10-K405

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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)
/X/	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

/ / 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 Class A Common Stock, par value $.01 per share	Name of each exchange on which registered 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 /x/    No / /

        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. /x/

        The aggregate market value of Class A Common Stock of the Company held by non-affiliates of the Company was approximately $698,790,221 on February 22, 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. 30,211,528 shares of Class A Common Stock and 7,911,185 shares of Class B Common Stock of the Company were outstanding on February 22, 2002.

DOCUMENTS INCORPORATED BY REFERENCE:

        Portions of the Company's Annual Report to security holders for the fiscal year ended December 31, 2001 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 2002 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®, Timberland PRO™ and Mountain Athletics™ by Timberland brands, premium-quality footwear and apparel and accessories products for men, women and children with the goal of becoming one of the leading global lifestyle brands. 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 and on timberland.com, which are all dedicated exclusively to selling Timberland® products.

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	2001		2000		1999
Footwear	76.8	%	77.5	%	79.1	%
Apparel and Accessories	23.2		22.5		20.9

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.

        Timberland® men's 2001 footwear products span the range from casual work products to rugged outdoor performance products to the classic work boots for which the Company is widely recognized. Key categories included Work Casual, Casual, Boat, Sandals, Rugged Casual, Trek Travel, Outdoor Recreation and Boots. Timberland® women's 2001 footwear products included Casual, Rugged Casual, Sandals, Trek Travel, Outdoor Recreation and Boots. Timberland® kids' footwear products are scaled-down versions of the Company's high-quality adult footwear products and, in 2001, included Rugged Casual, Performance, Outdoor Extended Play, Light Hiking, Sandals and Boots. In the fall of 2001, the Company introduced the Timberland® LTD collection, a premium line of men's shoes featuring the finest leathers, the Company's most advanced technology, the Smart Comfort™ system, and updated styling.

        In 2001, Timberland expanded and broadened its offering of footwear for professional tradesmen under the Timberland PRO™ sub-brand. The Timberland PRO™ series of work boots provides

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professional tradesmen with footwear that meets the specific needs of his or her trade and the quality and innovation of Timberland® work boots. The Outdoor, Indoor and General Use series incorporate some or all of the following features: waterproof, insulated, steel toe, slip resistance and electrical hazard protection.

        Timberland's performance and Mountain Athletics™ by Timberland footwear is engineered to meet the demanding needs of the outdoor athlete, and includes technical features designed specifically for such outdoor sports as trail running, fastpacking, bouldering and scrambling. The categories in 2001 for Mountain Athletics™ by Timberland footwear were the Multi Sport, Trail Running, Water Sports and Winter Endurance. Timberland plans to merge the Mountain Athletics™ by Timberland brand footwear products into its outdoor/performance footwear category during 2002.

        In the fall of 2001, the Company's newest patent pending, technological innovation, the Smart Comfort™ system, was included in some of the men's and women's footwear categories. 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. It includes a zoned pressure system inside the shoe, stretchable uppers on the top of the shoe and expandable soles underneath the shoe. The Company plans to introduce the Smart Comfort™ system into more of its products in 2002.

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

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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;



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B.S.F.P.™ motion efficiency system—Timberland's patent pending design which delivers improved traction, energy-return and length of wear;



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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; and



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Guaranteed Waterproof Construction.

Apparel and Accessories

        Timberland® adult apparel products consist primarily of a rugged casual line that includes outerwear, sweaters, shirts, pants and shorts for men. 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. The men's apparel line reflects the authentic outdoor heritage and rugged style for which Timberland is recognized. Timberland® boys' and girls' apparel products are designed, manufactured and distributed pursuant to a license agreement in Europe, and the Company will launch in 2002 a children's apparel line in the U.S., beginning with boys' apparel, that will also be designed, manufactured and distributed pursuant to a license agreement. The Company introduced a women's apparel line in Europe in fall 2001 with distinctive European styling and fit and based on the Timberland heritage. The Company plans to expand its line of men's leather outerwear, pursuant to a licensing arrangement, in the U.S. during 2002. During 2001, Timberland continued to offer Mountain Athletic™ apparel products featuring waterproof outerwear, fleeces, knits, tee-shirts, sweatpants and sweatshirts, and shorts, but Timberland plans to merge the Mountain Athletics™ by Timberland brand apparel products into its outdoor/performance apparel category during

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2002. In fall 2002, the Company plans to introduce a line of Timberland PRO™ apparel featuring heavy duty outerwear for the comfort and protection of the professional tradesmen.

        Timberland®, Timberland PRO™, and Mountain Athletics™ by Timberland accessories products for men, women and children include all products other than footwear and apparel products. Many of these products, including watches, men's belts, day packs and travel gear, socks and legwear, gloves, sunglasses, eyewear and ophthalmic frames, hats and caps, and men's small leather goods, are designed, manufactured and distributed pursuant to licensing agreements with third parties. Timberland receives a royalty on sales of these licensed products. Third-party licensing enables the Company to expand Timberland's reach to appropriate and well-defined product 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. Timberland | accessories also include leather care products and a limited collection of leather goods, including luggage, briefcases, handbags, wardrobe accessories and small leather goods. Timberland plans to merge the Mountain Athletics™ by Timberland brand accessories products into its outdoor/performance accessories category during 2002.

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. In May 2001, the Company began offering its products in the U.S. with its new online shop, 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 (formerly U.S. Retail—commencing in 2001, U.S. Retail includes the Company's new e-commerce business described above) 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 website, timberland.com. The International segment consists of the marketing, selling and distribution of footwear, apparel and accessories and licensed products outside of the United States, including the Company's subsidiaries (which use wholesale and retail channels to sell footwear and 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:

	2001		2000		1999
U.S. Wholesale	53.3	%	53.8	%	53.2	%
U.S. Consumer Direct	17.2		18.3		19.0
International	29.5		27.9		27.8

        More detailed information regarding these reportable segments, and each of the geographic areas in which the Company operates, is set forth in Note 13 to the Company's consolidated financial

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statements, entitled "Business Segments and Geographic Information," appearing in the Company's 2001 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 range from better-grade department and retail stores to 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.

U.S. Consumer Direct

        At December 31, 2001, the Company operated 24 specialty stores and 51 factory outlet stores in the United States and Puerto Rico (2 outlets).

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

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an environment to showcase Timberland's products as an integrated source of footwear and apparel and accessories;



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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 name, while maximizing the return associated with the sale of such products.

        Timberland.com.    The Company's new online shop commenced operations in May 2001 for U.S. consumers to purchase current season, first quality merchandise over the Internet. This website also provides information about the Company, including investor relations and employment opportunity information, and it 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, and Malaysia. 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. At December 31, 2001, the Company operated 89 specialty stores and 19 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 commission agents, some of which also may operate Timberland® specialty and factory outlet stores located in their respective countries.

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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 Timberland as an integrated lifestyle brand of 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 programs and advertising campaigns are increasingly delivered throughout the year, rather than only during select seasons as has historically been the case. During 2001, the Company's international, national and regional advertising campaigns were coordinated on a worldwide basis with the launch of its largest global advertising campaign ever. The For the Journey™ campaign included print, television, outdoor ads in selected markets and co-operative advertising, some of which will continue to run into spring 2002. 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, 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 redesigned concept shops and improved visual presence. The Timberland PRO™ mobile, a "point of work" program, continued to tour the U.S. delivering consumer impressions of its Timberland PRO™ series of work boots at job sites, factories, and sports events targeted at professional workers and tradesmen. In addition, the Company's web 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 2001, 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 typically represented a larger percentage of revenue in the first two quarters of 2001 than in the last two quarters of 2001. The Company expects this seasonality to continue in 2002.

Backlog

        At December 31, 2001, Timberland's backlog of orders from its customers was approximately $218 million, compared with $266 million at December 31, 2000 and $216 million at December 31, 1999. 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 2002. The Company does not believe that its order backlog at year-end is representative of the orders which will be filled during 2002. The lack of reliability of backlog as an indication of orders to be filled is due to the risk of cancellation associated with such orders, the seasonality of the Company's revenue and the difficulty of planning in advance orders scheduled for immediate fulfillment.

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Manufacturing

        The Company has manufacturing facilities located in Puerto Rico and the Dominican Republic. During 2001, the Company manufactured approximately 13% of its footwear unit volume, compared to approximately 15% during 2000 and 18% during 1999. 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 58% of the Company's 2001 footwear unit volume was produced by independent manufacturers in China and Macau. Three of these manufacturers produced approximately 12% to 14% each of the Company's 2001 footwear volume. The Company currently plans to retain its internal manufacturing capability in order to continue benefiting from reduced lead times and favorable duty rates and tax benefits, although changes in tax legislation will reduce 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; Taichung, Taiwan; Zhu Hai, China; and Ho Chi Minh City, Vietnam to supervise the Company's sourcing activities conducted in the Asia-Pacific region.

Raw Materials

        In 2001, seven suppliers provided, in the aggregate, approximately 75% of the Company's leather purchases. One of these suppliers provided approximately 30% of the Company's leather purchases in 2001. 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. Leather hide prices increased significantly in 2001 and adversely impacted the Company's gross margins. Leather hide prices have decreased significantly from peak levels in 2001. The Company attempts to manage this risk 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 2001, the Company finalized contracts with global vendors for such raw materials as leather, leather linings, synthetic and leather laces, packaging, stiffeners, labels, insole cementing, and hand sewn threads.

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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; For the Journey; Gear For Outdoor Athletes; Guaranteed Waterproof Construction; ISN, Independent Suspension Network; Jackson Mountain; More Quality Than You May Ever Need; Mountain Athletics; Path of Service; PRO 24/7; PRO 24/7 Plus; PRO 24/7 Comfort Suspension; Pull On Your Boots; Pull On Your Boots and Make a Difference; Safe Grip; Seek Out; Smart Comfort; TBL; Timberland PRO; Trail Grip; Weathergear; 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. However, 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 rapid 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, many of which compete directly with some of the Company's products. In addition, the Company faces competition from

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retailers that are establishing products under private labels and from direct mail companies in the United States.

        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.

        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. However, the Company does have many competitors, some of which have significantly greater resources than the Company, that vary significantly by category and geographic region. 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.

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, 2001, the Company had approximately 5,600 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.

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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	66	Chairman of the Board since June 1986; Chief Executive Officer and President, June 1986 — June 1998.
Jeffrey B. Swartz	42	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	39	Chief Operating Officer since July, 2001; Executive Vice President since September, 1999; Senior Vice President and General Manager — Footwear, 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	39	Chief Financial Officer and Senior Vice President — Finance and Administration since March 2000; 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.
Carden N. Welsh	48	Senior Vice President — International since May 1998; Treasurer, April 1991 — May 1998.
Gary S. Smith	38	Senior Vice President — Supply Chain Management since February 2002. McKinsey & Company: Partner, August, 1994 — February, 2002.
Dennis W. Hagele	58	Vice President — Finance and Corporate Controller (Chief Accounting Officer) since October 1994.
Danette Wineberg	55	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 11 leasing arrangements, which expire on various dates through April 2003. 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

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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, 2001, 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 2001 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 2001 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 2001 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 2001 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 2001 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

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"Information with Respect to Nominees" in the Company's definitive Proxy Statement (the "2002 Proxy Statement") relating to its 2002 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, 2001, which information is incorporated herein by reference. Reference is also made to the information set forth in the Company's 2002 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 caption "Executive Compensation" in the Company's 2002 Proxy Statement, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

        Reference is made to the information set forth under the caption "Security Ownership of Certain Beneficial Owners and Management" in the Company's 2002 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 2002 Proxy Statement, which information is incorporated herein by reference.

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

        (a)(1) FINANCIAL STATEMENTS. The following financial statements appearing in the Company's 2001 Annual Report are incorporated by reference in this report:

ANNUAL REPORT

	Page
Consolidated Balance Sheets as of December 31, 2001 and 2000	26
For the years ended December 31, 2001, 2000 and 1999:
Consolidated Statements of Income	27
Consolidated Statements of Changes in Stockholders' Equity	28
Consolidated Statements of Cash Flows	29
Notes to Consolidated Financial Statements	30
Independent Auditors' Report	43

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        (a)(2) FINANCIAL STATEMENT SCHEDULE. The following additional financial data should be read in conjunction with the consolidated financial statements in the Company's 2001 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 2001.

        (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 restated, filed herewith

13

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 2001 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.	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

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 28, 2002	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 28, 2002
/s/  JEFFREY B. SWARTZ Jeffrey B. Swartz	President, Chief Executive Officer and Director (Principal Executive Officer)	March 28, 2002
/s/  BRIAN P. MCKEON Brian P. McKeon	Chief Financial Officer and Senior Vice President — Finance and Administration	March 28, 2002
/s/  DENNIS W. HAGELE Dennis W. Hagele	Vice President — Finance and Corporate Controller (Chief Accounting Officer)	March 28, 2002
/s/  ROBERT M. AGATE Robert M. Agate	Director	March 28, 2002
/s/  JOHN E. BEARD John E. Beard	Director	March 28, 2002
/s/  JOHN F. BRENNAN John F. Brennan	Director	March 28, 2002
/s/  IAN W. DIERY Ian W. Diery	Director	March 28, 2002
/s/  JOHN A. FITZSIMMONS John A. Fitzsimmons	Director	March 28, 2002
/s/  VIRGINIA H. KENT Virginia H. Kent	Director	March 28, 2002
/s/  BILL SHORE Bill Shore	Director	March 28, 2002
/s/  ABRAHAM ZALEZNIK Abraham Zaleznik	Director	March 28, 2002

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, 2001 and 2000, and for each of the three years in the period ended December 31, 2001, and have issued our report thereon dated February 6, 2002; such consolidated financial statements and report are included in your 2001 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 14. 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 6, 2002

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:
Year ended
	December 31, 2001	$	5,825	$	7,227	—	$	7,118	$	5,934
	December 31, 2000		4,910		2,395	—		1,480		5,825
	December 31, 1999		4,769		3,618	—		3,477		4,910
Group insurance reserve:
Year ended
	December 31, 2001	$	603	$	7,019	—	$	7,013	$	609
	December 31, 2000		1,124		5,298	—		5,819		603
	December 31, 1999		1,077		5,793	—		5,746		1,124

F-2

Timberland, the Tree Design logo, 24-7 Comfort Suspension, ACT, Active Comfort Technology, B.S.F.P., Endoskeleton, For the Journey, Gear For Outdoor Athletes, Guaranteed Waterproof Construction, ISN, Independent Suspension Network, Jackson Mountain, More Quality Than You May Ever Need, Mountain Athletics, Path of Service, PRO 24/7, PRO 24/7 Plus, PRO 24/7 Comfort Suspension, Pull On Your Boots, Pull On Your Boots and Make a Difference, 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, and the Smart Comfort logo are trademarks or registered trademarks of The Timberland Company.

