-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, CW65g1jq3ilFZv9iEZ+IZjhOW3tHqWmhp0YjwHRNIPWcFAY1ATZXlGQPElkbl+2G NMAVMMd6+leKOBjdAM1r7w== 0001047469-03-010520.txt : 20030327 0001047469-03-010520.hdr.sgml : 20030327 20030327153626 ACCESSION NUMBER: 0001047469-03-010520 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20021231 FILED AS OF DATE: 20030327 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TIMBERLAND CO CENTRAL INDEX KEY: 0000814361 STANDARD INDUSTRIAL CLASSIFICATION: FOOTWEAR, (NO RUBBER) [3140] IRS NUMBER: 020312554 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-09548 FILM NUMBER: 03620886 BUSINESS ADDRESS: STREET 1: 200 DOMAIN DR CITY: STRATHAM STATE: NH ZIP: 03885 BUSINESS PHONE: 6037729500 MAIL ADDRESS: STREET 1: 200 DOMAIN DR CITY: STRATHAM STATE: NH ZIP: 03885 10-K 1 a2106481z10-k.htm FORM 10-K
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SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

(Mark One)
ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

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

(Exact Name of Registrant as Specified in Its Charter)

Delaware (State or Other Jurisdiction of Incorporation or Organization)		02-0312554 (I.R.S. Employer Identification No.)
200 Domain Drive, Stratham, New Hampshire (Address of Principal Executive Office)		03885 (Zip Code)

Registrant's telephone number, including area code: (603) 772-9500

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Name of each exchange on which registered
Class A Common Stock, par value $.01 per share		New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes ý No o

The aggregate market value of Class A Common Stock of the Company held by non-affiliates of the Company was approximately $675,981,894 on June 28, 2002, which was the last business day of the Company's second fiscal quarter in 2002. For purposes of the foregoing sentence, the term "affiliate" includes each director and executive officer of the Company. See Item 12 of this Form 10-K. 28,471,729 shares of Class A Common Stock and 7,561,185 shares of Class B Common Stock of the Company were outstanding on February 28, 2003.

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the Company's Annual Report to security holders for the fiscal year ended December 31, 2002 are incorporated by reference in Part I, Item 1, and Part II, Items 5, 6, 7, 7A and 8, of this Form 10-K. Portions of the Company's definitive Proxy Statement for the 2003 Annual Meeting of Stockholders to be filed pursuant to Regulation 14A are incorporated by reference in Part III, Items 10, 11, 12 and 13, of this Form 10-K.

PART I

ITEM 1. BUSINESS

Overview

The Timberland Company was incorporated in Delaware on December 20, 1978. It is the successor to the Abington Shoe Company, which was incorporated in Massachusetts in 1933. We refer to The Timberland Company, together with its subsidiaries, as "Timberland" or the "Company."

The Company designs, develops, engineers, markets and distributes, under the Timberland® and Timberland PRO™ brands, premium-quality footwear, apparel and accessories products for men, women and children. These products provide functional performance, classic styling and lasting protection from the elements. The Company believes that the combination of these features makes Timberland's products an outstanding value and distinguishes Timberland from its competitors.

Timberland's products are sold primarily through independent retailers, better grade department stores and athletic stores that reinforce the high level of quality, performance and service associated with Timberland. In addition, Timberland's products are sold in Timberland® specialty stores, Timberland® factory outlet stores, on timberland.com and franchisees in Europe, which are all dedicated exclusively to selling Timberland® products. The Company's products are sold throughout the United States, Canada, Europe, Asia, Latin America and the Middle East.

Timberland's principal strategic goal is to become a leading global brand by offering an integrated product selection of footwear, apparel and accessories for men, women and children that is inspired by the outdoors. The Company's ongoing efforts to achieve this strategic goal include (i) enhancing its leadership position in its core footwear business globally through an increased focus on consumer segment development and technological innovation, (ii) expanding its global apparel business by leveraging the brand's rugged heritage and consumer trust, (iii) extending brand reach by entering into licensing arrangements and by developing sub-branded products with features unique to a consumer group such as the Timberland PRO™ series of footwear and apparel, and (iv) expanding the brand geographically.

Products

The Company's products fall into two primary groups: (1) footwear and (2) apparel and accessories (including product care and licensed products). The following table presents the percentage of the Company's total product revenue (excluding royalties from third-party distributors and licensees) derived from the Company's sales of footwear and of apparel and accessories for the past three years:

Product		2002		2001		2000
Footwear		75.6	%	76.8	%	77.5	%
Apparel and Accessories		24.4		23.2		22.5

Footwear

In 1973, the Company produced its first pair of waterproof leather boots under the Timberland® brand. The Company currently offers a broad variety of footwear products for men, women and children, featuring premium materials, state-of-the-art functional design and components, and advanced construction methods. The Company's key Timberland® brand footwear categories are boots, men's and women's casual, kids', and outdoor performance. The Timberland PRO™ series for skilled tradespeople and working professionals is an additional footwear category developed by the Company to address a consumer group's distinct needs. The extension of the brand's reach through complementary sub-brands like the Timberland PRO™ series and development by Timberland of its core footwear business is intended to advance the Company's goal of becoming a leading global brand. During 2002, the

Company created an advanced concepts team focused solely on developing the next innovations in footwear including cross-category technology developments such as the Smart Comfort™ system. Technology incorporated in most of the Company's footwear products is discussed below in Footwear Technology.

Boots

Key men's and women's 2002 boot categories included the Classic Boots series consisting of the classic yellow boot in basic and premium, waterproof boot and chukka, work boot, smooth toe oxford, moc toe oxford, plain toe oxford, leather oxford, leather and mesh oxford, panel boot, fabric and leather field boot, oxford field boot, Euro Dub, and field boot. Also during 2002, a men's Rugged Street series, Granite Street series, and Ledge series of boots was offered featuring classic Timberland construction and rugged details updated in fresh, new styles of street hikers, moc toe boots, chukkas, oxfords, and slip-ons. Some of the principal features of these boot products include premium waterproof leather, direct-attach and seam-sealed waterproof construction, rubber lug outsoles for superior traction and abrasion resistance, shock diffusion plates, durable laces, padded collars for comfortable fit, enhanced insulation, rustproof hardware for durability and moisture-wicking components for comfort and breathability. During 2002 the Company added a Holiday season to its boot product offering to complement its Fall and Spring selling seasons and to better align product offerings with the needs of consumers and wholesale customer accounts specific to that season.

Men's Casual

For 2002, the Timberland® men's casual footwear series included Boat, Casual, Rugged Casual, Work Casual, Sandals and LTD. Featured footwear products in these categories included boat shoes, casual bucks, loafers, sandals, oxfords, chukkas, boots and slip-ons for use in the office, home or outdoors. Timberland's focus in the development of the men's casual footwear business is to combine the rugged heritage of Timberland with premium leathers and functional offerings. Many of the men's footwear products incorporate the Company's innovative Smart Comfort™ system which provides superior comfort while preserving the shape and style of the footwear. In 2002, for the first time the Company offered select styles of men's casual footwear in wide in a full size run to 15.

Women's Casual

Timberland® women's casual 2002 footwear series included Casual, Rugged Casual, Sandals, Convenience, Heritage, Contemporary, and 43° Latitude. In 2002, Timberland focused on introducing more refined, contemporary, and feminine styles in products ranging from classic loafers and chukkas to contemporary zip boots and full length boots to sporty slip-ons. Other products in these categories included boat shoes, sandals, and oxfords for use in the office, home or outdoors. Many of the women's footwear products also incorporate the Smart Comfort™ system.

Kids'

Timberland® kids' footwear products are take-down versions of the Company's high-quality adult footwear products complemented by product designed for kids only and, in 2002, included the Rugged Casual, Sandals, Performance, Mary Jane, and Boots series. Key footwear products included boots, oxfords, chukkas, slip-ons, easy zip boots, sandals, and clogs. Featured products in the Boots series were the Ledge series that combines the rugged durability of boots with the flexibility and breathability of sneakers, the Classic Toddler Boot series designed for toddlers' first steps, and the Crib Bootie series. Also in 2002, Timberland introduced an early walker product designed and engineered specifically for the movement of a toddler's foot called the Sapling series. Certain kids' footwear products incorporate the Smart Comfort™ system.

Outdoor Performance

Timberland® outdoor performance footwear for men, women and kids is designed to merge technical performance and casual versatility. Some of these products include technical features designed specifically for such outdoor sports as trail running, fastpacking, bouldering and scrambling. In 2002, the outdoor performance series included Hiking, Lite Hiking, Sport Outdoor, Asphalt Hiking, Classic, Sandals, Outdoor Recreation, Ledge, Travel Touring, Convenience, Weathergear™, Multi-Sport, Adventure Trekking, Trail Mix, and Multi-Season. The type of footwear products featured in these series included hiking shoes and boots, sandals, slip-ons, chukkas, oxfords and duck shoes. Timberland merged its Mountain Athletics™ by Timberland brand products into the outdoor performance footwear category during 2002.

Timberland PRO™ Series

In 2002, Timberland expanded and broadened its offering of work boots and shoes specifically designed for skilled tradespeople and working professionals under the Timberland PRO™ series sub-brand. Timberland continued its innovation in this category in 2002 with the introduction of the SafeGrip™ Slip-Resistant series that has a unique sole pattern that provides maximum surface contact for improved grip and traction at indoor and outdoor work sites. All Timberland PRO™ work boots include the Company's exclusive PRO 24/7™ comfort technology featuring a removable cushioned sock liner, contoured shock-diffusion plate, shock absorbing mid sole and lightweight construction. The Waterproof Workboots series and General Use Workboots series, some of which are designed specifically to fit a woman's foot, have some or all of the following features: waterproof leather and seam sealed construction, moisture resistant insulation, steel toe meeting ANSI safety standards, slip-resistance, abrasion-resistance, oil-resistance, and electrical hazard protection meeting ANSI safety standards.

Footwear Technology

The Company continued to incorporate its patent pending, technological innovation, the Smart Comfort™ system, in many of the men's and women's footwear categories during 2002, and for the first time incorporated it into certain kids' footwear products. The Smart Comfort™ system allows the footwear to expand and contract with the changing shape of the foot during the walking motion, while preserving the essential style of the footwear. Footwear incorporating the Smart Comfort™ system provides superior comfort in a product that retains its shape. The Smart Comfort™ system includes an expandable sole to expand as the foot moves, a three-zone system to provide even pressure distribution underfoot, and stretchable uppers on the top of the shoe that stretch as the foot expands and retracts.

Most Timberland® outdoor performance footwear products, and many of Timberland's other footwear products, offer advanced technologies developed by the Company that combine some or all of the following features:

•: Endoskeleton™ internal suspension system—Timberland's patented technology designed to control heel impact deflection and provide arch support, forefoot flexibility and torsional stiffness for comfort and performance;
•: B.S.F.P.™ motion efficiency system—Timberland's patent pending design which delivers improved traction, energy-return and length of wear;
•: Independent Suspension Network™ System (ISN™)—Timberland's multi-density sole with independent lugs adapts to the terrain, keeping the foot level on uneven ground for superior stability, traction and comfort;
•: Advanced Combination Construction (ACC)—-construction method delivers improved forefoot flexibility for maneuverability and rear foot stability on rugged terrain; and
•: Guaranteed Waterproof Construction.

Apparel and Accessories

The Company believes that developing a global apparel business is important to its global brand aspirations. Timberland® apparel products consist primarily of a rugged casual line that includes outerwear, sweaters, fleeces, shirts, pants and shorts for men. The entire men's apparel line reflects the authentic outdoor heritage and rugged style for which Timberland is recognized. The products are versatile in both function and style, and range from waterproof outerwear to breathable fabrics to classic plaids and khakis for casual weekend wear. These products feature, in certain models, premium waterproof leathers, waterproof and water resistant fabric, anti-microbial coatings, rust-proof hardware, canvas, denim, high-quality specialty cotton, wool and other quality performance materials. A hangtag on each piece of outerwear contains Timberland's unique Weathergear® rating system to indicate the level of warmth, ventilation and water resistance. The Company also continues to develop a women's apparel line in Europe with focus on distinctive European styling and fit that is based on the Timberland heritage. As planned, the Company merged its Mountain Athletic™ apparel products featuring waterproof outerwear, fleeces, knits, tee-shirts, sweatpants and sweatshirts, and shorts with its outdoor performance apparel during 2002. In fall 2002, the Company introduced a line of the Timberland PRO™ series apparel featuring heavy duty outerwear for skilled tradespeople and working professionals designed for comfort, durability and protection. The line features a wide range of jackets, coats, bib overalls, work fleece and sweatshirts. These apparel products incorporate features typically reserved for an outdoor performance category such as technical fabrics, performance cuts for range of motion, and layering systems for versatility in all climates. Timberland accessories include leather care products and a limited collection of leather goods, including luggage, briefcases, handbags, wardrobe accessories and small leather goods. Timberland also merged the Mountain Athletics™ by Timberland brand accessories products into its outdoor performance accessories category during 2002.

Third-party licensing enables the Company to expand Timberland's reach to appropriate and well-defined categories and to benefit from the expertise of the licensees, in a manner that reduces the risks to the Company associated with pursuing such opportunities. In fall 2002, the Company introduced a new line of men's leather outerwear in the U.S. pursuant to a licensing arrangement and launched a boys' apparel line in the U.S. that is also pursuant to a license agreement. Girls' and infants' apparel will be introduced in the U.S. in coming seasons. The Company will also launch a children's apparel line in Asia during 2003, for boys, girls and infants, pursuant to a licensing agreement. This line will be complementary to Timberland® boys' and girls' apparel products in Europe that have been designed, manufactured and distributed pursuant to a license agreement. Timberland receives a royalty on sales of its licensed products.

Timberland® and Timberland PRO™ accessories products for men, women and children include all products other than footwear and apparel products. Many of these products, including packs and travel gear, watches, men's belts, wallets, socks, gloves, sunglasses, eyewear and ophthalmic frames, and hats and caps, are designed, manufactured and distributed pursuant to licensing agreements with third parties. Timberland receives a royalty on sales of these licensed products as well.

Product Sales: Business Segments and Operations by Geographic Area

Timberland's products are sold in the United States and internationally primarily through independent retailers, better-grade department stores and athletic stores which reinforce the high level of quality, performance and service associated with Timberland. In addition, Timberland's products are sold in Timberland® specialty stores and Timberland® factory outlet stores dedicated exclusively to selling Timberland® products, as well as through franchised retail stores in Europe. The Company also sells its products in the U.S. online at timberland.com.

The Company operates in an industry which includes the designing, engineering, marketing and distribution of footwear and apparel and accessories products for men, women and children. The

Company manages its business in the following three reportable segments, each sharing similar product, distribution, marketing and economic conditions: U.S. Wholesale, U.S. Consumer Direct and International.

The U.S. Wholesale segment is comprised of the Company's worldwide product development for footwear and apparel and accessories, and the sale of such products to wholesale customers in the United States. The U.S. Wholesale segment also includes royalties from licensed products sold in the United States and the management costs and expenses associated with the Company's worldwide licensing efforts. The U.S. Consumer Direct segment includes the Company-operated specialty and factory outlet stores in the United States as well as the Company's e-commerce business. The International segment consists of the marketing, selling and distribution of footwear, apparel and accessories and licensed products outside of the United States. This includes the Company's subsidiaries (which use wholesale and retail channels to sell footwear, apparel and accessories), independent distributors and licensees.

The following table presents the percentage of the Company's total revenue generated by each of these reporting segments for the past three years:

	2002		2001		2000
U.S. Wholesale	50.0	%	53.3	%	53.8	%
U.S. Consumer Direct	16.0		17.2		18.3
International	34.0		29.5		27.9

More detailed information regarding these reportable segments, and each of the geographic areas in which the Company operates, is set forth in Note 15 to the Company's consolidated financial statements, entitled "Business Segments and Geographic Information," appearing in the Company's 2002 Annual Report, which information is incorporated into this Form 10-K by reference.

U.S. Wholesale

The Company's wholesale customer accounts within the United States include independent retailers, better-grade department and retail stores, and athletic stores. Many of these wholesale accounts merchandise Timberland's products in selling areas dedicated exclusively to Timberland's products, or "concept shops." These accounts are serviced through a combination of field and corporate-based sales teams responsible for these distribution channels. The Company also services its wholesale accounts through its principal showroom in New York City and a regional showroom in Dallas, Texas. During 2002, the Company continued efforts to develop new markets and expand the brand geographically by penetrating markets in areas traditionally underserved by the Company such as Los Angeles, New Orleans, Detroit and Memphis.

