##### 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 ended June 30, 2006
 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
Incorporation or Organization)
    
    (I.R.S. Employer Identification No.)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)Item 1.
    
    Financial Statements
    
    
    3Unaudited
Condensed Consolidated Balance Sheets -
June 30, 2006, July 1, 2005 and December 31, 2005
    
    
    3Unaudited
Condensed Consolidated Statements of Operations -
For the Three and Six Months Ended June 30, 2006 and July 1, 2005
    
    
    4Unaudited
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended June 30, 2006 and July 1, 2005
    
    
    5Notes to Unaudited Condensed Consolidated Financial Statements
    
    
    6-15Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    16-26Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    27Item 4.
    
    Controls and Procedures
    
    
    27Part II Other InformationItem 1A.
    
    Risk Factors
    
    
    28Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    29Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    30Item 6.
    
    Exhibits
    
    
    31Signatures
    
    
    32Exhibit Index
    
    
    33Exhibits
    
    
    34-37EX-10.1 2nd Amended and Restated Revolving Credit AgreementEX-31.1 Section 302 Certification of C.E.O.EX-31.2 Section 302 Certification of C.F.O.EX-32.1 Section 906 Certification of C.E.O.EX-32.2 Section 906 Certification of C.F.O.




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##### Table of Contents



PART I FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 THE TIMBERLAND COMPANY
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    July 1,
    
    
    December 31,2006
    
    
    2005
    
    
    2005AssetsCurrent assetsCash and equivalents
    
    $
    108,065
    
    
    $
    189,831
    
    
    $
    213,163Accounts receivable, net of allowance for doubtful accounts of $9,870 at
June 30, 2006, $7,777 at July 1, 2005 and $8,755 at December 31, 2005
    
    
    125,719
    
    
    
    130,638
    
    
    
    168,831Inventory, net
    
    
    210,963
    
    
    
    216,483
    
    
    
    167,132Prepaid expense
    
    
    46,128
    
    
    
    29,075
    
    
    
    33,502Deferred income taxes
    
    
    16,964
    
    
    
    14,545
    
    
    
    26,934Derivative assets
    
    
    186
    
    
    
    6,360
    
    
    
    6,044Total current assets
    
    
    508,025
    
    
    
    586,932
    
    
    
    615,606Property, plant and equipment, net
    
    
    83,225
    
    
    
    76,718
    
    
    
    82,372Deferred income taxes
    
    
    1,252
    
    
    
    
    
    
    
    Goodwill
    
    
    39,533
    
    
    
    14,163
    
    
    
    39,503Intangible assets, net
    
    
    41,570
    
    
    
    5,122
    
    
    
    40,909Other assets, net
    
    
    11,926
    
    
    
    10,061
    
    
    
    10,264Total assets
    
    $
    685,531
    
    
    $
    692,996
    
    
    $
    788,654Liabilities and Stockholders EquityCurrent liabilitiesAccounts payable
    
    $
    92,286
    
    
    $
    89,242
    
    
    $
    97,294Accrued expensePayroll and related
    
    
    23,631
    
    
    
    27,339
    
    
    
    48,721Other
    
    
    50,820
    
    
    
    45,523
    
    
    
    53,121Income taxes payable
    
    
    156
    
    
    
    8,158
    
    
    
    44,210Derivative liabilities
    
    
    5,000
    
    
    
    
    
    
    
    Total current liabilities
    
    
    171,893
    
    
    
    170,262
    
    
    
    243,346Deferred compensation and other long-term liabilities
    
    
    13,400
    
    
    
    14,394
    
    
    
    16,046Deferred income taxes
    
    
    
    
    
    
    5,814
    
    
    
    1,075Stockholders 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; 72,413,990 shares issued at June 30, 2006, 71,427,238
shares issued at July 1, 2005 and 71,804,959 shares issued at December
31, 2005
    
    
    724
    
    
    
    714
    
    
    
    718Class 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 June 30, 2006,
July 1, 2005 and December 31, 2005
    
    
    117
    
    
    
    117
    
    
    
    117Additional paid-in capital
    
    
    213,187
    
    
    
    215,878
    
    
    