© The Timberland Company 2002
All Rights Reserved

983-10K1-02

QuickLinks

DOCUMENTS INCORPORATED BY REFERENCE
SIGNATURES
INDEPENDENT AUDITORS' REPORT
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS

EX-10.8(B)

                                                                EXHIBIT 10.8 (b)

                       THE TIMBERLAND PROFIT SHARING PLAN

             As Amended and Restated Effective as of January 1, 1997



                                                                              
INTRODUCTION .......................................................................I

      1.1  Establishment of Plan....................................................v
      1.2  Compliance With Code and ERISA...........................................v
      1.3  Compliance With Requirements of Puerto Rico..............................v
      1.4  Exclusive Benefit of Participants........................................v
      1.5  Limitation on Rights Created by Plan.....................................v
      1.6  Application of Plan's Terms..............................................v
      1.7  Benefits Not Guaranteed..................................................v

ARTICLE II  DEFINITIONS.............................................................V

      2.1  Applicable compensation.................................................vi
      2.2  Beneficiary.............................................................vi
      2.3  Code....................................................................vi
      2.4  Committee...............................................................vi
      2.5  Employee................................................................vi
      2.6  Employer................................................................vi
      2.7  ERISA...................................................................vi
      2.8  Participant.............................................................vi
      2.9  Plan....................................................................vi
      2.10  Plan year..............................................................vi
      2.11  Timberland.............................................................vi
      2.12  TREK plan...............................................................3
      2.13  Trust agreement.......................................................vii
      2.14  Trust fund............................................................vii
      2.15  Trustees..............................................................vii

ARTICLE III  SERVICE RULES........................................................VII

      3.1  Service Defined........................................................vii
      3.2  Determining Years of Service...........................................vii
      3.3  Employment Defined.....................................................vii
      3.4  Affiliated Employer Defined............................................vii

ARTICLE IV  PARTICIPATION........................................................VIII

      4.1  Eligible Class........................................................viii
      4.2  Participation.........................................................viii
      4.3  End of Participation..................................................viii
      4.4  Participation upon Reemployment.......................................viii
      4.5  Special Rule for Leased Employees.......................................ix
      4.6  Military Service........................................................ix





                                                                             
ARTICLE V  EMPLOYER CONTRIBUTIONS..................................................IX

      5.1  Amount of Employer Contributions........................................ix
      5.2  Form and Time of Contribution...........................................ix
      5.3  Return of Contribution Made in Error or Not Deductible..................ix

ARTICLE VI  ROLLOVER CONTRIBUTIONS.................................................IX

      6.1  Rollover Contributions..................................................ix
      6.2  In-Service Withdrawals From Rollover Account.............................x

ARTICLE VII  ACCOUNTS AND ALLOCATIONS...............................................X

      7.1  Establishment of Accounts................................................x
      7.2  Allocating Employer Contributions and Forfeitures.......................xi
      7.3  Allocating Rollover Contributions.......................................xi
      7.4  Charges to Accounts.....................................................xi
      7.5  415 Maximum Additions...................................................xi
      7.6  Valuation of Assets....................................................xii
      7.7  Allocating Investment Experience.......................................xii
      7.8  Segregated Accounts....................................................xii
      7.9  Investment of Funds....................................................xii

ARTICLE VIII  DISTRIBUTIONS.......................................................XIV

      8.1  Distribution Upon Retirement or Disability.............................xiv
      8.2  Distribution Upon Other Termination of Employment......................xiv
      8.3  Time of Distribution...................................................xiv
      8.4  Required Distribution Date..............................................xv
      8.5  Distribution Upon Death of a Participant................................xv
      8.6  Direct Rollover of Distribution........................................xvi

ARTICLE IX  AMENDMENT, MERGER AND TERMINATION OF PLAN.............................XVI

      9.1  Amendment of Plan......................................................xvi
      9.2  Merger of Plans.......................................................xvii
      9.3  Termination...........................................................xvii
      9.4  Effect of Termination.................................................xvii

ARTICLE X  NAMED FIDUCIARIES.....................................................XVII

      10.1  Identity of Named Fiduciaries........................................xvii
      10.2  Responsibilities and Authority of Committee..........................xvii
      10.3  Responsibilities and Authority of Trustees..........................xviii
      10.4  Responsibilities of Timberland......................................xviii
      10.5  Responsibilities Not Shared.........................................xviii





                                                                             
      10.6  Procedure for Allocation and Delegation of Responsibilities.........xviii
      10.7  Dual Fiduciary Capacity Permitted...................................xviii
      10.8  Actions by Timberland.................................................xix
      10.9  Advice................................................................xix
      10.10  Indemnification......................................................xix

ARTICLE XI  THE COMMITTEE.........................................................XIX

      11.1  Appointment...........................................................xix
      11.2  Notice to Trustees....................................................xix
      11.3  Administration of Plan................................................xix
      11.4  Impossible or Difficult Performance....................................xx
      11.5  Reporting and Disclosure...............................................xx
      11.6  Records................................................................xx
      11.7  Compensation and Expenses..............................................xx
      11.8  Decisions, Rules and Regulations.......................................xx
      11.9  Secretary of the Committee.............................................xx
      11.10  Claims Review Procedure..............................................xxi

ARTICLE XII  MISCELLANEOUS.......................................................XXII

      12.1  Nonalienation of Benefits............................................xxii
      12.2  Qualified Domestic Relations Orders..................................xxii
      12.3  Payment to Minors and Incompetents..................................xxiii
      12.4  Current Address of Payee............................................xxiii
      12.5  Disputes Over Entitlement to Benefits...............................xxiii
      12.6  Payment of Benefits.................................................xxiii
      12.7  Top Heavy Plan Provisions...........................................xxiii
      12.8  Statutory References..................................................xxv
      12.9  Rules of Construction.................................................xxv
      12.10  Text Controls.......................................................xxvi
      12.11  Applicable State Law................................................xxvi





                                  INTRODUCTION

     1.1 ESTABLISHMENT OF PLAN. The Timberland Company established this plan
effective as of January 1, 1991. The plan is hereby amended and restated
effective as of January 1, 1997 and such other dates as are noted herein.

     1.2 COMPLIANCE WITH CODE AND ERISA. This plan is intended to qualify as a
profit sharing plan under Code Section 401(a). Contributions under the plan are
not conditioned on the existence of current or accumulated profits. The plan
will be interpreted in a manner that comports with these intentions.

     1.3 COMPLIANCE WITH REQUIREMENTS OF PUERTO RICO. The participation in this
plan by employees whose applicable compensation is subject to income tax in the
Commonwealth of Puerto Rico is intended to satisfy the tax qualification
requirements of the Commonwealth of Puerto Rico. The plan will be administered,
and its terms interpreted, in a manner that satisfies this intention.

     1.4 EXCLUSIVE BENEFIT OF PARTICIPANTS. The plan is for the exclusive
benefit of participants and their beneficiaries. Contributions are made to the
trust fund for the purpose of accumulating and investing such funds on a
tax-deferred basis and distributing benefits to participants and their
beneficiaries in accordance with the plan. Except as provided in Section 5.3 and
Section 12.2, no part of the trust fund will be used for or diverted to purposes
other than for the exclusive benefit of participants and their beneficiaries and
defraying those reasonable expenses of administering the plan and trust fund not
paid by the employers.

     1.5 LIMITATION ON RIGHTS CREATED BY PLAN. Nothing appearing in the plan
will be construed (a) to give any person any benefit, right or interest except
as expressly provided herein, or (b) to create a contract of employment or to
give any employee the right to continue as an employee or to affect or modify
his terms of employment in any way.

     1.6 APPLICATION OF PLAN'S TERMS. The benefits and rights of a participant
and his beneficiaries under the plan will be determined in accordance with the
terms of the plan that are in effect on the date that contributions on a
participant's behalf are made or credited to his accounts, or on the date of the
participant's retirement, total disability, death or other termination of
service, whichever may be applicable.

     1.7 BENEFITS NOT GUARANTEED. The employers, the trustees and the Committee
do not guarantee the amount of benefits hereunder. Benefits will be paid only
from and to the extent of the assets of the trust fund. It is a condition of
participation in the plan that each participant and his beneficiaries will look
solely to such assets for any benefit due him hereunder.

                                   ARTICLE II
                                   DEFINITIONS

This article contains a number of definitions of terms used in the plan. Other
terms are defined, explained or clarified in other articles. This is done for
convenience of plan administration. There is no significance to the location of
a definition.



     2.1 "APPLICABLE COMPENSATION" of an employee for any plan year or other
period of reference is his total wages paid in cash from his employer for
services while a participant during such plan year or other period. Applicable
compensation also includes any contributions made by an employer to this plan or
another employee benefit program on behalf of the employee in accordance with a
salary reduction agreement under Code Sections 125, 129, 132(f) (effective
January 1, 1998) and 401(k).

The amount of a participant's applicable compensation taken into account under
the plan for any plan year will not exceed $160,000 ($200,000 effective January
1, 2002), as adjusted in accordance with Code Section 401(a)(17) for such year.

     2.2 "BENEFICIARY" means a person, class of persons or trust designated by a
participant under Section 8.5 or, if there is no such designation, by the plan
to receive a death benefit hereunder.

     2.3 "CODE" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute enacted in its place.

     2.4 "COMMITTEE" means the Compensation Committee of Timberland, constituted
under Article XI hereof to administer the plan.

     2.5 "EMPLOYEE" means an individual who is employed by an employer and who
is in the eligible class as described in Section 4.1. A director of an employer
will not be considered an employee unless he is also an employee of an employer.

     2.6 "EMPLOYER" means The Timberland Company and Timberland Retail, Inc., or
any successor organization to such companies, and any other entity that adopts
the plan with the consent of Timberland upon such terms and conditions as
Timberland determines. Employer may refer to each employer individually, or to
the employers collectively, as the context may require. Employers means any two
or more of such employers.

     2.7 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, or any successor statute enacted in its place.

     2.8 "PARTICIPANT" means an employee or former employee whose participation
has begun and has not yet ended.

     2.9 "PLAN" means the Timberland Profit Sharing Plan, as set forth in this
plan document and as it may be amended from time to time.

     2.10 "PLAN YEAR" means the 12-month period beginning each January 1 during
the continuance of the plan.

     2.11 "TIMBERLAND" means The Timberland Company, or its successor.

     2.12 "TREK PLAN" means the Timberland Retirement Earnings 401(k) Plan.



     2.13 "TRUST AGREEMENT" means the instrument executed by Timberland and the
trustees, as amended from time to time, fixing the rights and responsibilities
of each party with respect to the holding, investment and administration of the
trust fund.

     2.14 "TRUST FUND" means the property held by the trustees for the purposes
of the plan.

     2.15 "TRUSTEES" means the persons serving as co-trustees, or the corporate
person serving as sole trustee, at any time under the terms of the trust
agreement.

                                   ARTICLE III
                                  SERVICE RULES

     3.1 SERVICE DEFINED. Service of an employee means the sum of (a) any period
of his employment, whether or not continuous; and (b) each period, if any,
between a termination of his employment and his earliest subsequent
reemployment, but only if such reemployment occurs within one year after such
termination of employment.

     3.2 DETERMINING YEARS OF SERVICE. To determine an employee's years of
service, all periods of his service will be aggregated and 365 days will
constitute a year of service.

     3.3 EMPLOYMENT DEFINED. Employment of a person means his active service as
an employee of an employer including, for purposes of this Section, any
affiliated employers. A period of absence from active service will be considered
part of his employment if he receives compensation from an employer for such
period or if such period falls in one of the following categories (whether or
not he receives applicable compensation for such period):

          (a) leave of absence due to sickness, accident or other reason, for
the period authorized by his employer; provided he returns to active service
with his employer at the end of such period of authorized absence.

          (b) absence for military service for which his reemployment rights are
protected by law; provided he returns to active service as an employee within
the period when his reemployment rights are protected by law (or within such
longer period as his employer in its discretion permits).

     3.4 AFFILIATED EMPLOYER DEFINED. Affiliated employer means any corporation
(other than an employer) which is included in a controlled group of corporations
as defined in Code Section 414(b) with an employer, any unincorporated trade or
business which is under common control with an employer within the meaning of
Code Section 414(c), any affiliated service group or management function
organization as defined in Code Section 414(m) which includes an employer, and
any trade or business which is required to be aggregated with an employer under
Code Section 414(o).



                                   ARTICLE IV
                                  PARTICIPATION

     4.1 ELIGIBLE CLASS. An employee is in the eligible class if he is an
employee of Timberland Retail, Inc. who is paid on an hourly basis. However,
hourly employees at Timberland corporate headquarters are not in the eligible
class.

The plan administrator's designation or classification of an individual when
that individual is included or excluded from active participation shall be
conclusive for purposes of determining whether or not an individual is part of
the eligible class. No classification or reclassification of an individual's
status with an employer, for any reason, without regard to whether or not it is
initiated by a court, governmental agency or otherwise, shall result in the
individual being included as a member of the eligible class, unless so
determined by the employer. The term "eligible class" shall exclude: (a) any
individual with respect to whom compensation is not treated at the time of
payment as being subject to statutorily required payroll tax withholding, such
as withholding of Federal and/or state income tax and/or withholding of the
employee's share of Social Security Tax; (b) any individual performing services
for an employer who has entered into an independent contractor or consultant
agreement with an employer; (c) any individual performing services for an
employer under an independent contractor or consultant agreement, a purchase
order, a supplier or staffing agreement or any other agreement that an employer
enters into for services; (d) any individual employed by a temporary service or
agency; and (e) any independent sales representatives (including but not limited
to brokers).

     4.2 PARTICIPATION. Each employee in the eligible class who has completed
one year of service and attained age 21 by January 1, 1991 will become a
participant on that date. Each other employee in the eligible class will become
a participant on the entry date coinciding with or next following the date he
has completed one year of service and attained age 21.

Each January 1 and July 1 is an ENTRY DATE.

     4.3 END OF PARTICIPATION. A participant's active participation in the plan
will end on the termination of his service as an employee in the eligible class
for any reason. His participation will end when he has no further interest under
the plan.

     4.4 PARTICIPATION UPON REEMPLOYMENT.

          (a) A former active participant who returns to employment in the
eligible class will resume active participation on his reemployment date.

          (b) A former employee who satisfied the eligibility requirements of
Section 4.2 but whose employment terminated prior to his or her first entry date
will become a participant on the later of his first entry date or his
reemployment date if he is reemployed in the eligible class.

          (c) A former employee whose employment terminated before he satisfied
the eligibility requirements of Section 4.2 shall be come a participant in
accordance with Section 4.2.



     4.5 SPECIAL RULE FOR LEASED EMPLOYEES. An individual who provides services
to an employer (or affiliated employer) as an employee of a temporary help
agency or other person and who is a "leased employee" within the meaning of Code
Section 414(n) is not eligible to participate in the plan while he is a leased
employee. If an individual in the eligible class was formerly a leased employee,
his service while a leased employee will be credited for vesting and eligibility
purposes to the extent required under Code Section 414(n).

     4.6 MILITARY SERVICE. Notwithstanding any provisions of this plan to the
contrary, contributions, effective as of December 12, 1994, benefits and service
credit with respect to qualified military service will be provided in accordance
with Section 414(u) of the Internal Revenue Code.

                                    ARTICLE V
                             EMPLOYER CONTRIBUTIONS

     5.1 AMOUNT OF EMPLOYER CONTRIBUTIONS. For each plan year, each employer
will make a contribution to the trust fund in such amount, if any, as Timberland
determines in its discretion. However, an employer is not required to make a
contribution in any plan year. An employer's determination of any amount to be
contributed to the trust fund will be final and conclusive.

     5.2 FORM AND TIME OF CONTRIBUTION. An employer's contribution for a plan
year will be paid to the trustees in cash. Such contribution will be paid to the
trustees no later than the due date (including extensions) for filing such
employer's federal income tax return for such year, or the due date (including
extensions) for filing the consolidated federal income tax return including such
employer.

     5.3 RETURN OF CONTRIBUTION MADE IN ERROR OR NOT DEDUCTIBLE. Each
contribution hereunder by an employer is conditioned on the requirements that
the plan, as established, will be determined to qualify under Code Section
401(a) and that the amount of the contribution will be deductible under Code
Section 404. If the plan applies for and fails to receive a favorable
determination letter from the Internal Revenue Service upon its initial
qualification, all amounts contributed by the employers will be returned to such
employers. If all or part of an employer's contribution is made because of a
mistake of fact, or if the deduction under Code Section 404 of any portion of an
employer's contribution is disallowed, the amount contributed because of a
mistake of fact or the amount for which the deduction is disallowed will be
returned to such employer if demand therefor is made within the time allowed by
law.

                                   ARTICLE VI
                             ROLLOVER CONTRIBUTIONS

     6.1 ROLLOVER CONTRIBUTIONS.

          (a) Subject to such conditions as the Committee may impose, an
employee in the eligible class (whether or not a participant) may make a
rollover transfer to the plan (or cause to be transferred to the trustees
directly from a qualified trust, qualified annuity plan, individual



retirement account or individual retirement annuity) in cash in an amount which
constitutes a rollover eligible to be contributed to the plan under the
applicable provisions of the Code. A rollover into this plan from an individual
retirement account or individual annuity on behalf of an employee subject to the
income tax laws of the Commonwealth of Puerto Rico will not be permitted unless
the employee receives the applicable authorization from the Puerto Rico Treasury
Department. The Committee retains the discretion to refuse to accept a direct or
indirect transfer to this plan from another qualified plan if such transfer
would subject this plan to the qualified joint and survivor rules of Code
Section 401(a)(11) or that the holding of such rollover contribution or transfer
would be administratively burdensome.

          (b) The employer, the Committee and the trustees have no
responsibility for determining the propriety of, proper amount or time of, or
status as a tax-free transaction of any transfer under subsection (a) above.

          (c) If an employee who is not yet a participant makes a rollover
contribution under subsection (a) above, he will be considered to be a
participant with respect to such contribution only. He will not be a participant
for any other purpose of the plan and will not share in any contributions under
Section 7.2 until he completes the requirements for participation under Article
IV.