U.S. Consumer Direct

At December 31, 2002, the Company operated 26 specialty stores and 49 factory outlet stores in the United States and 2 factory outlet stores in Puerto Rico.

Timberland® Specialty Stores. These stores carry current season, first quality merchandise and provide:

•: an environment to showcase Timberland's products as an integrated source of footwear and apparel and accessories;
•: sales and consumer-trend information which assists the Company in developing its marketing strategies, including point-of-purchase marketing materials; and

•: an opportunity to develop training and customer service programs, which also serve as models which may be adopted by the Company's wholesale customers.

Timberland® Factory Outlet Stores. These stores serve as a primary channel for the sale of excess, damaged or discontinued products. The Company views these factory outlet stores as a way to preserve the integrity of the Timberland brand, while maximizing the return associated with the sale of such products.

Timberland.com. The Company's online shop commenced operations in May 2001 for U.S. consumers to purchase current season, first quality merchandise over the Internet. This Internet site also provides information about the Company, including the reports it files with the Securities and Exchange Commission, investor relations and employment opportunity information. The site also serves to reinforce the Company's marketing efforts.

International

The Company sells its products internationally through its operating divisions in the United Kingdom, Italy, France, Germany, Spain, Japan, Hong Kong, Singapore, Taiwan, Malaysia and South Korea. These operating divisions provide support for the sale of Timberland's products to wholesale customers and operate Timberland® specialty stores and factory outlet stores in their respective countries. The Company intends to continue expanding the brand geographically to support its goal of becoming a top global brand. In 2002, the Company began offering its products in South Korea through leading department stores, and recently established a new subsidiary in Canada to directly offer footwear to wholesale accounts that were formerly serviced under a distribution arrangement. At December 31, 2002, the Company operated 102 specialty stores and 22 factory outlet stores in Europe and Asia.

Timberland® products are sold elsewhere in Europe and in the Middle East, Canada, Africa, Central America, South America, Australia and New Zealand by distributors, franchisees and commissioned agents, some of which also may operate Timberland® specialty and factory outlet stores located in their respective countries.

Distribution

The Company distributes its products through three Company-managed distribution facilities which are located in Danville, Kentucky, Ontario, California, and Enschede, Holland, and through third-party managed distribution facilities which are located in Asia.

Advertising and Marketing

The Company designs its marketing programs and advertising campaigns to increase consumer awareness of and preference for Timberland as a premium global brand equipping consumers with purposeful footwear, apparel and accessories. The programs and campaigns emphasize the attributes that distinguish the Timberland® brand from competing brands and that make the Company's products an outstanding value. These national, regional and customer-specific programs and advertising campaigns are increasingly delivered throughout the year, rather than only during select seasons as has historically been the case. During 2002, the Company's international, U.S. and regional advertising campaigns were coordinated on a worldwide basis with the launch of its Seek Out™ campaign. The Seek Out™ campaign included print, outdoor ads in selected markets and co-operative advertising. Advertising appeared in the following media: active-lifestyle, fashion, business and sports-oriented consumer periodicals, trade press, and outdoor billboards in key markets. The Company's distributors and licensees also fund marketing campaigns, over which the Company maintains approval rights to ensure consistent and effective brand presentation.

The Company reinforces these advertising efforts with a variety of marketing and merchandising campaigns including retail promotions, fixturing, point-of-purchase displays and materials, public relations efforts, product seeding and cooperative advertising programs with its retailers, as well as with retail sales associate training and other sales incentive programs. At key retail partners, the Company is further enhancing the Timberland® brand message through enhanced concept shops and improved visual presence. In 2002, Timberland created a point of sale, in-store demonstration theater to enable consumers and retailers to see and experience the benefits of Timberland® footwear that incorporates the unique Smart Comfort™ system. This Smart Comfort™ theater was executed in hundreds of key independent and department store doors and will continue to tour in 2003 to enable consumers to see and experience the benefits of Timberland's Smart Comfort™ system by testing Timberland footwear. The Timberland PRO™ mobile, a specially outfitted vehicle, continued to tour the U.S., enabling consumers to try on Timberland PRO™ series of work boots at job sites, factories, and sports events targeting skilled tradespeople and professional workers. In addition, the Company's Internet site reinforces its marketing efforts through various promotions and targeted mail campaigns. The Company also promotes its products at various industry trade shows in the United States and internationally.

Seasonality

In 2002, as has been historically the case, the Company's revenue was higher in the last two quarters of the year than in the first two quarters. Accordingly, the amount of fixed costs related to the Company's operations represented a larger percentage of revenue in the first two quarters of 2002 than in the last two quarters of 2002. The Company expects this seasonality to continue in 2003.

Backlog

At December 31, 2002, Timberland's backlog of orders from its customers was approximately $286 million, compared with $218 million at December 31, 2001 and $266 million at December 31, 2000. While all orders in the backlog are subject to cancellation by customers, the Company expects that the majority of such orders will be filled in 2003. The Company believes that backlog at year-end is an imprecise indicator of total revenue that may be achieved for the full fiscal year because backlog at a particular time is affected by a number of factors, including seasonality, retail conditions, the extent to which customers place orders in advance, and product availability.

Manufacturing

The Company operates manufacturing facilities located in Puerto Rico and the Dominican Republic. During 2002, the Company manufactured approximately 11% of its footwear unit volume, compared to approximately 13% during 2001 and 15% during 2000. The remainder of the Company's footwear products and all of its apparel and accessories products were produced by independent manufacturers and licensees in Asia, Europe, Mexico, South and Central America. Approximately 89% of the Company's 2002 footwear unit volume was produced in Asia by independent manufacturers in China, Vietnam and Thailand. Three of these manufacturers produced approximately 14% to 21% each of the Company's 2002 footwear volume. The Company renewed its leases for its manufacturing facilities in the Dominican Republic, and plans to renew its leases for its manufacturing facilities in Puerto Rico. The Company believes it benefits from its internal manufacturing capability which provide it with reduced lead times and favorable duty rates and tax benefits. However, changes in tax legislation have reduced the tax benefits previously available through its manufacturing operations in Puerto Rico.

The Company maintains a product quality management group which develops, reviews and updates the Company's quality and production standards. To help ensure such standards are met, the group also conducts product quality audits at the Company's and its independent manufacturers' factories and distribution centers. The Company has offices in Bangkok, Thailand; Zhu Hai, China; Hong Kong; and Ho Chi Minh City, Vietnam to supervise the Company's sourcing activities conducted in the Asia-Pacific region.

Raw Materials

In 2002, eight suppliers provided, in the aggregate, approximately 80% of the Company's leather purchases. Two of these suppliers together provided approximately 40% of the Company's leather purchases in 2002. The Company historically has not experienced significant difficulties in obtaining leather or other raw materials in quantities sufficient for its operations. However, the Company's gross profit margins are adversely affected to the extent that the selling prices of its products do not increase proportionately with any increases in the costs of leather and other raw materials. Any significant, unanticipated increase or decrease in the prices of these commodities could materially affect the Company's results of operations. The Company attempts to manage this risk, as it does with all other footwear and non-footwear materials, on an ongoing basis by monitoring related market prices, working with its suppliers to achieve the maximum level of stability in their costs and related pricing, seeking alternative supply sources when necessary, and passing increases in commodity costs to its customers, to the maximum extent possible, when they occur. No assurances can be given that such factors will protect the Company from future changes in the prices for such raw materials.

In addition, the Company has established a central network of suppliers through which the Company's manufacturing facilities and independent manufacturers can purchase raw materials. The Company seeks sources of raw materials local to manufacturers, in an effort to reduce lead times while maintaining the Company's high quality standards. The Company believes that key strategic alliances with leading raw materials vendors help reduce the cost and provide greater consistency of raw materials procured to produce Timberland® products and improve compliance with the Company's production standards. In 2002, the Company renewed contracts with global vendors for such raw materials as leather, leather linings, bow toes and counters, packaging and leather laces. Global contracts remained in effect for synthetic laces, synthetic linings, labels, cellulose insoles, soling compounds and hand sewn threads. The Company also finalized contracts for thread and stroebel board.

Trademarks and Trade Names; Patents; Research & Development

The Company's principal trade name is The Timberland Company and the Company's principal trademarks are TIMBERLAND and the TREE DESIGN LOGO, which have been registered in the United States and many foreign countries. Other Company trademarks or registered trademarks are: 24-7 Comfort Suspension, ACT, Active Comfort Technology, B.S.F.P., Endoskeleton, Flip N' Switch, Gear For Outdoor Athletes, ISN, Independent Suspension Network, Jackson Mountain, Made To Work, Mountain Athletics, Path of Service, PRO 24/7, PRO 24/7 Plus, PRO 24/7 Comfort Suspension, PRO 24/7 Plus Comfort Suspension, Pull On Your Boots, Pull On Your Boots and Make a Difference, Rock Skin, Safe Grip, Seek Out, Smart Comfort, TBL, Timberland PRO, Trail Grip, Weathergear and Workboots For The Professional.

The Company regards its trade name and trademarks as valuable assets and believes that they are important factors in marketing its products. The Company seeks to protect and defend vigorously its trade name and trademarks against infringement under the laws of the United States and other countries. In addition, the Company seeks to protect and defend vigorously its patents, designs, copyrights and all other proprietary rights under applicable laws.

The Company conducts research, design and development efforts for its products, including field testing of a number of its products to evaluate and improve product performance. The Company created an advance concepts footwear team in the U.S. during 2002 and dedicated resources to a footwear design and development team in Europe. The Company's expenses relating to research, design and development have not represented a material expenditure relative to its other expenses.

Competition

The Company's footwear, apparel and accessories products are marketed in highly competitive environments that are subject to changes in consumer preference. Although the footwear industry is fragmented to a great degree, many of the Company's competitors are larger and have substantially greater resources than the Company, including athletic shoe companies, several of which compete directly with some of the Company's products. In addition, the Company faces competition from retailers that are establishing products under private labels and from direct mail companies in the United States. The competition from some of these competitors is particularly strong where such

competitor's business is focused on one or a few product categories or geographic regions in which the Company also competes. However, the Company does not believe that any of its principal competitors offers a complete line of products that provide the same quality and performance as the complete line of Timberland® footwear and apparel and accessories products.

Product quality, performance, design, styling and pricing, as well as consumer awareness, are all important elements of competition in the footwear and the apparel and accessories markets served by the Company. Although changing fashion trends generally affect demand for particular products, the Company believes that, because of the functional performance, classic styling and high quality of Timberland® footwear products, demand for most Timberland® footwear products is less sensitive to changing trends in fashion than other products that are designed specifically to meet such trends.

Environmental Matters

Compliance with federal, state and local environmental regulations has not had, nor is it expected to have, any material effect on the capital expenditures, earnings or competitive position of the Company based on information and circumstances known to the Company at this time.

Employees

At December 31, 2002, the Company had approximately 5,400 employees worldwide. Management considers its employee relations to be good. None of the Company's employees is represented by a labor union, and the Company has never suffered a material interruption of business caused by labor disputes.

Available Information

The Company's annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports that are filed with the Securities and Exchange Commission are made available free of charge through the Company's Internet website www.timberland.com, as soon as reasonably practicable after the Company electronically files them with, or furnishes them to, the Securities and Exchange Commission.

Executive Officers of the Registrant

The following table lists the names, ages and principal occupations during the past five years of the Company's executive officers. All executive officers serve at the discretion of the Company's Board of Directors.

Name	Age	Principal Occupation During the Past Five Years
Sidney W. Swartz	67	Chairman of the Board since June 1986; Chief Executive Officer and President, June 1986 — June 1998.
Jeffrey B. Swartz	43	President and Chief Executive Officer since June 1998; Chief Operating Officer, May 1991 — June 1998; Executive Vice President, March 1990 — June 1998. Jeffrey Swartz is the son of Sidney Swartz.
Kenneth P. Pucker	40	Chief Operating Officer since July 2001; Executive Vice President since September 1999; Senior Vice President and General Manager — Footwear and Apparel, December 1997 — September, 1999; Vice President and General Merchandising Manager — Footwear, April 1996 — December 1997; Vice President — Strategic Initiatives, January 1995 — April 1996; General Manager — The Outdoor Footwear Company (a subsidiary of the Company), October 1993 — January 1995.
Brian P. McKeon	40	Executive Vice President — Finance and Administration since May 2002 and Chief Financial Officer since March 2000; Senior Vice President — Finance and Administration, March 2000 — May 2002; Pepsi Cola North America: Vice President and Chief Financial Officer, October 1999 — February 2000; Vice President, Strategic Planning, May 1996 — October 1999; Finance Director, Eastern Business Unit, March 1994 — May 1996.
Fabian T. Garcia	43	Senior Vice President — International since April 2002; Chanel Asia Pacific: President, August 1996 — December 2001.
Gary S. Smith	39	Senior Vice President — Supply Chain Management since February 2002; McKinsey & Company: Partner, August 1994 — February 2002.
Marc Schneider	43	Senior Vice President, Product Management since September 2002; Vice President — Apparel, January 1999 — September 2002;Mellville Corp.: Executive Vice President, Bobs Stores, January 1994 — January 1999.
Frank P. Bifulco, Jr.	53	Senior Vice President, Chief Marketing Officer since October 2002; Chief Marketing Officer, January 2001 — October 2002; ICG Commerce: Senior Vice President of Sales and Chief Marketing Officer, January — December 2000; The Coca-Cola Company: Senior Vice President of Marketing, Coca-Cola North America, October 1994 — January 2000.
John Crimmins	46	Vice President, Corporate Controller and Chief Accounting Officer since August 2002; Interactiveprint: Chief Financial Officer, July 1999 — January 2002; Cahners Business Information: Vice President, Corporate Controller 1983 — 1999.
Danette Wineberg	56	Vice President and General Counsel since October 1997 and Secretary since July 2001; Little Caesar Enterprises, Inc.: General Counsel, November, 1993 — October 1997.

ITEM 2. PROPERTIES

Since April 1994, the Company has leased its worldwide headquarters located in Stratham, New Hampshire. The Company entered into a new lease for such property that expires in September 2010, with the option to extend the term for two additional five-year periods. The Company considers its headquarters facilities adequate and suitable for its current needs.

The Company leases its manufacturing facilities located in Isabela, Puerto Rico, and Santiago, Dominican Republic, under leasing arrangements, which expire on various dates through 2005. The Company owns its distribution facility in Danville, Kentucky, and leases its facilities in Ontario, California, and Enschede, Holland. The Company and its subsidiaries lease all of their specialty and factory outlet stores. The Company's subsidiaries also lease office and warehouse space to meet their individual requirements.

ITEM 3. LEGAL PROCEEDINGS

The Company is involved in various litigation and legal matters that have arisen in the ordinary course of business. Management believes that the ultimate resolution of any existing matter will not have a material adverse effect on the Company's consolidated financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

During the fourth quarter of the fiscal year ended December 31, 2002, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

The information required by this item is included in the Company's 2002 Annual Report under the caption "Quarterly Market Information and Related Matters" and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

The information required by this item is included in the Company's 2002 Annual Report under the caption "Five Year Summary of Selected Financial Data" and is incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information required by this item is included in the Company's 2002 Annual Report under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations" and is incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this item is included in the Company's 2002 Annual Report under the caption "Quantitative and Qualitative Disclosures about Market Risk" and is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this item is included in the Company's 2002 Annual Report and is incorporated herein by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

Not applicable.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Reference is made to the information set forth under the caption "Executive Officers of the Registrant" in Item 1 of Part I of this Form 10-K and to the information under the caption "Information with Respect to Nominees" in the Company's definitive Proxy Statement (the "2003 Proxy Statement") relating to its 2003 Annual Meeting of Stockholders, to be filed with the Securities and Exchange Commission (the "Commission") within 120 days after the close of the Company's fiscal year ended December 31, 2002, which information is incorporated herein by reference. Reference is also made to the information set forth in the Company's 2003 Proxy Statement with respect to compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), which information is incorporated herein by reference.