    214,483Deferred compensation
    
    
    
    
    
    
    (34,307
    )
    
    
    (27,166
    )Retained earnings
    
    
    755,218
    
    
    
    622,973
    
    
    
    739,004Accumulated other comprehensive income
    
    
    6,744
    
    
    
    12,080
    
    
    
    8,696Treasury Stock at cost; 21,052,985 Class A shares at June 30, 2006,
16,308,732 Class A shares at July 1, 2005 and 18,921,290 Class A shares
at December 31, 2005
    
    
    (475,752
    )
    
    
    (314,929
    )
    
    
    (407,665
    )Total stockholders equity
    
    
    500,238
    
    
    
    502,526
    
    
    
    528,187Total liabilities and stockholders equity
    
    $
    685,531
    
    
    $
    692,996
    
    
    $
    788,654
 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 OPERATIONS
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    July 1,
    
    
    June 30,
    
    
    July 1,2006
    
    
    2005
    
    
    2006
    
    
    2005Revenue
    
    $
    226,605
    
    
    $
    240,269
    
    
    $
    576,416
    
    
    $
    594,480Cost of goods sold
    
    
    123,784
    
    
    
    122,289
    
    
    
    297,492
    
    
    
    289,339Gross profit
    
    
    102,821
    
    
    
    117,980
    
    
    
    278,924
    
    
    
    305,141Operating expenseSelling
    
    
    95,614
    
    
    
    85,238
    
    
    
    200,354
    
    
    
    185,977General and administrative
    
    
    27,639
    
    
    
    24,340
    
    
    
    56,268
    
    
    
    48,842Restructuring costs
    
    
    431
    
    
    
    
    
    
    
    912
    
    
    
    Total operating expense
    
    
    123,684
    
    
    
    109,578
    
    
    
    257,534
    
    
    
    234,819Operating income/(loss)
    
    
    (20,863
    )
    
    
    8,402
    
    
    
    21,390
    
    
    
    70,322Other incomeInterest income, net
    
    
    666
    
    
    
    1,063
    
    
    
    1,771
    
    
    
    2,164Other, net
    
    
    392
    
    
    
    148
    
    
    
    1,593
    
    
    
    1,138Total other income
    
    
    1,058
    
    
    
    1,211
    
    
    
    3,364
    
    
    
    3,302Income/(loss) before provision/(benefit) for income taxes
    
    
    (19,805
    )
    
    
    9,613
    
    
    
    24,754
    
    
    
    73,624Provision/(benefit) for income taxes
    
    
    (6,833
    )
    
    
    3,268
    
    
    
    8,540
    
    
    
    25,032Net income/(loss)
    
    $
    (12,972
    )
    
    $
    6,345
    
    
    $
    16,214
    
    
    $
    48,592Earnings/(loss) per shareBasic
    
    $
    (.21
    )
    
    $
    .09
    
    
    $
    .26
    
    
    $
    .72Diluted
    
    $
    (.21
    )
    
    $
    .09
    
    
    $
    .25
    
    
    $
    .71Weighted-average shares outstandingBasic
    
    
    63,035
    
    
    
    66,913
    
    
    
    63,308
    
    
    
    67,250Diluted
    
    
    63,035
    
    
    
    68,376
    
    
    
    64,566
    
    
    
    68,698
 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 Six Months EndedJune 30,
    
    
    July 1,2006
    
    
    2005Cash flows from operating activities:Net income
    
    $
    16,214
    
    
    $
    48,592Adjustments to reconcile net income to net cash used by operating activities:Deferred income taxes
    
    
    9,185
    
    
    
    6,265Share-based compensation
    
    
    10,967
    
    
    
    1,323Depreciation and other amortization
    
    
    13,309
    
    
    
    12,451Tax benefit from share-based compensation, net of excess benefit
    
    
    1,494
    
    
    
    4,880Other non-cash charges and credits, net
    
    
    (2,269
    )
    
    
    1,241Increase/(decrease) in cash from changes in working capital:Accounts receivable
    
    
    47,979
    
    
    
    17,110Inventory
    
    
    (42,415
    )
    