          (d) A rollover or transfer will be credited to a separate rollover
account in the name of the employee making such rollover contribution.

          (e) The Committee in its discretion may direct the return to the
employee (or the transfer to another trustees or custodian designated by the
employee) of any rollover contribution or transfer to the extent the Committee
determines that such return is necessary to insure the continued qualification
of this plan under Code Section 401(a).

     6.2 IN-SERVICE WITHDRAWALS FROM ROLLOVER ACCOUNT. A participant may make a
withdrawal from his rollover account at any time. An election to make an
in-service withdrawal from a participant's rollover account will be in writing
and on such form as the Committee may from time to time prescribe and such
election will be filed with the Committee. A withdrawal under this section will
be paid to the participant as soon as practicable after the first valuation date
which is at least 15 days after the Committee's receipt of the participant's
withdrawal form.

                                   ARTICLE VII
                            ACCOUNTS AND ALLOCATIONS

     7.1 ESTABLISHMENT OF ACCOUNTS. The Committee will establish and maintain a
profit sharing account in the name of each participant and a rollover account,
if appropriate, for such participant. Allocations and charges to such accounts
will be made as provided in the plan. Notwithstanding the existence of such
records of participants' accounts, the existence of such accounts will not be
deemed to give any participant, beneficiary or any other person any right, title
or interest in or to any specific assets or part of the trust fund.



     7.2 ALLOCATING EMPLOYER CONTRIBUTIONS AND FORFEITURES. Each participant who
is an employee on the last day of a plan year is entitled to share under the
plan in any employer contributions for such year. Such employer contributions
will be allocated to the profit sharing account of each participant entitled to
share as of the last day of such plan year in the proportion that such
participant's applicable compensation bears to the total applicable compensation
of all participants eligible to share in the allocation for the plan year.

     7.3 ALLOCATING ROLLOVER CONTRIBUTIONS. Any rollover contribution or
transfer contributed on behalf of a participant will be allocated to such
participant's rollover account as of the valuation date coinciding with or
immediately following the date the trustee receives the rollover.

     7.4 CHARGES TO ACCOUNTS. Any amount distributed, paid, withdrawn or
transferred from an account will be a charge against such account as of the
first day of the valuation period in which the distribution, payment or
withdrawal occurs.

     7.5 415 MAXIMUM ADDITIONS. The following provisions place a limit on the
maximum annual additions which may be allocated to a participant's profit
sharing account by the employer (including affiliated employers).

          (a) 415 LIMIT. The annual additions to a participant's accounts for
any plan year (which is the limitation year for purposes of Code Section 415)
may not exceed the lesser of (i) $30,000 ($40,000 effective January 1, 2002), as
adjusted periodically for cost-of-living changes in accordance with Code Section
415 and regulations thereunder, or (ii) 25 percent (100 percent effective
January 1, 2002) of his total compensation for such year. For purposes of this
section, TOTAL COMPENSATION means a participant's total non-deferred
compensation from his employer for a plan year, as defined in Code Section 415
and applicable regulations. Effective as of January 1, 1998, total compensation
shall include any elective deferral (as defined in Code Section 402(g)(3)) and
any elective amount which is not includible in the gross income of a participant
by reason of Code Section 125 and 132(f)(4).

          (b) CORRECTION OF EXCESS ANNUAL ADDITIONS. If the annual additions to
a participant's accounts would exceed the limitation of subsection (a) above,
any employer contributions or forfeitures under this plan will be reduced; next
his matching employer contributions under the TREK plan will be reduced, to the
extent necessary to comply with the limits in subsection (a) above.

          (c) ANNUAL ADDITIONS DEFINED. For purposes of this Section 7.5, ANNUAL
ADDITIONS to a participant's accounts for any plan year means the sum of
employer contributions and forfeitures credited to his profit sharing account in
this plan and any employer matching contributions and TREK contributions that
may be allocated to his accounts in the TREK plan for such year, and amounts
allocated to an individual medical account that is part of a pension or annuity
plan maintained by the employer. Also, amounts derived from contributions that
are attributable to post-retirement medical benefits allocated to the separate
account of a key employee, as defined in Code Section 419A(d)(3), under a
welfare benefit fund maintained by the employer are treated as annual additions.



     7.6 VALUATION OF ASSETS. As of each June 30 and December 31 and at any
other time the Committee may direct (referred to herein as a VALUATION DATE),
the trustees will determine the fair market value of the assets in the trust
fund, relying upon such evidence of value as the trustees deem appropriate.

     7.7 ALLOCATING INVESTMENT EXPERIENCE. As of each valuation date (before
crediting contributions as of such date), expenses not paid directly by the
employers, investment income and gains and losses in asset values of the trust
fund since the preceding valuation date will be allocated or charged to all
participants' accounts in proportion to the adjusted account balance in each
such account as of the preceding valuation date.

For purposes of this section, the ADJUSTED ACCOUNT BALANCE of an account is the
amount in such account as of the close of business on the preceding valuation
date, decreased by any withdrawals or distributions from such account since the
preceding valuation date, and increased or decreased in accordance with uniform
rules established by the Committee to allocate equitably expenses and investment
results, in proportion to the adjusted account balance as of the preceding
valuation date.

     7.8 SEGREGATED ACCOUNTS. The Committee may direct the trustees to establish
a segregated account and to transfer all or a portion of the other accounts of a
participant to such segregated account. The trustees will invest the segregated
account in savings accounts, notice accounts or term certificates of one or more
savings banks, or in obligations of the United States or its agencies or
instrumentalities, or in fixed-income securities, or in shares of mutual funds
or pooled investment funds holding primarily fixed-income securities, or will
hold the segregated account uninvested, in cash, for the purpose of making
payments therefrom. In selecting investments for a segregated account, the
trustees' goals will be preservation of capital and realization of a reasonable
return consistent with preservation of capital. A segregated account will be
credited or charged with the earnings, investment results and expenses of such
account, and will not share in the earnings, investment results and expenses of
the other assets of the trust fund.

     7.9 INVESTMENT OF FUNDS. Effective January 1, 1999, each participant shall
be permitted to direct the investment of the participant's account among
investment funds that the trustee shall from time to time cause to be made
available at the direction of the Committee, in accordance with ERISA Section
404(c) and regulations thereunder. Each participant shall bear the sole
responsibility for such participant's direction of the investment of such
participant's account in the investment funds, and neither the trustee nor the
Committee shall have any responsibility or liability for any losses that may
occur in connection with any such direction, as set forth in ERISA Section
404(c) and regulations thereunder. Investment elections by a participant shall
be made in such manner (which may be in writing or by electronic or telephonic
means, as determined by the Committee), in such increments, and at such time or
times, as authorized under the administrative rules and procedures established
from time to time by the Committee consistent with such reasonable guidelines
and limitations as the Committee shall deem appropriate for the efficient
administration of the plan. All earnings and expenses, including commissions and
transfer taxes, realized or incurred in connection with any investments pursuant
to a participant's directions shall be credited or charged to the account for
which the investment is made, except to the extent of expenses paid by the
employers in their sole discretion.




                                  ARTICLE VIII
                                  DISTRIBUTIONS

     8.1 DISTRIBUTION UPON RETIREMENT OR DISABILITY.

          (a) AMOUNT AND FORM OF DISTRIBUTION. A participant who retires or who
terminates employment due to a disability will receive the total amount in his
accounts in one lump sum payment. The time of the distribution will be
determined under Section 8.3.

          (b) RETIREMENT AND DISABILITY DEFINED. For purposes of this plan,
RETIREMENT means a participant's termination of employment on or after his 65th
birthday. DISABILITY means a physical or mental impairment which is likely to be
permanent or of long and indefinite duration and which prevents the participant
from engaging in any substantial gainful occupation or employment. The Committee
will determine whether a participant has a disability under uniform rules of
general application.

     8.2 DISTRIBUTION UPON OTHER TERMINATION OF EMPLOYMENT.

          (a) AMOUNT AND FORM OF DISTRIBUTION. A participant who terminates
employment for reasons other than retirement, disability or death will receive
the vested amounts in his accounts in one lump sum payment. The time of the
distribution will be determined under Section 8.3.

          (b) VESTING UPON OTHER TERMINATION OF EMPLOYMENT. A participant will
be fully vested in his rollover account at all times. A participant who
terminates employment before his retirement, disability or death will be fully
vested in his profit sharing account if he has completed three years of service
as of his date of termination. A participant will have no vested interest in his
profit sharing account if he terminates employment before completing three years
of service. Notwithstanding the above, a participant whose employment terminates
as the result of retirement, as defined in Section 8.1(b), will be fully vested
in his profit sharing account.

          (c) FORFEITURES AND RESTORATION OF FORFEITURES. If a participant
terminates his employment with the employer (and all affiliated employers) at a
time when he is not vested in his profit sharing account, he shall be deemed to
have been paid his benefits, which shall be deemed to have a value of zero, as
of the date he terminated employment, and his profit sharing account will be
forfeited as of such date. If a former participant whose account was forfeited
returns to employment with an employer within six years of his date of
termination, the amount forfeited will be restored to his account (without
adjustment for gains or losses) on the next valuation date. If the current plan
year's forfeitures are not sufficient to restore forfeitures, an employer
contribution will be made to the plan for that purpose. Effective as of January
1, 1991, any remaining forfeitures shall be applied to reduce employer
contributions to the plan or to pay plan administrative expenses.

     8.3 TIME OF DISTRIBUTION. If a participant's vested account balances do not
exceed $3,500 ($5,000, effective January 1, 1998), he will receive a lump sum
payment as of the valuation date immediately following his retirement,
disability or other termination of employment without obtaining the written
consent of the participant. A participant whose vested



account balances exceed $3,500 ($5,000, effective January 1, 1998) must consent
in writing to the immediate distribution of his accounts or he may elect to
defer such payment, but not beyond the time permitted in Section 8.4. A
participant may accelerate a deferred payment by filing an election form with
the Committee specifying the earlier distribution date. Any distribution elected
by a participant will be made within 90 days of the date the participant elected
such payment. The Committee will notify a participant of his right to receive
payment of his accounts as soon as practicable after his retirement, disability
or other termination of employment.

     8.4 REQUIRED DISTRIBUTION DATE. Each participant will receive a lump sum
distribution of his total account balances no later than the April 1 following
the calendar year in which he reaches age 70-1/2. In the case of a participant
whose employment continues after age 70-1/2, the participant will continue to
receive a distribution of his total account balances determined as of December
31 of the previous calendar year by December 31 of each subsequent calendar year
of employment.

     8.5 DISTRIBUTION UPON DEATH OF A PARTICIPANT

          (a) IN GENERAL. If a participant dies with a balance in his accounts
under the plan, his beneficiary will receive the total amount remaining in a
single lump sum payment. Such amount will be determined as of the first
valuation date that is at least 15 days after the date when the Committee
receives such evidence of the participant's death and the right of any person to
receive a payment hereunder as it deems necessary. Distribution will be made as
soon as practicable after such valuation date and in no event later than
December 31 of the calendar year containing the first anniversary of the
participant's death.

          (b) DESIGNATION OF BENEFICIARY. A participant may designate one or
more beneficiaries to receive any distribution payable under subsection (a)
above and may revoke or change such a designation at any time. However, the
beneficiary of a married participant's total account balance will be the
participant's spouse unless the spouse consents in writing to the designation of
another beneficiary. Such consent must acknowledge the effect of the spouse's
giving consent and must be witnessed by a plan representative or notary public.

If a participant names two or more beneficiaries, distribution to them will be
in such proportions as the participant designates or, if the participant does
not so designate, in equal shares. Any designation of beneficiary will be in
writing on such form as the Committee may prescribe and will be effective upon
filing with the Committee.



          (c) NO DESIGNATION. Any portion of a distribution payable upon the
death of a participant which is not disposed of by a designation of beneficiary,
for any reason whatsoever, will be paid to the participant's estate.

          (d) PAYMENT UNDER PRIOR DESIGNATION. The Committee may direct
distribution in accordance with a prior designation of beneficiary (and will be
fully protected in so doing) if such direction (i) is given before the Committee
receives a later designation, or (ii) is due to the Committee's inability to
verify the authenticity of a later designation. Such a distribution will
discharge all liability therefor under the plan.

     8.6 DIRECT ROLLOVER OF DISTRIBUTION. Notwithstanding any provision to the
contrary that would otherwise limit a distributee's election under Article VIII,
a distributee may elect, at the time and in the manner prescribed by the
Committee, to have any portion of any eligible rollover distribution paid
directly to an eligible retirement plan specified by the distributee in a direct
rollover.

          (a) ELIGIBLE ROLLOVER DISTRIBUTION: An eligible rollover distribution
is a distribution described in Sections 8.1, 8.2 and 8.4, except to the extent
such distribution is required under Code Section 401(a)(9), and a distribution
described in Section 8.5.

          (b) ELIGIBLE RETIREMENT PLAN: An eligible retirement plan is an
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan described n
Code Section 403(a), or a qualified trust described in Code Section 401(a), that
accepts the distributee's eligible rollover distribution. However, in the case
of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or an individual retirement
annuity.

          (c) DISTRIBUTEE: A distributee includes an employee or former
employee. In addition, the employee's or former employee's surviving spouse and
the employee's or former employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Section 12.2,
are distributees with regard to the interest of the spouse or former spouse.

          (d) DIRECT ROLLOVER: A direct rollover is a payment by the plan to the
eligible retirement plan specified by the distributee.

                                   ARTICLE IX
                    AMENDMENT, MERGER AND TERMINATION OF PLAN

     9.1 AMENDMENT OF PLAN. At any time and from time to time, by action of its
board of directors or the Committee, Timberland may amend or modify any or all
of the provisions of the plan without the consent of any person, provided that
no amendment will reduce any participant's accrued benefit under Code Section
411(d)(6) as of the date such amendment is adopted (or its effective date if
later), and provided further that no amendment will permit any part of the trust
fund to revert to the employers or be used for or diverted to purposes other
than for the exclusive benefit of participants, former participants or their
beneficiaries.



     9.2 MERGER OF PLANS. A merger or consolidation with, or transfer of assets
or liabilities to, any other plan will be permitted only if the benefit each
participant would receive is such plan were terminated immediately after the
merger, consolidation or transfer is not less than the benefit he would have
received if this plan had terminated immediately before the merger,
consolidation or transfer.

     9.3 TERMINATION. Timberland has established the plan for its employees and
the employees of participating employers with the bona fide expectation and
intention that the employers will be able to continue the plan and contributions
thereto indefinitely, but an employer will not be under any obligation or
liability whatsoever to continue its contributions or maintain the plan for any
particular length of time. Notwithstanding any other provisions hereof, an
employer in its discretion may discontinue contributions to the plan
indefinitely or temporarily or may terminate this plan with respect to its
employees at any time, and it will have no liability to any participant,
beneficiary or other person as a result of such discontinuance or termination.
Timberland reserves the right, by action of its board of directors or the
Committee, to terminate the plan, or any portion of the plan, with respect to
all participants at any time. The employer's failure to make contributions in
any year or years will not operate to terminate the plan in the absence of
formal action by an employer to terminate the plan. .

     9.4 EFFECT OF TERMINATION. Upon complete discontinuance of contributions or
termination or partial termination of the plan, the accounts of participants
affected by such discontinuance, termination or partial termination will become
nonforfeitable. After termination of the plan by Timberland, no employee will
become a participant and the employers will not make any further contributions
hereunder.

Upon termination of the plan, the trustees will continue to hold the assets of
the trust fund attributable to contributions by the employer and participants
for distribution as directed by the Committee. The Committee will determine when
to disburse such assets.

                                    ARTICLE X
                                NAMED FIDUCIARIES

     10.1 IDENTITY OF NAMED FIDUCIARIES. Timberland, the trustees and the
Committee will be the named fiduciaries under the plan and will control and
manage the plan and its assets to the extent and in the manner indicated in this
article. Any responsibility assigned to a named fiduciary will not be deemed to
be a duty of a "fiduciary" (as defined in ERISA) solely because of such
assignment. The Committee will be the PLAN ADMINISTRATOR as that term is defined
in ERISA. If a Committee has not been appointed, or ceases for any reason to
serve, the Company shall function as the Administrator until a Plan
Administrator (or successor, as appropriate) is appointed.

