UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

For the quarterly period ended ~~April~~July 1, 2011

__ 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		02-0312554

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


200 Domain Drive, Stratham, New Hampshire		03885

(Address of principal executive offices)		(Zip Code)


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

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~~ for such shorter period that the registrant was required to file such reports), and (2) has ~~been~~ been subject to such filing requirements for the past 90 days.

x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer x		Accelerated Filer o
Non-Accelerated Filer o	(Do not check if a smaller reporting company)	Smaller Reporting Company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes x No

On ~~April~~ July 29, 2011, 4140,~~200~~271,~~824~~813 shares of the registrant’s Class A Common Stock were outstanding and 10,568,389 shares of the registrant’s Class B Common Stock were outstanding.

Form 10-Q
Page 2

THE TIMBERLAND COMPANY

FORM 10-Q

TABLE OF CONTENTS

	Page(s)	~~Page(s)~~
Part I — Financial Information
Part I Financial Information
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheets - April 1, 2011, December 31, 2010 and April 2, 2010			3
Unaudited Condensed Consolidated Balance Sheets - July 1, 2011, December 31, 2010 and July 2, 2010			4
Unaudited Condensed Consolidated Statements of Operations - For the Quarters Ended April 1, 2011 and April 2, 2010			4
Unaudited Condensed Consolidated Statements of Operations - For the Quarters and Six Months Ended July 1, 2011 and July 2, 2010			5
Unaudited Condensed Consolidated Statements of Cash Flows - For the Quarters Ended April 1, 2011 and April 2, 2010			5
Unaudited Condensed Consolidated Statements of Cash Flows - For the Six Months Ended July 1, 2011 and July 2, 2010			6
Notes to Unaudited Condensed Consolidated Financial Statements			67-1825
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			1825-2637
Item 3. Quantitative and Qualitative Disclosures About Market Risk			2638
Item 4. Controls and Procedures			2738
Part II — Other Information
Part II Other Information
Item 1A. Risk Factors			27
Item 1. Legal Proceedings			38-39
Item 6. Exhibits			28
Item 1A. Risk Factors			39
Signatures			29
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			39
Exhibit Index			30
Item 6. Exhibits			41
Exhibits			31-39
Signatures			42
Exhibit Index			43
Exhibits
EX-10.1
EX-31.1
EX-31.2
EX-32.1
EX-32.2
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Form 10-Q Page 23

Cautionary Note Regarding Forward-Looking Statements

The Timberland Company (the “Company”) wishes to take advantage of The Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, which provide a “safe harbor” for certain written and oral forward-looking statements to encourage companies to provide prospective information. Statements containing the words “may,” “assumes,” “forecasts,” “positions,” “predicts,” “strategy,” “will,” “expects,” “estimates,” “anticipates,” “believes,” “projects,” “intends,” “plans,” “budgets,” “potential,” “continue,” “target,” or words or phrases of similar meaning, and other statements contained in this Quarterly Report regarding matters that are not historical facts are forward-looking statements. 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 discussion in Part I, Item 1A, Risk Factors, of our Annual Report on Form 10-K for the year ended December 31, 2010 (the “Form 10-K”) and Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q 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 risks included in Part I, Item 1A, Risk Factors, of the Form 10-K and Part II, Item 1A of this Quarterly Report are not exhaustive. Other sections of the Form 10-K as well as this Quarterly Report or previously filed Quarterly Reports may include additional factors which could adversely affect the Company’s business and financial performance. Moreover, the Company operates in a very competitive and rapidly changing environment. New risk factors emerge from time to time and it is not possible for management to predict all such risk factors, nor can it assess the impact of all such risk factors on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. The Company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Form 10-Q Page 34

~~Part~~PART I — FINANCIAL INFORMATION


Item 1.		FINANCIAL STATEMENTS

THE TIMBERLAND COMPANY

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands)

(Dollars in Thousands)


	July 1,			December 31,			July 2,
	2011			2010			2010
Assets
Current assets
Cash and equivalents		$233,800			$272,221			$237,798
Accounts receivable, net of allowance for doubtful accounts of $7,577 at July 1, 2011, $10,859 at December 31, 2010 and $11,130 at July 2, 2010		116,701			188,336			86,836
Inventory		251,720			180,068			177,206
Prepaid expense		32,748			32,729			31,506
Prepaid income taxes		36,245			25,083			27,244
Deferred income taxes		19,343			22,562			27,085
Derivative assets		51			29			7,882

Total current assets		690,608			721,028			595,557

Property, plant and equipment and capitalized software costs, net		78,411			68,043			64,502
Deferred income taxes		10,148			15,594			18,683
Goodwill		38,958			38,958			38,958
Intangible assets, net		33,630			34,839			36,195
Other assets, net		18,264			13,897			12,670

Total assets		$870,019			$892,359			$766,565


Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable		$110,156			$91,025			$78,946
Accrued expense
Payroll and related		30,262			47,376			27,678
Other		59,594			80,675			52,877
Income taxes payable		5,172			25,760			15,330
Deferred income taxes		-			-			388
Derivative liabilities		6,870			1,690			91

Total current liabilities		212,054			246,526			175,310

Other long-term liabilities		38,858			34,322			38,234
Commitments and contingencies (See Note 13) 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; 77,091,327 shares issued at July 1, 2011, 75,543,672 shares issued at December 31, 2010 and 75,072,360 shares issued at July 2, 2010		771			756			751
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; 10,568,389 shares issued and outstanding at July 1, 2011, 10,568,389 shares issued and outstanding at December 31, 2010 and 10,889,160 shares issued and outstanding at July 2, 2010		106			106			109
Additional paid-in capital		328,503			280,154			272,820
Retained earnings		1,069,170			1,071,305			976,978
Accumulated other comprehensive income		9,254			6,671			9,478
Treasury Stock at cost; 36,845,309 Class A shares at July 1, 2011, 35,610,050 Class A shares at December 31, 2010 and 33,511,452 Class A shares at July 2, 2010		(788,697	)		(747,481	)		(707,115	)

Total stockholders’ equity		619,107			611,511			553,021

Total liabilities and stockholders’ equity		$870,019			$892,359			$766,565

	April 1,			December 31,			April 2,
	2011			2010			2010
Assets
Current assets
Cash and equivalents	$	265,271		$	272,221		$	238,540
Accounts receivable, net of allowance for doubtful accounts of $11,591 at April 1, 2011, $10,859 at December 31, 2010 and $12,299 at April 2, 2010		178,492			188,336			157,615
Inventory		186,862			180,068			136,941
Prepaid expense		33,002			32,729			29,374
Prepaid income taxes		27,898			25,083			14,389
Deferred income taxes		21,195			22,562			24,448
Derivative assets		5			29			5,444
Total current assets		712,725			721,028			606,751
Property, plant and equipment, net		70,705			68,043			66,245
Deferred income taxes		10,395			15,594			15,379
Goodwill		38,958			38,958			44,353
Intangible assets, net		34,590			34,839			44,648
Other assets, net		17,048			13,897			13,652
Total assets	$	884,421		$	892,359		$	791,028
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable	$	67,493		$	91,025		$	44,265
Accrued expense
Payroll and related		23,385			47,376			21,509
Other		67,940			80,675			66,913
Income taxes payable		15,757			25,760			20,279
Deferred income taxes		-			-			261
Derivative liabilities		4,416			1,690			60
Total current liabilities		178,991			246,526			153,287
Other long-term liabilities		34,699			34,322			37,796
Commitments and contingencies (See Note 12)
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; 76,806,880 shares issued at April 1, 2011, 75,543,672 shares issued at December 31, 2010 and 74,872,066 shares issued at April 2, 2010		768			756			749
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; 10,568,389 shares issued and outstanding at April 1, 2011, 10,568,389 shares issued and outstanding at December 31, 2010 and 10,889,160 shares issued and outstanding at April 2, 2010		106			106			109
Additional paid-in capital		319,394			280,154			268,982
Retained earnings		1,089,276			1,071,305			1,000,430
Accumulated other comprehensive income		9,450			6,671			11,572
Treasury Stock at cost; 35,630,635 Class A shares at April 1, 2011, 35,610,050 Class A shares at December 31, 2010 and 32,177,071 Class A shares at April 2, 2010		(748,263	)		(747,481	)		(681,897	)
Total stockholders’ equity		670,731			611,511			599,945
Total liabilities and stockholders’ equity	$	884,421		$	892,359		$	791,028

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

Form 10-Q Page 45

THE TIMBERLAND COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Amounts in Thousands, Except Per Share Data)

	For the Quarter Ended						For the Six Months Ended
	April 1, 2011			April 2, 2010
	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Revenue	$	~~349~~$240,~~004~~127		$	~~317~~$188,~~042~~954			$589,131			$505,996
Cost of goods sold		~~185~~126,~~690~~309			~~159~~95,~~059~~446			311,999			254,505
Gross profit		~~163~~113,~~314~~818			~~157~~93,~~983~~508			277,132			251,491
Operating expense
Selling		~~103~~107,~~076~~664			9286,~~696~~124			210,740			178,820
General and administrative		3236,~~353~~330			2528,~~899~~942			68,683			56,341
Total operating expense		135,429			118,595
Impairment of goodwill		-			5,395			-			5,395
Operating income		27,885			39,388
Impairment of intangible assets		736			7,854			736			7,854
Other income/(expense), net
Gain on termination of licensing agreements		-			(1,500	)		-			(3,000	)
Interest income		131			74
Total operating expense		144,730			126,815			280,159			245,410
Interest expense		(188	)		(140	)
Operating income/(loss)		(30,912	)		(33,307	)		(3,027	)		6,081
Other, net		1,681			(133	)
Other income/(expense), net
Total other income/(expense), net		1,624			(199	)
Interest income		155			148			285			221
Income before provision for income taxes		29,509			39,189
Interest expense		(128	)		(142	)		(315	)		(281	)
Provision for income taxes		11,538			13,442
Other, net		1,140			269			2,821			136
Net income	$	17,971		$	25,747
Total other income/(expense), net		1,167			275			2,791			76
Earnings per share
Income/(loss) before income taxes		(29,745	)		(33,032	)		(236	)		6,157
Basic	$	.35		$	.48
Income tax provision/(benefit)		(9,639	)		(9,580	)		1,899			3,862
Diluted	$	.35		$	.47
Net income/(loss)		$(20,106	)		$(23,452	)		$(2,135	)		$2,295
Weighted-average shares outstanding
Earnings/(Loss) per share
Basic		~~50,912~~$(.39	)		~~54,166~~$(.44	)		$(.04	)		$.04
Diluted		~~52,004~~$(.39	)		~~54,643~~$(.44	)		$(.04	)		$.04
Weighted-average shares outstanding
Basic		51,191			53,225			51,052			53,698
Diluted		51,191			53,225			51,052			54,184