    
    (89,945
    )Prepaid expense
    
    
    (11,328
    )
    
    
    (2,993
    )Accounts payable
    
    
    (6,136
    )
    
    
    38,809Accrued expense
    
    
    (27,749
    )
    
    
    (48,649
    )Income taxes payable
    
    
    (44,861
    )
    
    
    (26,602
    )Net cash used by operating activities
    
    
    (35,610
    )
    
    
    (37,518
    )Cash flows from investing activities:Additions to property, plant and equipment
    
    
    (12,613
    )
    
    
    (9,528
    )Other
    
    
    (3,685
    )
    
    
    (458
    )Net cash used by investing activities
    
    
    (16,298
    )
    
    
    (9,986
    )Cash flows from financing activities:Common stock repurchases
    
    
    (69,919
    )
    
    
    (80,349
    )Issuance of common stock
    
    
    12,128
    
    
    
    13,546Excess tax benefit from share-based compensation
    
    
    2,305
    
    
    
    Net cash used by financing activities
    
    
    (55,486
    )
    
    
    (66,803
    )Effect of exchange rate changes on cash and equivalents
    
    
    2,296
    
    
    
    (4,978
    )Net decrease in cash and equivalents
    
    
    (105,098
    )
    
    
    (119,285
    )Cash and equivalents at beginning of period
    
    
    213,163
    
    
    
    309,116Cash and equivalents at end of period
    
    $
    108,065
    
    
    $
    189,831Supplemental disclosures of cash flow information:Interest paid
    
    $
    258
    
    
    $
    205Income taxes paid
    
    $
    40,597
    
    
    $
    39,980
 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.




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##### Table of Contents



THE TIMBERLAND COMPANY
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1. Summary of Significant Accounting Policies
     Note 2. Historical Financial Results
  Note 3. Share-Based Compensation




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##### Table of Contents



For the Three
    
    For the SixMonths Ended
    
    Months EndedJune 30, 2006
    
    June 30, 2006Basic earnings/(loss) per share, as reported
    
    
    (.21
    )
    
    
    .26Pro forma basic earnings/(loss) per share
    
    
    (.18
    )
    
    
    .31Diluted earnings/(loss) per share, as reported
    
    
    (.21
    )
    
    
    .25Pro forma diluted earnings/(loss) per share
    
    
    (.18
    )
    
    
    .31
  For the Three
    
    For the SixMonths Ended
    
    Months EndedJuly 1, 2005
    
    July 1, 2005Net income as reported
    
    $
    6,345
    
    
    $
    48,592Add: Share-based employee
compensation expense included in
reported net income, net of related
tax effect
    
    
    437
    
    
    
    873Deduct: Total share-based employee
compensation expense determined under
fair value based method for all
awards, net of related tax effect
    
    
    2,318
    
    
    
    4,763Pro forma net income
    
    $
    4,464
    
    
    $
    44,702Basic earnings per share, as reported
    
    $
    .09
    
    
    $
    .72Pro forma basic earnings per share
    
    $
    .07
    
    
    $
    .66Diluted earnings per share, as reported
    
    $
    .09
    
    
    $
    .71Pro forma diluted earnings per share
    
    $
    .07
    
    
    $
    .65




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##### Table of Contents



Stock Options
    For the Three Months Ended
    
    For the Six Months EndedJune 30, 2006
    
    July 1, 2005
    
    June 30, 2006
    
    July 1, 2005Expected volatility
    
    
    30.5
    %
    
    
    29.0
    %
    
    
    30.2
    %
    
    
    29.6
    %Risk-free interest rate
    
    
    5.0
    %
    
    
    4.1
    %
    
    
    4.7
    %
    
    
    3.6
    %Expected life (in years)
    
    
    4.9
    
    
    
    9.0
    
    
    
    4.2
    
    
    
    5.2Expected dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
  Weighted-AverageRemainingWeighted-Average
    
    
    Contractual Term
    
    
    Aggregate IntrinsicShares
    
    
    Exercise Price
    
    
    (Years)
    
    
    ValueOutstanding at January 1, 2006
    
    
    5,708,184
    
    
    $
    25.15Granted
    
    
    685,031
    
    
    
