers who value the outdoors and their time in it. Timberland markets products under the Timberland^®, Timberland PRO^®, SmartWool^®, Timberland Boot Company^®, howies^®, Mountain Athletics^® and IPATH^® brands, all of which offer quality workmanship and detailing and are built to withstand the elements of nature. Timberland’s products can be found in leading department and specialty stores as well as Timberland^® retail stores throughout North America, Europe, Asia, Latin America, Africa and the Middle East. More information about Timberland is available in its reports filed with the Securities and Exchange Commission (SEC).

Certain statements in this press release may be forward looking or “forward-looking statements” within the meaning of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements, which include statements regarding Timberland’s future financial results, are subject to risks, uncertainties and assumptions and are not guarantees of future financial performance or expected benefits. These risks, uncertainties and assumptions could cause Timberland’s results to be materially different from any future results or expected benefits expressed or implied by such forward-looking statements. Such risks, uncertainties and assumptions include, but are not limited to: (i) Timberland’s ability to successfully market and sell its products in a highly competitive industry and in view of changing consumer trends, consumer acceptance of products and other factors affecting retail market conditions; (ii) Timberland’s ability to execute key strategic initiatives; (iii) Timberland’s ability to procure a majority of its products from independent manufacturers; (iv) changes in foreign exchange rates; (v) Timberland’s ability to obtain adequate materials at competitive prices; and (vi) other factors, including those detailed from time to time in Timberland’s most recent Annual Report on Form 10-K, Quarterly Report on Form 10-Q and other filings we make with the SEC. Timberland undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

This press release includes discussion of constant dollar revenue change (which excludes the impact of changes in foreign currency exchange rates), which is a non-GAAP measure. As required by SEC rules, the Company has provided reconciliations of this measure on attached tables that follow its financial statements. Additional required information regarding this non-GAAP measure is located in the Form 8-K furnished to the SEC on October 29, 2009.

THE TIMBERLAND COMPANY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in Thousands)

October 2, 2009 December 31, 2008 September 26, 2008

Assets

Current assets

Cash and equivalents $112,851 $217,189 $62,686

Accounts receivable, net 270,272 168,666 267,246

Inventory, net 201,733 179,688 218,884

Prepaid expense 32,919 37,139 41,465

Prepaid income taxes 18,287 16,687 21,190

Deferred income taxes 23,512 23,425 21,826

Derivative assets 839 7,109 4,365

Total current assets 660,413 649,903 637,662

Property, plant and equipment, net 70,664 78,526 80,225

Deferred income taxes 13,825 18,528 20,132

Goodwill and intangible assets, net 90,301 91,866 95,828

Other assets, net 15,161 10,576 11,670

Total assets $850,364 $849,399 $845,517

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable $89,681 $96,901 $94,834

Accrued expense and other current liabilities 118,734 112,090 112,005

Income taxes payable 18,224 20,697 23,529

Derivative liabilities 3,994 2,386 1,724

Total current liabilities 230,633 232,074 232,092

Other long-term liabilities 36,146 40,787 41,774

Stockholders’ equity 583,585 576,538 571,651

Total liabilities and stockholders’ equity $850,364 $849,399 $845,517

THE TIMBERLAND COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Per Share Data)

For the Quarter Ended For the Nine Months Ended

October 2, 2009 September 26, 2008 October 2, 2009 September 26, 2008

Revenue $421,766 $423,606 $898,116 $973,924

Cost of goods sold 227,254 226,595 491,407 527,109

Gross profit 194,512 197,011 406,709 446,815

Operating expense

Selling 107,314 114,100 284,609 315,539

General and administrative 28,805 29,486 81,118 83,713

Impairment of intangible asset - - 925 -

Restructuring and related costs (88) 185 (209) 1,054

Total operating expense 136,031 143,771 366,443 400,306

Operating income 58,481 53,240 40,266 46,509

Other income/(expense)

Interest income, net (11) 336 490 1,680

Other income/(expense), net 2,626 (2,454) 3,629 2,929

Total other income/(expense), net 2,615 (2,118) 4,119 4,609

Income before provision for income taxes 61,096 51,122 44,385 51,118

Provision for income taxes
23,339

20,464

9,995

21,350

Net income
$37,757

$30,658

$34,390

$29,768

Earnings per share

Basic $0.68 $0.53 $0.61 $0.51

Diluted $0.68 $0.52 $0.61 $0.50

Weighted-average shares outstanding

Basic 55,744 58,078 56,385 58,868

Diluted 55,908 58,471 56,692 59,271

THE TIMBERLAND COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in Thousands)

For the Nine Months Ended

October 2, 2009 September 26, 2008

Cash flows from operating activities:

Net income $34,390 $29,768

Adjustments to reconcile net income to net cash used by operating activities:

Deferred income taxes 5,041 2,420

Share-based compensation 4,163 6,225

Depreciation and other amortization 21,582 24,239

Provision for losses on accounts receivable 4,180 4,517

Provision for intangible asset impairment 925 -

Tax expense from share-based compensation, net of excess benefit (1,804) (1,161)