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

Form 10-Q Page 56

THE TIMBERLAND COMPANY

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands)

(Dollars in Thousands)


	For the Six Months Ended
	July 1, 2011			July 2, 2010
Cash flows from operating activities:
Net income/(loss)		$(2,135	)		$2,295
Adjustments to reconcile net income/(loss) to net cash provided/(used) by operating activities:
Deferred income taxes		9,929			(4,811	)
Share-based compensation		6,993			3,647
Depreciation and amortization		13,033			13,053
Provision for losses on accounts receivable		316			1,584
Impairment of goodwill		-			5,395
Impairment of intangible assets		736			7,854
Excess tax benefit from share-based compensation		(5,116	)		(303	)
Unrealized (gain)/loss on derivatives		283			(176	)
Other non-cash charges/(credits), net		(32	)		222
Increase/(decrease) in cash from changes in operating assets and liabilities:
Accounts receivable		75,438			53,559
Inventory		(71,005	)		(20,139	)
Prepaid expense and other assets		(1,954	)		1,429
Accounts payable		19,416			(700	)
Accrued expense		(41,607	)		(43,006	)
Prepaid income taxes		(11,163	)		(15,451	)
Income taxes payable		(15,527	)		(3,611	)
Other liabilities		2,160			205

Net cash provided/(used) by operating activities		(20,235	)		1,046


Cash flows from investing activities:
Additions to property, plant and equipment		(19,236	)		(7,289	)
Other		(499	)		(116	)

Net cash used by investing activities		(19,735	)		(7,405	)


Cash flows from financing activities:
Common stock repurchases		(40,939	)		(44,220	)
Issuance of common stock		36,499			2,435
Excess tax benefit from share-based compensation		5,116			587
Other		(1,195	)		(634	)

Net cash used by financing activities		(519	)		(41,832	)


Effect of exchange rate changes on cash and equivalents		2,068			(3,850	)


Net decrease in cash and equivalents		(38,421	)		(52,041	)
Cash and equivalents at beginning of period		272,221			289,839

Cash and equivalents at end of period		$233,800			$237,798


Supplemental disclosures of cash flow information:
Interest paid		$282			$276
Income taxes paid		$19,088			$26,891
Non-cash investing activity (ERP system costs on account)		$3,027			$-

	For the Quarter Ended
	April 1, 2011			April 2, 2010
Cash flows from operating activities:
Net income	$	17,971		$	25,747
Adjustments to reconcile net income to net cash used by operating activities:
Deferred income taxes		7,510			1,352
Share-based compensation		3,611			1,558
Depreciation and amortization		6,129			6,545
Provision for losses on accounts receivable		648			1,468
Excess tax benefit from share-based compensation		(4,198	)		(55	)
Unrealized (gain)/loss on derivatives		382			(163	)
Other non-cash charges/(credits), net		53			(258	)
Increase/(decrease) in cash from changes in operating assets and liabilities:
Accounts receivable		11,638			(13,003	)
Inventory		(7,165	)		20,618
Prepaid expense and other assets		(1,808	)		3,723
Accounts payable		(23,416	)		(37,065	)
Accrued expense		(37,054	)		(34,145	)
Prepaid income taxes		(2,815	)		(2,596	)
Income taxes payable		(6,661	)		(325	)
Other liabilities		837			284
Net cash used by operating activities		(34,338	)		(26,315	)
Cash flows from investing activities:
Additions to property, plant and equipment		(8,653	)		(2,818	)
Other		662			23
Net cash used by investing activities		(7,991	)		(2,795	)
Cash flows from financing activities:
Common stock repurchases		(915	)		(19,512	)
Issuance of common stock		31,399			719
Excess tax benefit from share-based compensation		4,198			303
Other		(785	)		(451	)
Net cash provided/(used) by financing activities		33,897			(18,941	)
Effect of exchange rate changes on cash and equivalents		1,482			(3,248	)
Net decrease in cash and equivalents		(6,950	)		(51,299	)
Cash and equivalents at beginning of period		272,221			289,839
Cash and equivalents at end of period	$	265,271		$	238,540
Supplemental disclosures of cash flow information:
Interest paid	$	221		$	173
Income taxes paid	$	13,779		$	14,484
Non-cash investing activity (ERP system costs on account)	$	1,700		$	-

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

~~Form 10~~Form10-Q Page 67

THE TIMBERLAND COMPANY

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in Thousands, Except Share and Per Share Data)

(Amounts in Thousands, Except Share and Per Share Data)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of The Timberland Company and its subsidiaries (“we”, “our”, “us”, “its”, “Timberland” or the “Company”). These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

The financial statements included in this Quarterly Report on Form 10-Q are unaudited, but in the opinion of management, such financial statements include the adjustments, consisting of normal recurring adjustments, necessary to present fairly the Company’s financial position, results of operations and changes in cash flows for the interim periods presented. The results reported in these financial statements are not necessarily indicative of the results that may be expected for the full year due, in part, to seasonal factors. Historically, our revenue has been more heavily weighted to the second half of the year.

The Company’s fiscal quarters end on the Friday closest to the day on which the calendar quarter ends, except that the fourth quarter and fiscal year end on December 31. The ~~first~~second quarters of ~~our~~ our fiscal year in 2011 and 2010 ended on ~~April~~July 1, 2011 and ~~April~~July 2, 2010, respectively.

Acquisition by V.F. Corporation

On June 12, 2011, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with V.F. Corporation (“VF”) and VF Enterprises, Inc., a wholly owned subsidiary of VF (“Merger Sub”). The Merger Agreement provides that, upon the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of VF. Holders of the outstanding shares of the Company’s common stock at the effective time of the Merger will receive $43.00 per share in cash.

Concurrent with the execution of the Merger Agreement, Sidney W. Swartz, Chairman of the Company’s Board of Directors, Jeffrey B. Swartz, President and Chief Executive Officer of the Company, and certain other members of their families and certain trusts established for the benefit of their families or for charitable purposes (collectively, the “Supporting Stockholders”), who collectively control approximately 73.5% of the combined voting power of the Company’s outstanding Class A and Class B common stock, entered into a Voting Agreement (the “Voting Agreement”) with VF. The Voting Agreement provided that, so long as the Voting Agreement had not previously been terminated in accordance with its terms, the Supporting Stockholders would deliver a written consent adopting the Merger Agreement on July 26, 2011. The written consent was delivered on July 26, 2011, and no further action by any other Company stockholder is required to adopt the Merger Agreement or approve the Merger.

New Accounting Pronouncements

In ~~December~~June ~~2010~~2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards ~~Update~~ Update (“ASU”) No. ~~2010~~2011-2805, ~~When~~Presentation toof ~~Perform~~Comprehensive ~~Step~~Income, 2which ofrevises the ~~Goodwill~~manner ~~Impairment~~in ~~Test for Reporting~~which ~~Units~~entities ~~With~~present ~~Zero~~comprehensive orincome ~~Negative~~in ~~Carrying~~their ~~Amounts~~financial statements. ~~This~~The ~~accounting~~ASU ~~standard~~removes ~~update requires entities~~the ~~with~~presentation aoptions ~~zero~~in orAccounting ~~negative~~Standard ~~carrying~~Codification ~~value~~Topic to220 ~~assess,~~and ~~considering~~requires ~~adverse~~entities ~~qualitative~~to ~~factors, whether~~report itcomponents isof ~~more~~comprehensive ~~likely~~income ~~than~~in ~~not~~either ~~that~~1) a ~~goodwill~~continuous ~~impairment~~statement ~~exists.~~of Ifcomprehensive anincome ~~entity concludes that it is~~or ~~more~~2) ~~likely~~two ~~than~~separate ~~not~~but ~~that~~consecutive astatements. ~~goodwill~~The ~~impairment exists~~ASU, ~~the~~which ~~entity~~does ~~must~~not ~~perform~~change ~~step 2 of~~ the ~~goodwill~~ ~~impairment~~items ~~test.~~that ~~ASU~~must ~~No. 2010-28~~be reported isin ~~effective~~other ~~for~~comprehensive ~~impairment~~income ~~tests~~or ~~performed~~their byaccounting ~~the Company during 2011~~treatment, ~~and its adoption~~ is ~~not~~effective ~~expected~~for ~~to have a material impact on~~ the Company’s ~~results~~beginning ofin ~~operations~~the orfirst ~~financial~~quarter ~~position~~of 2012.

In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement: Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS. This accounting standard update is the result of joint efforts by the FASB and IASB to develop a single converged fair value framework that provides guidance on how to measure fair value and on what disclosures to provide about fair value measurements. The ASU’s measurement and disclosure requirements, which are required to be applied prospectively, are effective for the Company beginning in the first quarter of

Form10-Q
Page 8

2012 and are not expected to have a material impact on the Company’s results of operations or financial position.

In December 2010, the FASB issued ASU No. 2010-28, When to Perform Step 2 of the Goodwill Impairment Test for Reporting Units With Zero or Negative Carrying Amounts. This accounting standard update requires entities with a zero or negative carrying value to assess, considering adverse qualitative factors, whether it is more likely than not that a goodwill impairment exists. If an entity concludes that it is more likely than not that a goodwill impairment exists, the entity must perform step 2 of the goodwill impairment test. ASU No. 2010-28 was effective for impairment tests performed by the Company during 2011, and its adoption did not have an impact on the Company’s results of operations or financial position.