    33.87Exercised
    
    
    (609,031
    )
    
    
    18.28Expired or forfeited
    
    
    (213,944
    )
    
    
    28.43Outstanding at June 30, 2006
    
    
    5,570,240
    
    
    $
    26.84
    
    
    
    7.02
    
    
    $
    17,157Exercisable at June 30, 2006
    
    
    3,096,750
    
    
    $
    23.49
    
    
    
    5.91
    
    
    $
    14,767




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##### Table of Contents



Options Outstanding
    
    
    Options ExercisableWeighted-AverageRemainingRange of
    
    Number
    
    
    Contractual Term
    
    
    Weighted- Average
    
    
    Number
    
    
    Weighted-AverageExercise Prices
    
    Outstanding
    
    
    (Years)
    
    
    Exercise Price
    
    
    Exercisable
    
    
    Exercise Price$2.17 - 17.74
    
    
    884,332
    
    
    
    4.26
    
    
    $
    14.07
    
    
    
    876,532
    
    
    $
    14.0517.81 - 19.10
    
    
    127,304
    
    
    
    5.82
    
    
    
    18.20
    
    
    
    72,854
    
    
    
    18.2019.12 - 19.49
    
    
    699,474
    
    
    
    6.67
    
    
    
    19.48
    
    
    
    444,262
    
    
    
    19.4819.50 - 27.86
    
    
    577,029
    
    
    
    7.15
    
    
    
    24.82
    
    
    
    356,881
    
    
    
    24.2727.94 - 28.50
    
    
    557,354
    
    
    
    4.90
    
    
    
    28.47
    
    
    
    529,955
    
    
    
    28.5028.63 - 30.82
    
    
    120,334
    
    
    
    8.34
    
    
    
    29.29
    
    
    
    20,300
    
    
    
    29.5630.88 - 31.29
    
    
    944,966
    
    
    
    7.61
    
    
    
    31.29
    
    
    
    477,718
    
    
    
    31.2931.32 - 35.01
    
    
    835,000
    
    
    
    9.28
    
    
    
    34.06
    
    
    
    61,225
    
    
    
    32.0735.02 - 35.27
    
    
    4,650
    
    
    
    9.17
    
    
    
    35.15
    
    
    
    1,186
    
    
    
    35.2435.42 - 39.70
    
    
    819,797
    
    
    
    8.61
    
    
    
    35.69
    
    
    
    255,837
    
    
    
    35.75$2.17 - 39.70
    
    
    5,570,240
    
    
    
    7.02
    
    
    $
    26.84
    
    
    
    3,096,750
    
    
    $
    23.49
  Nonvested Shares
  Weighted-AverageGrant Date FairShares
    
    
    ValueUnvested at January 1, 2006
    
    
    698,061
    
    
    $
    36.27Vested
    
    
    (59,142
    )
    
    
    27.10Unvested at June 30, 2006
    
    
    638,919
    
    
    $
    37.12
   Employee Stock Purchase Plan




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##### Table of Contents



For the Three and Six Months EndedJune 30, 2006
    
    July 1, 2005Expected volatility
    
    
    25.9
    %
    
    
    25.9
    %Risk-free interest rate
    
    
    4.3
    %
    
    
    2.5
    %Expected life (in months)
    
    
    6
    
    
    
    6Expected dividends
    
    
    
    
    
    
    
   Note 4. Earnings/(Loss) Per Share
  For the Three Months EndedJune 30, 2006
    
    
    July 1, 2005Weighted- Average
    
    
    
    
    
    
    
    
    
    
    Weighted- AverageNet (Loss)
    
    
    Shares
    
    
    Per-Share Amount
    
    
    Net Income
    
    
    Shares
    
    
    Per-Share AmountBasic EPS
    
    $
    (12,972
    )
    
    
    63,035
    
    
    $
    (.21
    )
    
    $
    6,345
    
    
    
    66,913
    
    
    $
    .09Effect of dilutive
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,463
    
    
    
    Diluted EPS
    
    $
    (12,972
    )
    
    
    63,035
    
    
    $
    (.21
    )
    
    $
    6,345
    
    
    