     10.2 RESPONSIBILITIES AND AUTHORITY OF COMMITTEE. The Committee will
control and manage the operation and administration of the plan except to the
extent that such responsibilities are specifically assigned hereunder to
Timberland or the trustees. The responsibilities and authority of the Committee
are set forth in detail in various articles of this plan and primarily in
Article XI.



     10.3 RESPONSIBILITIES AND AUTHORITY OF TRUSTEES. The trustees will manage
and control the assets of the plan except to the extent that such
responsibilities are specifically assigned hereunder to an employer or the
Committee, or are delegated to one or more investment managers by Timberland.
The responsibilities and authority of the trustees are set forth in detail
primarily in the trust agreement.

     10.4 RESPONSIBILITIES OF TIMBERLAND. Timberland will have the following
responsibilities and authority with respect to control and management of the
plan and its assets:

          (a) to amend the plan;

          (b) to terminate the plan;

          (c) to merge or consolidate the plan with, or transfer all or part of
the assets or liabilities to, any other plan;

          (d) to appoint, remove and replace the trustees and the Committee and
to monitor their performances;

          (e) to appoint, remove and replace one or more investment managers, or
to refrain from such appointments, and to monitor their performances;

          (f) to select the investment funds in which the trust fund is
invested; and

          (g) to perform such additional duties as are required by the plan or
by law.

The foregoing responsibilities and authority of Timberland are set forth in
further detail in various articles of the plan and in the trust agreement.

     10.5 RESPONSIBILITIES NOT SHARED. Except as otherwise specified herein or
required by law, each named fiduciary will have only those responsibilities that
are specifically assigned to it hereunder, and no named fiduciary will incur
liability because of improper performance or nonperformance of responsibilities
specifically assigned to another named fiduciary or other person.

     10.6 PROCEDURE FOR ALLOCATION AND DELEGATION OF RESPONSIBILITIES. The
members of the Committee or the members of the board of directors of Timberland
or of a committee of any such board may allocate their responsibilities among
themselves in any reasonable manner and may delegate any of their
responsibilities to any other person or persons by so specifying in a written
instrument. No Committee member, director or member of a committee of the board
of directors of Timberland will be liable for the improper discharge or
nonperformance of any responsibility so allocated or delegated to another
person, except to the extent liability is imposed by law.

     10.7 DUAL FIDUCIARY CAPACITY PERMITTED. Any person or group of persons may
serve in more than one fiduciary capacity.



     10.8 ACTIONS BY TIMBERLAND. Wherever the plan specifies that Timberland is
required or permitted to take any action, such action will be taken by
Timberland's board of directors, or by a duly authorized Committee thereof, or
by one or more directors, officers or employees of the employer duly authorized
to do so by its board of directors.

     10.9 ADVICE. A named fiduciary may employ or retain such attorneys,
accountants, actuaries, investment advisors, consultants, specialists and other
persons or firms as it deems necessary or desirable to advise or assist it in
the performance of its duties. Unless otherwise provided by law, the fiduciary
will be fully protected with respect to any action taken or omitted by it in
reliance upon any such person or firm.

     10.10 INDEMNIFICATION. To the extent permitted by law and not prohibited by
their charters and by-laws, the employers will indemnify and hold harmless every
natural person serving as a fiduciary of the plan (whether a named fiduciary or
otherwise), and the estate of such a person if he is deceased, from and against
all claims, loss, damages, liability, and reasonable costs and expenses,
incurred as a result of his service as a fiduciary hereunder, unless due to the
gross negligence or willful misconduct of such person; provided that this
section will apply only to the extent that any such claims, loss, damages,
liability, costs and expenses are not covered by a fiduciary liability insurance
policy maintained by such fiduciary, the Committee, an employer or the plan. The
preceding sentence will not apply to a corporate trustee or other corporate
fiduciary or to an investment manager as defined in ERISA or outside service
provider (or to an employee of any of the foregoing) unless Timberland agrees
otherwise in writing. Timberland will allocate the amount of any indemnity due
under this section among the employers on an equitable basis.

                                   ARTICLE XI
                                  THE COMMITTEE

     11.1 APPOINTMENT. Timberland will appoint a Committee whose members may,
but need not, be plan participants or employees or officers of an employer. The
number of persons serving on the Committee at any time will be determined by
Timberland, and may be changed from time to time by it, provided that the
Committee will have no fewer than three members at any time. Timberland may
remove any Committee member at any time, with or without cause, by filing
written notice of his removal with the Committee and the trustees. A Committee
member may resign by filing his written resignation with Timberland, the
Committee and the trustees 30 days in advance of his resignation. A vacancy,
however arising, may be filled by Timberland.

     11.2 NOTICE TO TRUSTEES. Timberland will notify the trustees in writing of
each Committee member's appointment, and the trustees may assume that each such
appointment continues in effect until written notice to the contrary is given by
Timberland.

     11.3 ADMINISTRATION OF PLAN. The Committee will have all powers and
authority necessary or appropriate to carry out its responsibilities for the
operation and administration of the plan. It will interpret and apply all plan
provisions and may correct any defect, supply any omission or reconcile any
inconsistency or ambiguity in such manner as it deems advisable. It



will make all final determinations concerning eligibility, benefits and rights
hereunder, and all other matters concerning plan administration and
interpretation in its discretion. All determinations and actions of the
Committee will be conclusive and binding upon all persons. The Committee will
exercise all powers and authority given to it, and exercise discretion to
interpret the provisions of the plan, in a non-discriminatory manner and will
apply uniform administrative rules of general application to insure that persons
in similar circumstances are treated alike.

     11.4 IMPOSSIBLE OR DIFFICULT PERFORMANCE. If performance of any act
required hereunder is impossible or unduly burdensome, the Committee in its
discretion may perform or direct the performance of any other act which it
determines will carry out the plan's purpose. Such performance will discharge
all liability with respect thereto.

     11.5 REPORTING AND DISCLOSURE. The Committee, acting on behalf of the plan
administrator, will prepare, file, submit, distribute or make available any plan
descriptions, reports, statements, forms or other information to any government
agency, employee, former employee, or beneficiary as may be required by law or
by the plan.

     11.6 RECORDS. The Committee will keep all data, records, books of account
and instruments pertaining to plan administration. The employers will supply all
information required by the Committee to administer the plan with respect to its
employees, and the Committee may rely upon the accuracy of such information.

     11.7 COMPENSATION AND EXPENSES. The Committee, and each Committee member,
will serve without compensation unless Timberland determines otherwise; provided
that an employee of Timberland will not be compensated for his services as a
Committee member (other than reimbursement for reasonable expenses).

All reasonable expenses of administering the plan will be paid out of the trust
fund unless paid by the employers (each bearing an equitable share of such
expenses as determined by Timberland). Such expenses include the compensation of
all persons employed or retained by the Committee, premiums for bonds and
insurance protecting the plan or trust fund and required by law or deemed
advisable by the Committee, and all other costs of plan administration.

     11.8 DECISIONS, RULES AND REGULATIONS. Any action or decision concurred in
by a majority of the Committee members, either at a meeting or in writing
without a meeting, will constitute an action or decision of the Committee. No
Committee member may vote on any matter which relates exclusively to himself.
The Committee may adopt and amend such rules for the conduct of its business and
the administration of the plan as it deems advisable.

     11.9 SECRETARY OF THE COMMITTEE. The Committee at its option may appoint
any Committee participant or other person to serve as secretary, and may remove
him at any time. The Committee will notify the trustees in writing of such
person's appointment, and the trustees may assume his authority to act as
secretary continues until written notice to the contrary is given by the
Committee.



The secretary, or a majority of the Committee participants then in office, will
have the authority to execute all instruments or memoranda necessary or
appropriate to carry out the actions and decisions of the whole Committee; and
any person may rely upon any instrument or memorandum so executed as evidence of
the Committee action or decision indicated thereby.

     11.10 CLAIMS REVIEW PROCEDURE. The Committee shall make all determinations
as to the right of any person to a benefit. The Committee shall within 90 days
after the receipt of an application for benefits either allow or deny the
application in writing. A denial of benefits shall be written in a manner
calculated to be understood by the claimant and shall include:

          (a) the specific reason or reasons for the denial;

          (b) specific reference to pertinent plan provisions on which the
denial is based;

          (c) a description of any additional material or information necessary
for the applicant to perfect his/her claim and an explanation of why such
material or information is necessary;

          (d) an explanation of the plan's claim review procedure; and

          (e) effective January 1, 2002, the claimant's right to bring a civil
action under ERISA Section 502(a) following a denial upon appeal.

An individual whose application is denied (or his/her duly authorized
representative) may within 60 days after receipt of denial of his/her
application submit a written request for review to the Committee, review
pertinent documents, and submit issues and comments in writing. Effective
January 1, 2002, the claimant shall be provided, upon request and free of
charge, reasonable access to and copies of all documents, records and other
information determined by the Committee in its sole discretion to be relevant to
the claimant's claim for benefits and may submit written comments, documents,
records and other information relating to the claim.

The Committee shall notify the claimant of its decision on review within 60 days
after receipt of a request for review. Notice of the decision on review shall be
in writing and shall include the following information:



          (a) the specific reason or reasons for the denial;

          (b) specific reference to pertinent plan provisions on which the
denial is based;

          (c) effective January 1, 2002, a statement that the claimant is
entitled to receive, upon request and free of charge, reasonable access to and
copies of all documents, records and other information relevant to the claim;

          (d) effective January 1, 2002, a description of any voluntary appeals
procedures offered by the Plan;

          (e) effective January 1, 2002, a statement that the claimant has the
right to bring a civil action under ERISA Section 502(a) following a denial upon
appeal.

Participants and beneficiaries shall not be entitled to challenge the
Committee's determinations in judicial or administrative proceedings without
first complying with the procedures in this Section. The Committee's decisions
made pursuant to this Section are intended to be final and binding on
participants, beneficiaries and others.

If special circumstance require an extension of the 90-day and 60-day periods
described in this Section 11.10 may be extended at the discretion of the
Committee for a second 90- or 60-day period, as the case may be, provided that
written notice of the extension is furnished to the claimant prior to the
termination of the initial period, indicating the special circumstances
requiring such extension of time and the date by which a final decision is
expected.

                                   ARTICLE XII
                                  MISCELLANEOUS

     12.1 NONALIENATION OF BENEFITS. No benefit, right or interest hereunder of
any person will be subject to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, or to seizure, attachment or other
legal equitable or other process, or be liable for, or subject to, the debts,
liabilities or other obligations of such person, except that the Committee may
prescribe rules for the payment of benefits in accordance with a qualified
domestic relations order as defined in Section 12.2.

     12.2 QUALIFIED DOMESTIC RELATIONS ORDERS.

          (a) A qualified domestic relations order (QDRO) is a judgment, decree,
or order which meets the requirements of Code Section 414(p). An alternate payee
is an individual named in the QDRO who is to receive some or all of the
participant's benefit.

          (b) Upon receipt of any domestic relations order, the Committee will
notify the participant involved and each alternate payee under the order (and
under any previous QDRO relating to the participant's benefits). The Committee
will determine whether the order is a QDRO and will notify each affected
individual of its determination. In general, subject to the provisions of Code
Section 414(p), the plan's claims procedure rules under Section 11.10 apply



to this determination and any subsequent determination relating to the order. To
the extent permitted by law, the Committee's determination that an order is or
is not a QDRO is final. Any subsequent change in this determination is applied
only prospectively unless the Committee rules otherwise.

          (c) If an order is determined to be a QDRO, the provisions of the QDRO
will take precedence over any conflicting provisions of the plan (including
Section 12.1 relating to a non-alienation of benefits). To the extent provided
in a QDRO, a former spouse will be treated as the spouse or surviving spouse of
a participant for purposes of the death benefit provisions of Section 8.5 and
any other relevant provision of the plan.

          (d) In making its determination of whether an order is a QDRO, the
order will not fail to be considered a QDRO by the Committee solely because the
order specifies that payment to an alternate payee of the assigned portion of a
participant's accounts is to be made in a single lump sum cash payment as soon
as administratively feasible following the Committee's determination that the
order is a QDRO. The preceding sentence will apply regardless of whether the
participant has either separated from service, or attained the earliest
retirement age, as defined in Code Section 414(p), at the time of payment.

     12.3 PAYMENT TO MINORS AND INCOMPETENTS. If the Committee deems any person
incapable of giving a binding receipt for benefit payments because of minority,
illness, infirmity or other incapacity, it may direct that payment is made
directly to such person, or to a person selected by the Committee to disburse
such funds for the benefit of such person. Such payment, to the extent thereof,
will discharge all liability for such payment under the plan.

     12.4 CURRENT ADDRESS OF PAYEE. Any person entitled to benefits is
responsible for keeping the Committee informed of his current address at all
times. The Committee, trustees and employers have no obligation to locate such
person, and will be fully protected if all payments and communications are
mailed to his last known address, or are withheld pending receipt of proof of
his current address and proof that he is alive.

     12.5 DISPUTES OVER ENTITLEMENT TO BENEFITS. If two or more persons claim
entitlement to payment of the same benefit hereunder, the Committee in its
discretion may withhold payment of such benefit until the dispute has been
determined by a court of competent jurisdiction or has been settled by the
persons concerned.

     12.6 PAYMENT OF BENEFITS. Notwithstanding any other provision of this plan,
unless a participant elects otherwise with the consent of the Committee, his
benefit payments under the plan will begin not later than 60 days after the
close of the plan year in which the latest of the following dates occurs: (a)
the date he terminates service with the employer; (b) his 65th birthday; and (c)
the tenth anniversary of the date he began participating in the plan.

     12.7 TOP HEAVY PLAN PROVISIONS.

          (a) APPLICABILITY OF SECTION. This section is included in the plan to
meet the requirements of Code Section 416, and the provisions of this section
will be operative only if,



when and to the extent that Code Section 416 applies to the plan. At such time
as the requirements of Code Section 416 apply to the plan because the plan is to
top heavy as defined in subsection(b)(i) below, the provisions of this section
will apply and will govern over any contrary provision of the plan.

          (b) DEFINITIONS.

               (i) The plan will be TOP HEAVY for a plan year if, as of the
determination date, the sum of (A) the aggregate amount in the accounts of
participants who are key employees (including all defined contribution plans
within the required or permissive aggregation group) and (B) the aggregate
present value of cumulative accrued benefits of participants who are key
employees (including all defined benefit plans within such group), exceeds 60
percent of a similar sum determined for all participants in all such plans.

          In determining the amounts in participants' accounts and present
values of accrued benefits under the preceding two paragraphs, the present value
of accrued benefits will be based on the actuarial assumptions used to determine
the minimum funding requirements of Code Section 412(b); if there is more than
one defined benefit plan in the aggregation group, each plan will use the same
actuarial assumptions for purposes of the top heavy test, as determined by the
actuary; distributions made during the five years ending on the determination
date will be taken into account; rollover contributions after December 31, 1983,
will be taken into account only to the extent provided in regulations under Code
Section 416(g)(4)(A); account balances and accrued benefit values of a person
who was but no longer is a key employee will be disregarded; and account
balances and accrued benefit values of any individual who has not performed any
services for an employer at any time during the five years ending on the
determination date will be disregarded.

               (ii) The DETERMINATION DATE for purposes of determining whether
the plan is top heavy under subsection (i) for a particular plan year is the
last day of the preceding plan year.

               (iii) A KEY EMPLOYEE is an employee or former employee who has
satisfied Section 4.2 (including a beneficiary of such an employee) who at any
time during the plan year or any of the four preceding plan years was:

                    (A) An officer of an employer or an affiliated employer
having annual compensation greater than 50% of the amount in effect under
Section 415(b)(1)(A) of the Code for such plan year (but no more than 50
employees will be taken into account under this subsection (A) as key
employees);

                    (B) One of the ten employees having annual compensation of
more than the limitation in effect under Section 415 (c)(1)(A) of the Code for
such plan year and owning (or considered as owning within the meaning of Code
Section 318) the largest interests in an employer. For purposes of the preceding
sentence, if two employees have the same interest in an employer, the employee
having greater annual compensation from his employer (or an affiliated employer)
will be treated (or a sponsoring affiliated employer) as having a larger
interest;



                    (C) A person owning (or considered as owning within the
meaning of Code Section 318) more than 5% of the outstanding stock of an
employer or stock possessing more than 5% of the total combined voting power of
all stock of an employer; or

                    (D) A person who has annual compensation from an employer
(or affiliated employer) of more than $150,00 and who would be described in
subsection (C) above if 1% were substituted for 5%.

