The Timberland Company reported record fourth quarter net income of $45.0 million and diluted earnings per share (EPS) of $1.29, compared with fourth quarter 2003 net income of $39.5 million and diluted EPS of $1.10.

Timberland’s record results capped a year of outstanding performance for the Company, with double-digit revenue gains, significant improvement in operating margin and strong cash flow generation.

For the full year, Timberland posted revenue of $1,500.6 million (+11.8% versus prior year, or +8.2% in constant dollars) and operating profit of $233.9 million (+26.9% versus prior year) – both records for the Company. Disciplined asset management enabled Timberland to generate $184.7 million in net operating cash flow.

Fourth quarter revenue increased 9.4% to $454.7 million, driven by gains in both U.S. and international markets. U.S. revenues grew 5.2%, reflecting solid footwear gains – and balanced growth across wholesale (+5.2%) and retail channels (+5.3% on a 3.6% comparable store sales gain). International results (+19.3% or +11.9% in constant dollars) were driven by double-digit constant dollar sales gains in Europe and Asia and continued progress in building key expansion markets such as Canada. Overall revenue growth benefited from favorable foreign exchange rate changes – which added $9.2 million (or 2.2%) to fourth quarter revenue. Sales results were also impacted by the timing of the Company’s fiscal calendar which resulted in five fewer retail selling days in the fourth quarter of 2004, which were estimated to lower overall sales growth by approximately 1%.

Fourth quarter results were supported by strong global footwear sales. Global footwear revenues expanded 10.0% to $352.3 million, driven by growth in boots, kids and Timberland PRO Series categories. Global apparel and accessories revenue grew 7.5% to $97.9 million, reflecting gains in international markets.

Operating profit for the quarter increased 9.4% to $68.0 million. Operating margin remained flat at 15.0%. Profit gains reflected solid revenue growth and disciplined cost management which offset a slight deterioration in gross margin impacted by higher levels of promotional activity in the U.S. For the quarter, foreign exchange rate changes contributed approximately $3.8 million to operating profit.
EPS for the quarter expanded 17.3% to $1.29, reflecting profit gains and continued benefits from share repurchases. During the quarter, the Company repurchased 899 thousand shares at a total cost of $56.7 million. For the year, Timberland repurchased 2.2 million shares at a total cost of $131.7 million. The Company currently has 2.4 million shares remaining under its existing share repurchase program.

Timberland ended the quarter with $309.1 million in cash and no debt outstanding. Timberland drove improvement in annual inventory turns, supporting an increase in return on capital from 30.4% to 32.2%.

The Company also established a Hong Kong procurement company and international treasury center in Switzerland to better align its organizational structure with its expanding global presence. In addition to providing enhanced support to its global sourcing operations and international business, Timberland anticipates benefiting from tax savings on foreign earnings, which it estimates will reduce its 2005 tax rate by 1.5 percentage points to 34.0%.

Implementation of the new organizational structure dictates the modification of certain sourcing arrangements, resulting in earlier transfer of title for a portion of the Company’s third party sourced product. While this change will have no impact on profit or cash flow, it will result in earlier recognition of an inventory asset and associated payable. If similar sourcing arrangements had been in effect in 2004, the Company estimates that quarter end inventory and accounts payable would have increased in the range of $15 million in Q1, $35 million in Q2, $45 million in Q3 and $45 million in Q4.

Jeffrey B. Swartz, Timberland’s President and Chief Executive Officer, stated, “Timberland delivered record 2004 results, reflecting continued progress in developing the Timberland® brand portfolio, with a significantly enhanced global reach and a diversified presence across a range of product categories spanning utility, casual and outdoor usage occasions. We also continued to benefit from our focus on delivering superior customer service, leveraging a strengthened value chain that supported stronger growth and improved operating efficiencies.”

“We are pleased to have delivered strong financial results in 2004. For 2005, we are targeting double-digit gains in earnings per share on low to mid single-digit revenue growth – leveraging strategies focused on delivering innovative and purposeful products, expanding Timberland’s global presence and executing with distinction to capture the full potential we see for the Timberland brand.” 

                       THE TIMBERLAND COMPANY
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
             (Amounts in thousands, except per share data)
                              (Unaudited)

                                 For the               For the
                           Three Months Ended    Twelve Months Ended
                           ------------------- -----------------------
                           Dec. 31, Dec. 31,   Dec. 31,   Dec. 31,
                             2004     2003       2004       2003
                           -------- --------- ---------- -----------
Revenue                    $454,660 $415,433  $1,500,580 $1,342,123
Cost of goods sold          240,305  218,780     761,505    717,666
                           -------- --------- ---------- -----------

   Gross profit             214,355  196,653     739,075    624,457
                           -------- --------- ---------- -----------

Operating expense
   Selling                  117,983  110,244     405,412    356,447
   General and
    administrative           28,364   24,221      99,800     83,708
                           -------- --------- ---------- -----------
     Total operating
      expense               146,347  134,465     505,212    440,155
                           -------- --------- ---------- -----------

      Operating income       68,008   62,188     233,863    184,302
                           -------- --------- ---------- -----------

Other expense (income)
   Interest expense             153      272         700      1,039
   Other, net                (1,976)     732      (3,570)       506
                           -------- --------- ---------- -----------
      Total other expense
       (income)              (1,823)   1,004      (2,870)     1,545
                           -------- --------- ---------- -----------

   Income before income
    taxes                    69,831   61,184     236,733    182,757
                           -------- --------- ---------- -----------
Provision for income taxes   24,790   21,720      84,040     64,878
                           -------- --------- ---------- -----------

      Net income            $45,041  $39,464    $152,693   $117,879
                           ======== ========= ========== ===========

Earnings per share
   Basic                      $1.31    $1.13       $4.39      $3.32
                           ======== ========= ========== ===========
   Diluted                    $1.29    $1.10       $4.28      $3.23