    68,376
    
    
    $
    .09
 For the Six Months EndedJune 30, 2006
    
    
    July 1, 2005Weighted- Average
    
    
    
    
    
    
    
    
    
    
    Weighted- AverageNet Income
    
    
    Shares
    
    
    Per-Share Amount
    
    
    Net Income
    
    
    Shares
    
    
    Per-Share AmountBasic EPS
    
    $
    16,214
    
    
    
    63,308
    
    
    $
    .26
    
    
    $
    48,592
    
    
    
    67,250
    
    
    $
    .72Effect of dilutive
securities
    
    
    
    
    
    
    1,461
    
    
    
    (.01
    )
    
    
    
    
    
    
    1,448
    
    
    
    (.01
    )Diluted EPS
    
    $
    16,214
    
    
    
    64,769
    
    
    $
    .25
    
    
    $
    48,592
    
    
    
    68,698
    
    
    $
    .71
  For the Three Months Ended
    
    For the Six Months EndedJune 30, 2006
    
    July 1, 2005
    
    June 30, 2006
    
    July 1, 2005Anti-dilutive securities
    
    
    3,982
    
    
    
    4
    
    
    
    1,431
    
    
    
    66




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##### Table of Contents



Note 5. Comprehensive Income/(Loss)
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30, 2006
    
    
    July 1, 2005
    
    
    June 30, 2006
    
    
    July 1, 2005Net income/(loss)
    
    $
    (12,972
    )
    
    $
    6,345
    
    
    $
    16,214
    
    
    $
    48,592Change in cumulative translation adjustment
    
    
    6,309
    
    
    
    (8,846
    )
    
    
    8,353
    
    
    
    (13,369
    )Change in fair value of derivative
financial instruments, net of taxes
    
    
    (6,557
    )
    
    
    10,203
    
    
    
    (10,305
    )
    
    
    15,221Comprehensive income/(loss)
    
    $
    (13,220
    )
    
    $
    7,702
    
    
    $
    14,262
    
    
    $
    50,444
  Note 6. Business Segments and Geographic Information




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##### Table of Contents



For the Three Months Ended June 30, 2006 and July 1, 2005
 U.S.
    
    
    
    
    
    UnallocatedU.S. Wholesale
    
    Consumer Direct
    
    International
    
    Corporate
    
    Consolidated2006Revenue
    
    $
    87,449
    
    
    $
    33,239
    
    
    $
    105,917
    
    
    $
    
    
    
    $
    226,605Operating income/(loss)
    
    
    13,735
    
    
    
    (106
    )
    
    
    1,947
    
    
    
    (36,439
    )
    
    
    (20,863
    )Income/(loss) before income taxes
    
    
    13,735
    
    
    
    (106
    )
    
    
    1,947
    
    
    
    (35,381
    )
    
    
    (19,805
    )Total assets
    
    
    234,097
    
    
    
    30,203
    
    
    
    323,361
    
    
    
    97,870
    
    
    
    685,531Goodwill
    
    
    31,745
    
    
    
    794
    
    
    
    6,994
    
    
    
    
    
    
    
    39,5332005Revenue
    
    $
    100,524
    
    
    $
    34,985
    
    
    $
    104,760
    
    
    $
    
    
    
    $
    240,269Operating income/(loss)
    
    
    28,451
    
    
    
    2,768
    
    
    
    9,051
    
    
    
    (31,868
    )
    
    
    8,402Income/(loss) before income taxes
    
    
    28,451
    
    
    
    2,768
    
    
    
    9,051
    
    
    
    (30,657
    )
    
    
    9,613Total assets
    
    
    197,646
    
    
    
    30,727
    
    
    
    271,961
    
    
    
    192,662
    
    
    
    692,996Goodwill
    
    
    6,804
    
    
    
    794
    
    
    
    6,565
    
    
    
    
    
    
    
    14,163
 For the Six Months Ended June 30, 2006 and July 1, 2005
 U.S.
    