     For purposes of applying Code Section 318 to the provisions of this
subsection (iii), subparagraph (C) of Code Section 318(a)(2) will be applied by
substituting "five percent" for "50 percent." In addition, the rules of Code
Section 414(b), (c) and (m) will not apply for purposes of determining ownership
under subsections (C) and (D) above.

               (iv) A NON-KEY EMPLOYEE is any employee who has satisfied Section
4.2 (including a beneficiary of such employee) who is not a key employee.

               (v) A REQUIRED AGGREGATION GROUP includes all qualified plans,
whether or not terminated, of the employers of affiliated employers in which a
key employee participates and each other qualified plan of the employers or
affiliated employers that enables any of such plans to meet the requirements of
Section 401(a)(4) or Section 410 of the Code. A PERMISSIVE AGGREGATION GROUP
includes (in addition to plans in a required aggregation group) any plan which
the employer designates for inclusion provided that inclusion of such plan does
not cause the group to fail the requirements of Section 410(a)(4) and Section
410 of the Code.

          (c) MINIMUM BENEFIT. Each employee who has satisfied the participation
requirements of Sections 4.1 and 4.2 and is employed on the last day of the plan
year shall have a minimum contribution allocated on his behalf which is 3% of
the employee's applicable compensation or, if lesser, the highest percentage
allocation made for a key employee, reduced by any minimum contribution made on
behalf of the employee to another defined contribution plan maintained by an
employer.

     12.8 STATUTORY REFERENCES. A reference to any statute includes references
to any similar provision of any successor statute.

     12.9 RULES OF CONSTRUCTION.

          (a) A word or phrase defined or explained in any article has the same
meaning throughout the plan unless the context indicates otherwise.

          (b) Where the context so requires, the masculine includes the
feminine, the singular includes the plural, and the plural includes the
singular.

          (c) Unless the context indicates otherwise, the words "herein",
"hereof", "hereunder", and words of similar import refer to the plan as a whole
and not only to the section in which they appear.



     12.10 TEXT CONTROLS. Headings and titles are for convenience only, and the
text will control in all matters.

     12.11 APPLICABLE STATE LAW. To the extent that the state law applies, the
provisions of the plan will be construed, enforced and administered according to
the laws of the State of New Hampshire.

     Executed on February 15, 2002

                                        THE TIMBERLAND COMPANY

                                        By: /s/ Bruce A. Johnson

                                        Its:Vice President - Human Resources

EX-13

                                                                      EXHIBIT 13

[TIMBERLAND LOGO]



- --------------------------------------------------------------------------------
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
                                                                           
FINANCIAL REVIEW

  FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . .18

  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

  AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . .  .19

  CONSOLIDATED BALANCE SHEETS . . . . . . . . . . . . . . . . . . . . . .  . .26

  CONSOLIDATED STATEMENTS OF INCOME . .  . . . . . . . . . . .  . . . . .. . .27

  CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY . . . . . . . . .28

  CONSOLIDATED STATEMENTS OF CASH FLOWS . . . . . . . . . . . . . . . .  . . .29

  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. .  . . . . . . . . .. . . . . . 30

INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . .  . . . . . . . 43

CORPORATE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44


                                                                              17


FINANCIAL REVIEW

FIVE YEAR SUMMARY OF SELECTED FINANCIAL DATA

SELECTED STATEMENT OF INCOME DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



Years Ended December 31,                             2001            2000          1999          1998          1997
- -------------------------------------------------------------------------------------------------------------------
                                                                                         
Revenue                                       $ 1,183,623   $   1,091,478   $   917,216   $   862,168   $   796,458
Net income before extraordinary item              106,741         124,124        75,247        59,156        47,321
Net income                                        106,741         121,998        75,247        59,156        47,321
Earnings per share before extraordinary item
  Basic                                       $      2.73   $        3.09   $      1.75   $      1.29   $      1.05
  Diluted                                     $      2.65   $        2.91   $      1.70   $      1.26   $      1.01
Earnings per share after extraordinary item
  Basic                                       $      2.73   $        3.04   $      1.75   $      1.29   $      1.05
  Diluted                                     $      2.65   $        2.86   $      1.70   $      1.26   $      1.01
- -------------------------------------------------------------------------------------------------------------------


EARNINGS PER SHARE REFLECT THE 2-FOR-1 STOCK SPLITS IN SEPTEMBER 1999 AND
JULY 2000.

SELECTED BALANCE SHEET DATA
(DOLLARS IN THOUSANDS)



December 31,                                         2001            2000          1999          1998          1997
- -------------------------------------------------------------------------------------------------------------------
                                                                                         
Cash and equivalents                          $   105,658   $     114,852   $   196,085   $   151,889   $    98,771
Working capital                                   277,041         236,687       302,286       291,835       242,911
Total assets                                      504,612         476,311       493,311       469,467       420,003
Total long-term debt                                    -               -       100,000       100,000       100,000
Stockholders' equity                              359,238         316,751       272,368       266,193       214,895
- -------------------------------------------------------------------------------------------------------------------


18


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.

The Company's critical accounting policies used to prepare its financial
statements are disclosed in Note 1 to the Company's consolidated financial
statements. The preparation of financial statements in accordance with generally
accepted accounting principles requires assumptions and estimates that affect
the reported amounts of assets and liabilities, disclosures in the financial
statements and related notes and the reporting of revenue and expenses. Actual
results could differ from these estimates. The accompanying management
discussion is based upon a consistent application of accounting policies and
methodology in developing assumptions and estimates. Some of the more important
assumptions and estimates made by the Company are related to reserves for sales
returns and allowances, excess and obsolete inventory and allowance for doubtful
accounts receivable.

RESULTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)



Years Ended December 31,                     2001                   2000             1999
- -----------------------------------------------------------------------------------------------
                                                                        
Revenue                               $1,183,623  100.0%   $1,091,478  100.0%   $917,216  100.0%
Gross profit                             520,775   44.0       508,512   46.6     393,102   42.9
Operating expense                        357,682   30.2       324,340   29.7     276,551   30.2
Operating income                         163,093   13.8       184,172   16.9     116,551   12.7
Interest expense                           1,560    0.1         5,648    0.5       9,342    1.0
Other, net                                  (196)   0.0        (8,128)   0.7      (3,449)   0.4
Net income before extraordinary item     106,741    9.0       124,124   11.4      75,247    8.2
Extraordinary item -
  loss on debt extinguishment,
  net of tax benefit of $1,071                 -      -         2,126    0.2           -      -
Net income                            $  106,741    9.0    $  121,998   11.2    $ 75,247    8.2
Earnings per share before
  extraordinary item
    Basic                             $     2.73           $     3.09           $   1.75
    Diluted                           $     2.65           $     2.91           $   1.70
Earnings per share after
  extraordinary item
    Basic                             $     2.73           $     3.04           $   1.75
    Diluted                           $     2.65           $     2.86           $   1.70
Weighted-average shares outstanding
    Basic                                 39,043               40,119             42,895
    Diluted                               40,247               42,647             44,355
- -----------------------------------------------------------------------------------------------


EARNINGS PER SHARE AND WEIGHTED-AVERAGE SHARES REFLECT THE 2-FOR-1 STOCK SPLIT
IN JULY 2000.

Revenue increased to $1,183.6 million in 2001 from $1,091.5 million in 2000 and
$917.2 million in 1999. This represents an increase of 8.4% in 2001 and a 19.0%
increase in 2000, each compared with the prior year. Excluding the acquisition
of the Asian subsidiaries in 2000 (see Note 4), revenue for 2000 grew 13.2%,
compared with 1999.

The Company has three reportable business segments (see Note 13): U.S.
Wholesale, U.S. Consumer Direct (formerly U.S. Retail-commencing in 2001, U.S.
Retail includes the Company's new e-commerce business) and International.
Domestic revenue, comprised of the U.S. Wholesale and U.S. Consumer Direct
segments, amounted to $834.2 million in 2001, $787.0 million in 2000 and $662.5
million in 1999, or 70.5%, 72.1% and 72.2% of total revenue for each of the
three years, respectively. U.S. Wholesale segment revenue increased to $630.6
million in 2001 from $587.7 million in 2000 and $488.6 million in 1999. This
represents an increase of 7.3% in 2001, compared with 2000, and 20.3% in 2000,
compared with 1999, both 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

                                                                              19


a reduction in footwear average selling prices, primarily due to sales
allowances and, to a lesser degree, product mix. The Company expects sales
pressure in 2002, principally in its domestic footwear business, reflecting
comparisons to strong prior year first half results, a continued softness in
U.S. market conditions and a negative impact from a disciplined approach to
management of the U.S. Boot business, including improving channels of
distribution. U.S. Consumer Direct segment revenue increased to $203.6 million
in 2001 from $199.3 million in 2000 and $173.9 million in 1999. This represents
an increase of 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 was primarily
the result of the Company's effort to manage inventory levels and, to a lesser
degree, mix of product sold. The U.S. Consumer Direct segment revenue increased
14.6% in 2000, compared with 1999, primarily due to apparel and accessories unit
sales and, to a lesser degree, footwear unit sales. Increases in both 2001 and
2000, compared to the respective prior year periods, were enhanced by new retail
locations, with a comparable domestic store sales decrease of 4.5% in 2001,
compared with 2000, and an increase of 4.5% in 2000, compared with 1999. Given
the softness in U.S. market conditions, the Company has moderated its U.S.
retail store expansion plans. International segment revenue increased to $349.4
million in 2001 from $304.5 million in 2000 and $254.7 million in 1999. This
represents an increase of 14.7% in 2001, compared with 2000, and 19.6% in 2000,
compared with 1999. 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,
International segment revenue increased 19.6%. The increase in 2000, compared
with 1999, was primarily due to the acquisition of the Asian subsidiaries and,
to a lesser degree, European footwear and apparel and accessories unit sales,
partially offset by the impact of foreign exchange. Excluding Asia, revenue for
2000 decreased 1.6%, compared with 1999. On a constant dollar basis, excluding
Asia, revenue for 2000 increased 10.1% over 1999, reflecting double-digit
increases in four of the Company's five European subsidiaries.

Footwear revenue was $898.7 million in 2001, $838.0 million in 2000 and $713.4
million in 1999. This represents an increase of 7.2% in 2001 and an increase of
17.5% in 2000, each compared with the prior year. 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 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
Performance and domestic Men's casual. As discussed previously, the Company
expects sales pressure in 2002 in its domestic footwear business. The revenue
increase in 2000, compared with 1999, was primarily due to U.S. Wholesale unit
sales and, to a lesser degree, the acquisition of the Asian subsidiaries,
partially offset by the impact of foreign exchange. By product, the increase was
primarily attributable to unit volume growth in Boots and, to a lesser degree,
Kids', the Timberland PRO -TM- series and the Mountain Athletics -TM- by
Timberland sub-brand. These increases were partially offset by unit volume
decreases in the domestic Men's casual, Performance and Women's categories.
Worldwide footwear revenue represented 76.8%, 77.5% and 79.1% of total product
revenue in 2001, 2000 and 1999, respectively.

Revenue attributable to apparel and accessories was $272.0 million in 2001,
$242.9 million in 2000 and $189.0 million in 1999. 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 due to inventory control efforts and to product mix.
The revenue increase of 28.5% in 2000, compared with 1999, reflects double-digit
increases across the Company's domestic and international businesses, resulting
primarily from increased domestic and European retail unit sales, the
acquisition of the Asian subsidiaries and, to a lesser degree, European and U.S.
Wholesale unit sales. These increases were partially offset by foreign exchange.
Worldwide apparel and accessories revenue represented 23.2%, 22.5% and 20.9% of
total product revenue in 2001, 2000 and 1999, respectively.

20


Worldwide wholesale revenue was $879.1 million in 2001, $810.8 million in 2000
and $706.7 million in 1999. This represents an increase of 8.4% in 2001 and
14.7% in 2000, each compared with the prior year. Both domestic and
international footwear and apparel and accessories wholesale businesses
increased in 2001, compared with the prior year period. 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.
The revenue increase in 2000, compared with 1999, was primarily due to U.S.
Wholesale footwear unit volumes and, to a lesser degree, the acquisition of the
Asian subsidiaries, partially offset by the impact of foreign exchange.

Worldwide revenue from Company-operated specialty and factory outlet stores,
along with the Company's new e-commerce business, was $304.6 million in 2001,
$280.7 million in 2000 and $210.5 million in 1999. This represents an increase
of 8.5% in 2001 and 33.3% in 2000, each compared with the prior year. 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. The
increase in revenue in 2000, compared with 1999, was primarily due to the
acquisition of the Asian subsidiaries and, to a lesser degree, increases in U.S.
Consumer Direct apparel and accessories and footwear unit sales, partially
generated by new retail locations. Excluding Asia, revenue for 2000 increased
14.7%, compared with the prior year period. Worldwide retail revenue represented
25.7%, 25.7% and 22.9% of total revenue in 2001, 2000 and 1999, respectively.

Gross profit as a percentage of revenue was 44.0% in 2001, 46.6% in 2000 and
42.9% in 1999. 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. Under current conditions, the Company anticipates that the impact of
higher leather costs, footwear sales returns and allowances and foreign exchange
declines will continue into 2002. The Company will continue to review and
develop and may implement cost efficiencies across the supply chain in its
efforts to improve gross margins. The increase in margin percentage in 2000,
compared with 1999, was primarily due to improved design and development of
footwear and apparel, a reduction in third-party sourcing costs and internal
manufacturing efficiencies and, to a lesser degree, the acquisition of the Asian
subsidiaries, which include a higher percentage of higher margin retail sales.
These improvements were partially offset by increases in leather prices. The
Asian subsidiaries added 0.9 percentage points to the Company's gross profit
rate in 2000.

Operating expense was $357.7 million, or 30.2% of revenue in 2001, $324.3
million, or 29.7% of revenue in 2000 and $276.6 million, or 30.2% of revenue in
1999. 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. The 17.3% increase in operating expense
in 2000, compared with 1999, was principally due to the acquisition of the Asian
subsidiaries and, to a lesser degree, expenditures to promote business growth,
predominantly selling and marketing expenses. Excluding Asia, operating expense
increased 5.9%, which resulted in a 1.9 percentage point decrease in the expense
rate for 2000, compared with the prior year period.

Operating income, which is pretax earnings before interest expense and other,
net, was $163.1 million in 2001, $184.2 million in 2000 and $116.6 million in
1999. As a percentage of revenue, operating income was 13.8% in 2001, 16.9% in
2000 and 12.7% in 1999. The Company anticipates continued declines in its
operating margin in the first half of 2002, reflecting comparisons to strong
prior year levels and negative business mix impacts related to anticipated
declines in the higher margin U.S. Boot business.

Segment operating income decreased in the domestic segments in 2001 and improved
in the

                                                                              21


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 percentages, 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 percentage and an increase in operating expense
percentage, lowered operating income by 21.1%, compared with the prior year
period. Internationally, segment operating income increased by 5.1% over the
prior year period. 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 percentages. The
increase in the Unallocated Corporate operating loss in 2001, compared with
2000, was primarily due to increased marketing and other costs incurred in
support of company-wide activities.

Segment operating income improved in all segments in 2000, compared with the
respective prior year. In the U.S. Wholesale segment, in both footwear and
apparel, revenue increases, combined with improved gross margin rates and, to a
lesser degree, lower operating expense rates, drove the improvement in operating
income. In the U.S. Consumer Direct segment, increased revenue drove the
improvement in operating income, as gross margin and expense rates were nearly
equal to the prior year. Internationally, the acquisition of the Asian
subsidiaries was the primary reason for the year-over-year operating income
improvement. In the Company's European subsidiaries, improved revenue and
contribution, as measured on a constant dollar basis, was offset by the impact
of foreign exchange. The increase in the Unallocated Corporate operating loss in
2000, compared with 1999, was primarily due to higher marketing and United
States distribution expenses.

Interest expense was $1.6 million in 2001, compared with $5.6 million in 2000
and $9.3 million in 1999. The decrease in interest expense was primarily due to
the prepayment of the $100.0 million senior notes in 2000 (see Note 5).

Other, net includes interest income of $1,190 in 2001, $4,878 in 2000 and $4,730
in 1999. The decrease in interest income reflects the prepayment of the senior
notes in 2000 and the generation of lower cash flow from operations in 2001,
compared with 2000 and 1999. Other, net in 2000 reflects the receipt of $5.1
million from the Company's former Asian distributor (see Note 4).