ITEM 11. EXECUTIVE COMPENSATION

Reference is made to the information set forth under the captions "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation" in the Company's 2003 Proxy Statement, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Reference is made to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" and "Equity Compensation Plan Information" in the Company's 2003 Proxy Statement, which information is incorporated herein by reference. The aggregate market value of the Class A Common Stock held by non-affiliates of the Company appearing on the cover page of this report includes the shares owned by The Swartz Foundation and The Sidney and Judith Swartz Charitable Remainder Unitrust.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Reference is made to the information set forth under the caption "Certain Relationships and Related Transactions" in the Company's 2003 Proxy Statement, which information is incorporated herein by reference.

ITEM 14. CONTROLS AND PROCEDURES

Based on their evaluation as of a date within 90 days of the filing of this annual report on Form 10-K, the Company's principal executive officer and principal financial officer have concluded that the Company's disclosure controls and procedures, as defined in Rules 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the "Exchange Act"), are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms. There have been no significant changes in the Company's internal controls or in other factors which would significantly affect internal controls subsequent to the date of their evaluation.

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)(1) FINANCIAL STATEMENTS. The following financial statements appearing in the Company's 2002 Annual Report are incorporated by reference in this report:

ANNUAL REPORT

		Page
Consolidated Balance Sheets as of December 31, 2002 and 2001		39
For the years ended December 31, 2002, 2001 and 2000:
Consolidated Statements of Income		40
Consolidated Statements of Changes in Stockholders' Equity		41
Consolidated Statements of Cash Flows		42
Notes to Consolidated Financial Statements		43
Independent Auditors' Report		55

(a)(2) FINANCIAL STATEMENT SCHEDULE. The following additional financial data should be read in conjunction with the consolidated financial statements in the Company's 2002 Annual Report:

		FORM 10-K PAGE
Independent Auditors' Report on Schedule II		F-1
Schedule II — Valuation and Qualifying Accounts		F-2

All other schedules for which provision is made in the applicable accounting regulations of the Commission are not required under the related instructions or are inapplicable and have, therefore, been omitted.

(b) REPORTS ON FORM 8-K. No reports on Form 8-K were filed by the Company during the fourth quarter of 2002.

(c) EXHIBITS. Listed below are the Exhibits filed as part of this report, some of which are incorporated by reference from documents previously filed by the Company with the Commission in accordance with the provisions of Rule 12b-32 of the Exchange Act.

EXHIBIT		DESCRIPTION
(3)		ARTICLES OF INCORPORATION AND BY-LAWS
3.1		(a) Restated Certificate of Incorporation dated May 14, 1987¹⁰
		(b) Certificate of Amendment of Restated Certificate of Incorporation dated May 22, 1987¹⁰
		(c) Certificate of Ownership merging The Nathan Company into The Timberland Company dated July 31, 1987¹⁰
		(d) Certificate of Amendment of Restated Certificate of Incorporation dated June 14, 2000¹⁰
		(e) Certificate of Amendment of Restated Certificate of Incorporation dated September 27, 2001¹¹
3.2		By-Laws, as amended February 19, 1993²

(4)		INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
		(See also Exhibits 3.1 and 3.2)
4.1		Specimen stock certificate for shares of the Company's Class A Common Stock³
(10)		MATERIAL CONTRACTS
10.1		Agreement dated as of August 29, 1979 between The Timberland Company and Sidney W. Swartz¹
10.2		(a) The Company's 1987 Stock Option Plan, as amended⁴
		(b) The Company's 1997 Stock Option Plan for Non-Executive Employees⁵
		(c) The Company's 1997 Incentive Plan, as amended¹²
10.3		The Company's 1991 Employee Stock Purchase Plan, as amended⁶
10.4		(a) The Company's 1991 Stock Option Plan for Non-Employee Directors⁷
		(b) Amendment No. 1 dated December 7, 2000¹⁰
10.5		The Company's 2001 Non-Employee Directors Stock Plan¹¹
10.6		The Timberland Company Short Term Incentive Plan²
10.7		The Timberland Company Retirement Earnings 401(k) Plan and Trust Agreements⁸
10.8		(a) The Timberland Company Profit Sharing Plan Trust Agreements⁸
		(b) The Timberland Company Profit Sharing Plan, as amended and restated¹⁴
10.9		Revolving Credit Agreement dated as of May 3, 2001 among The Timberland Company, certain banks listed therein and Fleet National Bank, as administrative agent¹³
10.10		The Timberland Company Deferred Compensation Plan⁹
10.11		Change of Control Severance Agreement¹⁰
(13)		ANNUAL REPORT TO SECURITY HOLDERS
13.		Portions of the 2002 Annual Report as incorporated herein by reference, filed herewith
(21)		SUBSIDIARIES
21.		List of subsidiaries of the registrant, filed herewith
(23)		CONSENT OF EXPERTS AND COUNSEL
23.		Consent of Deloitte & Touche LLP, filed herewith
(99)		ADDITIONAL EXHIBIT
99.1		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, filed herewith
99.2		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, filed herewith
99.3		Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, filed herewith

The Company agrees to furnish to the Commission, upon its request, copies of any omitted schedule or exhibit to any Exhibit filed herewith.

¹: Filed as an exhibit to Registration Statement on Form S-1, numbered 33-14319, and incorporated herein by reference.
²: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and incorporated herein by reference.
³: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference.
⁴: Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8, numbered 33-60457, and incorporated herein by reference.
⁵: Filed on September 9, 1997 as an exhibit to Registration Statement on Form S-8, numbered 333-35223, and incorporated herein by reference.
⁶: Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8, numbered 33-60459, and incorporated herein by reference.
⁷: Filed on August 18, 1992, as an exhibit to Registration Statement on Form S-8, numbered 33-50998, and incorporated herein by reference.
⁸: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.
⁹: Filed on December 15, 2000, as an exhibit to Registration Statement on Form S-8, numbered 333-51912, and incorporated herein by reference.
¹⁰: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
¹¹: Filed on October 26, 2001, as an exhibit to Registration Statement on Form S-8, numbered 333-72248, and incorporated herein by reference.
¹²: Filed as an exhibit to the Company's definitive Proxy Statement dated March 28, 2001 filed in connection with the Company's 2001 Annual Meeting of Stockholders and incorporated herein by reference.
¹³: Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal period ended March 30, 2001, and incorporated herein by reference.
¹⁴: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

		THE TIMBERLAND COMPANY
March 27, 2003		By:		/s/ JEFFREY B. SWARTZ Jeffrey B. Swartz President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/ SIDNEY W. SWARTZ Sidney W. Swartz	Chairman of the Board and Director	March 27, 2003
/s/ JEFFREY B. SWARTZ Jeffrey B. Swartz	President, Chief Executive Officer and Director (Principal Executive Officer)	March 27, 2003
/s/ BRIAN P. MCKEON Brian P. McKeon	Chief Financial Officer and Executive Vice President — Finance and Administration	March 27, 2003
/s/ JOHN CRIMMINS John Crimmins	Vice President, Corporate Controller and Chief Accounting Officer	March 27, 2003
/s/ ROBERT M. AGATE Robert M. Agate	Director	March 27, 2003
/s/ JOHN E. BEARD John E. Beard	Director	March 27, 2003
/s/ JOHN F. BRENNAN John F. Brennan	Director	March 27, 2003
/s/ IAN W. DIERY Ian W. Diery	Director	March 27, 2003
/s/ JOHN A. FITZSIMMONS John A. Fitzsimmons	Director	March 27, 2003
/s/ VIRGINIA H. KENT Virginia H. Kent	Director	March 27, 2003
/s/ BILL SHORE Bill Shore	Director	March 27, 2003
/s/ ABRAHAM ZALEZNIK Abraham Zaleznik	Director	March 27, 2003

CERTIFICATIONS

I, Jeffrey B. Swartz, Chief Executive Officer, certify that:

1. I have reviewed this annual report on Form 10-K of The Timberland Company;

2. Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

6. The registrant's other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 27, 2003
		/s/ JEFFREY B. SWARTZ Jeffrey B. Swartz Chief Executive Officer

CERTIFICATIONS

I, Brian P. McKeon, Chief Financial Officer, certify that:

1. I have reviewed this annual report on Form 10-K of The Timberland Company;

a): designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;
b): evaluated the effectiveness of the registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the "Evaluation Date"); and
c): presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

a): all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant's ability to record, process, summarize and report financial data and have identified for the registrant's auditors any material weaknesses in internal controls; and
b): any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal controls; and

Date: March 27, 2003
		/s/ BRIAN P. MCKEON Brian P. McKeon Chief Financial Officer

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of The Timberland Company

Stratham, New Hampshire

We have audited the consolidated financial statements of The Timberland Company and subsidiaries (the "Company") as of December 31, 2002 and 2001, and for each of the three years in the period ended December 31, 2002, and have issued our report thereon dated February 5, 2003; such consolidated financial statements and report are included in your 2002 Annual Report to Stockholders and are incorporated herein by reference. Our audits also included the consolidated financial statement schedule of The Timberland Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

/s/ DELOITTE & TOUCHE LLP

Boston, Massachusetts
February 5, 2003

F-1

SCHEDULE II

THE TIMBERLAND COMPANY

VALUATION AND QUALIFYING ACCOUNTS

(Dollars In Thousands)

				Additions			Deductions
Description		Balance at Beginning of Period		Charged to Costs and Expenses		Charged to Other Accounts	Write-Offs, Net of Recoveries		Balance at End Of Period
Allowance for doubtful accounts:
Years ended:
	December 31, 2002	$	5,934	$	2,080	—	$	527	$	7,487
	December 31, 2001		5,825		7,227	—		7,118		5,934
	December 31, 2000		4,910		2,395	—		1,480		5,825

F-2

Timberland, the Tree Design logo, 24-7 Comfort Suspension, ACT, Active Comfort Technology, B.S.F.P., Endoskeleton, Flip N' Switch, Gear For Outdoor Athletes, ISN, Independent Suspension Network, Jackson Mountain, Made To Work, Mountain Athletics, Path of Service, PRO 24/7, PRO 24/7 Plus, PRO 24/7 Comfort Suspension, PRO 24/7 Plus Comfort Suspension, Pull On Your Boots, Pull On Your Boots and Make a Difference, Rock Skin; Safe Grip, Seek Out, Smart Comfort, TBL, Timberland PRO, Trail Grip, Weathergear, Workboots For The Professional, the 24-7 Comfort Suspension logo, the PRO 24/7 logo, the PRO 24/7 Plus logo, the Independent Suspension Network logo, the PRO series logos, the Endoskeleton logo, the Mountain Athletics logos, the Z-Warp logo, and the Smart Comfort logo are trademarks or registered trademarks of The Timberland Company.

983-10K1-03

EXHIBIT INDEX

EXHIBIT		DESCRIPTION
(3)		ARTICLES OF INCORPORATION AND BY-LAWS
3.1		(a) Restated Certificate of Incorporation dated May 14, 1987¹⁰
		(b) Certificate of Amendment of Restated Certificate of Incorporation dated May 22, 1987¹⁰
		(c) Certificate of Ownership merging The Nathan Company into The Timberland Company dated July 31, 1987¹⁰
		(d) Certificate of Amendment of Restated Certificate of Incorporation dated June 14, 2000¹⁰
		(e) Certificate of Amendment of Restated Certificate of Incorporation dated September 27, 2001¹¹
3.2		By-Laws, as amended February 19, 1993²
(4)		INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING INDENTURES
		(See also Exhibits 3.1 and 3.2)
4.1		Specimen stock certificate for shares of the Company's Class A Common Stock³
(10)		MATERIAL CONTRACTS
10.1		Agreement dated as of August 29, 1979 between The Timberland Company and Sidney W. Swartz¹
10.2		(a) The Company's 1987 Stock Option Plan, as amended⁴
		(b) The Company's 1997 Stock Option Plan for Non-Executive Employees⁵
		(c) The Company's 1997 Incentive Plan, as amended¹²
10.3		The Company's 1991 Employee Stock Purchase Plan, as amended⁶
10.4		(a) The Company's 1991 Stock Option Plan for Non-Employee Directors⁷
		(b) Amendment No. 1 dated December 7, 2000¹⁰
10.5		The Company's 2001 Non-Employee Directors Stock Plan¹¹
10.6		The Timberland Company Short Term Incentive Plan²
10.7		The Timberland Company Retirement Earnings 401(k) Plan and Trust Agreements⁸
10.8		(a) The Timberland Company Profit Sharing Plan Trust Agreements⁸
		(b) The Timberland Company Profit Sharing Plan, as amended and restated¹⁴
10.9		Revolving Credit Agreement dated as of May 3, 2001 among The Timberland Company, certain banks listed therein and Fleet National Bank, as administrative agent¹³
10.10		The Timberland Company Deferred Compensation Plan⁹
10.11		Change of Control Severance Agreement¹⁰
(13)		ANNUAL REPORT TO SECURITY HOLDERS
13.		Portions of the 2002 Annual Report as incorporated herein by reference, filed herewith
(21)		SUBSIDIARIES
21.		List of subsidiaries of the registrant, filed herewith
(23)		CONSENT OF EXPERTS AND COUNSEL
23.		Consent of Deloitte & Touche LLP, filed herewith
(99)		ADDITIONAL EXHIBIT
99.1		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, filed herewith

99.2		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, filed herewith
99.3		Cautionary Statements for Purposes of the "Safe Harbor" Provisions of the Private Securities Litigation Reform Act of 1995, filed herewith

The Company agrees to furnish to the Commission, upon its request, copies of any omitted schedule or exhibit to any Exhibit filed herewith.

¹: Filed as an exhibit to Registration Statement on Form S-1, numbered 33-14319, and incorporated herein by reference.
²: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998, and incorporated herein by reference.
³: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1996, and incorporated herein by reference.
⁴: Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8, numbered 33-60457, and incorporated herein by reference.
⁵: Filed on September 9, 1997 as an exhibit to Registration Statement on Form S-8, numbered 333-35223, and incorporated herein by reference.
⁶: Filed on June 21, 1995, as an exhibit to Registration Statement on Form S-8, numbered 33-60459, and incorporated herein by reference.
⁷: Filed on August 18, 1992, as an exhibit to Registration Statement on Form S-8, numbered 33-50998, and incorporated herein by reference.
⁸: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 1995, and incorporated herein by reference.
⁹: Filed on December 15, 2000, as an exhibit to Registration Statement on Form S-8, numbered 333-51912, and incorporated herein by reference.
¹⁰: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2000, and incorporated herein by reference.
¹¹: Filed on October 26, 2001, as an exhibit to Registration Statement on Form S-8, numbered 333-72248, and incorporated herein by reference.
¹²: Filed as an exhibit to the Company's definitive Proxy Statement dated March 28, 2001 filed in connection with the Company's 2001 Annual Meeting of Stockholders and incorporated herein by reference.
¹³: Filed as an exhibit to the Quarterly Report on Form 10-Q for the fiscal period ended March 30, 2001, and incorporated herein by reference.
¹⁴: Filed as an exhibit to the Annual Report on Form 10-K for the fiscal year ended December 31, 2001, and incorporated herein by reference.

