##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the quarterly period endedSeptember 28, 2007
 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
 
 Delaware
    
    02-0312554(State or Other Jurisdiction of
    
    (I.R.S. Employer Identification No.)Incorporation or Organization)200 Domain Drive, Stratham, New Hampshire
    
    03885(Address of Principal Executive Offices)
    
    (Zip Code)
 (603) 772-9500
  þ o
  þ o o
  o þ




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##### 



THE TIMBERLAND COMPANY
 FORM 10-Q
 TABLE OF CONTENTS
 Page(s)Part I Financial Information (unaudited)
    
    
    3Item 1.
    
    Financial Statements
    
    
    3Unaudited Condensed Consolidated Balance Sheets 
September 28, 2007, December 31, 2006 and September 29, 2006
(as restated)
    
    
    3Unaudited Condensed Consolidated Statements of Operations 
For the Quarter and Nine Months Ended September 28, 2007 and
September 29, 2006 (as restated)
    
    
    4Unaudited Condensed Consolidated Statements of Cash Flows 
For the Nine Months Ended September 28, 2007 and September 29, 2006
(as restated)
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    620Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    2030Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    3031Item 4.
    
    Controls and Procedures
    
    
    3132Part II Other Information
    
    
    33Item 1A.
    
    Risk Factors
    
    
    33Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 6.
    
    Exhibits
    
    
    35Signatures
    
    
    36Exhibit Index
    
    
    37ExhibitsEX-10.1 FIRST AMENDMENT TO THE SECOND AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT, DATED SEPTEMBER 4, 2007EX-31.1 PRINCIPAL EXECUTIVE OFFICER CERTIFICATION PURSUANT TO SECTION 302EX-31.2 PRINCIPAL FINANCIAL OFFICER CERTIFICATION PURSUANT TO SECTION 302EX-32.1 CEO CERTIFICATION PURSUANT TO SECTION 906EX-32.2 CFO CERTIFICATION PURSUANT TO SECTION 906
  2




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 September 28,
    
    
    December 31,
    
    
    September 29,2007
    
    
    2006
    
    
    2006(As Restated,See Note 2)AssetsCurrent assetsCash and equivalents
    
    $
    43,951
    
    
    $
    181,698
    
    
    $
    61,850Accounts receivable, net of allowance for doubtful accounts of $14,684
at September 28, 2007, $12,493 at December 31, 2006 and $13,002 at
September 29, 2006
    
    
    286,575
    
    
    
    204,016
    
    
    
    330,384Inventory, net
    
    
    259,207
    
    
    
    186,765
    
    
    
    250,522Prepaid expense
    
    
    42,081
    
    
    
    42,130
    
    
    
    41,059Prepaid income taxes
    
    
    21,309
    
    
    
    12,353
    
    
    
    Deferred income taxes
    
    
    18,956
    
    
    
    21,633
    
    
    
    18,443Derivative assets
    
    
    57
    
    
    
    176
    
    
    
    1,388Total current assets
    
    
    672,136
    
    
    
    648,771
    
    
    
    703,646Property, plant and equipment, net
    
    
    88,098
    
    
    
    94,640
    
    
    
    86,201Deferred income taxes
    
    
    23,008
    
    
    
    18,553
    
    
    
    10,446Goodwill
    
    
    44,792
    
    
    
    39,717
    
    
    
    39,533Intangible assets, net
    
    
    54,296
    
    
    
    47,865
    
    
    
    42,597Other assets, net
    
    
    12,810
    
    
    
    10,831
    
    
    
    10,467Total assets
    
    $
    895,140
    
    
    $
    860,377
    
    
    $
    892,890Liabilities and Stockholders EquityCurrent liabilitiesNotes payable
    
    $
    46,600
    
    
    $
    
    
    
    $
    54,200Accounts payable
    
    
    104,185
    
    
    
    110,031
    
    
    
    127,440Accrued expensePayroll and related
    
    
    34,973
    
    
    
    38,476
    
    
    
    34,432Other
    
    
    79,046
    
    
    
    84,258
    
    
    
    88,374Income taxes payable
    
    
    12,243
    
    
    
    49,938
    
    
    
    35,443Derivative liabilities
    
    
    4,810
    
    
    
    2,925
    
    
    
    1,455Total current liabilities
    
    
    281,857
    
    
    
    285,628
    
    
    
    341,344Deferred income taxes
    
    
    26,406
    
    
    
    
    
    
    
    Other long-term liabilities
    
    
    15,495
    
    
    
    13,064
    
    
    
    13,486Total liabilities
    
    
    323,758
    
    
    
    298,692
    
    
    
    354,830Stockholders equityPreferred 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; 73,353,284 shares issued at September 28, 2007,
72,664,889 shares issued at December 31, 2006 and 72,512,804 shares
issued at September 29, 2006
    
    
    734
    
    
    
    727
    
    
    
    725Class B Common Stock, $.01 par value (10 votes per share); convertible
into Class A shares on a one-for-one basis; 20,000,000 shares
authorized; 11,743,660 shares issued and outstanding at September 28,
2007, December 31, 2006 and September 29, 2006
    
    
    117
    
    
    
    117
    
    
    
    117Additional paid-in capital
    
    
    248,329
    
    
    
    224,611
    
    
    
    216,816Retained earnings
    
    
    851,026
    
    
    
    838,462
    
    
    
    802,251Accumulated other comprehensive income
    
    
    21,060
    
    
    
    15,330
    
    
    