    
    
    
    
    UnallocatedU.S. Wholesale
    
    Consumer Direct
    
    International
    
    Corporate
    
    Consolidated2006Revenue
    
    $
    212,153
    
    
    $
    66,299
    
    
    $
    297,964
    
    
    $
    
    
    
    $
    576,416Operating income/(loss)
    
    
    47,038
    
    
    
    77
    
    
    
    53,463
    
    
    
    (79,188
    )
    
    
    21,390Income/(loss) before income taxes
    
    
    47,038
    
    
    
    77
    
    
    
    53,463
    
    
    
    (75,824
    )
    
    
    24,7542005Revenue
    
    $
    217,342
    
    
    $
    73,304
    
    
    $
    303,834
    
    
    $
    
    
    
    $
    594,480Operating income/(loss)
    
    
    64,373
    
    
    
    7,234
    
    
    
    64,090
    
    
    
    (65,375
    )
    
    
    70,322Income/(loss) before income taxes
    
    
    64,373
    
    
    
    7,234
    
    
    
    64,090
    
    
    
    (62,073
    )
    
    
    73,624




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Note 7. Inventory
  June 30, 2006
    
    
    July 1, 2005
    
    
    December 31, 2005Materials
    
    $
    3,372
    
    
    $
    3,368
    
    
    $
    3,483Work-in-process
    
    
    1,064
    
    
    
    1,612
    
    
    
    762Finished goods
    
    
    206,527
    
    
    
    211,503
    
    
    
    162,887Total
    
    $
    210,963
    
    
    $
    216,483
    
    
    $
    167,132
 Note 8. Nonvested Share Awards and Other
   Note 9. Credit Agreement




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##### Table of Contents



Note 10. Restructuring Costs
    Restructuring
    
    
    
    
    
    
    
    
    
    
    RestructuringLiabilities at
    
    
    
    
    
    
    
    
    
    
    Liabilities atDecember 31, 2005
    
    
    Charges
    
    
    Cash Payments
    
    
    June 30, 2006Severance and employment related
charges
    
    $
    3,784
    
    
    $
    674
    
    
    $
    3,250
    
    
    $
    1,208Other charges
    
    
    179
    
    
    
    238
    
    
    
    283
    
    
    
    134Total
    
    $
    3,963
    
    
    $
    912
    
    
    $
    3,533
    
    
    $
    1,342
  For the Three
    
    
    For the ThreeMonths Ended March
    
    
    Months Ended June
    
    
    For the Six Months31, 2006
    
    
    30, 2006
    
    
    Ended June 30, 2006Severance and employment related charges:European shared service center
    
    $
    157
    
    
    $
    348
    
    
    $
    505Puerto Rico manufacturing facility
    
    
    80
    
    
    
    89
    
    
    
    169Total severance and employment related charges
    
    
    237
    
    
    
    437
    
    
    
    674Other charges
    
    
    244
    
    
    
    (6
    )
    
    
    238Total
    
    $
    481
    
    
    $
    431
    
    
    $
    912
 For the Three
    
    
    For the ThreeMonths Ended March
    
    
    Months Ended June
    
    
    For the Six Months31, 2006
    
    
    30, 2006
    
    
    Ended June 30, 2006Puerto Rico severance and employment related cash payments
    
    $
    3,063
    
    
    $
    187
    
    
    $
    3,250Other cash payments
    
    
    232
    
    
    
    51
    
    
    
    283Total
    
    $
    3,295
    
    
    $
    238
    
    
    $
    3,533
   Note 11. Income Taxes
  Note 12. Share Repurchase




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##### Table of Contents



Note 13. Litigation




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##### Table of Contents



Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Critical Accounting Policies




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##### Table of Contents



Overview
 â
   
    
    Second quarter revenue decreased 5.7% to $226.6 million as constant dollar gains in
international markets and growth in U.S. casual, outdoor and industrial categories were
offset by anticipated declines in U.S. boots and kids sales.
    
    We recorded an operating loss of $20.9 million in the second quarter of 2006 compared to
an operating profit of $8.4 million in the prior year period. These results reflected
anticipated gross profit pressures from lower boot sales, including impacts from higher
product returns and clearance sales, as well as investments in new businesses and
International expansion.
    