Note 2. Fair Value Measurements

Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that ranks the quality and reliability of the information used to determine fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize data points that are observable such as quoted prices, interest rates and yield curves. Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. The Company recognizes and reports significant transfers between Level 1 and Level 2, and into and out of Level 3, as of the actual date of the event or change in circumstances that caused the transfer.

Financial Assets and Liabilities

The following tables present information about our assets and liabilities measured at fair value on a recurring basis as of July 1, 2011, December 31, 2010, and July 2, 2010:


Description	Level 1		Level 2		Level 3		Impact of Netting		July 1, 2011

Assets:
Cash equivalents:
Time deposits	$	-	$	90,000	$	-	$	-	$	90,000
Mutual funds	$	-	$	16,020	$	-	$	-	$	16,020

Foreign exchange forward contracts:
Derivative assets	$	-	$	586	$	-	$	(441)	$	145

Cash surrender value of life insurance	$	-	$	8,436	$	-	$	-	$	8,436

Liabilities:
Foreign exchange forward contracts:
Derivative liabilities	$	-	$	7,382	$	-	$	(441)	$	6,941

~~Form 10~~Form10-Q Page 79

The following tables present information about our assets and liabilities measured at fair value on a recurring basis as of April 1, 2011, December 31, 2010, and April 2, 2010:


Description	Level 1		Level 2		Level 3		Impact of Netting		December 31, 2010

Assets:
Cash equivalents:
Time deposits		$-		$95,000		$-		$-		$95,000
Mutual funds		$-		$13,202		$-		$-		$13,202

Foreign exchange forward contracts:
Derivative assets		$-		$1,801		$-		$(1,771)		$30

Cash surrender value of life insurance		$-		$7,564		$-		$-		$7,564

Liabilities:
Foreign exchange forward contracts:
Derivative liabilities		$-		$3,572		$-		$(1,771)		$1,801

Description	Level 1		Level 2		Level 3		Impact of Netting		July 2, 2010

Assets:
Cash equivalents:
Time deposits		$-		$85,004		$-		$-		$85,004
Mutual funds		$-		$36,992		$-		$-		$36,992

Foreign exchange forward contracts:
Derivative assets		$-		$8,612		$-		$(730)		$7,882

Cash surrender value of life insurance		$-		$6,779		$-		$-		$6,779

Liabilities:
Foreign exchange forward contracts:
Derivative liabilities		$-		$821		$-		$(730)		$91

~~Description~~Cash equivalents, included in cash and equivalents on our unaudited condensed consolidated balance sheet, include money market mutual funds and time deposits placed with a variety of high credit quality financial institutions. Time deposits are valued based on current interest rates and mutual funds are valued at the net asset value of the fund. The carrying values of accounts receivable and accounts payable approximate their fair values due to their short-term maturities.

	Level 1		Level 2		Level 3		Impact of Netting		April 1, 2011
Assets:
Cash equivalents:
Time deposits	$	-	$	90,000	$	-	$	-	$	90,000
Mutual funds	$	-	$	45,110	$	-	$	-	$	45,110
Foreign exchange forward contracts:
Derivative assets	$	-	$	709	$	-	$	(580)	$	129
Cash surrender value of life insurance	$	-	$	8,370	$	-	$	-	$	8,370
Liabilities:
Foreign exchange forward contracts:
Derivative liabilities	$	-	$	5,006	$	-	$	(580)	$	4,426
Description
	Level 1		Level 2		Level 3		Impact of Netting		December 31, 2010
Assets:
Cash equivalents
Time deposits	$	-	$	95,000	$	-	$	-	$	95,000
Mutual funds	$	-	$	13,202	$	-	$	-	$	13,202
Foreign exchange forward contracts:
Derivative assets	$	-	$	1,801	$	-	$	(1,771)	$	30
Cash surrender value of life insurance	$	-	$	7,564	$	-	$	-	$	7,564
Liabilities:
Foreign exchange forward contracts:
Derivative liabilities	$	-	$	3,572	$	-	$	(1,771)	$	1,801
Description
	Level 1		Level 2		Level 3		Impact of Netting		April 2, 2010
Assets:
Cash equivalents:
Time deposits	$	-	$	65,006	$	-	$	-	$	65,006
Mutual funds	$	-	$	55,776	$	-	$	-	$	55,776
Foreign exchange forward contracts:
Derivative assets	$	-	$	5,464	$	-	$	(20)	$	5,444
Cash surrender value of life insurance	$	-	$	7,478	$	-	$	-	$	7,478
Liabilities:
Foreign exchange forward contracts:
Derivative liabilities	$	-	$	80	$	-	$	(20)	$	60

The fair value of the derivative contracts in the table above is reported on a gross basis by level based on the fair value hierarchy with a corresponding adjustment for netting for financial statement presentation purposes, where appropriate. The Company often enters into derivative contracts with a single counterparty and certain of these contracts are covered under a master netting agreement. The fair values of our foreign currency forward contracts are based on quoted market prices or pricing models using current market rates. As of July 1, 2011, the derivative contracts above include $94 of assets and $71 of liabilities included in other assets, net and other long-term liabilities, respectively, on our unaudited condensed consolidated balance sheet. As of December 31, 2010, the derivative contracts above include $1 of assets and $111 of liabilities included in other assets, net and other long-term liabilities, respectively, on our unaudited condensed consolidated balance sheet. There were no derivative contracts included in other assets, net or other long-term liabilities on our unaudited condensed consolidated balance sheet as of July 2, 2010.

~~Cash~~The ~~equivalents, included in~~ cash ~~and~~surrender ~~equivalents~~value onof ~~our~~life ~~unaudited~~insurance ~~condensed~~represents ~~consolidated~~insurance ~~balance sheets,~~contracts ~~include~~held ~~money~~as ~~market~~assets ~~mutual~~in ~~funds~~a ~~and~~rabbi trust ~~time~~to ~~deposits~~fund ~~placed~~the ~~with~~Company’s adeferred ~~variety~~compensation ~~of high credit quality financial institutions~~plan. ~~Time~~These ~~deposits~~assets are ~~valued~~included ~~based~~in onother ~~current~~assets, net ~~interest~~on ~~rates~~our ~~and mutual~~unaudited ~~funds~~condensed ~~are~~consolidated ~~valued~~balance atsheet. ~~the~~The ~~net~~cash ~~asset~~surrender value of ~~the~~life insurance ~~fund.~~is ~~The~~based ~~carrying~~on ~~values~~the ofnet ~~accounts receivable~~asset ~~and~~values ~~accounts~~of ~~payable~~the ~~approximate~~underlying ~~their~~funds ~~fair~~available ~~values due~~ to ~~their~~plan ~~short-term maturities~~participants.

~~Form 10~~Form10-Q Page 810

~~The~~Nonfinancial ~~fair value of the derivative contracts in the table above is reported on a gross basis by level~~Assets based on the fair value hierarchy with a corresponding adjustment for netting for financial statement presentation purposes, where appropriate. The Company often enters into derivative contracts with a single counterparty and certain of these contracts are covered under a master netting agreement. The fair values of our foreign currency forward contracts are based on quoted market prices or pricing models using current market rates. As of April 1, 2011, the derivative contracts above include $124 of assets and $11 of liabilities included in other assets, net and other long-term liabilities, respectively, on our unaudited condensed consolidated balance sheet. As of December 31, 2010, the derivative contracts above include $1 of assets and $111 of liabilities included in other assets, net and other long-term liabilities, respectively, on our unaudited condensed consolidated balance sheet. There were no derivative contracts included in other assets, net or other long-term liabilities on our unaudited condensed consolidated balance sheet as of April 2, 2010.

~~The~~Goodwill ~~cash~~and ~~surrender~~indefinite-lived intangible assets are tested for impairment annually at the end of our second quarter and when events occur or circumstances change that would, more likely than not, reduce the fair value of a business unit or an intangible asset with an indefinite-life ~~insurance~~below ~~represents~~its carrying ~~insurance~~value. ~~contracts~~Events ~~held~~or aschanges ~~assets~~in circumstances that may trigger interim impairment reviews include significant changes in business climate, operating results, planned investment in the business unit or an expectation that the carrying amount may not be recoverable, among other factors. The goodwill impairment test, performed at a ~~rabbi~~reporting unit level, is a two-step test ~~trust~~that torequires, ~~fund~~under the ~~Company~~first test, that we determine the fair value of a reporting unit and compare it to the reporting unit’s ~~deferred~~carrying ~~compensation~~value, ~~plan~~including goodwill. ~~These~~We ~~assets~~use ~~are~~established ~~included~~income and inmarket ~~other~~valuation approaches to determine the fair value of the reporting unit. For trademark intangible assets, ~~net~~ onmanagement ~~our~~uses ~~unaudited~~the ~~condensed~~relief-from-royalty ~~consolidated~~method ~~balance~~in ~~sheets.~~which ~~The~~fair ~~cash~~value ~~surrender~~is the discounted value of ~~life~~forecasted royalty revenue arising from a trademark using a royalty rate that ~~insurance~~an isindependent ~~based~~third onparty ~~the~~would ~~net~~pay ~~asset~~for ~~values~~use of ~~the~~that ~~underlying~~trademark. ~~funds~~Further ~~available~~information toregarding ~~plan~~the fair ~~participants~~value measurements is provided below.

2011 Analysis

We completed our annual impairment test of goodwill and indefinite-lived trademarks at the end of our second quarter. We determined that the carrying value of the howies trademark exceeded its estimated fair value and, accordingly, recorded an impairment charge of $736. This charge is reflected in the Europe segment. We also concluded that the fair values of the SmartWool trademark and the reporting units to which goodwill relates substantially exceeded their respective carrying values. Accordingly, we did not identify any impairment.