The effective income tax rate was 34.0% in 2001, 33.5% in 2000 and 32.0% in
1999. The Company anticipates that federal tax law, which has benefited its
Puerto Rico operations, will change effective in 2002, thereby raising the
Company's 2002 effective tax rate by approximately one to two percentage points.
For an analysis of the effective tax rate, see the "Income Taxes" note (Note 11)
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 $88.9 million in 2001, $141.3 million
in 2000 and $137.8 million in 1999. 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. In
2000, compared with 1999, the Company's earnings and continued improvements in
working capital management were the principal sources of cash generation. The
increase in receivables in 2000, compared with 1999, was primarily due to the
acquisition of the Asian subsidiaries and a general increase in business volume.
The increase in

22


inventory in 2000, compared with 1999, was primarily due to the acquisition of
the Asian subsidiaries.

Inventory turns were 4.2 times in 2001, compared with 4.0 times in 2000 and 3.7
times in 1999. Days sales outstanding at December 31, 2001 were 35 days,
compared with 29 days at December 31, 2000 and 26 days at December 31, 1999.
Domestic wholesale days sales outstanding were 44 days, 32 days and 29 days at
the end of 2001, 2000 and 1999, respectively.

Net cash used by investing activities amounted to $24.6 million in 2001, $32.4
million in 2000 and $23.7 million in 1999. Of the net cash used by investing
activities, capital expenditures were $22.4 million in 2001, $35.4 million in
2000 and $20.1 million in 1999. A majority of capital expenditures during the
three years ended December 31, 2001, 2000 and 1999 were for transportation and
distribution equipment, manufacturing machinery and equipment, retail store
additions and building improvements, and information system enhancements. In
2000, the acquisition of the Asian subsidiaries generated $5.2 million of cash
(see Note 4).

During 2001, 2000 and 1999, net cash used in financing activities amounted to
$71.9 million, $188.5 million and $66.8 million, respectively. In 2001, 2000 and
1999, $80.4 million, $101.7 million and $71.7 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. 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 5).

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. 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 replaced the $100.0 million
revolving credit agreement that was due to expire in June 2001. 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 6).

The Company had no debt at December 31, 2001 and December 31, 2000. At December
31, 1999, the Company had $100.0 million in debt. The Company's debt to capital
ratio was 26.9% at December 31, 1999.

As of December 31, 2001, 2000 and 1999, the Company had letters of credit
outstanding of $39.0 million, $56.0 million and $54.0 million, respectively. All
were issued for the purchase of inventory.

Management believes that the Company's capital requirements for 2002 will be met
through the use of its current cash balances, through its existing credit
facilities 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 to protect 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

                                                                              23


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, 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. These contracts expire in twenty seven months or less. Based upon
sensitivity analysis as of December 31, 2001, a 10% change in foreign exchange
rates would cause the fair value of the Company's financial instruments to
increase/decrease by approximately $12.3 million, compared with $5.0 million at
December 31, 2000. The increase at December 31, 2001 is primarily due to the
amount of foreign currency forward contracts held at December 31, 2001, compared
to December 31, 2000. As of December 31, 2000, the Company had hedged the
majority of its first half 2001 foreign currency exposure while hedging the
majority of its second half 2001 foreign currency exposure during that year. As
of December 31, 2001, the Company has hedged the majority of its exposure for
the full year 2002.

EURO

Effective January 1, 1999, the European Monetary Union ("EMU") 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 to methodically
eliminate their local currencies and to convert to the euro. During the
transition period, either the euro or a member country's local currency was
accepted as legal tender.

As of December 31, 1999, the accounting and ledger systems of the Company's
European subsidiaries were euro compliant. Additionally, the Company could
invoice and manage all wholesale orders in local currency and euros. At the
subsidiaries' retail locations, all credit card readers were euro compliant and
all price tags and displays were in both local currency and euros. The retail
store registers and merchandising/inventory management systems were euro
compliant as of the end of 2000. During the fourth quarter of 2001, the
Company's financial reporting and consolidation systems became euro compliant.

The Company has, and will continue to monitor the euro conversion. The Company
has not experienced any material business disruptions as a result of the euro.

FORWARD-LOOKING INFORMATION

As discussed in an exhibit to the Company's Form 10-K for the year ended
December 31, 2001, 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 economic and other factors, including the current
U.S. economic environment and the events of September 11, 2001 and uncertainties
related to the ongoing conflict; (ii) the Company's ability to source from, and
sell product into, international markets, which

24


may be affected by import restrictions, political and environmental concerns, as
well as the Company's ability to manage its foreign exchange rate risks by
hedging and other similar activities such as conversion to the euro; (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 turn around 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.



                                                  2001                  2000
- ---------------------------------------------------------------------------------
                                            High       Low        High       Low
                                                               
First Quarter                             $73.25     $49.20      $26.63    $18.50
Second Quarter                             52.10      38.70       39.34     24.00
Third Quarter                              41.50      26.15       44.19     31.25
Fourth Quarter                             38.25      26.84       69.19     33.81
- ---------------------------------------------------------------------------------


QUARTERLY STOCK PRICES REFLECT THE 2-FOR-1 STOCK SPLIT IN JULY 2000.

As of February 22, 2002, the number of record holders of the Company's Class A
Common Stock was approximately 812 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 22, 2002 was $34.76 per share.

The Company has never declared a dividend on either the Company's Class A or
Class B Common Stock and does not contemplate doing so in the foreseeable
future. 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).

                                                                              25


CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2001 AND 2000
(AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)



                                                                                    2001          2000
- ------------------------------------------------------------------------------------------------------
                                                                                       
ASSETS
Current assets
  Cash and equivalents                                                         $ 105,658     $ 114,852
  Accounts receivable, net of allowance for doubtful accounts
    of $5,934 in 2001 and $5,825 in 2000                                         132,751       105,727
  Inventory                                                                      127,172       131,917
  Prepaid expense                                                                 17,093        13,717
  Deferred income taxes                                                           19,822        15,547
  Other assets                                                                     3,047             -
- ------------------------------------------------------------------------------------------------------
    Total current assets                                                         405,543       381,760
- ------------------------------------------------------------------------------------------------------
Property, plant and equipment                                                    166,365       150,462
  Less accumulated depreciation and amortization                                 (90,157)      (76,817)
- ------------------------------------------------------------------------------------------------------
    Net property, plant and equipment                                             76,208        73,645
- ------------------------------------------------------------------------------------------------------
Excess of cost over fair value of net assets acquired, net                        14,163        15,848
Other assets, net                                                                  8,698         5,058
- ------------------------------------------------------------------------------------------------------
Total assets                                                                   $ 504,612     $ 476,311
- ------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
  Accounts payable                                                             $  40,637     $  49,437
  Accrued expense
    Payroll and related                                                           23,918        34,311
    Other and interest                                                            42,611        41,976
    Income taxes payable                                                          21,336        19,349
- ------------------------------------------------------------------------------------------------------
    Total current liabilities                                                    128,502       145,073
- ------------------------------------------------------------------------------------------------------
Deferred compensation                                                              2,610             -
Deferred income taxes                                                              9,349         8,975
Excess of fair value of acquired assets over cost, net                             4,913         5,512
Stockholders' equity
  Preferred stock, $.01 par value; 2,000,000 shares authorized; none issued            -             -
  Class A Common Stock, $.01 par value (1 vote per share); 120,000,000
    shares authorized; 40,487,893 shares issued at December 31, 2001 and
    39,833,928 shares issued at December 31, 2000                                    405           398
  Class B Common Stock, $.01 par value (10 votes per share); convertible into
    Class A shares on a one-for-one basis; 20,000,000 shares authorized;
    7,911,185 shares issued at December 31, 2001 and 7,932,900 shares issued at
    December 31, 2000,                                                                79            79
Additional paid-in capital                                                       125,648       109,756
Deferred compensation                                                             (3,226)       (4,373)
Retained earnings                                                                510,713       403,972
Accumulated other comprehensive loss                                              (9,372)       (7,292)
Less treasury stock at cost; 10,064,847 Class A shares at December 31,2001
    and 8,151,039 Class A shares at December 31, 2000                           (265,009)     (185,789)
- ------------------------------------------------------------------------------------------------------
    Total stockholders' equity                                                   359,238       316,751
- ------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity                                     $ 504,612     $ 476,311
- ------------------------------------------------------------------------------------------------------


The accompanying notes are an integral part of these consolidated financial
statements.

26


CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)



                                                         2001               2000            1999
- ------------------------------------------------------------------------------------------------
                                                                               
Revenue                                            $1,183,623        $ 1,091,478        $917,216
Cost of goods sold                                    662,848            582,966         524,114
- ------------------------------------------------------------------------------------------------
  Gross profit                                        520,775            508,512         393,102
- ------------------------------------------------------------------------------------------------
Operating expense
  Selling                                             291,953            258,081         219,545
  General and administrative                           64,644             65,129          55,321
  Amortization of goodwill                              1,085              1,130           1,685
- ------------------------------------------------------------------------------------------------
  Total operating expense                             357,682            324,340         276,551
- ------------------------------------------------------------------------------------------------
Operating income                                      163,093            184,172         116,551
- ------------------------------------------------------------------------------------------------
Other expense (income)
  Interest expense                                      1,560              5,648           9,342
  Other, net                                             (196)            (8,128)         (3,449)
- ------------------------------------------------------------------------------------------------
  Total other expense (income)                          1,364             (2,480)          5,893
- ------------------------------------------------------------------------------------------------
Income before income taxes                            161,729            186,652         110,658
Provision for income taxes                             54,988             62,528          35,411
- ------------------------------------------------------------------------------------------------
Net income before extraordinary item               $  106,741        $   124,124        $ 75,247
Extraordinary item - loss on debt extinguishment,
  net of tax benefit of $1,071 (see Note 5)                 -              2,126               -
- ------------------------------------------------------------------------------------------------
Net income                                         $  106,741        $   121,998        $ 75,247
- ------------------------------------------------------------------------------------------------
Earnings per share before extraordinary item
  Basic                                            $     2.73        $      3.09        $   1.75
  Diluted                                          $     2.65        $      2.91        $   1.70
- ------------------------------------------------------------------------------------------------
Earnings per share after extraordinary item
  Basic                                            $     2.73        $      3.04        $   1.75
  Diluted                                          $     2.65        $      2.86        $   1.70
- ------------------------------------------------------------------------------------------------
Weighted-average shares outstanding
  Basic                                                39,043             40,119          42,895
  Diluted                                              40,247             42,647          44,355
- ------------------------------------------------------------------------------------------------


EARNINGS PER SHARE AND WEIGHTED-AVERAGE SHARES REFLECT THE 2-FOR-1 STOCK SPLIT
IN JULY 2000.

The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              27


CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)



                                                                                               Accumulated
                              Class A    Class B                                                     Other
                               Common     Common       Additional      Deferred    Retained  Comprehensive      Treasury
                                Stock      Stock  Paid-in Capital  Compensation    Earnings  Income (Loss)         Stock
- ----------------------------------------------------------------------------------------------------------------------------
                                                                                          
Balance, January 1, 1999      $    92    $    23  $        74,711  $          -   $ 207,077    $       626     $ (16,336)
Issuance of shares under
  employee stock plans              3          1            5,544        (3,705)          -              -         2,985
Amortization of
  deferred compensation             -          -                -            47           -              -             -
Repurchase of common stock          -          -                -             -           -              -       (71,670)
Tax benefit from
  stock option plans                -          -            2,500             -           -              -             -
2-for-1 stock split                92         23                -             -        (115)             -             -
Comprehensive income:
  Net income                        -          -                -             -      75,247              -
  Translation adjustment            -          -                -             -           -         (4,777)            -
Comprehensive income                -          -                -             -           -              -             -
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999        187         47           82,755        (3,658)    282,209         (4,151)      (85,021)
Issuance of shares under
  employee stock plans             17         (9)          14,401          (404)          -              -           950
Amortization of deferred
  compensation                      -          -                -           799           -              -             -
Loan on restricted
  stock issuance                    -          -                -        (1,110)          -              -             -
Repurchase of common stock          -          -                -             -           -              -      (101,718)
Tax benefit from
  stock option plans                -          -           12,600             -           -              -             -
2-for-1 stock split               194         41                -             -        (235)             -             -
Comprehensive income:
  Net income                        -          -                -             -     121,998              -             -
  Translation adjustment            -          -                -             -           -         (3,141)            -
Comprehensive income                -          -                -             -           -              -             -
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000        398         79          109,756        (4,373)    403,972         (7,292)     (185,789)
Issuance of shares under
  employee stock plans              7          -            8,222             -           -              -         1,152
Amortization of deferred
  compensation                      -          -                -           822           -              -             -
Reduction in loan on
  restricted stock                  -          -                -           325           -              -             -
Repurchase of common stock          -          -                -             -           -              -       (80,372)
Tax benefit from
  stock option plans                -          -            7,670             -           -              -             -
Comprehensive income:
  Net income                        -          -                -             -     106,741              -             -
  Translation adjustment            -          -                -             -           -         (3,924)            -
Derivative transition
  adjustment                        -          -                -             -           -            577             -
Change in fair value
  of derivatives, net of taxes      -          -                -             -           -          1,267             -
Comprehensive income                -          -                -             -           -              -             -
- -----------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001    $   405    $    79  $       125,648  $     (3,226)  $ 510,713    $    (9,372)    $(265,009)
- -----------------------------------------------------------------------------------------------------------------------------


                              Comprehensive          Consolidated
                                     Income  Stockholders' Equity
                              -----------------------------------

                                                   
Balance, January 1, 1999                                 $266,193
Issuance of shares under
  employee stock plans                                      4,828
Amortization of
  deferred compensation                                        47
Repurchase of common stock                                (71,670)
Tax benefit from
  stock option plans                                        2,500
2-for-1 stock split                                             -
Comprehensive income:
  Net income                      $  75,247                75,247
  Translation adjustment             (4,777)               (4,777)
                                  ---------
Comprehensive income              $  70,470                     -
- -----------------------------------------------------------------
Balance, December 31, 1999                                272,368
Issuance of shares under
  employee stock plans                                     14,955
Amortization of deferred
  compensation                                                799
Loan on restricted
  stock issuance                                           (1,110)
Repurchase of common stock                               (101,718)
Tax benefit from
  stock option plans                                       12,600
2-for-1 stock split                                             -
Comprehensive income:
  Net income                      $ 121,998               121,998
  Translation adjustment             (3,141)               (3,141)
                                  ---------
Comprehensive income              $ 118,857                     -
- -----------------------------------------------------------------
Balance, December 31, 2000                                316,751
Issuance of shares under
  employee stock plans                                      9,381
Amortization of deferred
  compensation                                                822
Reduction in loan on
  restricted stock                                            325
Repurchase of common stock                                (80,372)
Tax benefit from
  stock option plans                                        7,670
Comprehensive income:
  Net income                      $ 106,741               106,741
  Translation adjustment             (3,924)               (3,924)
Derivative transition
  adjustment                            577                   577
Change in fair value
  of derivatives, net of taxes        1,267                 1,267
                                  ---------
Comprehensive income              $ 104,661                     -
- -----------------------------------------------------------------
Balance, December 31, 2001                              $ 359,238
- -----------------------------------------------------------------


The accompanying notes are an integral part of these consolidated financial
statements.