    10,538Treasury Stock at cost; 23,850,234 Class A shares at September 28, 2007,
22,428,168 Class A shares at December 31, 2006 and 21,603,950 Class A
shares at September 29, 2006
    
    
    (549,884
    )
    
    
    (517,562
    )
    
    
    (492,387
    )Total stockholders equity
    
    
    571,382
    
    
    
    561,685
    
    
    
    538,060Total liabilities and stockholders equity
    
    $
    895,140
    
    
    $
    860,377
    
    
    $
    892,890
  3




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##### Table of Contents



THE TIMBERLAND COMPANY
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Quarter Ended
    
    
    For the Nine Months EndedSeptember 28,
    
    
    September 29,
    
    
    September 28,
    
    
    September 29,2007
    
    
    2006
    
    
    2007
    
    
    2006(As Restated,
    
    
    
    
    
    
    (As Restated,See Note 2)
    
    
    
    
    
    See Note 2)Revenue
    
    $
    433,294
    
    
    $
    502,980
    
    
    $
    993,749
    
    
    $
    1,079,396Cost of goods sold
    
    
    229,891
    
    
    
    263,151
    
    
    
    529,600
    
    
    
    562,886Gross profit
    
    
    203,403
    
    
    
    239,829
    
    
    
    464,149
    
    
    
    516,510Operating expenseSelling
    
    
    122,260
    
    
    
    123,178
    
    
    
    331,890
    
    
    
    323,046General and administrative
    
    
    28,943
    
    
    
    32,044
    
    
    
    90,385
    
    
    
    88,054Restructuring and related costs, net
    
    
    7,545
    
    
    
    (92
    )
    
    
    15,059
    
    
    
    820Total operating expense
    
    
    158,748
    
    
    
    155,130
    
    
    
    437,334
    
    
    
    411,920Operating income
    
    
    44,655
    
    
    
    84,699
    
    
    
    26,815
    
    
    
    104,590Other incomeInterest income/(expense), net
    
    
    (420
    )
    
    
    (308
    )
    
    
    1,376
    
    
    
    1,463Other income/(expense), net
    
    
    (1,128
    )
    
    
    2,137
    
    
    
    (310
    )
    
    
    (4,816
    )Total other income/(expense), net
    
    
    (1,548
    )
    
    
    1,829
    
    
    
    1,066
    
    
    
    (3,353
    )Income before provision for income taxes
    
    
    43,107
    
    
    
    86,528
    
    
    
    27,881
    
    
    
    101,237Provision for income taxes
    
    
    17,242
    
    
    
    30,977
    
    
    
    11,989
    
    
    
    36,243Net income
    
    $
    25,865
    
    
    $
    55,551
    
    
    $
    15,892
    
    
    $
    64,994Earnings per shareBasic
    
    $
    .42
    
    
    $
    .89
    
    
    $
    .26
    
    
    $
    1.03Diluted
    
    $
    .42
    
    
    $
    .88
    
    
    $
    .26
    
    
    $
    1.01Weighted-average shares outstandingBasic
    
    
    61,352
    
    
    
    62,120
    
    
    
    61,310
    
    
    
    62,910Diluted
    
    
    61,860
    
    
    
    63,062
    
    
    
    61,974
    
    
    
    64,069
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
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##### Table of Contents



THE TIMBERLAND COMPANY
 
 UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Nine Months EndedSeptember 28,
    
    
    September 29,2007
    
    
    2006(As Restated,See Note 2)Cash flows from operating activities:Net income
    
    $
    15,892
    
    
    $
    64,994Adjustments to reconcile net income to net cash used by operating activities:Deferred income taxes
    
    
    1,978
    
    
    
    90Share-based compensation
    
    
    7,328
    
    
    
    14,796Depreciation and other amortization
    
    
    23,598
    
    
    
    20,413Provision for asset impairment
    
    
    5,817
    
    
    
    Tax benefit from share-based compensation, net of excess benefit
    
    
    (829
    )
    
    
    1,284Unrealized loss on derivatives
    
    
    26
    
    
    
    6,111Other non-cash charges/(credits), net
    
    
    3,897
    
    
    
    (1,969
    )Increase/(decrease) in cash from changes in working capital:Accounts receivable
    
    
    (72,753
    )
    
    
    (155,614
    )Inventory
    
    
    (69,202
    )
    
    
    (79,369
    )Prepaid expense
    
    
    1,202
    
    
    
    (6,302
    )Accounts payable
    
    
    (8,087
    )
    
    
    27,204Accrued expense
    
    
    (11,015
    )
    
    
    19,365Other liability
    
    
    1,176
    
    
    
    Income taxes prepaid and payable, net
    
    
    (30,537
    )
    
    
    (12,184
    )Net cash used by operating activities
    
    
    (131,509
    )
    
    
    (101,181
    )Cash flows from investing activities:Acquisition of business, net of cash acquired
    
    
    (12,811
    )
    
    
    (30
    )Additions to property, plant and equipment
    
    
    (20,264
    )
    
    
    (21,878
    )Other
    
    
    (1,640
    )
    
    
    (4,211
    )Net cash used by investing activities
    
    
    (34,715
    )
    
    
    (26,119
    )Cash flows from financing activities:Common stock repurchases
    
    
    (28,512
    )
    
    
    (95,543
    )Net short-term borrowings
    
    
    46,600
    
    
    
    54,200Issuance of common stock
    
    
    11,957
    
    
    
    13,478Excess tax benefit from share-based compensation
    
    
    1,097
    
    
    
    2,605Net cash provided (used) by financing activities
    
    
    31,142
    
    
    