Our test of goodwill requires that we assess the fair value of the North America Wholesale and Europe Wholesale reporting units. We determined their fair value as of July 2, 2010, by preparing a discounted cash flow analysis using forward-looking projections of the reporting units’ future operating results, as well as consideration of market valuation approaches. When completing the step-one test on July 1, 2011, we elected to carry forward the previous determination of fair value for our North America Wholesale and Europe Wholesale reporting units rather than reassess their fair value. We elected to carry forward the previous determination of fair value because we met the following requirements: (i) The most recent fair value determination exceeded the carrying amount by a substantial margin; (ii) based on an analysis of the events that have transpired since last year’s fair valuation, the likelihood was remote that the current fair value would be less than the current carrying amount of the reporting unit; and (iii) the assets or liabilities of the reporting units have not changed significantly since the valuation.

howies

The Company completed its annual impairment testing for the howies indefinite-lived trademark intangible asset in the second quarter of 2011, and recorded a non-cash impairment charge of $736 in its consolidated statement of operations. Management’s business plans and projections were used to develop the expected cash flows for the next five years and a 4% residual revenue growth rate applied thereafter. The analysis reflects a market royalty rate of 1.5% and a weighted average discount rate of 25%, derived primarily from published sources and adjusted for increased market risk. The impairment charge reduced the howies trademark to its estimated fair value of $540 at July 1, 2011.

2010 Analysis

During the quarter ended July 2, 2010, management concluded that the carrying value of goodwill exceeded the estimated fair value for its IPath, North America Retail and Europe Retail reporting units and, accordingly, recorded an impairment charge of $5,395. Management also concluded that the carrying value of the IPath and howies trademarks and other intangible assets exceeded the estimated fair value and, accordingly, recorded an impairment charge of $7,854. The Company’s North America Wholesale and Europe Wholesale business units had fair values substantially in excess of their carrying value. See Note 9 to the unaudited condensed consolidated financial statements.

Form10-Q
Page 11

Impairment charges included in the second quarter of 2010 unaudited condensed consolidated statement of operations, by segment, are as follows:


	North America				Sub-				Europe				Sub-		Total
	IPath		Retail		Total		IPath		howies		Retail		Total		Company
Goodwill	$	4,118	$	794	$	4,912	$	-	$	-	$	483	$	483	$	5,395
Trademarks		2,032		-		2,032		1,169		3,181		-		4,350		6,382
Other intangibles		1,228		-		1,228		-		244		-		244		1,472

	$	7,378	$	794	$	8,172	$	1,169	$	3,425	$	483	$	5,077	$	13,249

These non-recurring fair value measurements were developed using significant unobservable inputs (Level 3). For goodwill, the primary valuation technique used was the discounted cash flow analysis based on management’s estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates proportionate with the risks of those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization for a group of similar publicly traded companies and, if applicable, recent transactions involving comparable companies. The Company believes the blended use of these models balances the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation. For trademark intangible assets, management used the relief-from-royalty method in which fair value is the discounted value of forecasted royalty revenue arising from a trademark using a royalty rate that an independent third party would pay for use of that trademark. Further information regarding the fair value measurements is provided below.

IPath

The IPath business unit did not meet the revenue and earnings growth forecasted at its acquisition in April 2007. Accordingly, during the second quarter of 2010, management reassessed the financial expectations of this business as part of its long range planning process. The revenue and earnings growth assumptions were developed based on near term trends, potential opportunities and planned investment in the IPath^® brand. Management’s business plans and projections were used to develop the expected cash flows for the next five years and a 4% residual revenue growth rate applied thereafter. The analysis reflects a market royalty rate of 1.5% and a weighted average discount rate of 22%, derived primarily from published sources and adjusted for increased market risk. After the charges in the table above, there was $720 of finite-lived trademark intangible assets remaining at July 2, 2010. The carrying value of IPath’s goodwill was reduced to zero.

howies

howies had not met the revenue and earnings growth forecasted at its acquisition in December 2006. Accordingly, during the second quarter of 2010, management reassessed the financial expectations of this business as part of its long range planning process. The revenue and earnings growth assumptions were developed based on near term trends, potential opportunities and planned investment in the howies^® brand. Management’s business plans and projections were used to develop the expected cash flows for the next five years and a 4% residual revenue growth rate applied thereafter. The analysis reflects a market royalty rate of 2% and a weighted average discount rate of 24%, derived primarily from published sources and adjusted for increased market risk. After the charges in the table above, there was $1,200 of indefinite-lived trademark intangible assets remaining at July 2, 2010.

North America and Europe Retail

The Company’s retail businesses in North America and Europe have been negatively impacted by continued weakness in the macroeconomic environment, low consumer spending and a longer than expected economic recovery. The fair value of these businesses using the discounted cash flow analysis were based on management’s business plans and projections for the next five years and a 4% residual growth thereafter. The analysis reflects a weighted average discount rate in the range of 19%, derived primarily from published sources and adjusted for increased market risk. After the charges in the table above, the carrying value of the goodwill was zero at July 2, 2010.

Form10-Q
Page 12

Note 3. Derivatives

In the normal course of business, the financial position and results of operations of the Company are impacted by currency rate movements in foreign currency denominated assets, liabilities and cash flows as we purchase and sell goods in local currencies. We have established policies and business practices that are intended to mitigate a portion of the effect of these exposures. We use derivative financial instruments, specifically forward contracts, to manage our currency exposures. These derivative instruments are viewed as risk management tools and are not used for trading or speculative purposes. Derivatives entered into by the Company are either designated as cash flow hedges of forecasted foreign currency transactions or are undesignated economic hedges of existing intercompany assets and liabilities, certain third party assets and liabilities, and non-US dollar-denominated cash balances.

Derivative instruments expose us to credit and market risk. The market risk associated with these instruments resulting from currency exchange movements is expected to offset the market risk of the underlying transactions being hedged. We do not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a group of major financial institutions and have varying maturities through ~~July~~January ~~2012~~2013. As a matter of policy, we enter into these contracts only with ~~counterparties~~ counterparties having a minimum investment-grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Cash Flow Hedges

The Company principally uses foreign currency forward contracts as cash flow hedges to offset a portion of the effects of exchange rate fluctuations on certain of its forecasted foreign currency denominated sales transactions. The Company’s cash flow exposures include anticipated foreign currency transactions, such as foreign currency denominated sales, costs, expenses and inter-company charges, as well as collections and payments. The risk in these exposures is the potential for losses associated with the remeasurement of non-functional currency cash flows into the functional currency. The Company has a hedging program to aid in mitigating its foreign currency exposures and to decrease the volatility in earnings. Under this hedging program, the Company performs a quarterly assessment of the effectiveness of the hedge relationship and measures and recognizes any hedge ineffectiveness in earnings. A hedge is effective if the changes in the fair value of the derivative provide offset of at least 80 percent and not more than 125 percent of the changes in the fair value or cash flows of the hedged item attributable to the risk being hedged. The Company uses regression analysis to assess the effectiveness of a hedge relationship.

Forward contracts designated as cash flow hedging instruments are recorded in our unaudited condensed consolidated balance sheets at fair value. The effective portion of gains and losses resulting from changes in the fair value of these hedge instruments are deferred in accumulated other comprehensive income (“OCI”) and reclassified to earnings, in cost of goods sold, in the period that the hedged transaction is recognized in earnings. Cash flows associated with these contracts are classified as operating cash flows in the unaudited condensed consolidated statements of cash flows. Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion of the hedge is reported in our unaudited condensed consolidated statements of operations in other, net. The amount of hedge ineffectiveness reported in other, net for the quarters ended July 1, 2011 and July 2, 2010 was not material.

Form 10-Q Page 9

consolidated statements of cash flows. Hedge ineffectiveness is evaluated using the hypothetical derivative method, and the ineffective portion of the hedge is reported in our unaudited condensed consolidated statements of operations in other, net. The amount of hedge ineffectiveness reported in other, net for the quarters ended April 1, 2011 and April 2, 2010 was not material.

The notional value of foreign currency forward sell contracts entered into as cash flow hedges is as follows:

Notional Amount

Currency

~~April~~July 1, 2011

December 31, 2010

~~April~~July 2, 2010

Pound Sterling

23$33,~~509~~161

$23,536

$22,~~093~~814

Euro

78135,~~219~~140

88,414

6470,~~743~~080

Japanese Yen

2630,~~045~~063

22,817

1716,~~075~~856

Total

~~127~~$198,~~773~~364

$134,767

~~103~~$109,~~911~~750

Latest Maturity Date

~~July~~January ~~2012~~2013

January 2012

~~January~~April 2011

Form10-Q
Page 13

Other Derivative Contracts

We also enter into derivative contracts to manage foreign currency exchange risk on intercompany accounts receivable and payable, third-party accounts receivable and payable, and non-U.S. dollar-denominated cash balances using forward contracts. These forward contracts, which are undesignated hedges of economic risk, are recorded at fair value on the unaudited condensed consolidated balance sheets, with changes in the fair value of these instruments recognized in earnings immediately. The gains or losses related to the contracts largely offset the remeasurement of those assets and liabilities. Cash flows associated with these contracts are classified as operating cash flows in the unaudited condensed consolidated statements of cash flows.