ITEM 3. LEGAL PROCEEDINGS

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

ITEM 6. SELECTED FINANCIAL DATA

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

ITEM 11. EXECUTIVE COMPENSATION

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 14. CONTROLS AND PROCEDURES

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

SIGNATURES

CERTIFICATIONS

INDEPENDENT AUDITORS' REPORT
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT INDEX
EX-13 3 a2106481zex-13.txt EXHIBIT 13 [Timberland Logo Appears Here] Table of Contents FINANCIAL REVIEW Five Year Summary of Selected Financial Data..................... 30 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 31 Consolidated Balance Sheets...................................... 39 Consolidated Statements of Income................................ 40 Consolidated Statements of Changes in Stockholders' Equity....... 41 Consolidated Statements of Cash Flows............................ 42 Notes to Consolidated Financial Statements....................... 43 INDEPENDENT AUDITORS' REPORT............................................. 55 CORPORATE INFORMATION.................................................... 56 29 FINANCIAL REVIEW FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA Selected Statement of Income Data (Dollars in Thousands, Except Per Share Data)

(1) In 2002, the Company recorded a $4,913 after-tax cumulative effect of change in accounting principle gain. In 2000, the Company recorded a $2,126 after-tax extraordinary loss related to the early redemption of $100,000 in senior notes. Selected Balance Sheet Data (Dollars in Thousands)

30 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discusses The Timberland Company's (the "Company") results of operations and liquidity and capital resources. The discussion, including known trends and uncertainties identified by management, should be read in conjunction with the consolidated financial statements and related notes. Critical Accounting Policies The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to sales returns and allowances, realizability of outstanding accounts receivable, the carrying value of inventories, derivatives, other contingencies, impairment of assets and the provision for income taxes. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from the Company's estimates. However, results may differ from these estimates under different assumptions or conditions. The Company's significant accounting policies are described in Note 1 to the Company's consolidated financial statements. The Company has identified the following as critical accounting policies, based on the significant judgments and estimates used in determining the amounts reported in its consolidated financial statements: Sales Returns and Allowances The Company's revenue consists of sales to customers, license fees and royalties. Revenue is recognized either upon shipment of product to customers or, for retail customers, at point of sale. License fees and royalties are recognized when earned. The Company records reductions to revenue for estimated customer returns and allowances. The Company bases its estimates on historical rates of customer returns and allowances, as well as the specific identification of outstanding returns and allowances, which are known to the Company but which have not yet been received. The actual amount of customer returns or allowances, which is inherently uncertain, may differ from the Company's estimates. If the Company were to determine that increases or decreases to sales returns and allowances were appropriate, the Company would record either a reduction or increase to net sales in the period in which it made such a determination. Accounts Receivable The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company estimates potential losses primarily based upon the Company's historical rate of credit losses and its knowledge of the financial condition of its customers. Historically, losses have been within the Company's expectations. If the financial condition of the Company's customers were to change, adjustments may be required to these estimates. Furthermore, the Company provides for estimated losses resulting from disputes which arise with respect to the gross carrying value of its receivables and the amounts which customers estimate are owed to the Company. The settlement or resolution of these differences could result in future changes to these estimates. If the Company were to determine that increases or decreases to the allowance for doubtful accounts were appropriate, the Company would record either an increase or decrease to selling expense in the period the Company made such a determination. Inventory Valuation The Company values its inventory at the lower of cost (first-in, first-out) or market. Market value is estimated based upon assumptions made about future demand and retail market conditions. If the Company were to determine that the estimated market value of its inventory is less than the carrying value of such inventory, the Company would provide a reserve for such difference as a charge to cost of sales. If actual market conditions are more or less favorable than those projected by the Company, adjustments to those inventory reserves may be required. The adjustments would decrease or increase the Company's cost of sales and net income in the period in which they were realized or recorded. Derivatives The Company is routinely subject to currency rate movements on non-U.S. dollar denominated assets, liabilities and income as the Company purchases and sells goods in local currencies. Derivative instruments, specifically forward contracts, are used by the Company in its hedging of forecasted foreign currency transactions. The Company uses its operating budget and periodic forecasts to estimate its future economic exposure and to determine the appropriate levels and timing of its related hedging transactions. The 31 Company closely monitors its foreign currency exposure and adjusts its hedge positions accordingly. By their very nature, the Company's estimates of anticipated transactions may fluctuate over time and may vary from the ultimate transactions (see Note 2). Future operating results may be impacted by adjustments to these estimates. Contingencies In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, trademark rights and a variety of other matters. The Company records contingent liabilities resulting from claims when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. Estimating probable losses requires analysis of multiple factors, in some cases including judgments about the potential actions of third party claimants and courts. Therefore, actual losses in any future period are inherently uncertain. The Company believes that its contingent liabilities adequately reserve for any pending legal proceedings or claims. However, if actual or estimated probable future losses exceed, or are less than, the recorded liability for such claims, the Company would record an adjustment during the period in which the actual loss or change in estimate occurred. Long-lived Assets When events or circumstances indicate that the carrying value of a long-lived asset may be impaired, the Company estimates the future undiscounted cash flows to be derived from the asset to determine whether or not a potential impairment exists. If the carrying value exceeds the estimate of future undiscounted cash flows, an impairment is calculated as the excess of the carrying value of the asset over the estimate of its fair market value. The Company estimates future undiscounted cash flows using assumptions about expected future operating performance. Those estimates of undiscounted cash flows may differ from actual cash flows due to, among other things, technological changes, economic conditions, or changes to business operations. For fiscal 2002, other than immaterial retail store closing charges, no significant impairment related to the carrying value of the Company's long-lived assets has been recorded. Goodwill The Company is required to test its goodwill for impairment at least on an annual basis. That test requires that the fair value of a reporting unit is compared with its carrying amount, including goodwill. The Company establishes fair value by calculating the present value of the future cash flows of the reporting unit. The Company uses assumptions about expected future operating performance in determining estimates of those cash flows. Those estimates of cash flows may differ from actual cash flows. For fiscal 2002, there was no impairment of the Company's goodwill. Income Taxes The Company generates deferred tax assets and liabilities based upon book to tax differences. The carrying value of the Company's net deferred tax assets assumes that the Company will be able to generate sufficient future taxable income in certain tax jurisdictions to realize the value of these assets. If the Company is unable to generate sufficient future taxable income in these jurisdictions, an adjustment may be required in the net carrying value of the deferred tax assets, which would result in additional income tax expense in the Company's consolidated statements of income. Management evaluates the realizability of the deferred tax assets and assesses the need for any valuation adjustment quarterly. On an interim basis, the Company estimates what the effective tax rate will be for the full fiscal year and records a quarterly income tax provision in accordance with the anticipated annual rate. As the fiscal year progresses, that estimate is continually refined based upon actual events and earnings by jurisdiction during the year. This continual estimation process periodically results in a change to the expected effective tax rate for the fiscal year. When this occurs, the Company adjusts the income tax provision during the quarter in which the change in estimate occurs so that the year-to-date provision equals the expected annual rate (see Note 12). 32 RESULTS OF OPERATIONS (Amounts in Thousands, Except Per Share Data)

Revenue Overview Revenue increased to $1,190.9 million in 2002, from $1,183.6 million in 2001 and $1,091.5 million in 2000. This represents an increase of 0.6% in 2002 and an 8.4% increase in 2001, each compared with the prior year. In 2002, compared with 2001, domestic revenue, which comprised 66.0% of the Company's business, declined 5.8%. This decline, which occurred primarily in the wholesale boot business, reflects the steps the Company has taken to control supply in order to position for future growth. The mix impact of the boot decline adversely impacted the Company's average selling prices. Additionally, U.S. Consumer Direct revenue declined 6.5%, in part due to aggressive promotions by competitors and the overall weakness in the U.S. retail climate. Offsetting these declines domestically, the U.S. wholesale apparel business increased by 9.2%. Internationally, revenue increased 16.0%, primarily due to Europe's growth across all products, channels and markets. Additionally, the increased strength of the euro, in relation to the dollar, resulted in revenue improvement related to foreign exchange. Asia had mid single-digit growth for the year. In 2001, compared with 2000, domestic revenue, which comprised 70.5% of the Company's business, increased 6.0%. This increase occurred primarily in the wholesale boot business and reflected a strong first-half performance. In the second half of 2001, softness in U.S. market conditions and a negative impact from the Company's disciplined approach to the management of the boot business led to a lesser increase in boot revenue than in the first-half of 2001. That impacted sales allowances and affected product mix, reducing wholesale footwear average selling prices for the year, compared with 2000. In apparel and accessories, the domestic wholesale business had strong performance, with a 24.9% revenue improvement over 2000. U.S. Consumer Direct revenue increased 2.2% in 2001, compared with 2000. Although unit volumes increased in both footwear and apparel and accessories, average selling prices declined, primarily as a result of the Company's focus on managing inventory levels and, to a lesser degree, product mix, both in part resulting from the soft U.S. market conditions. Internationally, the 14.7% revenue increase reflected increases in apparel and accessories and footwear across all channels and markets. These increases were partially offset by a negative impact from the euro weakening in relation to the dollar, when compared with 2000. Segments The Company has three reportable business segments (see Note 15): U.S. Wholesale, U.S. Consumer Direct (formerly U.S. Retail-commencing in 2001, U.S. Consumer Direct includes the Company's e-commerce business) and International. Domestic revenue, comprised of the U.S. Wholesale and U.S. Consumer Direct segments, amounted to $785.7 million in 2002, $834.2 million in 2001 and $787.0 million in 2000, or 66.0%, 70.5% and 72.1% of total revenue for each of the three years, respectively. U.S. Wholesale segment revenue decreased to $595.2 33 million in 2002, from $630.6 million in 2001, and increased from $587.7 million in 2000. This represents a decrease of 5.6% in 2002, compared with 2001, primarily due to footwear average selling prices, resulting from the mix of product sold, primarily reflecting a reduction in boot revenue, driven by the steps that the Company has taken to control the supply of boot products in order to position the boot business for future growth. Additionally, the Company experienced increased off-price sales in a difficult retail market. The increase of 7.3% in 2001, compared with 2000, was primarily due to footwear unit sales and, to a lesser degree, apparel and accessories unit sales. The increases in 2001, compared with 2000, were partially offset by a reduction in footwear average selling prices, primarily due to sales and allowances and, to a lesser degree, product mix. U.S. Consumer Direct segment revenue decreased to $190.4 million in 2002, from $203.6 million in 2001 and $199.3 million in 2000. This represents a decrease of 6.5% in 2002, compared with 2001. The decrease was primarily due to a reduction in apparel and accessories unit sales, in part due to aggressive promotions by competitors and overall weakness in the U.S. retail climate. Given the economic conditions in the U.S., the Company intends to control store growth in its U.S. retail business and focus on enhancing returns at current locations. U.S. Consumer Direct segment revenue increased 2.2% in 2001, compared with 2000, primarily due to footwear unit sales and, to a lesser degree, apparel and accessories unit sales, primarily offset by a reduction in average selling prices. This reduction in average selling prices was primarily the result of the Company's effort to manage inventory levels and, to a lesser degree, mix of product sold. Comparable domestic store sales decreased 8.5% in 2002, compared with 2001, and decreased 4.5% in 2001, compared with 2000. International segment revenue increased to $405.2 million in 2002, from $349.4 million in 2001 and $304.5 million in 2000. This represents an increase of 16.0% in 2002, compared with 2001, and 14.7% in 2001, compared with 2000. The increase in 2002, compared with 2001, was primarily due to European footwear and, to a lesser degree, apparel and accessories unit volume increases across all channels and markets, most predominantly in wholesale, and to the impact of foreign exchange. Asia had mid single-digit growth for the year. The increase in 2001, compared with 2000, was due to unit volume increases in apparel and accessories and footwear across all channels, partially offset by the impact of foreign exchange. On a constant dollar basis, which restates current year revenue at prior year foreign exchange rates, International segment revenue increased 12.3% in 2002 and 19.6% in 2001, each compared to the prior year. Products Worldwide footwear revenue was $888.6 million in 2002, $898.7 million in 2001 and $838.0 million in 2000. This represents a decrease of 1.1% in 2002 and an increase of 7.2% in 2001, each compared with the prior year. The revenue decrease in 2002, compared with 2001, was primarily related to lower U.S. Boot revenue, which contributed to an overall reduction in U.S. Wholesale average selling prices, as discussed previously, partially offset by increased unit sales in worldwide wholesale and International retail and, to a lesser degree, the impact of foreign exchange. By product, the decrease was primarily attributable to unit volume declines in U.S. Wholesale Boots and, to a lesser degree, Outdoor Performance. These decreases were partially offset by revenue increases in worldwide Kids', Women's casual and the Timberland PRO(TM) series. The revenue increase in 2001, compared with 2000, was primarily due to U.S. Wholesale unit sales and, to a lesser degree, International wholesale unit sales. These increases were partially offset by a decline in average selling prices, primarily due to sales allowances and, to a lesser degree, product mix and the impact of foreign exchange. By product, the increase in 2001 was primarily attributable to unit volume growth in U.S. Wholesale Boots and, to a lesser degree, Kids', the Timberland PRO(TM) series, Boots within U.S. Consumer Direct and European Men's casual. These increases were partially offset by revenue declines in worldwide Outdoor Performance and domestic Men's casual. Worldwide footwear revenue represented 75.6%, 76.8% and 77.5% of total product revenue in 2002, 2001 and 2000, respectively. Revenue attributable to apparel and accessories was $287.4 million in 2002, $272.0 million in 2001 and $242.9 million in 2000. The revenue increase of 5.7% in 2002, compared with 2001, was primarily due to unit volume growth in Europe and, to a lesser degree, the impact of foreign exchange, partially offset by the unit volume decline in the U.S. Consumer Direct segment, as discussed previously. The revenue increase of 12.0% in 2001, compared with 2000, reflects double-digit increases in worldwide wholesale and, to a lesser degree, International retail. These increases were partially offset by a reduction in U.S. Consumer Direct average selling prices and, to a lesser degree, the impact of foreign exchange. The reduction in average selling prices was primarily due to product mix and to markdowns related to inventory control efforts. Worldwide apparel and accessories revenue represented 24.4%, 23.2% and 22.5% of total product revenue in 2002, 2001 and 2000, respectively. Channels Worldwide wholesale revenue was $886.8 million in 2002, $879.1 million in 2001 and $810.8 million in 2000. This represents an increase of 0.9% in 2002 and 8.4% in 2001, each compared with the prior year. The increase in 2002, compared with 2001, was primarily due to worldwide footwear and, to a lesser degree, International apparel and accessories unit sales and the impact of foreign exchange. These increases were primarily offset by the decline in U.S. Wholesale footwear average selling prices, as discussed previously. Both domestic and International footwear and apparel and accessories wholesale businesses increased in 2001, compared with the prior year. The increase in footwear was primarily due to U.S. Wholesale footwear unit volume increases, partially offset by a decline in average selling prices primarily due to sales allowances and, to a lesser degree, product mix. The increase in apparel and accessories wholesale revenue was primarily due to European and U.S. Wholesale unit volumes. 34 Worldwide revenue from Company-operated specialty and factory outlet stores, along with the Company's e-commerce business, was $304.1 million in 2002, $304.6 million in 2001 and $280.7 million in 2000. This represents a decrease of 0.1% in 2002 and an increase of 8.5% in 2001, each compared with the prior year. The decrease in 2002, compared with 2001, was primarily due to U.S. Consumer Direct apparel and accessories unit sales, as discussed previously, partially offset by increased International footwear and apparel and accessories unit volumes and, to a lesser degree, the impact of foreign exchange. The Company intends to control store growth in its U.S. retail business and to focus on enhancing returns at current locations. The increase in revenue in 2001, compared with 2000, was primarily due to footwear and, to a lesser degree, apparel and accessories unit volumes, partially offset by lower domestic average selling prices and the impact of foreign exchange. These increases were partially due to the addition of new retail locations. Worldwide retail revenue represented 25.5%, 25.7% and 25.7% of total revenue in 2002, 2001 and 2000, respectively. Worldwide, the Company opened 27 stores and closed 9 stores in 2002, opened 22 stores and closed 7 stores in 2001 and opened 27 stores and closed 3 stores in 2000. Gross Profit Gross profit as a percentage of revenue was 43.5% in 2002, 44.0% in 2001 and 46.6% in 2000. The decrease in 2002, compared with 2001, was primarily due to a 0.8 percentage point year over year impact of foreign currency hedging, a 0.7 percentage point impact of increased U.S. Wholesale footwear off-price sales and a 0.5 percentage point impact of incremental transportation costs related to the U.S. west coast port work stoppage during the fourth quarter of 2002. These were partially offset by a 0.5 percentage point impact from leather cost decreases and other cost reductions. At current levels, the Company expects recent improvements in foreign exchange rates to yield incremental benefits in 2003. The decrease in margin percentage in 2001, compared with 2000, was primarily due to increases in leather costs, U.S. Wholesale footwear sales returns and allowances and pressure from foreign exchange declines. Each lowered the gross margin rate by approximately 1.1 percentage points. These declines in gross margin were partially offset by the impact of mix and other cost reductions. The Company continues to review, develop and implement cost efficiencies across the supply chain in its efforts to improve gross margins. Operating Expense Operating expense was $379.5 million, or 31.9% of revenue in 2002, $357.7 million, or 30.2% of revenue in 2001 and $324.3 million, or 29.7% of revenue in 2000. The 6.1% increase in operating expense in 2002, compared with 2001, was primarily due to incentive compensation related charges (see Note 13), investment in the Company's International business, the impact of foreign exchange and other costs related to company-wide activities. Going forward, the Company expects that its initiatives to grow the International and U.S. Wholesale apparel businesses, as well as support for the Company's global brand initiatives, will likely drive expense increases at or above the rate of revenue growth. The 10.3% increase in operating expense in 2001, compared with 2000, was primarily due to investments in key growth drivers such as the expansion of the Company's Asian business, the expansion of its domestic retail business and additional sales and marketing efforts. Operating Income Operating income, which is pretax earnings before interest expense and other, net, was $138.8 million in 2002, $163.1 million in 2001 and $184.2 million in 2000. As a percentage of revenue, operating income was 11.7% in 2002, 13.8% in 2001 and 16.9% in 2000. The Company is targeting modest improvement in operating margins in 2003, excluding comparisons to the one-time U.S. west coast port work stoppage impact, as discussed previously. Segment operating income decreased in the U.S. Wholesale segment in 2002, compared with 2001. The decrease was primarily driven by a 6.5% decrease in footwear revenue, as discussed previously, on a 0.7 percentage point decrease in gross margin rates, primarily due to increased off-price sales, and an increase in operating expense rates. This decrease was partially offset by improved performance in apparel revenue, gross margin rates and operating expense rates. In the U.S. Consumer Direct segment, although revenue decreased 6.5%, improved gross margin rates generated an 8.2% increase in operating income. These improvements reflect benefits from proactive strategies to improve margins through reduced discounting and lower product costs. In the International segment, a 12.3% constant dollar revenue increase, primarily attributable to European performance, along with improved gross margin and expense rates, drove the 26.1% improvement in operating income. This performance was partially offset by the year over year impact of foreign currency hedging. The increase in the Unallocated Corporate operating loss was primarily due to incentive compensation related charges and other costs incurred in support of company-wide activities. Segment operating income decreased in the domestic segments in 2001 and improved in the International segment, compared with the prior year. In the U.S. Wholesale segment, mid single-digit revenue increases in footwear were offset by lower gross margin rates, as discussed previously, and higher expense rates, which reduced operating income by 3.0%, compared with the prior year. In the U.S. Consumer Direct segment, a 2.2% increase in revenue, combined with a decrease in gross margin rates and an increase in operating expense rates, lowered operating income by 21.1%, compared with the prior year. Internationally, segment operating income increased by 5.1% over the prior year. This increase was primarily due to improved gross margin dollars on double-digit increases in apparel and accessories and footwear revenue and, to a lesser degree, improved operating expense rates. The increase in the Unallocated Corporate operating loss in 2001, compared with 2000, was 35 primarily due to increased marketing and other costs incurred in support of company-wide activities. Interest, Other, Net and Taxes Interest expense, which is comprised of fees related to the establishment and maintenance of the Company's revolving credit facility plus interest paid on short-term borrowings and interest on long-term debt, was $0.9 million in 2002, compared with $1.6 million in 2001 and $5.6 million in 2000. The decrease in interest expense in 2002, compared with 2001, was due to lower average borrowings at lower interest rates. In 2001, the decrease in interest expense was primarily due to the prepayment of the $100.0 million senior notes in 2000 (see Note 6). Other, net includes interest income of $1.0 million in 2002, $1.2 million in 2001 and $4.9 million in 2000. Interest income in 2002 reflects lower average interest rates but higher average investments than in 2001. The decrease in interest income in 2001, compared with 2000, reflects lower cash balances resulting from the prepayment of the senior notes in 2000 and the generation of lower cash flow from operations in 2001, compared with 2000. Other, net in 2001 includes the negative impact of foreign exchange and, in 2000, reflects the receipt of $5.1 million from the Company's former Asian distributor (see Note 5). The effective income tax rate was 35.0% in 2002, 34.0% in 2001 and 33.5% in 2000. The increase in the rate is primarily due to a combination of a federal tax law change, which reduced the tax benefits associated with the Company's Puerto Rico operations and to U.S. federal tax exempt Puerto Rico income comprising a lower percentage of consolidated income. For an analysis of the effective tax rate, see the "Income Taxes" note (Note 12) to the Company's consolidated financial statements. The Company believes that inflation has not had a significant impact on the Company's operations over the past three years. LIQUIDITY AND CAPITAL RESOURCES Cash generated by operations amounted to $137.9 million in 2002, $88.9 million in 2001 and $141.3 million in 2000. The increase in cash generated in 2002, compared with 2001, was primarily due to a higher level of expense accruals and a lower receivable balance, net of the impact of foreign exchange. The increase in accruals was primarily due to incentive compensation accruals being at approximately 2000 levels, in comparison to low 2001 levels, and, to a lesser degree, accrued hedging contract losses in 2002 whose trades had not settled, compared with receivable balances in previous years, and higher cooperative advertising activity. These increases in cash were partially offset by lower earnings in 2002, compared with the prior years. In 2001, compared with 2000, higher working capital, primarily from decreases in accounts payable and accrued expense, and lower earnings were the principal causes of the reduction in cash generated by operations. The reduction in accounts payable was primarily due to the timing of receipt and payment of inventory in the fourth quarter of 2001, compared with 2000, while the reduction in accrued expense primarily reflects lower compensation related accruals, compared with the prior year. In 2001, compared with 2000, the increase in receivables primarily reflects sales timing changes in the U.S., as retailers ordered closer to need, as well as some erosion in collections. Inventory position improved in 2001, compared with 2000, as a result of disciplined inventory management in the challenging U.S. market. Inventory turns were 4.6 times in 2002, compared with 4.2 times in 2001 and 4.0 times in 2000. Days sales outstanding at December 31, 2002 were 33 days, compared with 35 days at December 31, 2001 and 29 days at December 31, 2000. Wholesale days sales outstanding were 43 days, 44 days and 32 days at the end of 2002, 2001 and 2000, respectively. Net cash used by investing activities amounted to $17.6 million in 2002, $24.6 million in 2001 and $32.4 million in 2000. Of the net cash used by investing activities, capital expenditures were $17.9 million in 2002, $22.4 million in 2001 and $35.4 million in 2000. A majority of capital expenditures during the three years ended December 31, 2002, 2001 and 2000 were for retail store additions and building improvements, transportation and distribution equipment, manufacturing machinery and equipment and information system enhancements. In 2000, the acquisition of the Asian subsidiaries generated $5.2 million of cash (see Note 5). During 2002, 2001 and 2000, net cash used in financing activities amounted to $88.7 million, $71.9 million and $188.5 million, respectively. In 2002, 2001 and 2000, $101.2 million, $80.4 million and $101.7 million was used to repurchase outstanding shares of the Company's Class A Common Stock, respectively. Financing activities in 2001 include costs related to the establishment of the Company's new revolving credit facility. On May 3, 2001, the Company entered into a new, unsecured committed revolving credit agreement (the "Agreement") with a group of banks, effective until May 3, 2004. The Agreement provides for $200.0 million of committed borrowings, of which up to $125.0 million may be used for letters of credit (see Note 7). Financing activities in 2000 include the prepayment of $100.0 million in senior notes. The extraordinary item associated with this debt prepayment is included in financing activities (see Note 6). The Company had no outstanding debt at December 31, 2002, 2001 and 2000. As of December 31, 2002, 2001 and 2000, the Company had letters of credit outstanding of $23.0 million, $39.0 million and $56.0 million, respectively. All were issued for the purchase of inventory. 36 The Company has the following off-balance sheet contractual obligations due by period: (Dollars in Millions)