    (25,260
    )Effect of exchange rate changes on cash and equivalents
    
    
    (2,665
    )
    
    
    1,247Net decrease in cash and equivalents
    
    
    (137,747
    )
    
    
    (151,313
    )Cash and equivalents at beginning of period
    
    
    181,698
    
    
    
    213,163Cash and equivalents at end of period
    
    $
    43,951
    
    
    $
    61,850Supplemental disclosures of cash flow information:Interest paid
    
    $
    722
    
    
    $
    693Income taxes paid
    
    $
    37,071
    
    
    $
    44,416
 The accompanying notes are an integral part of these unaudited condensed consolidated financial
statements.
 5




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##### Table of Contents



THE TIMBERLAND COMPANY
 
 NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Summary of Significant Accounting Policies
 Basis of Presentation
        New Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets and
Financial Liabilities, Including
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an amendment of FASB Statement 115
 Amendment of FASB
Interpretation No. 39 . Accounting for
Derivative Instruments and Hedging Activities
 Note 2. Restatement
 Accounting for Derivative Instruments and Hedging
Activities
   BALANCE SHEET
 As of September 29, 2006As PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedAssetsCurrent assetsCash and equivalents
    
    $
    61,850
    
    
    $
    
    
    
    $
    61,850Accounts receivable, net of allowance for doubtful accounts
    
    
    330,384
    
    
    
    
    
    
    
    330,384Inventory, net
    
    
    250,522
    
    
    
    
    
    
    
    250,522Prepaid expense
    
    
    41,059
    
    
    
    
    
    
    
    41,059Deferred income taxes
    
    
    18,416
    
    
    
    27
    
    
    
    18,443Derivative assets
    
    
    1,388
    
    
    
    
    
    
    
    1,388Total current assets
    
    
    703,619
    
    
    
    27
    
    
    
    703,646Property, plant and equipment, net
    
    
    86,201
    
    
    
    
    
    
    
    86,201Deferred income taxes
    
    
    8,261
    
    
    
    2,185
    
    
    
    10,446Goodwill
    
    
    39,533
    
    
    
    
    
    
    
    39,533
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##### Table of Contents



As of September 29, 2006As PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedIntangible assets, net
    
    
    42,597
    
    
    
    
    
    
    
    42,597Other assets, net
    
    
    10,467
    
    
    
    
    
    
    
    10,467Total assets
    
    $
    890,678
    
    
    $
    2,212
    
    
    $
    892,890Liabilities and Stockholders EquityCurrent liabilitiesNotes payable
    
    $
    54,200
    
    
    $
    
    
    
    $
    54,200Accounts payable
    
    
    127,440
    
    
    
    
    
    
    
    127,440Accrued expensePayroll and related
    
    
    34,275
    
    
    
    157
    
    
    
    34,432Other
    
    
    88,374
    
    
    
    
    
    
    
    88,374Income taxes payable
    
    
    34,087
    
    
    
    1,356
    
    
    
    35,443Derivative liabilities
    
    
    1,455
    
    
    
    
    
    
    
    1,455Total current liabilities
    
    
    339,831
    
    
    
    1,513
    
    
    
    341,344Other long-term liabilities
    
    
    13,486
    
    
    
    
    
    
    
    13,486Stockholders equityPreferred Stock
    
    
    
    
    
    
    
    
    
    
    Class A common stock
    
    
    725
    
    
    
    
    
    
    
    725Class B common stock
    
    
    117
    
    
    
    
    
    
    
    117Additional paid-in capital
    
    
    211,370
    
    
    
    5,446
    
    
    
    216,816Retained earnings
    
    
    807,093
    
    
    
    (4,842
    )
    
    
    802,251Accumulated other comprehensive income
    
    
    10,443
    
    
    
    95
    
    
    
    10,538Treasury stock
    
    
    (492,387
    )
    
    
    
    
    
    
    (492,387
    )Total stockholders equity
    
    
    537,361
    
    
    
    699
    
    
    
    538,060Total liabilities and stockholders equity
    
    $
    890,678
    
    
    $
    2,212
    
    
    $
    892,890
 STATEMENT OF OPERATIONS
 Quarter Ended September 29, 2006As PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedRevenue
    
    $
    502,980
    
    
    $
    
    
    
    $
    502,980Cost of goods sold
    
    
    266,324
    
    
    
    (3,173
    )
    
    
    263,151Gross profit
    
    
    236,656
    
    
    
    3,173
    
    
    
    239,829Operating expenseSelling
    
    
    123,660
    
    
    
    (482
    )
    
    
    123,178General and administrative
    
    
    32,300
    
    
    
    (256
    )
    
    
    32,044Restructuring and related costs, net
    
    
    (92
    )
    
    
    
    
    
    
    (92
    )Total operating expense
    
    
    155,868
    
    
    
    (738
    )
    
    
    155,130Operating income
    
    
    80,788
    
    
    
    3,911
    
    
    
    84,699Other incomeInterest income/(expense), net
    
    
    (308
    )
    
    
    
    
    
    
    (308
    )Other income/(expense), net
    
    
    494
    
    
    
    1,643
    
    
    
    2,137Total other
income/(expense), net
    
    
    186
    
    
    
    1,643
    
    
    
    1,829Income before provision for income taxes
    
    
    80,974
    
    
    
    5,554
    
    
    
    86,528Provision for income taxes
    
    
    29,099
    
    
    
    1,878
    
    
    
    30,977
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Quarter Ended September 29, 2006As PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedNet income
    