The notional value of foreign currency forward (buy) and sell contracts entered into to mitigate the foreign currency risk associated with certain balance sheet items is as follows (the contract amount represents the net amount of all purchase and sale contracts of a foreign currency):

	Notional Amount
Currency	~~April~~July 1, 2011			December 31, 2010			~~April~~July 2, 2010
Pound Sterling	$	13$14,~~738~~396		$	$9,312		$	$(18,~~873~~221	)
Euro		125,~~377~~798			8,913			11(6,~~310~~558	)
Japanese Yen		2017,~~294~~339			28,680			117,~~721~~309
Canadian Dollar		4,~~661~~871			6,013			64,~~439~~855
Norwegian Kroner		3,~~769~~657			2,219			42,~~779~~711
Swedish Krona		3,~~128~~470			2,601			21,~~779~~970
Total	$	57$49,~~967~~531		$	$57,738		$	18$(7,~~155~~934	)
Sell Contracts	$	69$68,~~789~~725		$	$71,799		$	48$38,~~645~~496
Buy Contracts		(1119,~~822~~194	)		(14,061	)		(3046,~~490~~430	)
Total Contracts	$	57$49,~~967~~531		$	$57,738		$	18$(7,~~155~~934	)
Latest Maturity Date	~~July~~October 2011			April 2011			~~July~~October 2010

~~Form 10~~Form10-Q Page 1014

Fair Value of Derivative Instruments

The following table summarizes the fair values and presentation in the unaudited condensed consolidated balance sheets for ~~derivative instruments~~derivatives, which consist of foreign exchange forward contracts, as of ~~April~~July 1, 2011, December 31, 2010 and ~~April~~July 2, 2010:

										Liability
	Asset Derivatives							Liability Derivatives
			Asset Derivatives							Derivatives
	Fair Value							Fair Value
Balance Sheet Location	~~April~~July 1, 2011			December 31, 2010		~~April~~July 2, 2010		~~April~~July 1, 2011		December 31, 2010		~~April~~July 2, 2010
Derivatives designated as hedge instruments:
Derivative assets	$	-		$	-	$	58,~~246~~437	$	-	$	-	$	20679
Derivative liabilities		~~443~~242			1,693		-45		46,~~500~~962		3,284		757
Other assets, net		~~158~~164			6		-		3370		5		-
Other long-term liabilities		-96			67		-		11167		178		-
	$	~~601~~502		$	1,766	$	58,~~246~~482	$	47,~~544~~199	$	3,467	$	27736
Derivatives not designated as hedge instruments:
Derivative assets	$	574		$	29	$	~~218~~124	$	-24	$	-	$	-
Derivative liabilities		~~103~~10			6		-6		~~462~~159		105		5385
	$	~~108~~84		$	35	$	~~218~~130	$	~~462~~183	$	105	$	5385
Total derivatives	$	~~709~~586		$	1,801	$	58,~~464~~612	$	57,~~006~~382	$	3,572	$	80821

The Effect of Derivative Instruments on the Statements of Operations for the Quarters Ended April 1, 2011 and April 2, 2010

								Amount of Gain/(Loss)
	Amount of Gain/(Loss)						Location of Gain/(Loss)	Reclassified from
	Recognized in OCI on						Reclassified from	Accumulated OCI into
Derivatives in	Derivatives						Accumulated OCI into	Income
Cash Flow	(Effective Portion)						Income	(Effective Portion)
Hedging Relationships	2011			2010			(Effective Portion)	2011			2010
Foreign exchange forward contracts	$	(5,306	)	$	5,600	(1)	Cost of goods sold	$	(3,048	)	$	1,333

(1) Amount reported in the prior year of $4,958 was increased by $642 in the current year to $5,600. This amount represents the gain on derivatives recognized in other comprehensive income during the period and was changed to conform to the current period presentation.

The Company expects to reclassify pre-tax losses of $4,010 to the income statement within the next twelve months.

~~Form 10~~Form10-Q Page 1115

		Amount of Gain/(Loss)
		Recognized in
Derivatives not Designated	Location of Gain/(Loss)Recognized	Income on Derivatives
as Hedging Instruments	In Income on Derivatives	2011		2010
Foreign exchange forward contracts	Other, net	$	45	$	(2,167	)

The Effect of Derivative Instruments on the Statements of Operations for the Quarters Ended July 1, 2011 and July 2, 2010

Amount of Gain/(Loss)

Location of Gain/(Loss)

Reclassified from

Recognized in OCI on

Reclassified from

Accumulated OCI into

Derivatives in

Derivatives

Accumulated OCI into

Income

Cash Flow

(Effective Portion)

Income

(Effective Portion)

Hedging Relationships

2011

2010

(Effective Portion)

2011

2010

Foreign exchange forward contracts

$(3,319

)

$2,812

⁽¹⁾

Cost of goods sold

$(583

)

$273

⁽¹⁾Amount reported in the prior year of $7,358 was decreased by $4,546 in the current year to $2,812. This amount represents the gain on derivatives recognized in other comprehensive income during the period and was changed to conform to the current period presentation.

The Company expects to reclassify pre-tax losses of $6,717 to the income statement within the next twelve months.

Amount of Gain/(Loss)

Recognized in

Derivatives not Designated

Location of Gain/(Loss)Recognized

Income on Derivatives

as Hedging Instruments

In Income on Derivatives

2011

2010

Foreign exchange forward contracts

Other, net

$(809

)

$1,545

The Effect of Derivative Instruments on the Statements of Operations for the Six Months Ended July 1, 2011 and July 2, 2010

Amount of Gain/(Loss)

Location of Gain/(Loss)

Reclassified from

Recognized in OCI on

Reclassified from

Accumulated OCI into

Derivatives in

Derivatives

Accumulated OCI into

Income

Cash Flow

(Effective Portion)

Income

(Effective Portion)

Hedging Relationships

2011

2010

(Effective Portion)

2011

2010

Foreign exchange forward contracts

$(8,625

)

$8,412

⁽¹⁾

Cost of goods sold

$(3,631

)

$1,606

⁽¹⁾Amount reported in the prior year of $7,358 was increased by $1,054 in the current year to $8,412. This amount represents the gain on derivatives recognized in other comprehensive income during the period and was changed to conform to the current period presentation.

Form10-Q
Page 16

Amount of Gain/(Loss)

Recognized in

Derivatives not Designated

Location of Gain/(Loss)Recognized

Income on Derivatives

as Hedging Instruments

In Income on Derivatives

2011

2010

Foreign exchange forward contracts

Other, net

$(764

)

$(622

)

Note 4. Share-Based Compensation

Share-based compensation costs were ~~recorded in Cost of goods sold, Selling expense and General and administrative expense~~ as follows ~~for~~in the quarters and six months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010, respectively:

	For the Quarter Ended	~~For the Quarter Ended~~
		April 1, 2011		April 2, 2010
		July 1, 2011		July 2, 2010
Cost of goods sold		$	5764	$	82107
Selling expense			1,~~114~~064		~~499~~672
General and administrative expense			2,~~440~~254		~~977~~1,310
Total share-based compensation		$	3,~~611~~382	$	12,~~558~~089


	For the Six Months Ended
		July 1, 2011		July 2, 2010
Cost of goods sold		$	122	$	188
Selling expense			2,178		1,171
General and administrative expense			4,693		2,288

Total share-based compensation		$	6,993	$	3,647

Long Term Incentive Programs

2011 Executive Long Term Incentive Program

On March 2, 2011, the Management Development and Compensation Committee of the Board of Directors (the “MDCC”) approved the terms of The Timberland Company 2011 Executive Long Term Incentive Program (“2011 LTIP”) with respect to equity awards to be made to certain of the Company’s executives and employees. On March 3, 2011, the Board of Directors also approved the 2011 LTIP with respect to the Company’s Chief Executive Officer. The 2011 LTIP was established under the Company’s 2007 Incentive Plan. The awards are subject to future performance, and consist of performance stock units (“PSUs”), equal in value to one share of the Company’s Class A Common Stock, and performance stock options (“PSOs”), with an exercise price of $38.52 (the closing price of the Company’s Class A Common Stock as quoted on the New York Stock Exchange on March 3, 2011, the date of grant). On May 26, 2011, additional awards were made under the 2011 LTIP consisting of PSUs equal in value to one share of the Company’s Class A Common Stock, and PSOs with an exercise price of $32.51 (the closing price of the Company’s Class A Common Stock as quoted on the New York Stock Exchange on May 26, 2011, the date of grant). Shares with respect to the PSUs will be granted and will vest following the end of the applicable performance period and approval by the Board of Directors, or a committee thereof, of the achievement of the applicable performance metric. The PSOs will vest in three equal annual installments following the end of the applicable performance period and approval by the Board of Directors, or a committee thereof, of the achievement of the applicable performance metric. The payout of the performance awards will be based on the Company’s achievement of certain levels of revenue growth and earnings before interest, taxes, depreciation and amortization (“EBITDA”), with threshold, target and maximum award levels based upon actual revenue growth and EBITDA of the Company during the applicable performance periods equaling or exceeding such levels. The performance period for the PSUs is the three-year period from January 1, 2011 through December 31, 2013, and the performance period for the PSOs is the twelve-month period from January 1, 2011 through December 31, 2011. No awards shall be made or earned, as the case may be, unless the threshold goal is attained, and the maximum payout may not exceed 200% of the target award.

The maximum number of shares to be awarded with respect to PSUs under the March 3, 2011 grants is 252,600, which, if earned, will be settled in early 2014. Based on current estimates of the performance metrics, unrecognized compensation expense with respect to the 2011 PSUs was $4,495 as of April 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 2.9 years.

The maximum number of shares subject to exercise with respect to PSOs under the March 3, 2011 grants is 344,200, which, if earned, will be settled, subject to the vesting schedule noted above, in early 2012. Based on current estimates of the performance metrics, unrecognized compensation expense related to the 2011 PSOs was $3,198 as of April 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 3.9 years.

~~Form 10~~Form10-Q Page 1217

The maximum number of shares to be awarded with respect to PSUs under the 2011 LTIP grants is 262,748, which, if earned, will be settled in early 2014. Based on current estimates of the performance metrics, unrecognized compensation expense with respect to the 2011 PSUs was $4,299 as of July 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 2.7 years.

The maximum number of shares subject to exercise with respect to PSOs under the 2011 LTIP grants is 359,058, which, if earned, will be settled, subject to the vesting schedule noted above, in early 2012. Based on current estimates of the performance metrics, unrecognized compensation expense related to the 2011 PSOs was $2,946 as of July 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 3.7 years.

2010 Executive Long Term Incentive Program

On March 3, 2010, the MDCC approved the terms of The Timberland Company 2010 Executive Long Term Incentive Program (“2010 LTIP”) with respect to equity awards to be made to certain of the Company’s executives and employees. On March 4, 2010, the Board of Directors also approved the 2010 LTIP with respect to the Company’s Chief Executive Officer. On May 13, 2010, additional awards were made under the 2010 LTIP.

The maximum number of shares to be awarded with respect to PSUs under the ~~March 4,~~ 2010 LTIP grants is ~~523~~519,800, which, if earned, will be settled in early 2013. Based on current estimates of the performance metrics, unrecognized compensation expense with respect to the 2010 PSUs was $2,~~857~~523 as of ~~April~~July 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 1.97 years.

Based on actual 2010 performance, the number of shares subject to exercise with respect to PSOs under the ~~March 4,~~ 2010 LTIP grants is 491,842, which shares were settled on March 3, 2011, subject to vesting in three equal annual installments.