28


CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(DOLLARS IN THOUSANDS)



                                                             2001            2000               1999
- ----------------------------------------------------------------------------------------------------
                                                                                   
Cash flows from operating activities:
  Net income                                             $106,741       $ 121,998           $ 75,247
  Adjustments to reconcile net income to net cash
   provided by operating activities:
    Deferred income taxes                                  (5,104)            137               (714)
    Depreciation and amortization                          22,107          19,291             24,410
    Loss (gain) on disposal of property, plant and            664            (131)               396
    equipment
    Extraordinary item                                          -           2,126                  -
    Tax benefit from stock option plans                     7,670          12,600              2,500
    Increase (decrease) in cash from changes
     in working capital:
      Accounts receivable                                 (29,574)        (24,419)            (2,687)
      Inventory                                             3,772         (10,479)            15,817
      Prepaid expense                                      (3,706)         (1,104)             1,679
      Accounts payable                                     (7,264)         14,120             10,144
      Accrued expense                                      (8,919)          7,681             15,290
      Income taxes                                          2,496            (507)            (4,301)
- ----------------------------------------------------------------------------------------------------
    Net cash provided by operating activities              88,883         141,313            137,781
- ----------------------------------------------------------------------------------------------------
Cash flows from investing activities:
  Acquisition of Asian distributor business                     -           5,237                  -
  Additions to property, plant and equipment              (22,428)        (35,444)           (20,094)
  Other, net                                               (2,174)         (2,169)            (3,620)
- ----------------------------------------------------------------------------------------------------
    Net cash used by investing activities                 (24,602)        (32,376)           (23,714)
- ----------------------------------------------------------------------------------------------------
Cash flows from financing activities:
  Extinguishment of debt                                        -        (100,000)                 -
  Extraordinary item                                            -          (2,126)                 -
  Establishment of new revolving credit facility             (919)              -                  -
  Common stock repurchases                                (80,372)       (101,718)           (71,670)
  Issuance of common stock                                  9,381          15,359              4,828
- ----------------------------------------------------------------------------------------------------
    Net cash used by financing activities                 (71,910)       (188,485)           (66,842)
- ----------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash                    (1,565)         (1,685)            (3,029)
- ----------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and equivalents            (9,194)        (81,233)            44,196
Cash and equivalents at beginning of year                 114,852         196,085            151,889
- ----------------------------------------------------------------------------------------------------
Cash and equivalents at end of year                      $105,658       $ 114,852           $196,085
- ----------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
  Interest paid                                          $  1,272       $   5,863           $  9,165
  Income taxes paid                                        50,435          55,471             40,848
- ----------------------------------------------------------------------------------------------------


The accompanying notes are an integral part of these consolidated financial
statements.

                                                                              29


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.

RECOGNITION OF REVENUE
Revenue consists of sales to customers, license fees and royalties. Sales are
recognized either upon shipment of product to customers or at point of sale.
License fees and royalties are recognized when earned.

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, and transaction gains and losses are reflected in
net income.

DERIVATIVES
The Company is exposed to foreign exchange risk when it sells goods in local
currencies through its foreign subsidiaries. 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 accounts for derivatives in accordance with Statement of Financial
Accounting Standards ("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" and SFAS No. 138, "Accounting for Certain Derivative Instruments and
Certain Hedging Activities - an Amendment of SFAS No. 133." Accordingly, all
derivatives are recognized at fair value and included in "other 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 earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value is immediately
recognized in earnings.

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.

INVENTORY
Inventory is stated at the lower of cost (first-in, first-out) or market.

PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated 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
The excess of cost over the fair value of net assets acquired is being amortized
on a straight-line basis over periods of 10, 15 and 40 years. Accumulated
amortization amounted to $17,612 and $15,927 at December 31, 2001 and 2000,
respectively. The Company will adopt SFAS No. 141, "Business Combinations," SFAS
No. 142, "Goodwill and Other Intangible Assets" and SFAS No. 144,

30


"Accounting for the Impairment or Disposal of Long-Lived Assets" in the first
quarter of 2002. A discussion of the expected impact of the adoption of these
standards is addressed within this note under New Accounting Pronouncements.

EXCESS OF FAIR VALUE OF ACQUIRED ASSETS OVER COST
The excess of fair value of acquired assets over cost is being amortized on a
straight-line basis over a period of 10 years. Accumulated amortization amounted
to $1,155 at December 31, 2001 and $555 at December 31, 2000 (see Note 4). The
Company will adopt SFAS No. 141 in the first quarter of 2002. A discussion of
the expected impact of the adoption of this standard is addressed within this
note under New Accounting Pronouncements.

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.

INCOME TAXES
Income taxes are determined based on the income reported in the Company's
financial statements, regardless of when such taxes are payable. In addition,
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.

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, excess and obsolete inventory and allowance for doubtful
accounts receivable.

STOCK SPLITS
In 2000 and 1999, the Company's Board of Directors approved 2-for-1 stock splits
of Timberland's Class A and Class B Common Stock, effective July 17, 2000 and
September 15, 1999. All share and per share amounts in the accompanying
consolidated financial statements and related notes reflect the stock splits.

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 dilution that would occur
if securities such as stock options were exercised. Dilutive securities (see
Note 15) included in the calculation of diluted weighted-average shares were
1,203,996 in 2001, 2,527,353 in 2000 and 1,459,944 in 1999. Anti-dilutive
securities excluded from the calculation of diluted weighted-average shares were
693,580 in 2001, 0 in 2000 and 43,500 in 1999.

LONG-LIVED ASSETS
The Company continually 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 economically recoverable. The Company
will adopt SFAS No. 144 in the first quarter of 2002. A discussion of the
expected impact of the adoption of this standard is addressed within this note
under New Accounting Pronouncements.

STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the method prescribed by
Accounting Principles Board ("APB") Opinion No. 25 and related interpretations.
The Company follows SFAS No. 123 for disclosure purposes.

                                                                              31


COMPREHENSIVE INCOME
Comprehensive income, in the case of the Company, is the combination of reported
net income and other comprehensive income, which is comprised of foreign
currency translation adjustments and changes in the fair value of derivatives.
Comprehensive income has no impact on the Company's reported net income.
Comprehensive income is included in the consolidated statements of changes in
stockholders' equity.

NEW ACCOUNTING PRONOUNCEMENTS
In the second quarter of 2001, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 141, "Business Combinations." SFAS No. 141 requires that the
purchase method of accounting be used for all business combinations initiated
after June 30, 2001. In addition, the transition provision of 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 will recognize a cumulative effect of a
change in accounting principle gain of $4,913 for the unamortized balance of the
excess of fair value of net assets over cost as of December 31, 2001.

Also issued in the second quarter of 2001 was SFAS No. 142, "Goodwill and Other
Intangible Assets." SFAS No. 142 requires the cessation of goodwill amortization
and, instead, the carrying value of goodwill will be evaluated for impairment on
an annual basis. The provisions of this accounting standard also 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. Identifiable intangible assets will continue to be
amortized over their useful lives and reviewed for impairment in accordance with
SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed of." SFAS No. 142 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS No. 142 will result in
the Company ceasing to amortize goodwill. The Company does not anticipate that
the transitional impairment test will result in a material change in the
carrying amount of its goodwill. Goodwill amortization for the years ended
December 31, 2001, 2000 and 1999 was $1,085, $1,130 and $1,685, respectively.

In the third quarter of 2001, the FASB issued SFAS No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." 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 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. SFAS No. 144 is effective for fiscal years beginning after December
15, 2001.

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
until the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
The application of SFAS No. 133 resulted in an increase in other comprehensive
income in 2001 of $1,844, which is net of taxes of $1,203.

32


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 through its foreign subsidiaries. The Company has
established policies and business practices to protect 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, 2001, the Company had
forward contracts maturing at various dates through 2004 to sell the equivalent
of approximately $127,000 in foreign currencies at contracted rates.

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 and subsequently
recognized in cost of goods sold in the period in which the hedged forecasted
economic exposure takes place. The Company measures hedge effectiveness based on
changes in the fair value of those contracts 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 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. For the years ended December 31,
2001, 2000 and 1999, the Company recorded, in its income statement, hedging
gains of $8,475, $11,658 and $4,273, respectively.

3. DEFERRED COMPENSATION PLAN

On January 1, 2001, the Company set up an irrevocable grantor's trust ("rabbi
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."

4. 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
- -Registered Trademark- brand products throughout the Asia-Pacific region. In
connection with this transaction, the Company acquired the stock of the 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.

                                                                              33


This transaction has been 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 recording of excess of fair value
of acquired net assets over cost, which is being amortized on a straight-line
basis over a 10 year period (see Note 1, "New Accounting Pronouncements"). Pro
forma data is not provided since this transaction does not have a material
impact on the Company's consolidated financial statements.

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 the distributor'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.

5. LONG-TERM DEBT AND EXTRAORDINARY LOSS

As of December 31, 2001 and 2000, 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. The prepayment of the senior
notes was financed with cash from operations.

6. 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 replaced the $100,000 revolving credit agreement that was
due to expire in June 2001. 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 1.75% at December 31, 2001), 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, 2001, the applicable margin under
the facility was 55 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, 2001, the fee was
20 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, 2001. Borrowings under these lines are at
prevailing money market rates (2.3% at December 31, 2001). These arrangements
may be terminated at any time at the option of the banks or the Company.

As of December 31, 2001, 2000 and 1999, the Company had letters of credit
outstanding of $39,000, $56,000 and $54,000, respectively. All were issued for
the purchase of inventory.

34


7. FINANCIAL INSTRUMENTS AND CONCENTRATION OF CREDIT RISK

The following table illustrates the U.S. dollar equivalent of foreign exchange
contracts at December 31, 2001 and 2000 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.



                        Contract Amount   Maturity  Unrealized    Unrealized    Net Unrealized        Net Unrealized
December 31, 2001    (U.S.$ Equivalent)       Date  Gross Gain  Gross (Loss)       Gain (Loss)  Gain (Loss) Deferred
- --------------------------------------------------------------------------------------------------------------------
                                                                                        
Pounds Sterling                $ 15,608       2002   $       -       $   (67)      $       (67)           $      (67)
Pounds Sterling                   4,773       2003           -            (9)               (9)                   (9)
Euro                             67,261       2002       1,179            (4)            1,175                 1,179
Euro                              9,107       2003          98             -                98                    98
Japanese Yen                     14,157       2002       1,414             -             1,414                 1,414
Japanese Yen                      5,337       2003         432             -               432                   432
Japanese Yen                      6,496       2004          37             -                37                     -
Hong Kong Dollars                 3,846       2002           1             -                 1                     -
- --------------------------------------------------------------------------------------------------------------------
Total                          $126,585              $   3,161       $   (80)      $     3,081            $    3,047
- --------------------------------------------------------------------------------------------------------------------
December 31, 2000
- --------------------------------------------------------------------------------------------------------------------
Pounds Sterling                $ 12,125       2001   $     181       $     -       $       181            $       81
Euro                             34,808       2001           -           (14)              (14)                  (14)
Japanese Yen                      7,098       2001         713             -               713                   713
- --------------------------------------------------------------------------------------------------------------------
Total                          $ 54,031              $     894       $   (14)      $       880            $      880
- --------------------------------------------------------------------------------------------------------------------


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 $5,934 and $5,825
at December 31, 2001 and 2000, respectively.

8. FAIR VALUE OF FINANCIAL INSTRUMENTS

The estimated fair values of the Company's financial instruments are as follows:



December 31,                                    2001                         2000
- --------------------------------------------------------------------------------------
                                      Carrying                    Carrying
                                   or Contract         Fair    or Contract        Fair
                                        Amount        Value         Amount       Value
- --------------------------------------------------------------------------------------
                                                                  
Cash and equivalents (1)           $   105,658     $105,658       $114,852    $114,852
Foreign currency contracts (2)         126,585      123,504         54,031      53,151
- --------------------------------------------------------------------------------------


(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, 2001 AND 2000, RESPECTIVELY.

9. INVENTORY

Inventory consists of the following:



December 31,                                2001               2000
- -------------------------------------------------------------------
                                                     
Raw materials                           $  4,958           $  4,099
Work-in-process                            1,566              2,006
Finished goods                           120,648            125,812
- -------------------------------------------------------------------
Total                                   $127,172           $131,917
- -------------------------------------------------------------------


                                                                              35


10. PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consists of the following:



December 31,                                2001              2000
- -------------------------------------------------------------------
                                                   
Land and improvements                   $    501         $      501
Building and improvements                 44,693             38,455
Machinery and equipment                  104,023             97,632
Lasts, patterns and dies                  17,148             13,874
- -------------------------------------------------------------------
Total                                   $166,365         $  150,462
- -------------------------------------------------------------------


Depreciation expense was $18,819, $16,356 and $21,151 for the years ended
December 31, 2001, 2000 and 1999, respectively.

11. INCOME TAXES

The components of the provision for income taxes are as follows:



Years Ended December 31,              2001                     2000                   1999
- -----------------------------------------------------------------------------------------------------
                              Current      Deferred       Current     Deferred     Current   Deferred
                                                                           
Federal                      $ 45,397      $ (4,384)   $   43,758    $     191    $ 24,354   $   (454)
State                           9,702          (720)       10,764          (54)      6,092       (260)
Puerto Rico                       498             -           469            -         421          -
Foreign                         4,495             -         6,329            -       5,258          -
- -----------------------------------------------------------------------------------------------------
Total                        $ 60,092      $ (5,104)   $   61,320    $     137    $ 36,125   $   (714)
- -----------------------------------------------------------------------------------------------------


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:



Years Ended December 31,              2001                     2000                   1999
- ---------------------------------------------------------------------------------------------------
                                                                             
Federal income tax
  at statutory rate          $ 56,605          35.0%    $64,209         35.0%   $38,730        35.0%
Federal tax exempt
  operations in Puerto Rico    (5,506)         (3.4)     (7,231)        (3.9)    (6,550)       (5.9)
State taxes, net of
  applicable federal benefit    6,477           4.0       7,538          4.1      4,274         3.9
Other, net                     (2,588)         (1.6)     (3,059)        (1.7)    (1,043)       (1.0)
- ---------------------------------------------------------------------------------------------------
Total                        $ 54,988          34.0%    $61,457         33.5%   $35,411        32.0%
- ---------------------------------------------------------------------------------------------------


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:



December 31,                            2001                                   2000
- --------------------------------------------------------------------------------------
                                                               
Current                       Assets        Liabilities      Assets        Liabilities
  Inventory                  $ 4,847        $         -     $ 4,498        $         -
  Receivable allowances       10,636                  -       7,696                  -
  Employee benefits accruals   3,895                  -       2,769                  -
  Forward currency contracts       -             (1,203)          -                  -
  Other                        1,647                  -         584                  -
- --------------------------------------------------------------------------------------
Total current                $21,025        $    (1,203)    $15,547        $         -
- --------------------------------------------------------------------------------------
Non-current:

  Accelerated depreciation
    and amortization         $ 4,143        $         -     $ 4,064        $         -
  Puerto Rico tollgate taxes       -             (2,470)          -             (2,470)
  Undistributed foreign
    earnings                       -            (10,869)          -             (9,965)
  Other                            -               (153)          -               (604)
  Net operating loss             129                  -          90                  -
    carry-forwards
  Less-valuation allowance      (129)                 -         (90)                 -
- --------------------------------------------------------------------------------------
Total non-current            $ 4,143        $   (13,492)    $ 4,064        $   (13,039)
- --------------------------------------------------------------------------------------


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

36


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.

12. 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 2014. The approximate minimum rental commitments under all
non-cancelable leases as of December 31, 2001 are as follows:

                   
2002                  $ 26,553
2003                    22,359
2004                    17,933
2005                    14,295
2006                    11,063
Thereafter              33,968
- ------------------------------
Total                 $126,171
- ------------------------------




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 $30,784, $26,021 and $19,063 for the years ended December
31, 2001, 2000 and 1999, respectively. Percentage rent for the years ended
December 31, 2001, 2000 and 1999 was $7,438, $6,488 and $2,446, respectively.

13. 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. Beginning in 2000, the International segment includes the results
for the Asian subsidiaries.

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 income/expense. 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.

                                                                              37


In the first quarter of 2001, management reporting was modified to reflect
allocations of certain Unallocated Corporate costs to the business segments.
Prior year data has been adjusted for comparability.