    $
    51,875
    
    
    $
    3,676
    
    
    $
    55,551Earnings per share:Basic
    
    $
    .84
    
    
    $
    .06
    
    
    $
    .89Diluted
    
    $
    .82
    
    
    $
    .06
    
    
    $
    .88Weighted-average shares outstanding:Basic
    
    
    62,120
    
    
    
    
    
    
    
    62,120Diluted
    
    
    63,062
    
    
    
    
    
    
    
    63,062
 Nine Months Ended September 29, 2006As PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedRevenue
    
    $
    1,079,396
    
    
    $
    
    
    
    $
    1,079,396Cost of goods sold
    
    
    563,816
    
    
    
    (930
    )
    
    
    562,886Gross profit
    
    
    515,580
    
    
    
    930
    
    
    
    516,510Operating expenseSelling
    
    
    324,014
    
    
    
    (968
    )
    
    
    323,046General and administrative
    
    
    88,568
    
    
    
    (514
    )
    
    
    88,054Restructuring and related costs
    
    
    820
    
    
    
    
    
    
    
    820Total operating expense
    
    
    413,402
    
    
    
    (1,482
    )
    
    
    411,920Operating income
    
    
    102,178
    
    
    
    2,412
    
    
    
    104,590Other incomeInterest income, net
    
    
    1,463
    
    
    
    
    
    
    
    1,463Other income/(expense), net
    
    
    2,087
    
    
    
    (6,903
    )
    
    
    (4,816
    )Total other
income/(expense), net
    
    
    3,550
    
    
    
    (6,903
    )
    
    
    (3,353
    )Income before provision for income taxes
    
    
    105,728
    
    
    
    (4,491
    )
    
    
    101,237Provision for income taxes
    
    
    37,639
    
    
    
    (1,396
    )
    
    
    36,243Net income
    
    $
    68,089
    
    
    $
    (3,095
    )
    
    $
    64,994Earnings per share:Basic
    
    $
    1.08
    
    
    $
    (.05
    )
    
    $
    1.03Diluted
    
    $
    1.06
    
    
    $
    (.05
    )
    
    $
    1.01Weighted-average shares outstanding:Basic
    
    
    62,910
    
    
    
    
    
    
    
    62,910Diluted
    
    
    64,069
    
    
    
    
    
    
    
    64,069
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STATEMENT OF CASH FLOWS
 Nine Months Ended September 29, 2006As PreviouslyReported
    
    
    Adjustments
    
    
    As RestatedCash flows from operating activities:Net income
    
    $
    68,089
    
    
    $
    (3,095
    )
    
    $
    64,994Adjustments to reconcile to net cash used by operating activities:Deferred income taxes
    
    
    (495
    )
    
    
    585
    
    
    
    90Share-based compensation
    
    
    16,417
    
    
    
    (1,621
    )
    
    
    14,796Depreciation and other amortization
    
    
    20,413
    
    
    
    
    
    
    
    20,413Tax benefit from share-based compensation, net of excess benefit
    
    
    1,284
    
    
    
    
    
    
    
    1,284Unrealized loss on derivatives
    
    
    
    
    
    
    6,111
    
    
    
    6,111Non-cash charges/(credits), net
    
    
    (1,969
    )
    
    
    
    
    
    
    (1,969
    )Increase/(decrease) in cash from changes in working capital:Accounts receivable
    
    
    (155,614
    )
    
    
    
    
    
    
    (155,614
    )Inventory
    
    
    (79,369
    )
    
    
    
    
    
    
    (79,369
    )Prepaid expense
    
    
    (6,302
    )
    
    
    
    
    
    
    (6,302
    )Accounts payable
    
    
    27,204
    
    
    
    
    
    
    
    27,204Accrued expense
    
    
    19,365
    
    
    
    
    
    
    
    19,365Income taxes prepaid and payable, net
    
    
    (10,204
    )
    
    
    (1,980
    )
    
    
    (12,184
    )Net cash used by operating activities
    
    
    (101,181
    )
    
    
    
    
    
    
    (101,181
    )Net cash used by investing activities
    
    
    (26,119
    )
    
    
    
    
    
    
    (26,119
    )Net cash used by financing activities
    
    
    (25,260
    )
    
    
    
    
    
    
    (25,260
    )Effect of exchange rate changes on cash and equivalents
    
    
    1,247
    
    
    
    
    
    
    
    1,247Net decrease in cash and equivalents
    
    
    (151,313
    )
    
    
    
    
    
    
    (151,313
    )Cash and equivalents at beginning of period
    
    
    213,163
    
    
    
    
    
    
    
    213,163Cash and equivalents at end of period
    
    $
    61,850
    
    
    
    
    
    
    $
    61,850
 Note 3. Income Taxes
 Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109
  10




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##### Table of Contents



Note 4. Share-Based Compensation
 Share-Based Payment
   11




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##### Table of Contents



Stock Options
  For the Quarter Ended
    
    For the Nine Months EndedSeptember 28, 2007
    
    September 29, 2006
    
    September 28, 2007
    
    September 29, 2006Expected volatility
    
    
    27.9
    %
    
    
    29.9
    %
    
    
    29.2
    %
    
    
    30.2
    %Risk-free interest rate
    
    
    4.5
    %
    
    
    4.9
    %
    
    
    4.7
    %
    
    
    4.7
    %Expected life (in years)
    
    
    4.0
    
    
    
    4.0
    
    
    
    4.7
    
    
    
    4.2Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Weighted-Weighted-Average
    
    
    Average Remaining
    
    
    Aggregate IntrinsicShares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    ValueOutstanding at January 1, 2007
    