2009 Executive Long Term Incentive Program

On March 4, 2009, the MDCC of the Board of Directors approved the terms of The Timberland Company 2009 Executive Long Term Incentive Program (“2009 LTIP”) with respect to equity awards to be made to certain of the Company’s executives and employees. On March 5, 2009, the Board of Directors also approved the 2009 LTIP with respect to the Company’s Chief Executive Officer. On May 21, 2009, additional awards were made under the 2009 LTIP.

The maximum number of shares to be awarded with respect to PSUs under the ~~March 5,~~ 2009 LTIP grants is 745,000, which, if earned, will be settled in early 2012. Based on current estimates of the performance metrics, unrecognized compensation expense with respect to the 2009 PSUs was $1,~~451~~048 as of ~~April~~July 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 0.97 years.

The Company estimates the fair value of its PSOs on the date of grant using the Black-Scholes option valuation model, which employs the following assumptions:

	2011 LTIP			2010 LTIP
	For the Quarter Ended			For the Quarter Ended
	For the Quarter			For the Quarter
	April 1, 2011			April 2, 2010
	Ended July 1, 2011			Ended July 2, 2010
Expected volatility		4952.36%	%		4748.67%	%
Risk-free interest rate		2.41%	%		2.75%	%
Expected life (in years)		65.20			65.20
Expected dividends		-			-


	2011 LTIP		2010 LTIP
	For the Six Months		For the Six Months
	Ended July 1, 2011		Ended July 2, 2010
Expected volatility		49.4%		49.3%
Risk-free interest rate		2.4%		2.8%
Expected life (in years)		6.2		6.3
Expected dividends		-		-

~~Form 10~~Form10-Q Page 1318

The following summarizes activity associated with PSOs earned under the Company’s 2009 and 2010 LTIP and excludes the performance-based awards noted above under the 2011 LTIP for which performance conditions have not been met:

	Shares			Weighted- Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
						Weighted-
				Weighted-		Average
				Average		Remaining			Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at January 1, 2011		569,065		$	9.50
Settled		491,842			19.55
Exercised		(3541,~~708~~436	)		9.8679
Expired or forfeited		(37,~~974~~948	)		22.55
Outstanding at April 1, 2011		1,021,225		$	14.28		8.41	$	29,144
Outstanding at July 1, 2011		1,011,523		$	14.28		8.2	$	29,155
Vested or expected to vest at April 1, 2011		942,022		$	14.05		8.39	$	27,102
Vested or expected to vest at July 1, 2011		951,218		$	14.09		8.1	$	27,591
Exercisable at April 1, 2011		153,967		$	9.43		7.93	$	5,142
Exercisable at July 1, 2011		148,239		$	9.43		7.7	$	4,991

Unrecognized compensation expense related to these PSOs was $32,~~243~~746 as of ~~April~~July 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 1.97 years.

Other Long Term Incentive Programs

During 2010, the MDCC approved a program to award cash or equity awards based upon the achievement of certain project milestones. Awards will be granted upon approval of performance criteria achievement by a steering committee designated by the Board of Directors, and, if equity based, will vest immediately upon achievement of certain project milestones. The Company expects the milestones to be achieved at various stages through 2013. The maximum aggregate value which may be earned by current plan participants in the program is $2,660, and the number of equity awards to be issued, if applicable, will be determined based on the fair market value of the Company’s Class A Common Stock on the date of issuance. Unrecognized compensation expense related to these awards was $1,~~491~~192 as of ~~April~~July 1, 2011, and the expense is expected to be recognized over a weighted-average remaining period of 1.65 years.

Stock Options

The Company estimates the fair value of its stock option awards on the date of grant using the Black-Scholes option valuation model, which employs the assumptions noted in the following table, for stock option awards excluding awards issued under the Company’s Long Term Incentive Programs discussed above:

	For the Quarter Ended						For the Six Months Ended
	April 1, 2011			April 2, 2010
	July 1, 2011			July 2, 2010			July 1, 2011		July 2, 2010
Expected volatility		5152.06%	%		48.47%	%		51.0%		48.7%
Risk-free interest rate		2.1%	%		2.45%	%		2.1%		2.5%
Expected life (in years)		5.0			5.0			5.0		5.0
Expected dividends		-			-			-		-

~~Form 10~~Form10-Q Page 1419

The following summarizes transactions under stock option arrangements excluding awards under the 2009 and 2010 LTIP, which are summarized in the table above, and the performance-based awards under the 2011 LTIP noted above for which performance conditions have not been met:

	Shares			Weighted-Average Exercise Price		Weighted-Average Remaining Contractual Term		Aggregate Intrinsic Value
						Weighted-
				Weighted-		Average
				Average		Remaining		Aggregate
				Exercise		Contractual		Intrinsic
	Shares			Price		Term		Value
Outstanding at January 1, 2011		3,659,924		$	25.29
Granted		61,~~300~~806			38.5247
Exercised		(1,~~187~~358,~~883~~656	)		26.1412
Expired or forfeited		(1929,~~437~~068	)		29.8100
Outstanding at April 1, 2011		2,513,904		$	25.18		5.2	$	44,336
Outstanding at July 1, 2011		2,334,006		$	25.12		5.0	$	41,976
Vested or expected to vest at April 1, 2011		2,472,410		$	25.18		5.1	$	43,614
Vested or expected to vest at July 1, 2011		2,304,438		$	25.11		4.9	$	41,462
Exercisable at April 1, 2011		2,082,723		$	26.36		4.5	$	34,290
Exercisable at July 1, 2011		2,001,903		$	25.94		4.4	$	34,346

Unrecognized compensation expense related to nonvested stock options was $2,~~396~~089 as of ~~April~~July 1, 2011. This expense is expected to be recognized over a weighted-average remaining period of 1.6 5 years.

Nonvested Shares ~~and Restricted Stock Units~~

There were 24,960 nonvested stock awards with a weighted-average grant date fair value of $9.34 outstanding on January 1, 2011. These awards vested in their entirety during the first quarter of 2011, and there is no unrecognized compensation expense associated with them.

Changes in the Company’s restricted stock units, excluding awards under the Company’s Long Term Incentive Programs discussed above, for the quarter ended ~~April~~July 1, 2011 are as follows:

	Stock Units			Weighted- Average Grant Date Fair Value
				Weighted-
				Average
	Stock			Grant Date
	Units			Fair Value
Nonvested at January 1, 2011		259,992		$	18.27
Awarded		3058,~~386~~293			3835.5264
Vested		(39118,~~617~~922	)		1417.7874
Forfeited		(~~967~~5,238	)		1524.9170
Nonvested at April 1, 2011		249,794		$	21.30
Nonvested at July 1, 2011		194,125		$	23.64
Expected to vest at April 1, 2011		228,546		$	20.88
Expected to vest at July 1, 2011		178,909		$	23.43

Unrecognized compensation expense related to nonvested restricted stock units was $3,~~197~~564 as of July ~~April~~ 1, 2011 and the expense is expected to be recognized over a weighted-average remaining period of of 1.65 years.

Note 5. Earnings/(Loss) Per Share ~~(“EPS”)~~

Basic ~~EPS excludes common stock equivalents~~ and isdiluted ~~computed~~loss byper ~~dividing~~share ~~net~~(“LPS”) ~~income~~for by the ~~weighted-average~~ ~~number~~quarters ofended ~~common~~July 1, ~~shares~~2011 ~~outstanding~~and ~~for~~July 2, 2010 and the ~~periods~~six ~~presented.~~months ~~Diluted~~ended ~~EPS reflects~~July 1, ~~the~~2011 ~~potential~~exclude ~~dilution~~common ~~that~~stock ~~would~~equivalents ~~occur~~and ifare ~~potentially~~computed ~~dilutive~~by ~~securities~~dividing ~~such~~net loss asby ~~stock options~~the ~~were~~weighted-average ~~exercised~~number ~~and~~of ~~nonvested~~common shares ~~vested,~~outstanding tofor the ~~extent~~periods ~~such securities would not be anti-dilutive~~presented.

Basic earnings per share (“EPS”) excludes common stock equivalents 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 potentially dilutive securities such as stock options were exercised and nonvested shares vested, to the extent such securities would not be anti-dilutive.

~~Form 10~~Form10-Q Page 1520

The following is a reconciliation of the number of shares (in thousands) for the basic and diluted EPS ~~computations~~computation for the ~~quarters~~six months ended ~~April~~July ~~1, 2011 and April~~ 2, 2010:

	For the Quarter Ended
	Net			Weighted-Average		Per-Share
			April 1, 2011					April 2, 2010
	Income			Shares		Amount
				Weighted-		Per-				Weighted-		Per-
Basic EPS		$2,295			53,698		$.04
	Net			Average		Share		Net		Average		Share
Effect of dilutive securities:
	Income			Shares		Amount		Income		Shares		Amount
Stock options and employee stock purchase plan shares		—			323		—
Basic EPS	$	17,971			50,912	$	.35	$	25,747		54,166	$	.48
Nonvested shares		—			163		—
Effect of dilutive securities:
Diluted EPS		$2,295			54,184		$.04
Stock options and employee stock purchase plan shares		-			877		-		-		289		(.01	)
Nonvested shares		-			215		-		-		188		-
Diluted EPS	$	17,971			52,004	$	.35	$	25,747		54,643	$	.47

The following ~~stock~~securities ~~options and nonvested shares~~ (in thousands) were outstanding as of ~~April~~July 1, 2011 and ~~April~~July 2, 2010, but were not included in the computation of diluted EPS/(LPS) as their inclusion would be anti-dilutive:

For the Quarter Ended

For the Six Months Ended

April 1, 2011

April 2, 2010

July 1, 2011

July 2, 2010

July 1, 2011

July 2, 2010

Anti-dilutive securities

~~745~~

1,214

~~2,918~~

2,967

1,336

2,491

Note 6. Comprehensive Income/(Loss)

Comprehensive income/(loss) for the quarters and six months ended ~~April~~July 1, 2011 and ~~April~~July 2, 2010 is as follows:

	For the Quarter Ended						For the Six Months Ended
	April 1, 2011			April 2, 2010
	July 1, 2011			July 2, 2010			July 1, 2011		July 2, 2010
Net income		$17,971			$25,747
Net income/(loss)	$	(20,106)		$	(23,452)		$	(2,135)	$	2,295
Change in cumulative translation adjustment		42,~~979~~390			(74,~~478~~512)	)		7,369		(11,990)
Change in fair value of cash flow hedges, net of taxes		(2,~~145~~599)	)		42,~~054~~412			(4,744)		6,466
Change in other adjustments, net of taxes		~~(55~~13	)		~~(52~~6	)		(42)		(46)
Comprehensive income		$20,750			$22,271
Comprehensive income/loss	$	(20,302)		$	(25,546)		$	448	$	(3,275)

The components of accumulated other comprehensive income as of ~~April~~July 1, 2011, December 31, 2010 and ~~April~~July 2, 2010 were:

	April 1, 2011			December 31, 2010			April 2, 2010
	July 1, 2011			December 31, 2010		July 2, 2010
Cumulative translation adjustment	$	1315,~~002~~392		$	$8,023	$	1,663	~~$6,175~~
Fair value of cash flow hedges, net of taxes of $(197) at April 1, 2011, $(84) at December 31, 2010 and $261 at April 2, 2010		(3,736	)		(1,591)			4,958
Fair value of cash flow hedges, net of taxes of $(333) at July 1, 2011, $(84) at December 31, 2010 and $388 at July 2, 2010		(6,335)			(1,591)		7,370
Other adjustments, net of taxes of $58 at April 1, 2011, $96 at December 31, 2010 and $99 at April 2, 2010		184			239			439
Other adjustments, net of taxes of $61 at July 1, 2011, $96 at December 31, 2010 and $105 at July 2, 2010		197			239		445
Total	$	9,~~450~~254		$	$6,671	$	9,478	~~$11,572~~

Form 10-Q Page 16

Note 7. Business Segments and Geographic Information

The Company has three reportable segments: North America, Europe and Asia. The composition of the segments is consistent with that used by the Company’s chief operating decision maker.

Form10-Q
Page 21

The North America segment is comprised of the sale of products to wholesale and retail customers in North America. It includes Company-operated specialty and factory outlet stores in the United States and our United States e-commerce business. This segment also includes royalties from licensed products sold worldwide, the related management costs and expenses associated with our worldwide licensing efforts, and certain marketing expenses and value-added services.

The Europe and Asia segments each consist of the marketing, selling and distribution of footwear, apparel and accessories outside of the United States. Products are sold outside of the United States through our subsidiaries (which use wholesale, retail and e-commerce channels to sell footwear, apparel and accessories), franchisees and independent distributors.

Unallocated Corporate consists primarily of corporate finance, information services, legal and administrative expenses, share-based compensation costs, global marketing support expenses, worldwide product development costs and other costs incurred in support of Company-wide activities. Unallocated Corporate also includes certain value chain costs such as sourcing and logistics, as well as inventory variances. Additionally, Unallocated Corporate includes total other income/(expense), net, which is comprised of interest income, interest expense, and other, net, which includes foreign exchange gains and losses resulting from changes in the fair value of financial derivatives not designated as hedges, currency gains and losses incurred on the settlement of local currency denominated assets and liabilities, and other miscellaneous non-operating income/(expense). Such income/(expense) is not allocated among the reportable business segments.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate segment performance based on revenue and operating income. Total assets are disaggregated to the extent that assets apply specifically to a single segment. Unallocated Corporate assets primarily consist of cash and equivalents, tax assets, manufacturing/sourcing assets, computers and related equipment, and transportation equipment.

~~For~~Operating income/loss shown below for the ~~Quarters~~quarter ~~Ended~~and ~~April~~six months ended July 1, 2011 includes an impairment charge of $736 in Europe related to a certain intangible asset. Operating income/(loss) shown below for the quarter and ~~April~~six months ended July 2, 2010 includes impairment charges of $8,172 and $5,077 in North America and Europe, respectively, related to goodwill and certain other intangible assets. See Notes 2 and 9 to the unaudited condensed consolidated financial statements for additional information. Operating income for North America for the quarter and six months ended July 2, 2010 also includes gains related to the termination of licensing agreements of $1,500 and $3,000, respectively.

							Unallocated
	North America		Europe		Asia		Corporate			Consolidated
2011
Revenue	$	131,983	$	165,705	$	51,316	$	-		$	349,004
Operating income/(loss)		21,287		28,882		8,246		(30,530	)		27,885
Income/(loss) before income taxes		21,287		28,882		8,246		(28,906	)		29,509
Total assets		242,468		323,758		81,112		237,083			884,421
Goodwill		31,964		6,994		-		-			38,958
2010
Revenue	$	121,858	$	151,630	$	43,554	$	-		$	317,042
Operating income/(loss)		21,642		37,268		6,847		(26,369	)		39,388
Income/(loss) before income taxes		21,642		37,268		6,847		(26,568	)		39,189
Total assets		214,537		328,995		61,491		186,005			791,028
Goodwill		36,876		7,477		-		-			44,353

For the Quarter Ended July 1, 2011 and July 2, 2010


								Unallocated
	North America		Europe			Asia		Corporate			Consolidated
2011
Revenue	$	106,134	$	91,713		$	42,280	$	-		$	240,127
Operating income/(loss)		8,131		(6,198	)		1,523		(34,368	)		(30,912	)
Income/(loss) before income taxes		8,131		(6,198	)		1,523		(33,201	)		(29,745	)
Total assets		250,244		340,345			78,612		200,818			870,019
Goodwill		31,964		6,994			-		-			38,958

2010
Revenue	$	91,995	$	66,750		$	30,209	$	-		$	188,954
Operating income/(loss)		2,921		(11,812	)		2,630		(27,046	)		(33,307	)
Income/(loss) before income taxes		2,921		(11,812	)		2,630		(26,771	)		(33,032	)
Total assets		211,059		323,512			49,459		182,535			766,565
Goodwill		31,964		6,994			-		-			38,958

~~Form 10~~Form10-Q Page 1722

~~The~~For ~~following summarizes our revenue by product for~~ the ~~quarters~~Six ~~ended~~Months ~~April~~Ended July 1, 2011 and ~~April~~ July 2, 2010:

	For the Quarter Ended
							Unallocated
	April 1, 2011		April 2, 2010
	North America		Europe		Asia		Corporate			Consolidated
Footwear	$	248,168	$	225,561
2011
Apparel and accessories		94,248		85,689
Revenue	$	238,117	$	257,418	$	93,596	$	—		$	589,131
Royalty and other		6,588		5,792
Operating income/(loss)		29,417		22,684		9,769		(64,897	)		(3,027	)
Total	$	349,004	$	317,042
Income/(loss) before income taxes		29,417		22,684		9,769		(62,106	)		(236	)
2010
Revenue	$	213,853	$	218,380	$	73,763	$	—		$	505,996
Operating income/(loss)		24,563		25,456		9,477		(53,415	)		6,081
Income/(loss) before income taxes		24,563		25,456		9,477		(53,339	)		6,157

The following summarizes our revenue by product for the quarters and six months ended July 1, 2011 and July 2, 2010:


	For the Quarter Ended				For the Six Months Ended
	July 1,		July 2,		July 1,		July 2,
	2011		2010		2011		2010
Footwear	$	168,697	$	131,589	$	416,865	$	357,150
Apparel and accessories		66,027		52,069		160,275		137,758
Royalty and other		5,403		5,296		11,991		11,088

	$	240,127	$	188,954	$	589,131	$	505,996

Note 8. Inventory

Inventory consists of the following:

April 1, 2011

December 31, 2010

April 2, 2010

July 1, 2011

December 31, 2010

July 2, 2010

Materials

1112,~~024~~827

11,299

89,~~442~~102

Work-in-process

1,~~632~~711

841

1,~~165~~382

Finished goods

~~174~~237,~~206~~182

167,928

~~127~~166,~~334~~722

Total

~~186~~251,~~862~~720

180,068

~~136~~177,~~941~~206

Note 9. Goodwill and Intangibles

AThe ~~summary~~Company ofcompleted its annual impairment testing for goodwill ~~activity~~and ~~follows:~~indefinite-lived intangible assets in the second quarter of 2011, and determined that the carrying value of a certain intangible asset related to its howies® brand exceeded fair value. Accordingly, the Company recorded a non-cash impairment charge of $736 in its consolidated statement of operations. The impairment charge reduced the trademark of the howies® brand to its fair value of $540 at July 1, 2011.

	2011							2010
			Accumulated			Net Book				Accumulated		Net Book
	Gross		Impairment			Value		Gross		Impairment		Value
Balance at January 1	$	44,353	$	(5,395	)	$	38,958	$	44,353	$	-	$	44,353
Impairment charges		-		-			-		-		-		-
Balance at end of period	$	44,353	$	(5,395	)	$	38,958	$	44,353	$	-	$	44,353

Form10-Q
Page 23

The Company completed its annual impairment testing for goodwill and indefinite-lived intangible assets in the second quarter of 2010, and determined that the carrying values of certain goodwill and intangible assets, primarily related to its IPath^® and howies^® brands, exceeded fair value. Accordingly, the Company recorded non-cash impairment charges of $5,395 and $7,854 for goodwill and intangible assets, respectively, in its consolidated statement of operations. The impairment charge reduced the goodwill related to the IPath, North America retail, and Europe retail reporting units to zero. The charge of $7,854 reduced the trademark and other intangible assets of IPath and howies to their respective fair values at July 2, 2010 of $720 and $1,200. See Note 2 to the unaudited condensed consolidated financial statements for additional information.