The Company has the following off-balance sheet commercial commitments by expiration period: (Dollars in Millions)

The Company uses funds from operations and unsecured revolving and committed lines of credit as the primary sources of financing for its seasonal and other working capital requirements. Long-term debt, if required, is generally used to finance long-term investments. The Company's principal risks to these sources of financing are the impact on the Company's financial condition from economic downturns, a decrease in the demand for the Company's products, increases in the prices of raw materials and a variety of other factors. The Company anticipates that capital requirements for 2003 will be met through the use of its current cash balances, through its existing credit facilities (which places certain limitations on additional debt, stock repurchases, acquisitions and on the amount of dividends the Company may pay, and also contains certain other financial and operating covenants) and through cash flow from operations, without the need for additional permanent financing. However, if the need arises, the Company's ability to obtain any additional credit facilities will depend upon prevailing market conditions, the Company's financial condition and the terms and conditions of such additional facilities. NEW ACCOUNTING PRONOUNCEMENTS A discussion of new accounting pronouncements is included in the "Summary of Significant Accounting Policies" note (Note 1) to the Company's consolidated financial statements. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK In the normal course of business, the financial position and results of operations of the Company are routinely subject to a variety of risks, including market risk associated with interest rate movements on borrowings and investments and currency rate movements on non-U.S. dollar denominated assets, liabilities and income. The Company regularly assesses these risks and has established policies and business practices that should result in an appropriate level of protection against the adverse effect of these and other potential exposures. The Company utilizes cash from operations and U.S. dollar denominated borrowings to fund its working capital and investment needs. Short-term debt, if required, is used to meet working capital requirements and long-term debt, if required, is generally used to finance long-term investments. In addition, derivative instruments are used by the Company in its hedging of foreign currency transactions. These debt instruments and derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Cash balances are invested in high-grade securities with terms under three months. The Company has available unsecured committed and uncommitted lines of credit as sources of financing for its working capital requirements. Borrowings under these credit agreements bear interest at variable rates based on either lenders' cost of funds, plus an applicable spread, or prevailing money market rates. At December 31, 2002, December 31, 2001 and December 31, 2000, the Company had no short-term or long-term debt outstanding. The Company's foreign currency exposure is generated primarily from its European operating subsidiaries and, to a lesser degree, its Asian operating subsidiaries. The Company seeks to minimize the impact of these foreign currency fluctuations by hedging the related transactions with foreign currency forward contracts. Currently, these foreign currency forward contracts will expire in 15 months or less. Based upon sensitivity analysis as of December 31, 2002, a 10% change in foreign exchange rates would cause the fair value of the Company's financial instruments to increase/decrease by approximately $16.6 million, compared with $12.3 million at December 31, 2001. The increase at December 31, 2002 is primarily due to the amount of foreign currency contracts held at December 31, 2002, compared with December 31, 2001. EURO Effective January 1, 1999, the European Monetary Union created a single currency, the euro, for its member countries. A transition period, from January 1, 1999 through December 31, 2001, allowed the member countries 37 to methodically eliminate their local currencies and to convert to the euro. As of December 31, 2001, the Company was completely euro compliant. The Company has monitored, and will continue to monitor, the euro conversion. The Company has not experienced any material business disruptions as a result of the euro conversion. FORWARD-LOOKING INFORMATION As discussed in Exhibit 99.3, entitled "Cautionary Statements for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995," investors should be aware of factors that could affect the Company's actual results and could cause such results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. These factors include, but are not limited to: (i) the Company's ability to successfully market and sell its products in view of changing consumer trends, consumer acceptance of products, and other factors affecting retail market conditions, including the current U.S. economic environment and the global economic and political uncertainties resulting from the continuing war on terrorism; (ii) the Company's ability to manage its foreign exchange rate risks; (iii) the Company's ability to obtain adequate raw materials at competitive prices; (iv) the Company's ability to successfully invest in its infrastructure and product based upon its advance sales forecasts; (v) the Company's ability to locate and retain independent manufacturers to produce lower cost, high-quality products with rapid turnaround times; (vi) the Company's ability to recover its investment in, and expenditures of, its retail organization through adequate sales at such retail locations; and (vii) the Company's ability to respond to actions of the Company's competitors, some of whom have substantially greater resources than those of the Company. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. QUARTERLY MARKET INFORMATION AND RELATED MATTERS The Company's Class A Common Stock is traded on the New York Stock Exchange under the symbol TBL. There is no market for shares of the Company's Class B Common Stock; however, shares of Class B Common Stock may be converted into shares of Class A Common Stock on a one-for-one basis and will automatically be converted upon any transfer (except for estate planning transfers and transfers approved by the Board of Directors). The following table presents the high and low closing sales prices of the Company's Class A Common Stock for the past two years, as reported by the New York Stock Exchange. 2002 2001 ---------------- ----------------- High Low High Low ------ ------ ------ ------ First Quarter $42.25 $31.59 $73.25 $49.20 Second Quarter 45.89 35.16 52.10 38.70 Third Quarter 38.89 31.98 41.50 26.15 Fourth Quarter 38.99 27.07 38.25 26.84 As of February 21, 2003, the number of record holders of the Company's Class A Common Stock was approximately 830 and the number of record holders of the Company's Class B Common Stock was 7. The closing sales price of the Company's Class A Common Stock on February 21, 2003 was $38.26 per share. The Company has never declared a dividend on either the Company's Class A or Class B Common Stock. In addition, the Company's ability to pay cash dividends is limited pursuant to loan agreements (see notes to the Company's consolidated financial statements). 38 CONSOLIDATED BALANCE SHEETS As of December 31, 2002 and 2001 (Amounts in Thousands, Except Share and Per Share Data)

The accompanying notes are an integral part of these consolidated financial statements. 39 CONSOLIDATED STATEMENTS OF INCOME For the Years Ended December 31, 2002, 2001 and 2000 (Amounts in Thousands, Except Per Share Data)

The accompanying notes are an integral part of these consolidated financial statements. 40 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands) Accumulated

The accompanying notes are an integral part of these consolidated financial statements. 41 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2002, 2001 and 2000 (Dollars in Thousands)