Unrealized loss/(gain) on derivatives 554 (268)

Other non-cash charges, net 930 964

Increase/(decrease) in cash from changes in working capital:

Accounts receivable (103,264) (82,671)

Inventory (18,891) (17,063)

Prepaid expense and other assets 1,265 401

Accounts payable (8,099) 9,009

Accrued expense 5,263 756

Prepaid income taxes (1,600) (3,829)

Income taxes payable (7,208) 8,413

Other liabilities (175) (3,239)

Net cash used by operating activities (62,748) (21,519)

Cash flows from investing activities:

Acquisition of business, net of cash acquired (1,554) -

Additions to property, plant and equipment (11,078) (15,313)

Other (601) 3,627

Net cash used by investing activities (13,233) (11,686)

Cash flows from financing activities:

Common stock repurchases (29,285) (45,081)

Issuance of common stock 1,373 1,407

Excess tax benefit from stock option and employee stock purchase plans 136 179

Other (1,248) -

Net cash used by financing activities (29,024) (43,495)

Effect of exchange rate changes on cash and equivalents 667 (3,888)

Net decrease in cash and equivalents (104,338) (80,588)

Cash and equivalents at beginning of period 217,189 143,274

Cash and equivalents at end of period $112,851 $62,686

THE TIMBERLAND COMPANY

REVENUE ANALYSIS

(Amounts in Thousands, Unaudited)

For the Quarter Ended For the Nine Months Ended

October 2, 2009 September 26, 2008 % Change October 2, 2009 September 26, 2008 % Change

Revenue by Segment:

North America $188,247 $184,516 2.0% $394,419 $421,807 -6.5%

Europe 195,244 199,933 -2.3% 400,913 443,406 -9.6%

Asia 38,275 39,157 -2.3% 102,784 108,711 -5.5%

Total Revenue $421,766 $423,606 -0.4% $898,116 $973,924 -7.8%

Revenue by Product:

Footwear $319,145 $313,544 1.8% $657,739 $693,094 -5.1%

Apparel and Accessories 95,824 102,678 -6.7% 221,729 263,244 -15.8%

Royalty and Other 6,797 7,384 -7.9% 18,648 17,586 6.0%

Revenue by Channel:

Wholesale $342,231 $340,608 0.5% $669,273 $732,206 -8.6%

Consumer Direct 79,535 82,998 -4.2% 228,843 241,718 -5.3%

Comparable Store Sales:

Domestic Retail -14.6% -13.8% -11.1% -7.4%

Global Retail -6.6% -6.4% -3.6% -0.9%

THE TIMBERLAND COMPANY

RECONCILIATION OF TOTAL AND INTERNATIONAL REVENUE CHANGES

TO CONSTANT DOLLAR REVENUE CHANGES

(Amounts in Thousands, Unaudited)

Total Company Revenue Reconciliation:

For the Quarter Ended For the Nine Months Ended

October 2, 2009 October 2, 2009

$ Change % Change $ Change % Change

Revenue decrease (GAAP) ($1,840) -0.4% ($75,808) -7.8%

Decrease due to foreign exchange rate changes (9,005) -2.1% (41,776) -4.3%

Revenue increase/(decrease) in constant dollars $7,165 1.7% ($34,032) -3.5%

North America Revenue Reconciliation:

For the Quarter Ended For the Nine Months Ended

October 2, 2009 October 2, 2009

$ Change % Change $ Change % Change

Revenue increase/(decrease) (GAAP) $3,731 2.0% ($27,388) -6.5%

Decrease due to foreign exchange rate changes (343) -0.2% (1,686) -0.4%

Revenue increase/(decrease) in constant dollars $4,074 2.2% ($25,702) -6.1%

Europe Revenue Reconciliation:

For the Quarter Ended For the Nine Months Ended

October 2, 2009 October 2, 2009

$ Change % Change $ Change % Change

Revenue decrease (GAAP) ($4,689) -2.3% ($42,493) -9.6%

Decrease due to foreign exchange rate changes (11,328) -5.6% (44,334) -10.0%

Revenue increase in constant dollars $6,639 3.3% $1,841 0.4%

Asia Revenue Reconciliation:

For the Quarter Ended For the Nine Months Ended

October 2, 2009 October 2, 2009

$ Change % Change $ Change % Change

Revenue decrease (GAAP) ($882) -2.3% ($5,927) -5.5%

Increase due to foreign exchange rate changes 2,666 6.8% 4,244 3.9%

Revenue decrease in constant dollars ($3,548) -9.1% ($10,171) -9.4%

Constant dollar revenue changes, which exclude the impact of changes in foreign exchange rates, are not Generally Accepted Accounting Principle (“GAAP”) performance measures. We provide constant dollar revenue changes for Total Company, North America, Europe, and Asia revenues because we use the measures to understand the underlying growth rate of revenue excluding the impact of items that are not under management’s direct control, such as changes in foreign exchange rates.