    
    5,253,794
    
    
    $
    27.07Granted
    
    
    802,531
    
    
    
    26.11Exercised
    
    
    (593,578
    )
    
    
    18.68Expired or forfeited
    
    
    (542,927
    )
    
    
    30.92Outstanding at September 28,
2007
    
    
    4,919,820
    
    
    $
    27.50
    
    
    
    6.45
    
    
    $
    2,686,107Vested or expected to vest at
September 28, 2007
    
    
    4,763,432
    
    
    $
    27.42
    
    
    
    6.38
    
    
    $
    2,686,032Exercisable at September 28,
2007
    
    
    3,175,080
    
    
    $
    26.10
    
    
    
    5.32
    
    
    $
    2,685,357
  Nonvested Shares
  Weighted-AverageGrant DateShares
    
    
    Fair ValueNonvested at January 1, 2007
    
    
    932,476
    
    
    $
    32.59Awarded
    
    
    54,333
    
    
    
    25.78Vested
    
    
    (371,210
    )
    
    
    37.19Forfeited
    
    
    (185,076
    )
    
    
    30.20Nonvested at September 28, 2007
    
    
    430,523
    
    
    $
    28.79
 12




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##### Table of Contents



Note 5. Cash Incentive Awards
   13




---



##### Table of Contents



Note 6. Earnings Per Share (EPS)
  For the Quarter EndedSeptember 28, 2007
    
    September 29, 2006Weighted-
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Per-
    
    
    
    
    
    Average
    
    Per-Net Income
    
    Shares
    
    Share Amount
    
    Net Income
    
    Shares
    
    Share AmountBasic EPS
    
    $
    25,865
    
    
    
    61,352
    
    
    $
    .42
    
    
    $
    55,551
    
    
    
    62,120
    
    
    $
    .89Effect of dilutive
securities:Stock options and
employee stock
purchase plan
shares
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    636Nonvested shares
    
    
    
    
    
    
    299
    
    
    
    
    
    
    
    
    
    
    
    306Diluted EPS
    
    $
    25,865
    
    
    
    61,860
    
    
    $
    .42
    
    
    $
    55,551
    
    
    
    63,062
    
    
    $
    .88
 For the Nine Months EndedSeptember 28, 2007
    
    September 29, 2006Weighted-
    
    
    
    
    
    
    
    
    
    Weighted-Average
    
    Per-
    
    
    
    
    
    Average
    
    Per-Net Income
    
    Shares
    
    Share Amount
    
    Net Income
    
    Shares
    
    Share AmountBasic EPS
    
    $
    15,892
    
    
    
    61,310
    
    
    $
    .26
    
    
    $
    64,994
    
    
    
    62,910
    
    
    $
    1.03Effect of dilutive
securities:Stock options and
employee stock
purchase plan
shares
    
    
    
    
    
    
    320
    
    
    
    
    
    
    
    
    
    
    
    898Nonvested shares
    
    
    
    
    
    
    344
    
    
    
    
    
    
    
    
    
    
    
    261Diluted EPS
    
    $
    15,892
    
    
    
    61,974
    
    
    $
    .26
    
    
    $
    64,994
    
    
    
    64,069
    
    
    $
    1.01
  For the Quarter Ended
    
    For the Nine Months EndedSeptember 28,  2007
    
    September 29,  2006
    
    September 28, 2007
    
    September 29,  2006Options to purchase shares of common stock
    
    
    3,858
    
    
    
    3,392
    
    
    
    3,605
    
    
    
    2,573
 Note 7. Hedging
  14




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##### Table of Contents



Note 8. Comprehensive Income
  For the Quarter Ended
    
    
    For the Nine Months EndedSeptember 28, 2007
    
    
    September 29, 2006
    
    
    September 28, 2007
    
    
    September 29, 2006Net income
    
    $
    25,865
    
    
    $
    55,551
    
    
    $
    15,892
    
    
    $
    64,994Other comprehensive income:Change in cumulative
translation adjustment,
net of tax
    
    
    5,438
    
    
    
    (769
    )
    
    
    7,708
    
    
    
    7,584Unrealized loss on hedging
instruments,
net of tax
    
    
    (1,978
    )
    
    
    
    
    
    
    (1,978
    )
    
    
    Other comprehensive income
    
    
    3,460
    
    
    
    (769
    )
    
    
    5,730
    
    
    
    7,584Total comprehensive income
    
    $
    29,325
    
    
    $
    54,782
    
    
    $
    21,622
    
    
    $
    72,578
 Note 9. Business Segments and Geographic Information
     15




---



##### Table of Contents



For the Quarter Ended September 28, 2007 and September 29, 2006
 U.S.
    