                                                                                Unallocated
                         U.S.Wholesale   U.S.Consumer Direct    International     Corporate    Consolidated
- -----------------------------------------------------------------------------------------------------------
                                                                                  
2001
Revenue                       $630,603             $ 203,578        $ 349,442    $        -      $1,183,623
Depreciation
  and amortization                 579                 2,684            4,371        14,473          22,107
Operating income(loss)         200,161                25,157           50,167      (112,392)        163,093
Interest expense                     -                     -                -         1,560           1,560
Other, net                           -                     -                -          (196)           (196)
Income (loss)
  before income taxes          200,161                25,157           50,167      (113,756)        161,729
- -----------------------------------------------------------------------------------------------------------
Total assets                   176,924                26,769          141,135       159,784         504,612
Expenditures
  for capital additions            378                 3,362            6,099        12,589          22,428
- -----------------------------------------------------------------------------------------------------------
2000
Revenue                       $587,676             $ 199,274        $ 304,528    $        -      $1,091,478
Depreciation
  and amortization                 597                 2,602            3,545        12,547          19,291
Operating income(loss)         206,358                31,897           47,725      (101,808)        184,172
Interest expense                     -                     -                -         5,648           5,648
Other, net                           -                     -                -        (8,128)         (8,128)
Income (loss)
  before income taxes          206,358                31,897           47,725       (99,328)        186,652
- -----------------------------------------------------------------------------------------------------------
Total assets                   147,096                36,061          128,962       164,192         476,311
Expenditures
  for capital additions            651                 2,689            6,127        25,977          35,444
- -----------------------------------------------------------------------------------------------------------
1999
Revenue                       $488,597             $ 173,937        $ 254,682    $        -      $  917,216
Depreciation
  and amortization                 760                 2,927            4,433        16,290          24,410
Operating income(loss)         156,321                22,167           38,594      (100,531)        116,551
Interest expense                     -                     -                -         9,342           9,342
Other, net                           -                     -                -        (3,449)         (3,449)
Income (loss)
  before income taxes          156,321                22,167           38,594      (106,424)        110,658
- -----------------------------------------------------------------------------------------------------------
Total assets                   126,134                32,856          108,096       226,225         493,311
Expenditures
  for capital additions          2,694                 2,457            6,668         8,275          20,094
- -----------------------------------------------------------------------------------------------------------


The following summarizes the Company's operations in different geographic areas
for the years ended December 31, 2001, 2000 and 1999, respectively:



                         United States       Europe    Other Foreign   Consolidated
- -----------------------------------------------------------------------------------
                                                             
2001
Revenue                       $834,181     $249,323         $100,119     $1,183,623
Long-lived assets               74,943       14,366            9,760         99,069
- -----------------------------------------------------------------------------------
2000
Revenue                       $786,950     $225,279         $ 79,249     $1,091,478
Long-lived assets               69,863       15,646            9,042         94,551
- -----------------------------------------------------------------------------------
1999
Revenue                       $662,534     $227,618         $ 27,064     $  917,216
Long-lived assets               55,501       17,198            5,971         78,670
- -----------------------------------------------------------------------------------


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.

38


14. 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 2001 and 2000, 21,715 and
1,418,496 shares of Class B Common Stock were converted to Class A Common Stock,
respectively.

During the second quarter of 2000, the Company's shareholders approved an
increase in the authorized number of shares of Class A Common Stock from
30,000,000 to 60,000,000 shares. During the second quarter of 2001, the
Company's shareholders approved an increase in the authorized number of shares
of Class A Common Stock from 60,000,000 to 120,000,000 and an increase in the
authorized number of shares of Class B Common Stock from 15,000,000 to
20,000,000.

On June 11, 1999, the Board of Directors authorized a repurchase of up to an
additional 4,000,000 shares of the Company's Class A Common Stock. During the
second half of 1999 and as of December 31, 2000, the Company repurchased
1,462,600 and 2,537,400 shares, respectively, under that authorization. On
October 18, 2000, the Board of Directors authorized an additional repurchase of
up to an additional 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, the Company repurchased an additional 1,958,500
shares under that 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.

15. 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. An increase from
4,000,000 shares to 6,000,000 shares was approved by the shareholders of the
Company at the Annual Meeting of the Company in May 2001. 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.

In May of 2001, the stockholders approved a new stock option plan for
non-employee directors, the 2001 Non-Employee Directors Stock Plan (the "2001
Plan"). The 2001 Plan replaces the Company's 1991 Stock Option Plan for
Non-Employee Directors which did not allow any grants after November 14, 2001.
Under 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 1,525,265, 1,213,986 and 1,422,684 shares
were exercisable under all option arrangements at December 31, 2001, 2000 and
1999, respectively. Under the existing stock option plans, there were 2,205,876
and 666,320 shares available for future grants at December 31, 2001 and 2000,
respectively.

                                                                              39


The following summarizes transactions under all stock option arrangements for
the years ended December 31, 2001, 2000 and 1999:



                                                         Range of    Weighted-Average
                          Number of Shares        Exercise Prices      Exercise Price
- -------------------------------------------------------------------------------------
                                                                   
January 1, 1999                  3,382,420      $    1.60 - 20.81           $   11.01
- -------------------------------------------------------------------------------------
Granted                          1,535,800          15.19 - 24.63               16.66
Exercised                         (514,962)          1.60 - 20.81                7.12
Canceled                          (208,946)          4.38 - 20.52               14.17
- -------------------------------------------------------------------------------------
December 31, 1999                4,194,312           1.60 - 24.63               13.43
- -------------------------------------------------------------------------------------
Granted                          1,063,950          18.75 - 57.81               26.01
Exercised                       (1,107,522)          1.60 - 23.75               11.48
Canceled                          (425,804)          4.34 - 34.94               15.64
- -------------------------------------------------------------------------------------
December 31, 2000                3,724,936           1.60 - 57.81               17.34
- -------------------------------------------------------------------------------------
Granted                            739,330          26.84 - 57.00               52.91
Exercised                         (601,058)          3.34 - 24.63               13.12
Canceled                          (147,050)          5.13 - 57.81               26.73
- -------------------------------------------------------------------------------------
December 31, 2001                3,716,158      $    3.34 - 57.81           $   24.77
- -------------------------------------------------------------------------------------


The following summarizes information about all stock options outstanding at
December 31, 2001:



                                    Options Outstanding                          Options Exercisable
- ---------------------------------------------------------------------------------------------------------
                                   Weighted-Average
       Range of           Number          Remaining   Weighted-Average        Number     Weighted-Average
Exercise Prices      Outstanding   Contractual Life     Exercise Price   Exercisable       Exercise Price
- ---------------------------------------------------------------------------------------------------------
                                                                                
$  3.75 - 10.16          464,928         3.20 Years         $     6.08       456,428           $     6.02
  10.53 - 12.53          165,000         5.67                    12.10       148,250                12.28
  12.59 - 15.19          715,400         7.13                    15.16       278,900                15.12
  16.00 - 18.03          408,100         6.36                    17.94       253,200                17.96
  18.34 - 20.52          258,700         6.81                    19.76       143,900                19.87
  20.73 - 22.63          423,400         8.05                    22.55        88,625                22.36
  22.75 - 33.19          456,700         8.40                    25.95       113,525                24.90
  33.80 - 54.44          285,460         8.90                    41.57        42,437                39.37
          55.35            5,500         9.20                    55.35             -                    -
          57.00          532,970         9.16                    57.00             -                    -
- ---------------------------------------------------------------------------------------------------------
$  3.75 - 57.00        3,716,158         7.16               $    24.77     1,525,265           $    14.86
- ---------------------------------------------------------------------------------------------------------


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 44,692 shares in 2001, 47,359 shares in 2000 and 84,338
shares in 1999 at prices ranging from $9.35 to $33.59 per share. At December 31,
2001, a total of 334,531 shares were available for future purchases. The
weighted-average fair values of those purchase rights granted in 2001, 2000 and
1999 were $13.53, $8.92 and $3.54, respectively.

The Company applies APB Opinion No. 25 and related interpretations in accounting
for its stock plans and provides certain pro forma disclosures regarding the
Company plans as required by SFAS No. 123, "Accounting for Stock-Based
Compensation." Accordingly, 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
provisions of SFAS No. 123, the Company's net income and diluted earnings per
share in 2001, 2000 and 1999 would have been: $97,218 and $2.42, $117,392 and
$2.75 before the extraordinary item and $115,266 and $2.70 after the
extraordinary item, and $69,767 and $1.58, respectively. The pro forma effect on
net income and earnings per share for 2001, 2000 and 1999 is not representative
of the pro forma effect on net income in future years because the provisions of
SFAS No. 123 do not take into consideration pro forma compensation expense
related to grants made prior to 1995.

40


The fair value of each stock option granted in 2001, 2000 and 1999 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 2001, 2000 and 1999, respectively:
expected volatility of 54.8%, 54.1% and 54.4%; risk-free interest rates of 4.3%,
6.5% and 5.4%; expected lives of 4.7, 5.4 and 5.2 years; and no dividend
payments. The weighted-average fair values per share of stock options granted
during 2001, 2000 and 1999 were $26.24, $13.94 and $8.65, respectively.

In December 1999, the Company issued 156,000 restricted shares of Class A Common
Stock under the 1997 Plan. Those shares are subject to restrictions on sale and
transferability, a risk of forfeiture and certain other terms and conditions.
Those restrictions lapse over a five-year period in equal amounts. Upon issuance
of this stock under the 1997 Plan, unearned compensation, equivalent to the
market value of the shares at the date of the grant, was charged to
stockholders' equity.

In the second quarter of 2000, the Company made a loan of approximately $1,100
related to the 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 quarter of 2001, the Board of Directors forgave $325 of
principle payment on the loan.

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 with six or more months of service. 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 $1,403 in 2001, $1,283 in 2000 and $1,193
in 1999.

16. 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.

                                                                              41


17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)

The following is a tabulation of the quarterly results of operations for the
years ended December 31, 2001, 2000 and 1999, respectively:



2001
Quarter Ended                                        March 30        June 29    September 28   December 31
- ----------------------------------------------------------------------------------------------------------
                                                                                   
Revenue                                             $ 245,429    $   200,851    $    396,219   $   341,125
Gross profit                                          108,588         91,782         174,574       145,831
Net income                                             17,511         10,489          48,529        30,212
Basic earnings per share                            $     .44    $       .27    $       1.25   $       .79
Diluted earnings per share                          $     .43    $       .26    $       1.22   $       .77
- ----------------------------------------------------------------------------------------------------------


                                                                                   
2000
Quarter Ended                                        March 31       June 30(1)  September 29   December 31
- ----------------------------------------------------------------------------------------------------------
Revenue                                             $ 208,604    $   177,064    $    375,246   $   330,564
Gross profit                                           95,421         82,400         178,152       152,540
Net income before extraordinary item                   14,666         11,133          57,453        40,888
Net income                                             14,666          8,991          57,453        40,888
Earnings per share before extraordinary item
  Basic                                             $     .36    $       .28    $       1.44   $      1.03
  Diluted                                           $     .34    $       .26    $       1.35   $       .96
Earnings per share after extraordinary item
  Basic                                             $     .36    $       .22    $       1.44   $      1.03
  Diluted                                           $     .34    $       .21    $       1.35   $       .96
- ----------------------------------------------------------------------------------------------------------


                                                                                   
1999
Quarter Ended                                        March 26        June 25    September 24   December 31
- ----------------------------------------------------------------------------------------------------------
Revenue                                             $ 176,897    $   152,937    $    310,939   $   276,442
Gross profit                                           73,129         61,017         134,357       124,598
Net income                                              7,842          2,402          35,140        29,864
Basic earnings per share                            $     .18    $       .06    $        .83   $       .72
Diluted earnings per share                          $     .17    $       .05    $        .81   $       .69
- ----------------------------------------------------------------------------------------------------------


EARNINGS PER SHARE DATA REFLECT THE 2-FOR-1 STOCK SPLITS IN SEPTEMBER 1999 AND
JULY 2000.

(1)IN THE SECOND QUARTER OF 2000, THE COMPANY RECORDED A $2,126 AFTERTAX
   EXTRAORDINARY LOSS.

   THE LOSS CONSISTED OF A PREPAYMENT PENALTY AND OTHER COSTS ASSOCIATED WITH
   THE EARLY REDEMPTION OF $100,000 IN SENIOR NOTES.

42


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, 2001 and 2000 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, 2001. 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, 2001
and 2000, and the results of its operations and cash flows for each of the three
years in the period ended December 31, 2001, in conformity with accounting
principles generally accepted in the United States of America.

DELOITTE & TOUCHE LLP
Boston, Massachusetts

February 6, 2002

                                                                              43

EX-21

                                                                      EXHIBIT 21



      NAME OF SUBSIDIARY                                    JURISDICTION OF INCORPORATION
      ------------------                                    -----------------------------
                                                         
The Outdoor Footwear Company                                Delaware
The Timberland Finance Company                              Delaware
The Timberland World Trading Company                        Delaware
Timberland Europe, Inc.                                     Delaware
Timberland International Sales Corporation                  U.S. Virgin Islands
Timberland Direct Sales, Inc.                               Delaware
Timberland Retail, Inc.                                     Delaware
Timberland Manufacturing Company                            Delaware
Timberland Aviation, Inc.                                   Delaware
Timberland Netherlands, Inc.                                Delaware
(Formerly Timberland Scandinavia, Inc.)
Timberland International, Inc.                              Delaware
Timberland SAS                                              France
Timberland World Trading GmbH                               Germany
Timberland (UK) Limited                                     United Kingdom
Timberland GmbH                                             Austria
Timberland Espana, S.A.                                     Spain
The Recreational Footwear Company (Dominicana), S.A.        Dominican Republic
Component Footwear Dominicana, S.A.                         Dominican Republic
Timberland Footwear & Clothing Company Inc.                 Canada
Les Vetements & Chaussures Timberland Inc.
Timberland Netherlands Holdings B.V.                        The Netherlands
Timberland Asia LLC                                         Delaware
Timberland Taiwan LLC                                       Delaware
Timberland Hong Kong Ltd.                                   Hong Kong
Timberland Japan, Inc.                                      Japan
Timberland Lifestyle Brand Malaysia Sdn Bhd                 Malaysia
Timberland Lifestyle Brand Singapore Pte. Ltd.              Singapore
Timberland Korea Yuhan Hoesa                                Korea

EX-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 dated
February 6, 2002, appearing in this Annual Report on Form 10-K of The
Timberland Company for the year ended December 31, 2001.

Boston, Massachusetts
March 28, 2002

EX-99

                                                                      EXHIBIT 99

                       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 AND RETAIL MARKET CONDITIONS. Sales of the Company's
products are subject to consumer trends and economic and other factors affecting
the retail market, including the current continued softness in U.S. market
conditions and the events of September 11, 2001 and uncertainties related to the
ongoing fight against 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. 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, import restrictions, anti-dumping investigations,
political or labor disturbances, expropriation and acts of war. In addition,
although the Company pays for the purchase and manufacture of its products
primarily in U.S. dollars, it does sell its products in markets where the local
currency is not the U.S. dollar. Therefore, the Company is subject to
fluctuations in foreign currency exchange rates. While the Company attempts to
manage its foreign currency exchange rate risks through adherence to policies
and business practices and the use of forward contracts to hedge forecasted
foreign currency transactions, 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. As discussed
by the Company in previous filings with the Securities and Exchange Commission



during 2001, pressure from foreign exchange declines during 2001 adversely
impacted the Company's gross margins. In addition, the Company believes that
the adoption of the euro by the European Monetary Union has not had a
material impact on the Company's consolidated financial statements. The
Company will continue to monitor the conversion of its European operations to
the euro.

     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. The Company's revenue from its
operations in this region would be adversely affected if general economic
difficulties in the region do not improve or the Company's efforts to integrate
its Asia-Pacific operations require greater investment in infrastructure and/or
more time than currently expected. In addition, 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.

     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
2001, seven suppliers provided, in the aggregate, approximately 75% of the
Company's leather purchases. One of these suppliers provided approximately 30%
of the Company's leather purchases in 2001. 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. Leather hide prices have
decreased significantly from peak levels in 2001. The Company attempts to manage
this risk 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.

     CONSUMER ACCEPTANCE OF PRODUCTS. The success of the Company's products and
marketing strategy will 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 lifestyle brand and on the Company's
ability to respond to the demands of the marketplace for greater speed and
exceptional customer service.



     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 improve 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 2001, the Company
manufactured approximately 13% of its footwear unit volume, compared to
approximately 15% during 2000 and 18% during 1999. 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. (See the "International" paragraph above for a discussion
of the risks of doing business abroad to which the Company may be subject.)
Independent manufacturers in China and Macau produced approximately 58% of the
Company's 2001 footwear unit volume; and three of these manufacturers produced
approximately 12% to 14% each of the Company's 2001 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.
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.

     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 will reduce 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.

     RETAIL ORGANIZATION. In 1986, the Company opened the first Timberland(R)
store dedicated exclusively to Timberland(R) products. At the end of 2001,
the Company operated 24 specialty stores and 51 factory outlet stores in the
United States and Puerto Rico (2 factory outlet stores), and 89 specialty
stores and 19 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 17.2% of the Company's
revenue for 2001. 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. The Company's ability to recover the
investment in and expenditures of its retail organization, particularly its
specialty stores, would be adversely affected if sales at its retail stores
were 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.

     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 80.1% 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 2002 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 2002. 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.