    Gross margin decreased from 49.1% to 45.4%, driven by higher levels of off-price and
discounted sales, product mix impacts related primarily to lower boot revenues and higher
product costs.
    
    Operating expenses were $123.7 million, up 12.9% from the prior year period. Growth
reflects increased costs associated with new businesses,
International business expansion,
global category development and higher costs associated with share-based compensation
reflecting new accounting requirements.
    
    Diluted EPS decreased from $.09 to $(0.21).
    
    Cash at the end of the quarter was $108.1 million with no debt outstanding.
    
    The Company continued to demonstrate the values at the center of the
Timberland® brand and enterprise through our commitment to community. In the
quarter, the Company advanced its innovative Nutritional Label initiative. Additionally,
we recently published an updated Corporate Social Responsibility report.




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##### Table of Contents



Results of Operations for the Three Months Ended June 30, 2006 and July 1, 2005
 Revenue
  Segments Review
  ® ®
  TM ® TM
 Products
 ® TM
 ®




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##### Table of Contents



Channels
  Gross Profit
   Operating Expense




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##### Table of Contents



Operating Income/(Loss)
      Other Income and Taxes




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##### Table of Contents



Results of Operations for the Six Months Ended June 30, 2006 and July 1, 2005
 Revenue
 ® ®
 Segments Review
 ® ®
   Products
 ®
 ®
 Channels
 ®




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##### Table of Contents



Gross Profit
   Operating Expense
      Operating Income




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##### Table of Contents



Other Income and Taxes
    Reconciliation of Total Company and International Revenue Increases/(Decreases) To Constant
Dollar Revenue Increases/(Decreases)
  For the Three Months
    
    For the Six MonthsEnded June 30, 2006
    
    Ended June 30, 2006$ Millions Change
    
    % Change
    
    $ Millions Change
    
    % ChangeRevenue (decrease) (GAAP)
    
    $
    (13.7
    )
    
    
    -5.7
    %
    
    $
    (18.1
    )
    
    
    -3.0
    %(Decrease) due to foreign exchange rate changes
    
    
    (1.3
    )
    
    
    -.6
    %
    
    
    (14.2
    )
    
    
    -2.4
    %Revenue (decrease) in constant dollars
    
    $
    (12.4
    )
    
    
    -5.1
    %
    
    $
    (3.9
    )
    
    
    -.6
    %




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##### Table of Contents



For the Three Months
    
    For the Six MonthsEnded June 30, 2006
    
    Ended June 30, 2006$ Millions Change
    
    % Change
    
    $ Millions Change
    
    % ChangeRevenue increase/(decrease) (GAAP)
    
    $
    1.2
    
    
    
    1.1
    %
    
    $
    (5.9
    )
    
    
    -1.9
    %(Decrease) due to foreign exchange rate changes
    
    
    (1.3
    )
    
    
    -1.2
    %
    
    
    (14.2
    )
    
    
    -4.7
    %Revenue increase in constant dollars
    
    $
    2.5
    
    
    
    2.3
    %
    
    $
    8.3
    
    
    
    2.8
    %
  Reconciliation of Diluted EPS to Diluted EPS Excluding Restructuring and Related Costs and
Including Share-Based Employee Compensation Costs Related to Stock Option and Employee Stock
Purchase Plans
 For the Twelve MonthsEnded December 31, 2005Diluted EPS (GAAP)
    
    $
    2.43Per share impact of restructuring and related costs
    
    
    .04Diluted EPS excluding restructuring and related costs
    
    
    2.47Per share impact of share-based employee
compensation costs related to stock option and
employee stock purchase plans
    
    
    (.12
    )Diluted EPS excluding restructuring and related
costs and including share-based employee
compensation costs related to stock option and
employee stock purchase plans
    
    $
    2.35
  Reconciliation of Operating Income to Operating Income Including Share-Based Employee
Compensation Costs Related to Stock Option and Employee Stock Purchase Plans
 Amounts in Millions
    
    For the Three Months
    
    
    For the Six MonthsEnded July 1, 2005
    
    
    Ended July 1, 2005Operating income, as reported
    
    $
    8.4
    
    
    $
    70.3Add: Share-based employee
compensation expense
included in reported
operating income
    