    
    
    
    
    UnallocatedU.S. Wholesale
    
    Consumer Direct
    
    International
    
    Corporate
    
    Consolidated2007Revenue
    
    $
    148,087
    
    
    $
    44,189
    
    
    $
    241,018
    
    
    $
    
    
    
    $
    433,294Operating income (loss)
    
    
    40,101
    
    
    
    (3,269
    )
    
    
    48,844
    
    
    
    (41,021
    )
    
    
    44,655Income (loss) before income taxes
    
    
    40,101
    
    
    
    (3,269
    )
    
    
    48,844
    
    
    
    (42,569
    )
    
    
    43,107Total assets
    
    
    327,090
    
    
    
    30,106
    
    
    
    419,184
    
    
    
    118,760
    
    
    
    895,140Goodwill
    
    
    34,988
    
    
    
    794
    
    
    
    9,010
    
    
    
    
    
    
    
    44,7922006Revenue
    
    $
    204,953
    
    
    $
    45,857
    
    
    $
    252,170
    
    
    $
    
    
    
    $
    502,980Operating income (loss)
    
    
    65,009
    
    
    
    2,799
    
    
    
    69,605
    
    
    
    (52,714
    )
    
    
    84,699Income (loss) before income taxes
    
    
    65,009
    
    
    
    2,799
    
    
    
    69,605
    
    
    
    (50,885
    )
    
    
    86,528Total assets
    
    
    347,505
    
    
    
    36,772
    
    
    
    416,794
    
    
    
    91,819
    
    
    
    892,890Goodwill
    
    
    31,745
    
    
    
    794
    
    
    
    6,994
    
    
    
    
    
    
    
    39,533
 16




---



##### Table of Contents



For the Nine Months Ended September 28, 2007 and September 29, 2006
 U.S.
    
    
    
    
    
    UnallocatedU.S. Wholesale
    
    Consumer Direct
    
    International
    
    Corporate
    
    Consolidated2007Revenue
    
    $
    331,843
    
    
    $
    110,737
    
    
    $
    551,169
    
    
    $
    
    
    
    $
    993,749Operating income (loss)
    
    
    67,341
    
    
    
    (3,094
    )
    
    
    79,555
    
    
    
    (116,987
    )
    
    
    26,815Income (loss) before income taxes
    
    
    67,341
    
    
    
    (3,094
    )
    
    
    79,555
    
    
    
    (115,921
    )
    
    
    27,8812006Revenue
    
    $
    420,524
    
    
    $
    112,157
    
    
    $
    546,715
    
    
    $
    
    
    
    $
    1,079,396Operating income (loss)
    
    
    116,510
    
    
    
    2,807
    
    
    
    117,730
    
    
    
    (132,457
    )
    
    
    104,590Income (loss) before income taxes
    
    
    116,510
    
    
    
    2,807
    
    
    
    117,730
    
    
    
    (135,810
    )
    
    
    101,237
  For the Quarter Ended
    
    
    For the Nine Months EndedSeptember 28, 2007
    
    
    September 29, 2006
    
    
    September 28, 2007
    
    
    September 29, 2006Footwear
    
    $
    310,300
    
    
    $
    367,982
    
    
    $
    700,448
    
    
    $
    772,694Apparel and accessories
    
    
    116,237
    
    
    
    129,439
    
    
    
    278,146
    
    
    
    292,366Royalty and other
    
    
    6,757
    
    
    
    5,559
    
    
    
    15,155
    
    
    
    14,336$
    433,294
    
    
    $
    502,980
    
    
    $
    993,749
    
    
    $
    1,079,396
 Note 10. Inventory
  September 28, 2007
    
    
    December 31, 2006
    
    
    September 29, 2006Materials
    
    $
    5,693
    
    
    $
    5,386
    
    
    $
    4,469Work-in-process
    
    
    1,426
    
    
    
    1,333
    
    
    
    998Finished goods
    
    
    252,088
    
    
    
    180,046
    
    
    
    245,055Total
    
    $
    259,207
    
    
    $
    186,765
    
    
    $
    250,522
 Note 11. Acquisitions
   17




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##### Table of Contents



Note 12. Notes Payable
    Note 13. Restructuring and Related Costs
  Global Retail Portfolio Review
  18




---



##### Table of Contents



North American Apparel Licensing
 ®
 Executive Departure
  Global Reorganization
  European Shared Service Center
  Puerto Rico Manufacturing Facility
   Liability at
    
    
    Charges and
    
    
    
    
    
    
    Liability atDecember 31, 2006
    
    
    (Credits)(a)
    
    
    Cash Payments
    
    
    September 28, 2007Puerto Rico Manufacturing Facility
    
    $
    475
    
    
    $
    
    
    
    $
    (301
    )
    
    $
    174European Shared Service Center
    
    
    368
    
    
    
    (5
    )
    
    
    (155
    )
    
    
    208Global Reorganization
    
    
    2,969
    
    
    
    4,696
    
    
    
    (6,675
    )
    
    
    990North American Apparel Licensing
    
    
    
    
    
    
    3,086
    
    
    
    (1,311
    )
    
    
    1,775Global Retail Portfolio Review
    
    
    
    
    
    
    1,665
    
    
    
    
    
    
    
    1,665Totals as of September 28, 2007
    
    $
    3,812
    
    
    $
    9,442
    
    
    $
    (8,442
    )
    
    $
    4,812
 
 (a)
    
    The charges/(credits) in the restructuring reserve table above exclude a net credit of
$199 related to the vesting and forfeiture of certain shares, which was recorded as a
reduction to equity in the first quarter of 2007 and $5.8 million of impairment charges
related to property and equipment associated with implementation of the Global Retail
Portfolio Review. 19




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##### Table of Contents



Note 14. Share Repurchase
   Note 15. Litigation
  Note 16. Product Recall
 ®
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
  Critical Accounting Policies
  20




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##### Table of Contents



Accounting for Uncertainty in Income Taxes  an
Interpretation of FASB Statement No. 109
   Overview
 â
   
    
    Third quarter revenue decreased 13.9%, or 16.3% on a constant dollar basis, to $433.3
million. The anticipated declines in boots and kids footwear sales and Timberland®apparel, as well as lower revenue from mens and womens casual footwear were
partially offset by gains from the IPATH acquisition, growth in SmartWool®apparel and accessories and outdoor performance.
    