The accompanying notes are an integral part of these consolidated financial statements. 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands, Except Share and Per Share Data) 1. Summary of Significant Accounting Policies Basis of Consolidation The consolidated financial statements include the accounts of The Timberland Company and its subsidiaries (the "Company"). All material intercompany transactions have been eliminated in consolidation. Nature of Operations The Company designs, develops, engineers, markets and distributes premium-quality footwear, apparel and accessories products for men, women and children. The Company's products are sold primarily through independent retailers, better grade department stores and athletic stores. In addition, the Company's products are sold in Timberland(R) specialty stores, Timberland(R) factory outlet stores, on timberland.com and franchisees in Europe. The Company's products are sold throughout the U.S., Canada, Europe, Asia, Latin America and the Middle East. The Company's footwear, apparel and accessories products are marketed in highly competitive environments that are subject to change in consumer preferences. Historically, footwear has accounted for approximately 75% of the Company's revenue. Geographically, approximately two-thirds of the Company's revenue is from its domestic businesses. From a channel perspective, approximately 75% of the Company's revenue is from its wholesale business. The Company manages its business in three major segments, each sharing similar product, distribution, marketing and economic conditions: U.S. Wholesale, U.S. Consumer Direct, and International. The Company sources approximately 85% of its footwear products. The remainder are produced in the Company's manufacturing facilities in the Caribbean. All of the Company's apparel and accessories products are sourced. Recognition of Revenue Revenue consists of sales to customers, license fees and royalties. Sales are recognized either upon shipment of product to customers or, for retail customers, at the point of sale. License fees and royalties are recognized when earned. The Company records reductions to revenue for estimated sales returns and allowances. The Company bases its estimates on historical rates of customer returns and allowances, as well as the specific identification of outstanding returns and allowances. The Company maintains allowances for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. The Company estimates potential losses primarily based on the Company's historical rate of credit losses and its knowledge of the financial condition of its customers. Inventory Inventory is stated at the lower of cost (first-in, first-out) or market. Market value is estimated based upon assumptions made about future demand and retail market conditions. If the Company determines that the actual market value differs from the carrying value of its inventory, the Company will make an adjustment to reduce the value of its inventory. Translation of Foreign Currencies The Company translates financial statements denominated in foreign currencies by translating balance sheet accounts at the end of period exchange rates and statement of income accounts at the average exchange rates for the period. Translation gains and losses are recorded in stockholders' equity and reflected in other comprehensive income/(loss). Transaction gains and losses are reflected in net income. Derivatives The Company is exposed to foreign exchange risk when it purchases and sells goods in local currencies. It is the Company's policy to hedge a portion of this risk through forward sales of foreign currencies, thereby locking in the future exchange rates. Those derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. The Company uses its operating budget and periodic forecasts to estimate its economic exposure and to determine its hedging commitments, and the timing of those commitments. Derivatives are recognized at fair value and included in either "Derivative liabilities" or "Derivative assets" on the Company's balance sheet. Derivatives that are not designated as hedges are adjusted to fair value through income. If a derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset by the change in fair value of the hedged asset, liability, or firm commitment through 43 earnings or recognized in other comprehensive income/(loss) until the hedged item is recognized in earnings. The ineffective portion, if any, of a derivative's change in fair value is immediately recognized in earnings. Income Taxes Income taxes are determined based on the income reported in the Company's financial statements, regardless of when such taxes are payable. Tax assets and liabilities are adjusted to reflect the changes in U.S. and applicable foreign income tax laws when enacted. Future tax benefits are recognized to the extent that realization of such benefits is more likely to occur than not. Cash and Equivalents Cash and equivalents consist of short-term, highly liquid investments that have original maturities to the Company of three months or less. Property, Plant and Equipment Property, plant and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the assets or over the terms of the related leases, if such periods are shorter. The principal estimated useful lives are: building and improvements, 4 to 20 years; machinery and equipment, 3 to 12 years; lasts, patterns and dies, 3 years. Excess of Cost Over Fair Value of Net Assets Acquired In the second quarter of 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." The Company adopted this statement effective January 1, 2002. SFAS No. 142 requires the cessation of goodwill amortization and, instead, the carrying value of goodwill will be evaluated for impairment on at least an annual basis. The provisions of this statement require the completion of a transitional impairment test within six months of adoption, with any impairments identified treated as a cumulative effect of a change in accounting principle. The Company has completed that transitional impairment test and has determined that there was no impairment of reported goodwill existing at January 1, 2002. The statement also requires that an impairment test be completed at least annually. The Company completed its annual impairment test and, at June 28, 2002 determined that no impairment of reported goodwill had occurred (see Note 3). Excess of Fair Value of Acquired Assets Over Cost In the second quarter of 2001, the FASB issued SFAS No. 141, "Business Combinations." The Company adopted this statement effective January 1, 2002. SFAS No. 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001. In addition, SFAS No. 141 requires that any excess of fair value of net assets over cost arising from acquisitions occurring prior to adoption of this statement will be recognized as the cumulative effect of a change in accounting principle. Accordingly, in the first quarter of 2002, the Company recognized a cumulative effect of a change in accounting principle gain of $4,913 ($0.13 per share diluted and basic) for the unamortized balance of the excess of fair value of net assets over cost as of December 31, 2001. Accrued Insurance Costs The Company is self-insured for workers' compensation, healthcare and short-term disability up to certain specified limits. Expenses associated with such self-insurance programs are accrued based upon estimates of the amounts required to cover incurred incidents. Accounting for Estimates The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make assumptions that affect the estimates reported in these consolidated financial statements. Actual results may differ from these estimates. Some of the more important assumptions and estimates made by the Company are for sales returns and allowances, allowance for doubtful accounts receivable, market value of inventory, contingent liabilities, impairment of long-lived assets and goodwill, realizable value of deferred tax assets and the Company's annual effective tax rate. Earnings Per Share Basic Earnings Per Share ("EPS") excludes dilution and is computed by dividing net income by the weighted-average number of common shares outstanding for the periods presented. Diluted EPS reflects the potential 44 dilution that would occur if securities such as stock options were exercised. Dilutive securities (see Note 18) included in the calculation of diluted weighted-average shares were 833,585 in 2002, 1,203,996 in 2001 and 2,527,353 in 2000. Anti-dilutive securities excluded from the calculation of diluted weighted-average shares were 764,649 in 2002, 693,580 in 2001 and 0 in 2000. Long-lived Assets The Company periodically evaluates the carrying values and estimated useful lives of its long-lived assets, primarily property, plant and equipment and intangible assets. When factors indicate that such assets should be evaluated for possible impairment, the Company uses estimates of future operating results and cash flows to determine whether the assets are recoverable. The Company adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," on January 1, 2002. This statement supersedes SFAS No. 121 but retains the fundamental provisions of SFAS No. 121 for recognition and measurement of the impairment of long-lived assets to be held and used and measurement of long-lived assets to be disposed of by sale. However, SFAS No. 144 applies the fair value method for test of impairment, which differs from SFAS No. 121. SFAS No. 144 also supersedes the accounting and reporting provisions of Accounting Principles Board ("APB") Opinion No. 30, as it pertains to disposal of a business segment, but retains the requirement of that opinion to report discontinued operations separately from continuing operations and extends that reporting to a component of an entity that either has been disposed of or is classified as held for sale. Stock-based Compensation The Company accounts for stock-based compensation using the method prescribed by APB Opinion No. 25 and related interpretations. The Company follows SFAS No. 123 "Accounting for Stock-Based Compensation" and SFAS No. 148 "Accounting for Stock-Based Compensation - Transitional and Disclosure - An Amendment of FASB Statement No. 123" for disclosure purposes. SFAS No. 148, issued in December 2002, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require disclosures in the annual and interim financial statements regarding the accounting method for stock-based employee compensation and the effect of the method used on reported results (see New Accounting Pronouncements). Comprehensive Income Comprehensive income, in the case of the Company, is the combination of reported net income and other comprehensive income/(loss), which is comprised of foreign currency translation adjustments and changes in the fair value of derivatives. Contingencies In the ordinary course of business, the Company is involved in legal proceedings involving contractual and employment relationships, product liability claims, trademark rights and a variety of other matters. The Company records contingent liabilities resulting from claims when it is probable that a liability has been incurred and the amount of the loss is reasonably estimable. New Accounting Pronouncements SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" became effective for the Company on January 1, 2002. SFAS No. 144 had no impact on the Company's financial statements. In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections." The rescission of Statement 4 refers to any gain or loss on extinguishment of debt classified as an extraordinary item in prior periods presented. If that does not meet the criteria in APB Opinion No. 30 for classification as an extraordinary item, it shall be reclassified. The provisions, which relate to the rescission of Statement 4, shall be applied in fiscal years beginning after May 15, 2002. The Company is currently evaluating its disclosure related to SFAS No. 145. The rescission of FASB Statements 4, 44 and 64, and the amendment of SFAS No. 13, had no impact on the Company's 2002 consolidated financial statements. In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." This statement supercedes Emerging Issues Task Force ("EITF") Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF No. 94-3, a liability is recognized at the date an entity commits to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. The provisions of SFAS No. 146 are effective for any exit or disposal activities initiated after December 31, 2002. 45 In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based Compensation - Transitional and Disclosure - An Amendment of FASB Statement No. 123." This statement is effective for fiscal years ending after December 15, 2002 and provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, this statement amends the disclosure requirements of SFAS No. 123 to require disclosures in the annual and interim financial statements regarding the accounting method for stock-based employee compensation and the effect of the method used on reported results. The Company has not elected to transition to the fair value based method of accounting for stock-based employee compensation at this time. See Note 18 for a discussion and required disclosures. 2. Derivatives On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133 - An Amendment of SFAS No. 133," and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities - An Amendment of SFAS No. 133" (collectively referred to as the "Statement"). The Statement requires the Company to recognize all derivatives on its balance sheet at fair value. Derivatives that are not designated as hedges must be adjusted to fair value through income. If the derivative is designated as a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will be either offset by the change in fair value of the hedged asset, liability, or firm commitment through earnings or recognized in other comprehensive income/(loss) until the hedged item is recognized in earnings. The Company measures hedge effectiveness based on changes in the fair value of those contracts and underlying exposures attributable to changes in the forward exchange rate. Changes in the expected future cash flows of the forecasted hedged transaction and changes in the fair value of the forward contract are both measured from the contract rate to the forward exchange rate associated with the forward contract's maturity date. The ineffective portion, if any, of a derivative's change in fair value will be immediately recognized in earnings. In the case of the Company, its hedges are considered effective under SFAS No.133 since the gains/(losses) on the hedges offset the gains/(losses) on the designated economic exposures. The application of SFAS No. 133 resulted in an increase in other comprehensive income/(loss) in 2001 of $1,844, which is net of taxes of $1,203. In the normal course of business, the financial position and results of operations of the Company are routinely subject to currency rate movements on non-U.S. dollar denominated assets, liabilities and income as the Company sells goods in local currencies. The Company has established policies and business practices that should result in an appropriate level of protection against the adverse effect of these exposures. Derivative instruments, specifically forward contracts, are used by the Company in its hedging of forecasted foreign currency transactions, typically for a period not greater than 24 months. Those derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. As of December 31, 2002, the Company had forward contracts maturing at various dates through 2004 to sell the equivalent of approximately $159,300 in foreign currencies at contracted rates and to buy the equivalent of approximately $7,000 in foreign currencies at contracted rates. As of December 31, 2001, the Company had forward contracts maturing at various dates through March 2004 to sell the equivalent of approximately $127,000 in foreign currencies at contracted rates. The increase in the value of contracts held at December 31, 2002, compared with December 31, 2001, is the result of the Company having elected to hedge a greater portion of its forecasted 2003 foreign currency exposure at December 31, 2002 than the portion of its forecasted 2002 exposure that was hedged at December 31, 2001, as permitted in accordance with the Company's hedging policy, and to the growth in the International business. Forward contracts related to forecasted economic exposure are designated as cash flow hedges at acquisition with the changes in the fair value of those contracts recorded as a component of other comprehensive income/(loss) and subsequently recognized in cost of goods sold in the period in which the hedged forecasted economic exposure takes place. The Company also hedges the foreign currency exchange risk on existing intercompany assets and liabilities using forward contracts. Gains and losses related to forward contracts hedging foreign currency exchange risk on intercompany asset and liability balances are reflected in earnings immediately and largely offset the remeasurement of those assets and liabilities. On December 31, 2002, the Company had $12,514 in derivative liabilities on its balance sheet. On December 31, 2001, the Company had $3,047 in derivative assets on its balance sheet. Those amounts reflect the fair value of the Company's foreign exchange contracts, which hedge forecasted future economic exposure, as measured in accordance with SFAS No. 133. The fair value of the contracts is a liability when the Company's contract rates are below current forward foreign exchange rates and is an asset when the Company's contract rates are above current forward foreign exchange rates. The offset to those liabilities and assets is in other comprehensive income/(loss) and is discussed in Note 16 to the Company's consolidated financial statements. For the periods ended December 31, 2002, 2001 and 2000, the Company recorded, in its income statement, after tax hedging (losses)/gains of $(7,110), $5,594 and $7,753, respectively. For the periods ended December 31, 2002 and December 31, 2001, the after-tax hedging (losses)/gains reclassified to earnings were $(6,763) and $6,217 respectively. The Company estimates that the $12,514 in derivative liabilities on its balance sheet as of December 31, 2002 will be reclassified to earnings in 2003. 3. Goodwill and Other Intangible Assets The Company adopted SFAS No. 142 effective January 1, 2002. In conjunction with the adoption of this statement, goodwill has not been amortized. Additionally, the Company has completed both its transitional and annual 46 impairment tests and has determined that no impairment of reported goodwill has occurred. Had goodwill not been amortized in 2001 and 2000, the Company's net income, diluted earnings per share and basic earnings per share (after the cumulative effect of a change in accounting principle) for the years ended December 31, 2001 and 2000 would have been $107,457, $2.67 and $2.75, and $122,749, $2.88 and $3.06, respectively. There were no changes in the carrying amount of goodwill for the year ended December 31, 2002, compared with December 31, 2001. At December 31, 2002 and December 31, 2001, accumulated amortization of the excess of cost over the fair value of net assets acquired amounted to $17,612. Information regarding the Company's other intangible assets follows:

Amortization expense for 2002, 2001 and 2000 was $1,278, $1,128 and $971, respectively. The estimated amortization for existing intangible assets as of December 31, 2002, for each of the five succeeding fiscal years is as follows: 2003: $1,265; 2004: $1,041; 2005: $785; 2006: $485; 2007: $156. The amortization period for trademarks and related expenses is five years. 4. Deferred Compensation Plan On January 1, 2001, the Company set up an irrevocable grantor's trust to hold assets to cover benefit obligations under the Company's Deferred Compensation Plan (the "Plan"). The obligations of the Company under the Plan consist of the Company's unsecured contractual commitment to deliver, at a future date, any of the following: (i) deferred compensation credited to an account under the Plan, (ii) additional amounts, if any, that the Company may, from time to time, credit to the Plan, and (iii) notional earnings on the foregoing amounts. The obligations are payable in cash upon retirement, termination of employment and/or at certain other times in a lump-sum distribution or in installments, as elected by the participant in accordance with the Plan. The Plan assets and the Company's liability for those assets reside in long-term "Other assets, net" and "Deferred compensation," respectively, on the Company's consolidated balance sheet. The securities that comprise the Plan assets are designated as trading securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." 5. Acquisition of Asian Distributor Business On February 18, 2000, the Company signed an agreement pursuant to which it reacquired the exclusive distribution rights for the sale of Timberland(R) brand products throughout the Asia-Pacific region from its former distributor, Inchcape plc. In connection with this transaction, the Company acquired the stock of its former distributor's subsidiaries in Japan, Hong Kong, Malaysia and Singapore (the "Asian subsidiaries"). The purchase price allocation is as follows: Acquisition of business: Fair value of assets acquired $ 21,852 Fair value of liabilities assumed (14,082) --------- Fair value of net assets acquired 7,770 Cash paid (1,223) Acquisition costs (480) --------- Excess of fair value of acquired net assets over cost $ 6,067 ========= The fair value of net assets acquired includes $6,460 of cash, resulting in net cash received of $5,237. This transaction was accounted for under the purchase method of accounting and, accordingly, the results of operations for the Asian subsidiaries, for the period from the acquisition date, are included in the accompanying consolidated financial statements. The purchase price has been allocated to the assets purchased and liabilities assumed based on fair values at the date of acquisition. This transaction resulted in the initial recording of excess of fair value of acquired net assets over cost. Subsequently, as a result of the Company's adoption of SFAS No. 141 on January 1, 2002, that excess of fair value of acquired net assets over cost has been recognized as the cumulative effect of a change in accounting principle on the Company's consolidated statements of income (see Note 1). As part of this transaction, the Company released the distributor from its obligations under the Distributorship, Supply and Retail Development Agreement dated January 26, 1995. As part of this transaction, the Company received $5,055, which represented a portion of the proceeds from the disposition of the assets in Australia, New Zealand, Thailand and Taiwan. All proceeds were recognized in other income. On July 31, 2000, the Company acquired Inchcape plc's Taiwan based net assets for $662. Taiwan is included in the Company's consolidated financial statements from the period of acquisition forward and does not have a material impact on those statements. Taiwan is included in all references to the Asian subsidiaries. 47 6. Long-term Debt and Extraordinary Loss As of December 31, 2002 and 2001, the Company had no long-term debt outstanding. On June 30, 2000, the Company prepaid $100,000 of 8.94% senior notes with a maturity of December 15, 2001. As a result of that prepayment, the Company recorded an extraordinary loss of $2,126 after taxes, or $0.05 per share diluted ($0.05 basic). The loss consisted of a prepayment penalty and costs associated with the early redemption of the debt combined with accelerated amortization of bond issuance costs, net of tax benefits of $1,071. 7. Notes Payable On May 3, 2001, the Company entered into a new, unsecured committed revolving credit agreement (the "Agreement") with a group of banks, effective until May 3, 2004. The Agreement provides for $200,000 of committed borrowings, of which up to $125,000 may be used for letters of credit. Under the terms of the Agreement, the Company may borrow at interest rates based on eurodollar rates (approximately 1.25% at December 31, 2002), plus an applicable margin based on a fixed-charge coverage grid of between 47.5 and 95 basis points that is adjusted quarterly. As of December 31, 2002, the applicable margin under the facility was 75 basis points. The Company will pay a commitment fee of 15 to 30 basis points per annum based on a fixed-charge coverage grid, that is adjusted quarterly on the full commitment. As of December 31, 2002, the fee was 25 basis points. The Agreement places certain limitations on additional debt, stock repurchases, acquisitions and on the amount of dividends the Company may pay, and also contains certain other financial and operating covenants. Additionally, the Company has uncommitted lines of credit available from certain banks totaling $30,000 at December 31, 2002. Borrowings under these lines are at prevailing money market rates (1.75% at December 31, 2002). These arrangements may be terminated at any time at the option of the banks or the Company. As of December 31, 2002, 2001 and 2000, the Company had letters of credit outstanding of $23,000, $39,000 and $56,000, respectively. All were issued for the purchase of inventory. 8. Financial Instruments and Concentration of Credit Risk The following table illustrates the U.S. dollar equivalent of foreign exchange contracts at December 31, 2002 and 2001 along with maturity dates, net unrealized gain/(loss) and net unrealized gain/(loss) deferred. Unrealized gains or losses are determined based on the difference between the settlement and year end foreign exchange rates. The contract amount represents the net amount of all purchase and sale contracts of a foreign currency.

