The Timberland Company has announced plans to consolidate its Caribbean manufacturing operations. The company will be closing its manufacturing facility in Isabela, Puerto Rico at the end of 2005 and expanding manufacturing volume in its facility based in the Dominican Republic, a strategy that will produce greater operational efficiencies.
Timberland will incur one-time pre-tax restructuring costs of approximately $2.5 million in the third quarter of 2005, $3.0 million in the fourth quarter of 2005 and $0.5 million in the first quarter of 2006 to cover severance, retirement enhancements, outplacement services and asset disposal costs associated with implementation of this strategy. The efficiencies of this new approach are anticipated to yield cost savings of approximately $4 million in 2006, with benefits weighted toward the second half of the year, and annual cost savings of approximately $5 million in subsequent years. The Company's tax benefit from its Puerto Rico operations under Section 30A of the Internal Revenue Code, approximating $4 million annually, expires at the end of 2005. Timberland does not anticipate an increase in its overall effective tax rate of 34.0% in 2006, however, due to expected benefits from global tax initiatives.
Gary Smith, Timberland's Senior Vice President – Supply Chain, stated “Timberland has driven significant improvements in its operational performance over the past several years, reflected in lower overall product costs, improved reliability and enhanced customer service. The Company's Caribbean manufacturing facilities have played a key role, providing world-class production capability with greater flexibility and short lead-time support to our important U.S. market. Our decision to consolidate Timberland's manufacturing operations in the Dominican Republic is designed to build on these results to further enhance the power and reliability of our global supply chain.”
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, said “This has been a difficult decision for us, and we are committed to assisting the 316 Isabela-based employees during this transition period. We intend to provide affected employees with a comprehensive program that includes financial assistance, vocational planning, search assistance, training and counseling and will coordinate with local agencies to offer additional government services.”