    
    .7
    
    
    
    1.3Deduct: Total share-based
employee compensation
expense determined under
fair value based method for
all awards
    
    
    3.5
    
    
    
    7.2Pro forma operating income
    
    $
    5.6
    
    
    $
    64.4
  Accounts Receivable and Inventory




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##### Table of Contents



Liquidity and Capital Resources




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##### Table of Contents



Off Balance Sheet Arrangements
  
 Total AmountsJune 30, 2006
    
    CommittedLines of credit
    
    $
    Letters of credit
    
    
    40.3Foreign currency
contracts
    
    
    157.3Total
    
    $
    197.6
  New Accounting Pronouncements




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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
     
 Item 4. CONTROLS AND PROCEDURES




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##### Table of Contents



Part II OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  Risks Related to our Business
 We conduct business outside of the United States which exposes us to foreign currency, import
restrictions and duties and other risks.




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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 June 30, 2006
 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 ProgramsApril 1  April 28
    
    
    306,708
    
    
    $
    34.05
    
    
    
    306,708
    
    
    
    6,165,311April 29  May 26
    
    
    381,355
    
    
    
    28.83
    
    
    
    381,355
    
    
    
    5,783,956May 27   June 30
    
    
    485,018
    
    
    
    27.18
    
    
    
    485,018
    
    
    
    5,298,938Q2 Total
    
    
    1,173,081
    
    
    $
    29.51
    
    
    
    1,173,081
 Footnote (1)
 ApprovedAnnouncement
    
    Program
    
    ExpirationDate
    
    Size (Shares)
    
    DateProgram 1
    
    
    10/27/2005
    
    
    
    2,000,000
    
    
    NoneProgram 2
    
    
    02/09/2006
    
    
    
    6,000,000
    
    
    None
  
 *
    
    Fiscal month**
    
    Based on trade date  not settlement date




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##### Table of Contents



Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 (a)
    
    We held our Annual Meeting of Stockholders on May 18, 2006 (the Annual Meeting).(b)
    
    At the Annual Meeting, proxies were solicited pursuant to Regulation 14A of the Securities
Exchange Act of 1934 and all nominees for director were elected as indicated by the following
schedule of votes cast for each director. The holders of Class A Common Stock elected the
following directors:
 Total Votes for
    
    Total Votes WithheldNominee
    
    Each Director
    
    from Each DirectorIan W. Diery
    
    
    45,032,452
    
    
    
    3,082,349Irene M. Esteves
    
    
    43,600,257
    
    
    
    4,514,544John A. Fitzsimmons
    
    
    45,014,982
    
    
    
    3,099,819
  Total Votes for
    
    Total Votes WithheldNominee
    
    Each Director
    
    from Each DirectorSidney W. Swartz
    
    
    162,063,387
    
    
    
    3,488,014Jeffrey B. Swartz
    
    
    162,987,619
    
    
    
    2,563,782Virginia H. Kent
    
    
    163,020,413
    
    
    
    2,575,988Kenneth T. Lombard
    
    
    162,613,402
    
    
    
    2,937,999Edward W. Moneypenny
    
    
    162,109,479
    
    
    
    3,441,922Peter R. Moore
    
    
    161,529,177
    
    
    
    4,022,224Bill Shore
    
    
    160,289,174
    
    
    
    5,262,227Terdema L. Ussery, II
    
    
    162,630,588
    
    
    
    2,920,813




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##### Table of Contents



Item 6. EXHIBITS
 Exhibits.Exhibit 10.1
    
    
    
    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, 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.




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##### Table of Contents



SIGNATURES
  THE TIMBERLAND COMPANY
(Registrant)Date: August 8, 2006
    By:
    /s/ BRIAN P. MCKEONBrian P. McKeonExecutive Vice President-Finance and Administration, Chief Financial OfficerDate: August 8, 2006
    By:
    /s/ JOHN CRIMMINSJohn CrimminsVice President, Corporate Controller and Chief Accounting Officer




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##### Table of Contents



EXHIBIT INDEX
 Exhibit
    
    DescriptionExhibit 10.1
    
    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, 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.