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of temporary cash investments and trade receivables. The Company places its temporary cash investments with high credit quality financial institutions, thereby minimizing exposure to concentrations of credit risk. Credit risk with respect to trade receivables is limited, due to the large number of customers included in the Company's customer base. The Company had an allowance for doubtful accounts receivable of $7,487 and $5,934 at December 31, 2002 and 2001, respectively. 9. Fair Value of Financial Instruments The estimated fair values of the Company's financial instruments are as follows:

(1) The carrying amounts of cash and equivalents approximate their fair values. (2) The fair value of foreign currency contracts is estimated by obtaining the appropriate year end rates as of December 31, 2002 and 2001. 48 10. Inventory Inventory consists of the following: December 31, 2002 2001 - ------------ ------ ------ Raw materials $ 2,065 $ 4,958 Work-in-process 1,745 1,566 Finished goods 118,607 120,648 -------- -------- Total $122,417 $127,172 ======== ======== 11. Property, Plant and Equipment Property, plant and equipment consists of the following: December 31, 2002 2001 - ------------ ------ ------ Land and improvements $ 501 $ 501 Building and improvements 44,100 44,693 Machinery and equipment 111,501 104,023 Lasts, patterns and dies 20,313 17,148 -------- -------- Total $176,415 $166,365 ======== ======== Depreciation expense was $19,564, $18,819 and $16,356 for the three years ended December 31, 2002, 2001 and 2000, respectively. 12. Income Taxes The components of the provision for income taxes are as follows:

The 2000 current provision includes the $1,071 tax benefit from the prepayment of the senior notes, which is reflected in the extraordinary item on the Company's consolidated statements of income. The provision for income taxes differs from the amount computed using the statutory federal income tax rate of 35% due to the following:

The tax effects of temporary differences and carry-forwards that give rise to significant portions of prepaid tax assets and deferred tax liabilities consist of the following:

49 The Company's consolidated income before taxes included earnings from its subsidiary in Puerto Rico, which are substantially exempt from Puerto Rico income tax under an exemption which expires in 2012 and federal income taxes under an exemption which becomes limited after 2001 and currently expires after 2005. Deferred tollgate taxes have been provided on all of the accumulated earnings of the subsidiary in Puerto Rico which are subject to tollgate tax. Deferred income taxes are also provided on the undistributed earnings of the Company's foreign subsidiaries. 13. Accruals The Company's accrued liabilities are comprised of payroll related, freight, advertising, rents, hedging contracts and a variety of other categories of accruals. Specifically, incentive compensation accruals were $21,074 and $8,914 in 2002 and 2001, respectively. These accruals represent the expected company-wide bonus program payouts to be made in the subsequent year. The Company's bonus program, approved by the Board of Directors, is weighted heavily toward earnings per share and cash flow performance. The increase in 2002, compared with 2001, reflects the impact the Company's strong cash flow performance. 14. Lease Commitments The Company leases its corporate headquarters facility, manufacturing facilities, retail stores, showrooms, two distribution facilities and certain equipment under non-cancelable operating leases expiring at various dates through 2013. The approximate minimum rental commitments under all non-cancelable leases as of December 31, 2002 are as follows: 2003 $ 27,860 2004 24,085 2005 19,382 2006 15,253 2007 11,899 Thereafter 36,138 -------- Total $134,617 ======== Most of the leases for retail space provide for renewal options, contain normal escalation clauses and require the Company to pay real estate taxes, maintenance and other expenses. The aggregate base rent obligation for a lease is expensed on a straight-line basis over the term of the lease. Base rent expense for all operating leases was $31,877, $30,784 and $26,021 for the years ended December 31, 2002, 2001 and 2000, respectively. Percentage rent, based on sales levels, for the years ended December 31, 2002, 2001 and 2000 was $5,314, $7,438 and $6,488, respectively. 15. Business Segments and Geographic Information The Company manages its business in three reportable segments, each sharing similar product, distribution, marketing and economic conditions. The reportable segments are U.S. Wholesale, U.S. Consumer Direct (formerly U.S. Retail) and International. The U.S. Wholesale segment is comprised of the worldwide product development for footwear and apparel and accessories and the sale of such products to wholesale customers in the United States. This segment also includes royalties from licensed products sold in the United States and the management costs and expenses associated with the Company's worldwide licensing efforts. The U.S. Consumer Direct segment includes the Company-operated specialty and factory outlet stores in the United States and the Company's e-commerce business, which began operations in 2001. The International segment consists of the marketing, selling and distribution of footwear, apparel and accessories and licensed products outside of the United States. Products are sold outside of the United States through the Company's subsidiaries (which use wholesale and retail channels to sell footwear and apparel and accessories), independent distributors and licensees. The Unallocated Corporate component of segment reporting consists primarily of the corporate finance, legal, information services and administrative expenses, United States distribution expenses, a majority of United States marketing expenses and other costs incurred in support of company-wide activities. Unallocated Corporate also includes other expense/(income), which is primarily interest expense, interest income and other miscellaneous expense/(income). Such expenses are not allocated among the reported business segments. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates segment performances based on operating contribution, which represents pretax income before unallocated corporate expenses, interest and other expenses, net, and on operating cash flow measurements. Total assets are disaggregated to the extent that assets apply specifically to a single segment. Unallocated Corporate assets primarily consist of cash and equivalents, manufacturing/sourcing assets, computers and related equipment, and United States transportation and distribution equipment. 50

The following summarizes the Company's operations in different geographic areas for the years ended December 31, 2002, 2001 and 2000, respectively:

The U.S. Wholesale and U.S. Consumer Direct segments and Unallocated Corporate comprise the United States geographic area. The International segment is divided into two geographic areas, Europe and Other Foreign. Other Foreign revenue consists primarily of the Company's Asian subsidiaries and, to a lesser degree, the Company's distributors. Other Foreign assets consist primarily of the Company's owned manufacturing facilities in the Caribbean, assets related to the Company's sourcing operations and the Company's Asian subsidiaries. 16. Accumulated Other Comprehensive Income/(Loss) The components of accumulated other comprehensive income/(loss) as of December 31, 2002, 2001 and 2000 were: 2002 2001 2000 ------ ------ ------ Cumulative translation adjustment $(2,203) $(11,216) $(7,292) Fair value of derivatives, net of taxes (7,634) 1,844 - ------- -------- ------- Total $(9,837) $ (9,372) $(7,292) ======= ======== ======= 17. Stockholders' Equity The Company's Class A Common Stock and Class B Common Stock are identical in all respects, except that shares of Class A Common Stock carry one vote per share, while shares of Class B Common Stock carry ten votes per share. In addition, holders of Class A Common Stock have the right, voting separately as a class, to elect 25% of the directors of the Company, and vote together with the holders of Class B Common Stock for the remaining directors. In 2002 and 2001, 350,000 and 21,715 shares of Class B Common Stock were converted to Class A Common Stock, respectively. On October 18, 2000, the Company's Board of Directors authorized the repurchase of up to 4,000,000 shares of the Company's Class A Common Stock. As of December 31, 2000, the Company had repurchased 318,300 shares under that authorization. During 2001 and 2002, the Company repurchased 1,958,500 and 1,723,200 shares under that authorization, respectively. On May 16, 2002, the Board of Directors approved an additional repurchase of up to 4,000,000 shares of the Company's Class A Common Stock. As of December 31, 2002, the Company had 51 repurchased 1,082,300 shares under that new authorization. The Company may use repurchased shares to offset shares that may be issued under the Company's stock-based employee incentive plans, or for other purposes. 18. Stock and Employee Benefit Plans Under the Company's 1997 Incentive Plan, as amended (the "1997 Plan"), 6,000,000 shares of Class A Common Stock have been reserved for issuance. In addition to stock options, any of the following incentives may be awarded to participants under the 1997 Plan: stock appreciation rights ("SAR"), restricted stock, unrestricted stock, awards entitling the recipient to delivery in the future of Class A Common Stock or other securities, securities which are convertible into, or exchangeable for, shares of Class A Common Stock and cash bonuses. The option price per share and vesting periods of stock options are determined by the Compensation Committee of the Board of Directors. All outstanding stock options granted under the 1997 Plan have been granted at fair market value, become exercisable in equal installments over four years beginning one year after the grant date, and expire ten years after the date of grant. Under the Company's 2001 Stock Option Plan for Non-Employee Directors (the "2001 Plan"), the Company has reserved 200,000 shares of Class A Common Stock for the granting of stock options to eligible non-employee directors of the Company. Under the terms of the 2001 Plan, stock option grants are awarded on a predetermined formula basis. Unless terminated by the Company's Board of Directors, the 2001 Plan will be in effect until all shares available for issuance have been issued, pursuant to the exercise of all options granted. The exercise price of options granted under the 2001 Plan is the fair market value of the stock on the date of the grant. Stock options granted under the 2001 Plan become exercisable in equal installments over four years, beginning one year after the grant date, and expire ten years after the date of grant. Options to purchase an aggregate of 1,647,976, 1,525,265 and 1,213,986 shares were exercisable under all option arrangements at December 31, 2002, 2001 and 2000, respectively. Under the existing stock option plans, there were 797,340 and 2,205,876 shares available for future grants at December 31, 2002 and 2001, respectively. The following summarizes transactions under all stock option arrangements for the years ended December 31, 2002, 2001 and 2000:

The following summarizes information about all stock options outstanding at December 31, 2002:

Pursuant to the terms of its 1991 Employee Stock Purchase Plan, as amended (the "ESP Plan"), the Company is authorized to issue up to an aggregate of 1,200,000 shares of its Class A Common Stock to eligible employees electing to participate in the ESP Plan. Eligible employees may contribute, through payroll withholdings, from 2% to 10% of their regular base compensation during six-month participation periods beginning January 1 and July 1 of each year. At the end of each participation period, the accumulated deductions are applied toward the purchase of Class A Common Stock at a price equal to 85% of the market price at the beginning or end of the participation period, whichever is lower. Employee purchases amounted to 51,826 shares in 2002, 44,692 shares in 2001 and 47,359 shares in 2000 at prices ranging from $21.20 to $33.59 per share. At December 31, 2002, a total of 282,710 shares were available for future purchases. The weighted-average fair values of those purchase rights granted in 2002, 2001 and 2000 were $8.73, $13.53 and $8.92, respectively. 52 The Company applies APB Opinion No. 25 and related interpretations in accounting for its stock plans. The Company follows SFAS No. 123 "Accounting for Stock-Based Compensation" and SFAS No. 148 "Accounting for Stock-Based Compensation-Transitional and Disclosure-An Amendment of FASB Statement No. 123" for disclosure purposes. SFAS No. 148, issued in December 2002, provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123 to require disclosures in the annual and interim financial statements regarding the accounting method for stock-based employee compensation and the effect of the method used on reported results. In the Company's consolidated financial statements, no compensation cost has been recognized for stock option grants issued under any of the Company's stock option plans. Had compensation cost for stock option grants issued been determined under the fair value method of SFAS No. 123, the Company's net income and diluted earnings per share in 2002, 2001 and 2000 would have been: 2002 2001 2000 ------ ------ ------ Net income before cumulative effect of change in accounting principle and extraordinary item $80,554 $97,218 $117,392 Earnings per share before cumulative effect of change in accounting principle and extraordinary item $2.11 $2.42 $2.75 Net income after cumulative effect of change in accounting principle and extraordinary item $85,467 $97,218 $115,266 Earnings per share after cumulative effect of change in accounting principle and extraordinary item $2.24 $2.42 $2.70 ------- ------- ------- The fair value of each stock option granted in 2002, 2001 and 2000 under the Company's plans was estimated on the date of grant using the Black-Scholes option pricing model. The following weighted-average assumptions were used to value grants issued under the plans in 2002, 2001 and 2000, respectively: expected volatility of 48.3%, 54.8% and 54.1%; risk-free interest rates of 2.9%, 4.3% and 6.5%; expected lives of 4.6, 4.7 and 5.4 years; and no dividend payments. The weighted-average fair values per share of stock options granted during 2002, 2001 and 2000 were $15.53, $26.24 and $13.94, respectively. In October 2002, the Company issued 25,000 restricted shares of Class A Common Stock under the Company's 1997 Incentive Plan, as amended. These shares are subject to restrictions on sale and transferability, a risk of forfeiture and certain other terms and conditions. These restrictions lapse equally over the next three years. In the fourth quarter of 2002, based upon the market value of the shares at the date of the grant, unearned compensation was charged to stockholders' equity for the restricted shares. The weighted-average fair value of these shares was $26.37. In February 2002, the Company issued 20,000 restricted shares of Class A Common Stock under the Company's 1997 Incentive Plan, as amended. These shares are subject to restrictions on sale and transferability, a risk of forfeiture and certain other terms and conditions. These restrictions lapsed immediately on one-third of the shares and lapse equally over the next two years for the remaining two-thirds of the shares. Upon issuance of this stock, based upon the market value of the shares at the date of the grant, compensation expense was recognized for the unrestricted shares and unearned compensation was charged to stockholders' equity for the restricted shares. The weighted-average fair value of these shares was $20.61. In the second quarter of 2000, the Company made a loan of approximately $1,100 securitized by a restricted stock issuance in December 1999. That amount is included in deferred compensation in the consolidated balance sheets and resulted in the revaluation of unearned compensation. The unearned compensation, excluding the loan, is being amortized to expense over the five-year vesting period. In the first quarters of 2001 and 2002, the Board of Directors forgave $325 and $262 of principal payment on the loan, respectively. The Company maintains a contributory 401(k) Retirement Earnings Plan (the "401(k) Plan") for eligible salaried and hourly employees who are at least 18 years of age. Under the provisions of the 401(k) Plan, employees may contribute between 2% and 16% of their base salary up to certain limits. The 401(k) Plan provides for Company matching contributions not to exceed 3% of the employee's compensation or, if less, 50% of the employee's contribution. Vesting of the Company contribution begins at 25% after one year of service and increases by 25% each year until full vesting occurs. The Company maintains two contributory 165(e) Retirement Earnings Plans (the "165(e) Plans") for eligible salaried and hourly employees of its manufacturing facilities and a non-contributory profit sharing plan for eligible hourly employees not covered by the 401(k) or 165(e) Plans. The Company's contribution expense under all retirement plans was $1,552 in 2002, $1,403 in 2001 and $1,283 in 2000. 19. Litigation The Company is involved in various litigation and legal matters that have arisen in the ordinary course of business. Management believes that the ultimate resolution of any existing matter will not have a material adverse effect on the Company's consolidated financial statements. 53 20. Quarterly Results of Operations (Unaudited) The following is a tabulation of the quarterly results of operations for the years ended December 31, 2002, 2001 and 2000, respectively:

