The Timberland Company is postponing the release of its first-quarter results to make certain non-cash adjustments to its financial statements. As the result of a review of recent clarifying guidance relating to accounting for foreign currency hedging instruments, the Company has determined that certain technical requirements of Statement of Financial Accounting Standards No. 133, as amended were not met.
Accordingly, the Audit Committee of the Company's Board of Directors, upon the recommendation of the Company's management, concluded that the Company's previously issued financial statements for the fiscal years ended 2001 through 2006 (as well as the reports of the Company's independent registered public accounting firm for those years), and the corresponding interim periods should no longer be relied upon. The Company will be filing an amendment to its Annual Report on Form 10-K for 2006 to restate its financial statements and other financial information for the years 2006, 2005, and 2004 and financial information for 2003 and 2002, and for each of the quarters in years 2006 and 2005.
Jeffrey B. Swartz, Timberland's President and Chief Executive Officer, stated, “While I am disappointed that technical accounting issues forced us to postpone our first-quarter earnings release, our team's energy worldwide continues to be focused on building the Timberland® brand, on improving the performance of our enterprise, and on delivering against the business objectives we set for ourselves in 2007. We are making progress against our strategic objectives, and look forward to reviewing results on our quarterly conference call as soon as possible. In the meantime, we will continue to strive to make our financial reporting clear and transparent to shareholders, just as we strive to make products that exceed demanding consumers' expectations globally.”
Revenues, cash flow and liquidity will not be impacted by this restatement. Timberland estimates that the cumulative impact of the restatement since the adoption of SFAS 133 in 2001 will reduce retained earnings by less than $10 million. The Company expects an impact to 2007 financial results, which will be quantified when the Company reports first-quarter results. The Company expects first-half and full-year results in line with its previously announced outlook excluding the impact of this change in accounting treatment.
Under the Company's previously applied hedge accounting treatment, the derivative gains and losses designated as cash flow hedges had been included as a component of equity until the hedged transactions were settled, at which time the hedging gains and losses were reclassified to the income statement. The restatement will include these gains and losses in earnings on a current basis as the changes in value of the derivatives occur. Accordingly, the timing of when the gains and losses will be recognized in earnings will be changed.
John Crimmins, the Company's acting Chief Financial Officer said, “In light of recent developments related to the application of hedge accounting, we are restating our financial statements to reflect the proper application of this standard after the recent clarifying guidance. We constantly monitor interpretations of accounting standards by regulators and accounting professionals to evaluate our accounting practices. ”
The Company will release its first-quarter earnings and hold its quarterly conference call as soon as the restatement is complete. The Company will also delay the filing of its first-quarter 10-Q accordingly.
