Timberland Fourth Quarter Impacted by Slower Boot Business…

Timberland continues to struggle with its urban boot business, but improvements and strong growth in several of its other categories are offsetting the majority of the revenue declines. Overall TBL revenue growth improved during the fourth quarter, supported by constant dollar growth in international markets and global performance from SmartWool, PRO, and Timberland outdoor performance lines. These gains were offset by continued pressures on boots and kids' sales in the fourth quarter. Fourth-quarter revenue was up 4.9% to $488.2 million compared to $465.3 million last year. The growth was primarily supported by European expansion, wholesale sales increases, and success in TBL’s apparel program, particularly Smartwool.

Timberland wholesale order backlog was down about 3% at year-end.

International revenue increased 17.4%, or 11.3% on a constant dollar basis, supported by strong growth in Europe, Asia, and Canada. Foreign exchange rate changes increased fourth quarter 2006 revenues by approximately $9 million or 2.0% due to the strength of the Euro and the British Pound, and increased profitability by approximately $3 million. TBL continued to expand its retail presence in the fourth quarter, opening three new stores in the U.K. bringing the total company-owned and franchise door count in Europe to 255 stores at year-end.

Asia posted strong sales results in Q4, with revenue growing 18%, or 17% in constant dollars. Timberland added seven new stores in the period in Singapore, Japan, Hong Kong, and Malaysia, and one new shop in Taiwan. Fourth quarter European revenues include Howies, which added less than $1 million and had an immaterial impact on profit. TBL anticipates that Howies will add roughly $8 million to Timberland's revenues in 2007 and will “have an immaterial impact” on earnings per share.

U.S. revenues decreased 1.0% to $311 million impacted by unseasonably warm weather trends and an anticipated pressure on boots and kids' sales. These two factors offset benefits from the addition of the SmartWool brand to the company's product portfolio and gains in key expansion categories such as Timberland PRO series footwear. The urban boot business shrunk by roughly $100 million in 2006 and management expects a similar contraction in 2007. This means that by the end of fiscal 2007, this business will be $200 million smaller than it was in 2005.

Apparel and accessories revenue expanded 26.1% during the quarter to $130.1 million, supported by the addition of the SmartWool brand and growth in Timberland brand sales globally. Smartwool sales increased for the full year to approximately $53 million globally, up 27% on a comparable basis and ahead of TBL’s performance goals.

Global footwear revenue fell 0.9% in Q4 to $354.2 million due to declines in boots and kids' sales, which were offset by gains in Timberland PRO series, outdoor performance, and casual footwear.

Wholesale revenue increased 8.4% to $339.8 million for Q4 on strong sales in apparel and accessories. U.S. wholesale revenues increased 2% to $226 million. Worldwide consumer direct revenue decreased 2.3% to $148.4 million, due to an 11.8% decline in comp store sales.

Gross margins for Q4 were 46.4%, down 180 basis points from last year’s Q4 due to lower sales of boot products, higher closeout sales, and pressures from higher comparable product costs, including approximately $2 million of costs associated with anti-dumping duties from the European Union.

Fourth-quarter net income was $38.3 million, or 61 cents per diluted share, compared to $46.9 million, or 71 cents per diluted share in the year-ago period. Operating margins were hurt by a significant contraction in boots and kids' sales.

As part of a broader restructuring initiative, TBL has decided to license its U.S. casual outerwear business to Phillips-Van Huesen Corp. Excluded from the agreement with Phillips-Van Heusen are Timberland’s Outdoor Performance apparel, which TBL will continue to design, source, and market worldwide, as well as Timberland PRO apparel, which is part of an exclusive license agreement with Block Corporation.

Looking at 2007, the company expects to see “significant sales declines” in boots and kids' sales in 2007, likely in excess of $100 million globally. These impacts will likely limit overall Timberland revenue to be flat to last year. TBL also expects that impacts from anti-dumping duties will add approximately $4 million to product costs in the first half of 2007. For the full year, TBL expects these duties will add $10 million of product costs in 2007 compared to a $5 million impact in 2006.