    Gross margin decreased from 47.7% to 46.9%, driven by higher volume of and lower margins
on off-price and promotional sales, higher product costs primarily due to anti-dumping
duties on footwear imported into the EU from
 21




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##### Table of Contents



China and Vietnam and business mix impacts.
The Companys gross margin was also impacted by costs associated with a voluntary recall of
certain Timberland PRO®products for a potential safety issue.
    
    Operating expenses were $158.7 million, up 2.3% from the prior year period. The
increase reflects costs associated with the global retail portfolio review, specialty
category development and foreign exchange rate impacts, offset by decreased marketing and
share-based and incentive compensation costs. Excluding restructuring charges, operating
expenses decreased approximately $4 million or 2.6%.
    
    We recorded operating income of $44.7 million in the third quarter of 2007 compared to
$84.7 million in the prior year period. These results reflected anticipated declines in
boots and kids footwear and Timberland®apparel, continued softness in the
wholesale business in the U.S. and Europe, gross profit pressures from off-price and
promotional sales and higher costs related to International businesses. During the quarter
the Company also recorded $7.5 million of restructuring and related costs principally as a
result of its decision to close certain stores in the U.S., Europe and Asia.
    
    Net income was $25.9 million in the third quarter of 2007 compared to $55.6 million in
the third quarter of 2006. Diluted earnings per share decreased from $.88 in the third
quarter of 2006 to $.42 in the third quarter of 2007. Excluding restructuring and related
costs, diluted earnings per share was $.49 for the quarter ended September 28, 2007.
    
    Cash at the end of the quarter was $44.0 million.
    
    Short-term debt outstanding at the end of the quarter was $46.6 million.
    
    We continue to maintain our focus on serving as a reference for socially responsible
companies through our commitment to community. In September 2007 we hosted our
10th annual Serv-a-palooza, mobilizing thousands of employees, consumers and
community partners from around the world in projects that impacted communities in 32
countries. We are also pleased to report that for the 4th consecutive year we
have been recognized by Working Motheras one of the top companies to work for in the U.S.
    Results of Operations for the Quarter Ended September 28, 2007 and September 29, 2006
 Revenue
  22




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##### Table of Contents



Segments Review
  ® ®
 ®
  Products
 ®
 Channels
 
 Gross Profit
   Operating Expense
   23




---



##### Table of Contents



Operating Income
  ®
    24




---



##### Table of Contents



Other Income/(Expense) and Taxes
    Results of Operations for the Nine Months Ended September 28, 2007 and September 29, 2006
 Revenue
  Segments Review
 ® ® ®
 ®
  Products
 ® ®
 25




---



##### Table of Contents



Channels
 ®
 Gross Profit
   Operating Expense
      ®
 26




---



##### Table of Contents



Operating Income
  ® ®
    Other Income/(Expense) and Taxes
    Reconciliation of Total Company, International, Europe and Asia Revenue Increases/(Decreases)
To Constant Dollar Revenue Increases/(Decreases)
  For the Quarter
    
    For the Nine Months EndedEnded September 28, 2007
    
    September 28, 2007$ Millions Change
    
    % Change
    
    $ Millions Change
    
    % ChangeRevenue decrease (GAAP)
    
    $
    (69.7
    )
    
    
    (13.9
    )%
    
    $
    (85.6
    )
    
    
    (7.9
    )%Increase due to foreign exchange rate changes
    
    
    12.3
    
    
    
    2.4
    %
    
    
    28.4
    
    
    
    2.7
    %Revenue decrease in constant dollars
    
    $
    (82.0
    )
    
    
    (16.3
    )%
    
    $
    (114.0
    )
    
    
    (10.6
    )%
 27




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##### Table of Contents



For the Quarter
    
    For the Nine Months EndedEnded September 28, 2007
    
    September 28, 2007$ Millions Change
    
    % Change
    
    $ Millions Change
    
    % ChangeRevenue increase/(decrease) (GAAP)
    
    $
    (11.2
    )
    
    
    (4.4
    )%
    
    $
    4.5
    
    
    
    0.8
    %Increase due to foreign exchange rate changes
    
    
    12.3
    
    
    
    4.9
    %
    
    
    28.5
    
    
    
    5.2
    %Revenue decrease in constant dollars
    
    $
    (23.5
    )
    
    
    (9.3
    )%
    
    $
    (24.0
    )
    
    
    (4.4
    )%
  For the Quarter
    
    For the Nine Months EndedEnded September 28, 2007
    
    September 28, 2007$ Millions Change
    
    % Change
    
    $ Millions Change
    
    % ChangeRevenue decrease (GAAP)
    
    $
    (15.5
    )
    
    
    (7.7
    )%
    
    $
    (7.4
    )
    
    
    (1.8
    )%Increase due to foreign exchange rate changes
    
    
    11.5
    
    
    
    5.6
    %
    
    
    28.3
    
    
    
    6.7
    %Revenue decrease in constant dollars
    
    $
    (27.0
    )
    
    
    (13.3
    )%
    
    $
    (35.7
    )
    
    
    (8.5
    )%
  For the Quarter
    
    For the Nine Months EndedEnded September 28, 2007
    
    September 28, 2007$ Millions Change
    
    % Change
    
    $ Millions Change
    
    % ChangeRevenue increase (GAAP)
    
    $
    2.8
    
    
    
    7.6
    %
    
    $
    10.6
    
    
    
    11.1
    %Increase (decrease) due to foreign
exchange rate changes
    
    
    0.3
    
    
    
