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The Timberland Company Reports Operating Results (10-Q)
Posted by: gurufocus (IP Logged)
Date: May 5, 2011 04:29PM
The Timberland Company (TBL) filed Quarterly Report for the period ended 2011-04-01.
Highlight of Business Operations:
By product group, our footwear revenues increased 10.0% to $248.2 million compared to the prior year period, and apparel and accessories revenues grew 10.0% to $94.2 million. Growth in footwear revenues was driven primarily by improved wholesale revenue results in Europe and North America, as well as benefits from foreign exchange. The improvement in apparel and accessories revenues compared to the prior year reflects apparel revenue growth in Asia, in our own stores and through our wholesale partners, as well as growth in accessories revenue in Europe and North America. Royalty and other revenue increased $0.8 million, or 13.7%, to $6.6 million compared to the prior year period.
Operating expense for the first quarter of 2011 was $135.4 million, an increase of $16.8 million, or 14.2%, when compared to the first quarter of 2010. As a percentage of sales, operating expense was 38.8% compared to 37.4% in the prior year period. The increase reflects an increase of $10.4 million in selling expense and $6.4 million in general and administrative expense. Foreign exchange rate impacts increased selling and general and administrative expenses by approximately $2.2 million in the first quarter of 2011. Operating expense in the first quarter of 2010 included a $1.5 million gain related to the termination of a licensing agreement.
Advertising expense, which is included in selling expense, was $5.1 million and $3.9 million in the first quarters of 2011 and 2010, 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. Advertising costs are expensed at the time the advertising is used, predominantly in the season that the advertising costs are incurred. Prepaid advertising recorded on our unaudited condensed consolidated balance sheets as of April 1, 2011 and April 2, 2010 was $2.6 million and $1.3 million, respectively.
General and administrative expense for the first quarter of 2011 was $32.3 million, compared to the $25.9 million reported in the first quarter of 2010, driven by increases in incentive compensation and other employee related costs of $3.9 million and incremental costs of $1.0 million related to our business system transformation initiatives. Additionally, general and administrative expense in the first quarter of 2010 included a gain of $1.5 million associated with the termination of a licensing agreement.
Net cash provided by financing activities was $33.9 million in the first quarter of 2011, compared with $18.9 million of cash used by financing activities in the first quarter of 2010. Cash flows for financing activities reflected share repurchases of $0.9 million in the first quarter of 2011, compared with $19.5 million in the first quarter of 2010. We received cash inflows of $31.4 million in the first quarter of 2011 from the exercise of employee stock options, compared with $0.7 million from such exercises in the first quarter of 2010.
At the end of the first quarter of 2011, we had an unsecured committed revolving credit agreement with a group of banks, which matures on June 2, 2011 (the Agreement). The Agreement provided for $200 million of committed borrowings, of which up to $125 million could be used for letters of credit. Any letters of credit outstanding under the Agreement ($1.6 million at April 1, 2011) reduced the amount available for borrowing under the Agreement. Upon approval of the bank group, we could increase the committed borrowing limit by $100 million for a total commitment of $300 million. Under the terms of the Agreement, we could borrow at interest rates based on Eurodollar rates (approximately 0.3% at April 1, 2011), plus an applicable margin based on a fixed-charge coverage grid of between 13.5 and 47.5 basis points that is adjusted quarterly. As of April 1, 2011, the applicable margin under the facility was 47.5 basis points. We paid a utilization fee of an additional 5 basis points if our outstanding borrowings under the facility exceed $100 million. We also paid 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 April 1, 2011, the commitment fee was 15 basis points. The Agreement placed certain limitations on additional debt, stock repurchases, acquisitions, and the amount of dividends we could pay, and included certain other financial and non-financial covenants. The primary financial covenants related to maintaining a minimum fixed-charge coverage ratio of 2.25:1 and a maximum leverage ratio of 2:1. We measured compliance with the financial and non-financial covenants and ratios as required by the terms of the Agreement on a fiscal quarter basis.
Stocks Discussed: TBL,