(1) In the first quarter of 2002, the Company recorded a $4,913 after-tax cumulative effect of change in accounting principle gain. The gain consisted of the unamortized balance of the excess of fair value of net assets over cost as of December 31, 2001. (2) In the second quarter of 2000, the Company recorded a $2,126 after-tax extraordinary loss. The loss consisted of a prepayment penalty and other costs associated with the early redemption of $100,000 in senior notes. 54 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of The Timberland Company: We have audited the accompanying consolidated balance sheets of The Timberland Company and subsidiaries as of December 31, 2002 and 2001 and the related consolidated statements of income, changes in stockholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2002 and 2001, and the results of its operations and cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 1 to the consolidated financial statements, in 2002 the Company changed its method of accounting for the excess of fair value of acquired assets over cost to conform to the Statement of Financial Accounting Standards ("SFAS") No. 141, and goodwill to conform to SFAS No. 142. DELOITTE & TOUCHE LLP Boston, Massachusetts February 5, 2003 55 CORPORATE INFORMATION DIRECTORS Robert M. Agate Retired Senior Executive Vice President and Chief Financial Officer Colgate-Palmolive Company John E. Beard Of Counsel Ropes & Gray John F. Brennan President Green Mountain College Ian W. Diery President and Chief Executive Officer Electronic Scrip, Inc. John A. Fitzsimmons Retired Senior Vice President Circuit City Stores, Inc. Virginia H. Kent Former Chief Executive Officer reflect.com Bill Shore Founder and Executive Director Share Our Strength Jeffrey B. Swartz President and Chief Executive Officer The Timberland Company Sidney W. Swartz Chairman The Timberland Company Abraham Zaleznik Professor Emeritus Harvard Business School CORPORATE OFFICERS Sidney W. Swartz Chairman Jeffrey B. Swartz President and Chief Executive Officer Kenneth P. Pucker Executive Vice President and Chief Operating Officer Brian P. McKeon Chief Financial Officer and Executive Vice President - Finance and Administration Frank P. Bifulco, Jr. Senior Vice President and Chief Marketing Officer Fabian T. Garcia Senior Vice President - International Marc Schneider Senior Vice President - Product Management Gary S. Smith Senior Vice President - Supply Chain John Crimmins Vice President, Corporate Controller and Chief Accounting Officer Gregory M. Saltzberg Vice President and Treasurer Danette Wineberg Vice President and General Counsel and Secretary Thomas J. White Assistant Secretary CORPORATE COUNSEL Ropes & Gray Boston, Massachusetts INDEPENDENT ACCOUNTANTS Deloitte & Touche LLP Boston, Massachusetts ANNUAL MEETING OF SHAREHOLDERS Thursday, May 15, 2003, at 9:30 am The Timberland Company 200 Domain Drive Stratham, New Hampshire 03885 FINANCIAL INFORMATION To request information, such as this annual report and Form 10-K for the fiscal year ended December 31, 2002, as filed with the Securities and Exchange Commission, please visit our website, www.timberland.com, call our investor hotline at 603-773-1212, or send a written request to the attention of Investor Relations at our corporate address or e-mail address, investor_relations@timberland.com. CLASS A COMMON STOCK LISTING New York Stock Exchange: TBL STOCK SPLITS Record Date Effective Date Split 08/31/99 09/15/99 2 for 1 06/30/00 07/17/00 2 for 1 DIVIDEND POLICY The Company has never declared a dividend on its Common Stock, and the Company's ability to pay cash dividends is limited pursuant to loan agreements (see notes to the Company's consolidated financial statements). SSTOCK CERTIFICATE, NAME CHANGES, OR TRANSFERS Equiserve Trust Company, N.A. PO Box 43010 Providence, Rhode Island 02940-3010 800.730.6001 www.equiserve.com 56 EX-21 4 a2106481zex-21.txt EXHIBIT 21 EXHIBIT 21 SUBSIDIARIES

EX-23 5 a2106481zex-23.txt EXHIBIT 23 EXHIBIT 23 INDEPENDENT AUDITORS' CONSENT We consent to the incorporation by reference in Registration Statement Nos. 333-75686, 333-72248, 333-51912, 333-35223, 33-60459, 33-67128, 33-56913, 33-17552, 33-41660, 33-19183, 33-50998, 33-60457 and 333-84959 on Form S-8 and No. 33-56921 on Form S-3 of The Timberland Company of our reports (which report on the financial statements expresses an unqualified opinion and includes an explanatory paragraph relating to the change in the method of accounting for excess of fair value of acquired assets over cost on January 1, 2002) dated February 5, 2003, appearing in and incorporated by reference in this Annual Report on Form 10-K of The Timberland Company for the year ended December 31, 2002. Boston, Massachusetts March 27, 2003 EX-99.1 6 a2106481zex-99_1.txt EXHIBIT 99.1 Exhibit 99.1 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 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, the undersigned, as Chief Executive Officer of The Timberland Company (the "Company"), does hereby certify that to the undersigned's knowledge: 1) the Company's Annual Report on Form 10-K for the period ending December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Company's Annual Report on Form 10-K for the period ending December 31, 2002 fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Jeffrey B. Swartz ------------------------- Jeffrey B. Swartz Chief Executive Officer Dated: March 27, 2003 EX-99.2 7 a2106481zex-99_2.txt EXHIBIT 99.2 Exhibit 99.2 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 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, the undersigned, as Chief Financial Officer of The Timberland Company (the "Company"), does hereby certify that to the undersigned's knowledge: 1) the Company's Annual Report on Form 10-K for the period ending December 31, 2002 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and 2) the information contained in the Company's Annual Report on Form 10-K for the period ending December 31, 2002 fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Brian P. McKeon ----------------------- Brian P. McKeon Chief Financial Officer Dated: March 27, 2003 EX-99.3 8 a2106481zex-99_3.txt EXHIBIT 99.3 EXHIBIT 99.3 CAUTIONARY STATEMENTS FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 The Timberland Company (the "Company") wishes to take advantage of The Private Securities Litigation Reform Act of 1995, which provides a "safe harbor" for forward-looking statements to encourage companies to provide prospective information. Prospective information is based on management's then current expectations or forecasts. Such information is subject to the risk that such expectations or forecasts, or the assumptions used in making such expectations or forecasts, may become inaccurate. The following discussion identifies important factors that could affect the Company's actual results and could cause such results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events, or otherwise. CONSUMER TRENDS, CONSUMER ACCEPTANCE OF PRODUCTS, AND RETAIL MARKET CONDITIONS. Sales of the Company's products are subject to consumer trends, consumer acceptance of products, and other factors affecting retail market conditions, including the current continued softness in U.S. market conditions and the global economic and political uncertainties resulting from the continuing war on terrorism. For example, decreased consumer spending, a shift towards discount retailers, softness in the retail market and weakened financial condition of wholesale customers could adversely affect the Company's sales. The Company believes that its more fashion-focused women's footwear product line and men's collection apparel products are more susceptible to changing fashion trends and consumer preferences than are the Company's other products. The success of the Company's products and marketing strategy will also depend on a favorable reception by the Company's wholesale customers and consumers at retail. This reception is conditioned, in part, on the Company's ability to build its brand, including its Timberland PRO(TM) sub-brand, into a world class brand and on the Company's ability to respond to the demands of the marketplace for greater speed and exceptional customer service. In addition, the Company believes that warmer than anticipated weather conditions have, in past fall/winter selling seasons, reduced sales as a result of decreased consumer demand at retail for the Company's higher margin boot products. Such conditions could adversely affect the Company's financial performance in the future, especially if a greater proportion of the Company's revenue were to be made up of "at once" orders. INTERNATIONAL. The Company manufactures and sources a majority of its products outside the United States. Timberland(R) products are sold in the U.S. and internationally through its stores, operating divisions, wholesale customers, distributors, commission agents, franchisees and licensees. Accordingly, the Company is subject to the risks of doing business abroad, including, among other risks, foreign currency exchange rate risks, import restrictions, anti-dumping investigations, political or labor disturbances, expropriation and acts of war. Although the Company pays for the purchase and manufacture of its products primarily in U.S. dollars, the Company is routinely subject to currency rate movements on non-U.S. denominated assets, liabilities and income as the Company sells goods in local currencies through its foreign subsidiaries. Derivative instruments, specifically forward contracts, are used by the Company in its hedging of foreign currency transactions. While the Company attempts to manage its foreign currency exchange rate risks, no assurances can be given that such factors will protect the Company from future changes in foreign currency exchange rates that may impact the financial condition or performance of the Company. In addition, the adoption of the euro by the European Monetary Union has not had any material business disruptions on the Company's business. The Company will continue to monitor the euro conversion. The Company re-acquired exclusive distribution rights for the Asia-Pacific region from Inchcape plc. in 2000. The Company took over the management of the sale of Timberland products in Japan, Singapore, Malaysia and Hong Kong through subsidiaries. The Company is pursuing arrangements with appropriate distributors in other markets in the Asia-Pacific region. In 2002, the Company opened a subsidiary in Korea. The Company's revenue from its operations in this region would be adversely affected if general economic difficulties in the region do not improve. RAW MATERIALS. The Company depends on a few key sources for leather, its principal raw material, and other proprietary materials used in its products. In 2002, eight suppliers provided, in the aggregate, approximately 80% of the Company's leather purchases. Two of these suppliers provided approximately 40% of the Company's leather purchases in 2002.While the Company historically has not experienced significant difficulties in obtaining leather or other raw materials in quantities sufficient for its operations, there have been significant changes in their prices. The Company's gross profit margins are adversely affected to the extent that the selling prices of its products do not increase proportionately with increases in the costs of leather and other raw materials. Any significant unanticipated increase or decrease in the prices of these commodities could materially affect the Company's results of operations. As discussed by the Company in previous filings with the Securities and Exchange Commission during 2001, leather hide prices increased significantly in 2001 and adversely impacted the Company's gross margins in 2001. However, in 2002 leather hide prices returned to more normalized trading levels thereby improving the Company's gross margins compared with 2001. The Company attempts to manage this risk, as it does with all other footwear and non-footwear materials, on an ongoing basis by monitoring related market prices, working with its suppliers to achieve the maximum level of stability in their costs and related pricing, seeking alternative supply sources when necessary and passing increases in commodity costs to its customers, to the maximum extent possible, when they occur. No assurances can be given that such factors will protect the Company from future changes in the prices for such raw materials. DEPENDENCE ON SALES FORECASTS. The Company bases, in part, its investments in infrastructure and product on sales forecasts that are necessarily made in advance of actual sales. The Company does business in highly competitive markets, and the Company's business is affected by a variety of factors, including: - - brand awareness - - product innovations - - retail market conditions - - economic and other factors - - changing consumer preferences - - fashion trends - - weather conditions One of management's principal challenges is to optimize its ability to predict these factors, in order to enable the Company to better and more rapidly match production of its products with demand. In addition, the Company's growth over the years has created the need to increase these investments in infrastructure and product and to enhance the Company's operational systems. To the extent sales forecasts are not achieved, these investments would represent a higher percentage of revenue, and the Company would experience higher inventory levels and associated carrying costs, all of which would adversely affect the Company's financial performance. DEPENDENCE UPON INDEPENDENT MANUFACTURERS. During 2002, the Company manufactured approximately 11% of its footwear unit volume, compared to approximately 13% during 2001 and 15% during 2000. Independent manufacturers and licensees in Asia, Europe, Mexico and South and Central America produced the remainder of the Company's footwear products and all of its apparel and accessories products. Independent manufacturers in China, Vietnam, and Thailand produced approximately 89% of the Company's 2002 footwear unit volume; and three of these manufacturers produced approximately 14% to 21% each of the Company's 2002 footwear volume. The Company believes that the shift towards sourcing product from independent manufacturers will continue to reduce manufacturing overhead and product costs, increase product quality and increase the Company's flexibility to meet changing consumer demand for particular product lines. However, the success of these measures depends on the ability of the Company's independent manufacturers to provide high quality product at lower cost and to do so with rapid turn-around times, and while the Company believes it has chosen third party manufacturers with sufficient financial strength, a continued economic downturn could cause the Company's suppliers to fail to make and ship orders placed by the Company. The Company could utilize its own factories and sourced manufacturers in other countries in such an event to cover any resulting shortfall; however, delivery of these products would be delayed from the original production schedule. There can be no assurance that the Company will be able to maintain current relationships or locate additional manufacturers that can meet the Company's requirements. RETAIL ORGANIZATION. In 1986, the Company opened the first Timberland(R) store dedicated exclusively to Timberland(R) products. At the end of 2002, the Company operated 26 specialty stores and 49 factory outlet stores in the United States and 2 factory outlets in Puerto Rico , and 102 specialty stores and 22 factory outlet stores in Europe and Asia. The significant increase in stores in Asia is attributable to the Company's re-acquisition of Inchcape plc.'s exclusive distribution rights for the Asia-Pacific region in 2000, as discussed above in the "International" paragraph. In 2001, the Company also began offering its products on its new online shop, timberland.com. Revenue from retail stores operated by the Company in the U.S. and from its new e-commerce business represented 16% of the Company's revenue for 2002. The Company has made significant capital investments in opening these stores and incurs significant expenditures in operating these stores. The higher level of fixed costs related to the Company's retail organization adversely affects profitability, particularly in the first half of the year, as the Company's revenue historically has been more heavily weighted to the second half of the year. The same market conditions affecting the Company's wholesale customers described above also affect the performance of the Company's retail organization. In 2002, the Company experienced revenue declines in its U.S. retail stores primarily due to weakness in the U.S. retail climate. Given these continuing economic conditions, the Company intends to control growth in its retail organization and focus on enhancing returns in existing locations. The Company's ability to recover the investment in and expenditures of its retail organization, particularly its specialty stores, can be adversely affected if sales at its retail stores are lower than anticipated. Although the Company believes its factory outlet stores enable the Company to preserve the integrity of the sale of excess, damaged or discontinued products, and maximize the return associated with such sales, the Company's gross margin could be adversely affected if off-price sales increase as a percentage of revenue. COMPETITION. The Company markets its products in highly competitive environments. Many of the Company's competitors are larger and have substantially greater resources than the Company for marketing, research and development, and other purposes. These competitors include athletic footwear companies, branded apparel companies and private labels established by retailers. Furthermore, efforts by the Company's footwear competitors to dispose of their excess inventory could put downward pressure on retail prices and could cause the Company's wholesale customers to redirect some of their purchases away from the Company's products. MANUFACTURING. The Company currently plans to retain its internal manufacturing capability in order to continue benefiting from reduced lead times, favorable duty rates and tax benefits, although changes in tax legislation have reduced the tax benefits previously available through its manufacturing operations in Puerto Rico. However, the Company continues to evaluate its manufacturing facilities and independent manufacturing alternatives in order to determine the appropriate size and scope of its manufacturing facilities. There can be no assurance that the costs of products that continue to be manufactured by the Company can remain competitive with sourced products. LICENSING. Since late 1994, the Company has entered into several licensing agreements which enable the Company to expand the Timberland(R) brand to product categories and geographic territories in which the Company has not had an appreciable presence. The rights granted under these agreements are typically exclusive, and the Company may not terminate these agreements at will, although the Company has reserved its right to terminate these agreements for cause. The success of the Timberland brand in these products or territories will, therefore, largely depend on the efforts and financial condition of its licensees. In addition, although the Company is pursuing additional licensing opportunities, there can be no assurance that the Company will be able to locate licensees and negotiate acceptable terms with licensees for additional products and territories. PRICING OF PRODUCTS. The prices the Company is able to obtain for its new and expanded product offerings, and the Company's ability to increase prices of its other products, will depend upon consumer acceptance of such prices, as well as competitive and other market factors. MANAGEMENT AND CONTROL. Sidney W. Swartz, the Company's Chairman, and various trusts established for the benefit of his family or for charitable purposes, hold approximately 79% of the combined voting power of the Company's capital stock in the aggregate, enabling him to control the Company's affairs and to influence the election of the three directors entitled to be elected by the holders of Class A Common Stock voting separately as a class. Jeffrey B. Swartz, the Company's President and Chief Executive Officer, is the son of Sidney Swartz. The loss or retirement of these or other key executives could adversely affect the Company. LIQUIDITY AND CAPITAL RESOURCES. Management believes that the Company's capital needs for 2003 can be met through its current cash balances, through its existing credit facilities and through cash flow from operations, without the need for additional long-term financing. The existing credit facilities expire in May, 2004. The Company may also need to raise additional capital in the future in order to finance its anticipated growth and capital requirements beyond 2003. The terms and availability of any such additional or replacement financing will be subject to prevailing market conditions and other factors at that time. In addition, the Company's revolving credit facility places limitations on the payment of cash dividends and contain other financial and operational covenants with which the Company must comply. If the Company does not comply with such covenants, the Company's ability to use such credit facilities or to obtain other financing could be adversely affected. INTELLECTUAL PROPERTY. The Company has spent, and may be required in the future to spend, significant amounts to protect and defend its trade name, trademarks, patents, designs and other proprietary rights. The Company is also susceptible to injury from parallel trade and counterfeiting of its products. LITIGATION. The Company is involved in various litigation and legal matters that have arisen and will arise in the ordinary course of business. The costs of prosecuting or defending these matters or an unfavorable outcome in these matters could adversely affect the Company's operating results. ACCOUNTING STANDARDS. Changes in the accounting standards promulgated by the Financial Accounting Standards Board or other authoritative bodies could have an adverse affect on the Company's future reported operating results. ENVIRONMENTAL AND OTHER REGULATION. The Company is subject to various environmental and other laws and regulations, which may change periodically. Compliance with such laws or changes therein could have a negative impact on the Company's future reported operating results. 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