    0.7
    %
    
    
    (0.4
    )
    
    
    (0.4
    )%Revenue increase in constant dollars
    
    $
    2.5
    
    
    
    6.9
    %
    
    $
    11.0
    
    
    
    11.5
    %
  Reconciliation of Diluted EPS to Diluted EPS Excluding Restructuring and Related Costs
 For the Quarter Ended
    
    For the Nine Months EndedSeptember 28, 2007
    
    September 29, 2006 (As Restated)
    
    September 28, 2007
    
    September 29, 2006 (As Restated)Diluted EPS, as reported
    
    $
    .42
    
    
    $
    .88
    
    
    $
    .26
    
    
    $
    1.01Per share impact of
restructuring and
related costs
    
    $
    .07
    
    
    $
    
    
    
    $
    .13
    
    
    $
    .01Diluted EPS excluding
restructuring and
related costs
    
    $
    .49
    
    
    $
    .88
    
    
    $
    .39
    
    
    $
    1.02
  28




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Reconciliation of Operating Expense Excluding Restructuring and Related Costs
 For the Quarter Ended
    
    For the Nine Months EndedSeptember 28, 2007
    
    September 29, 2006 (As Restated)
    
    September 28, 2007
    
    September 29, 2006 (As Restated)Operating expense, as reported
    
    $
    158,748
    
    
    $
    155,130
    
    
    $
    437,334
    
    
    $
    411,920Restructuring and related
costs included in reported
operating expense
    
    
    7,545
    
    
    
    (92
    )
    
    
    15,059
    
    
    
    820Operating expense excluding
restructuring and related
costs
    
    $
    151,203
    
    
    $
    155,222
    
    
    $
    422,275
    
    
    $
    411,100
  Accounts Receivable and Inventory
   Liquidity and Capital Resources
     29




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##### Table of Contents



Aggregate Contractual Obligations
  Off-Balance Sheet Arrangements
   New Accounting Pronouncements
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   30




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##### Table of Contents



Item 4. CONTROLS AND PROCEDURES
    
    
    The Company supplemented its accounting staff by hiring key accounting personnel with
the technical accounting expertise necessary to evaluate and document complex
transactions.
    
    The Company has supplemented its existing processes to perform additional internal
reviews of underlying transactions requiring complex accounting treatment and to
evaluate the conclusions reached.
    
    The Company has engaged outside consultants to provide support and technical
expertise regarding the documentation, initial and ongoing testing of its hedges and the
application of hedge accounting to enhance its existing internal financial control
policies and procedures and to ensure the hedges are accounted for in accordance with
generally accepted accounting principles.
  31




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32




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##### Table of Contents



Part II OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  Risks Related to Our Business
 Our inability to execute key strategic initiatives, including the closure of targeted stores.
  33




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##### Table of Contents



Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 ISSUER PURCHASES OF EQUITY SECURITIES(1)
 For the Three Fiscal Months Ended September 28, 2007
 Total Number
    
    
    Maximum Numberof Shares
    
    
    of SharesPurchased as Part
    
    
    That May YetTotal Number
    
    
    
    
    
    
    of Publicly
    
    
    be Purchasedof Shares
    
    
    Average Price
    
    
    Announced
    
    
    Under the PlansPeriod*
    
    Purchased **
    
    
    Paid per Share
    
    
    Plans or Programs
    
    
    or ProgramsJune 30  July 27
    
    
    
    
    
    $
    
    
    
    
    
    
    
    
    3,197,597July 28  August 24
    
    
    287,835
    
    
    
    20.78
    
    
    
    287,835
    
    
    
    2,909,762August 25   September 28
    
    
    490,130
    
    
    
    19.58
    
    
    
    490,130
    
    
    
    2,419,632Q3 Total
    
    
    777,965
    
    
    $
    20.02
    
    
    
    777,965
 Footnote (1)
 ApprovedAnnouncement
    
    Program
    
    ExpirationDate
    
    Size (Shares)
    
    DateProgram 1
    
    
    02/07/2006
    
    
    
    6,000,000
    
    
    None
  
 *
    
    Fiscal month**
    
    Based on trade date  not settlement date 34




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##### Table of Contents



Item 6. EXHIBITS
 Exhibits.Exhibit 10.1
    
    
    
    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, filed herewith.Exhibit 31.1
    
    
    
    Principal Executive Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.Exhibit 31.2
    
    
    
    Principal Financial Officer Certification Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.Exhibit 32.1
    
    
    
    Chief Executive Officer Certification Pursuant to Section 1350, Chapter 63 of
Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, furnished herewith.Exhibit 32.2
    
    
    
    Chief Financial Officer Certification Pursuant to Section 1350, Chapter 63 of
Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, furnished herewith.
 35




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##### Table of Contents



SIGNATURES
  THE TIMBERLAND COMPANY
(Registrant)Date: November 7, 2007
    By:
    /s/ JEFFREY B. SWARTZJeffrey B. SwartzChief Executive OfficerDate: November 7, 2007
    By:
    /s/ JOHN CRIMMINSJohn CrimminsChief Financial Officer 36




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    DescriptionExhibit 10.1
    
    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, filed
herewith.Exhibit 31.1
    
    Principal Executive Officer Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.Exhibit 31.2
    
    Principal Financial Officer Certification Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002, filed herewith.Exhibit 32.1
    
    Chief Executive Officer Certification Pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
furnished herewith.Exhibit 32.2
    
    Chief Financial Officer Certification Pursuant to Section
1350, Chapter 63 of Title 18, United States Code, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
furnished herewith.
 37