A summary of goodwill activity by segment follows:


	2011							2010
			Accumulated			Net Book				Accumulated			Net Book
	Gross		Impairment			Value		Gross		Impairment			Value
Balance at January 1:
North America	$	36,876	$	(4,912	)	$	31,964	$	36,876	$	-		$	36,876
Europe		7,477		(483	)		6,994		7,477		-			7,477

Total	$	44,353	$	(5,395	)	$	38,958	$	44,353	$	-		$	44,353

Impairment charges:
North America	$	-	$	-		$	-	$	-	$	(4,912	)	$	(4,912	)
Europe		-		-			-		-		(483	)		(483	)

Total	$	-	$	-		$	-	$	-	$	(5,395	)	$	(5,395	)

Balance at end of quarter:
North America	$	36,876	$	(4,912	)	$	31,964	$	36,876	$	(4,912	)	$	31,964
Europe		7,477		(483	)		6,994		7,477		(483	)		6,994

Total	$	44,353	$	(5,395	)	$	38,958	$	44,353	$	(5,395	)	$	38,958

Intangible assets consist of trademarks and other intangible assets. Other intangible assets consist of customer, patent and non-competition related intangible assets. Intangible assets consist of the following:

	April 1, 2011							December 31, 2010
	July 1, 2011							December 31, 2010
			Accumulated			Net Book				Accumulated			Net Book
						Net
			Accumulated			Book				Accumulated			Net Book
	Gross		Amortization			Value		Gross		Amortization			Value
Trademarks (indefinite-lived)	$	3231,~~442~~710	$	-		$	3231,~~442~~710	$	32,402	$	-		$	32,402
Trademarks (finite-lived)		3,~~619~~731		(2,~~128~~292	)		1,~~491~~439		4,064		(2,462	)		1,602
Other intangible assets (finite-lived)		5,~~722~~729		(5,~~065~~248	)		~~657~~481		5,995		(5,160	)		835
Total	$	41,~~783~~170	$	(7,~~193~~540	)	$	3433,~~590~~630	$	42,461	$	(7,622	)	$	34,839

Note 10. Income Taxes

We provide for income taxes during interim periods based on our estimate of the effective tax rate for the year. Discrete items and changes in our estimate of the annual effective tax rate are recorded in the period they occur. During the first quarter of 2011, the Company recorded a charge of approximately $2,250 to income tax expense related to certain prior year matters.

Form 10-Q Page 1824

~~Company~~Note ~~was required to make payments to the Internal Revenue Department of Hong Kong totaling approximately $8,400, of which approximately $900 was paid in the first quarter of 2010~~10. ~~These~~Credit payments are included in prepaid taxes on our unaudited condensed consolidated balance sheet. We believe we have a sound defense to the proposed adjustment and will continue to firmly oppose the assessment. We believe that the assessment does not impact the level of liabilities for our income tax contingencies. However, actual resolution may differ from our current estimates, and such differences could have a material impact on our future effective tax rate and our results of operations. Agreement

~~Note~~On 11April 26, 2011, we entered into a Third Amended and Restated Revolving Credit Agreement with a group of banks led by Bank of America, N.A. ~~Stockholders’~~(the ~~Equity~~“Agreement”). The Agreement amends and restates in its entirety the Second Amended and Restated Revolving Credit Agreement dated as of June 2, 2006. The Agreement expires on April 26, 2016. The Agreement provides for $200,000 of committed, unsecured borrowings, of which up to $125,000 may be used for letters of credit. Any letters of credit outstanding under the Agreement ($1,595 at July 1, 2011) reduce the amount available for borrowing under the Agreement. Upon the approval of the bank group, the Company may increase the committed borrowing limit by $100,000 for a total commitment of $300,000. This facility may be used for working capital, share repurchases, acquisitions and other general corporate purposes. Under the terms of the Agreement, the Company may borrow at interest rates based on Eurodollar rates, plus an applicable margin of between 87.5 and 175.0 basis points based on a fixed charge coverage grid. In addition, the Company will pay a commitment fee of 12.5 to 25 basis points per annum on the total commitment, based on a fixed charge coverage grid that is adjusted quarterly. The financial covenants set forth in the Agreement relate to maintaining a minimum fixed charge coverage ratio of 2.25:1 and a leverage ratio of 2:1. The Company will measure compliance with the financial and non-financial covenants and ratios as required by the terms of the Agreement on a fiscal quarter basis. The Agreement also contains certain customary affirmative and negative covenants.

OnNote ~~December 3, 2009, our Board of Directors approved the repurchase of up to 6,000,000 shares of our Class A Common Stock~~11. ~~There~~Income ~~were no share repurchases made for the quarter ended April 1,~~Taxes ~~2011. As of April 1, 2011, 2,897,437 shares remained available for repurchase under the authorization.~~

In December 2009, we received a Notice of Assessment from the Internal Revenue Department of Hong Kong for approximately $17,600 with respect to the tax years 2004 through 2008. In connection with the assessment, the Company was required to make payments to the Internal Revenue Department of Hong Kong totaling approximately $900 in the first quarter of 2010 and $7,500 in the second quarter of 2010. These payments are included in prepaid taxes on our unaudited condensed consolidated balance sheet. We believe we have a sound defense to the proposed adjustment and will continue to firmly oppose the assessment. We believe that the assessment does not impact the level of liabilities for our income tax contingencies. However, actual resolution may differ from our current estimates, and such differences could have a material impact on our future effective tax rate and our results of operations.

Note 12. Share Repurchase

On March 10, 2008, our Board of Directors approved the repurchase of up to 6,000,000 shares of our Class A Common Stock. Shares repurchased under this authorization totaled 301,866 and 1,324,259 for the quarter and six months ended July 2, 2010, respectively. As of July 1, 2011, there were no shares remaining available for repurchase under this authorization.

On December 3, 2009, our Board of Directors approved the repurchase of up to an additional 6,000,000 shares of our Class A Common Stock. Shares repurchased under this authorization totaled 1,022,767 for the quarter and six months ended July 2, 2010. Shares repurchased under this authorization totaled 1,202,101 for the quarter and six months ended July 1, 2011. As of July 1, 2011, 1,695,336 shares remained available for repurchase under this authorization.

On May 26, 2011, our Board of Directors approved the repurchase of up to an additional 5,000,000 shares of our Class A Common Stock, all of which remained available for repurchase as of July 1, 2011.

From time to time, we use plans adopted under Rule 10b5-1 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, to facilitate share repurchases.

~~Note~~During ~~12.~~the ~~Litigation~~first six months of 2010, 200,000 shares of our Class B Common Stock were converted to an equivalent amount of our Class A Common Stock.

WeNote ~~are involved in various litigation and legal proceedings that have arisen in the ordinary course of business~~13. ~~Management believes that the ultimate resolution of any such matters will not have a~~Litigation ~~material adverse effect on our consolidated financial statements.~~

~~Note~~We 13are involved in various litigation and legal proceedings that have arisen in the ordinary course of business and with respect to particular transactions and events as described below. ~~Subsequent~~Management believes ~~Events~~that the ultimate resolution of any such matters will not have a material adverse effect on our unaudited condensed consolidated financial statements.

OnTable April 26, 2011, we entered into a Third Amended and Restated Revolving Credit Agreement with a group of banks led by Bank of America, N.A. (the “Agreement”). The Agreement amends and restates in its entirety the Second Amended and Restated Revolving Credit Agreement dated as of June 2, 2006. The Agreement expires on April 26, 2016. The Agreement provides for $200 million of committed, unsecured borrowings, of which up to $125 million may be used for letters of credit. Upon the approval of the bank group, the Company may increase the committed borrowing limit by $100 million for a total commitment of $300 million. This facility may be used for working capital, share repurchases, acquisitions and other general corporate purposes. Under the terms of the Agreement, the Company may borrow at interest rates based on Eurodollar rates, plus an applicable margin of between 87.5 and 175.0 basis points based on a fixed charge coverage grid. In addition, the Company will pay a commitment fee of 12.5 to 25 basis points per annum on the total commitment, based on a fixed charge coverage grid that is adjusted quarterly. The financial covenants set forth in the Agreement relate to maintaining a minimum fixed charge coverage ratio of 2.25:1 and a leverage ratio of 2:1. The Company will measure compliance with the financial and non-financial covenants and ratios as required by the terms of the Agreement on a fiscal quarter basis. The Agreement also contains certain customary affirmative and negative covenants. Contents

Form 10-Q
Page 25

Shareholder Litigation

Shortly after the Company entered into the Merger Agreement with V.F. Corporation, three putative stockholder class action complaints were filed, on behalf of Timberland’s public stockholders, in the Court of Chancery of the State of Delaware against Timberland, the members of the Timberland Board, V.F. Corporation, and V.F. Enterprises, Inc., a wholly-owned subsidiary of V.F. Corporation. The complaints generally allege, among other things, that the members of the Timberland Board breached their fiduciary duties owed to Timberland’s public stockholders by causing Timberland to enter into the Merger Agreement, approving the merger, failing to take steps to ascertain and maximize the value of Timberland, failing to conduct a public auction or other market check, and failing to provide Timberland’s public stockholders with the right to vote on whether to approve the merger, and that V.F. Corporation and V.F. Enterprises, Inc. aided and abetted such breaches of fiduciary duties. In addition, the complaints allege that the Merger Agreement improperly favors V.F. Corporation and unduly restricts Timberland’s ability to negotiate with other potential bidders. The complaints generally seek, among other things, declaratory and injunctive relief concerning the alleged fiduciary breaches, injunctive relief prohibiting defendants from consummating the merger, other forms of equitable relief, and compensatory damages. On June 30, 2011, the three actions described above were consolidated under the caption In re The Timberland Company Shareholder Litigation, C.A. No. 6577-CS. While this litigation is at an early stage, the Company believes that the claims are without merit and intends to defend against the litigation vigorously.

A purported class action, City of Omaha Police and Fire Retirement System, On Behalf of Itself and All Others Similarly Situated v. The Timberland Company and Jeffrey B. Swartz, U.S.D.C., District of New Hampshire, was filed on June 3, 2011 on behalf of persons who purchased the common stock of Timberland between February 17, 2011 and May 4, 2011, seeking remedies under the Securities Exchange Act of 1934. The Complaint alleges false and misleading statements and a scheme to defraud during the class period. While this litigation is at an early stage, the Company believes this lawsuit is without merit and intends to defend against the litigation vigorously.


Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following is management’s discussion and analysis of the financial condition and results of operations of The Timberland Company and its subsidiaries (“we”, “our”, “us”, “its”, “Timberland” or the “Company”), as well as our liquidity and capital resources. The discussion, including known trends and uncertainties identified by management, should be read in conjunction with the Company’s unaudited condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q, as well as our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Included herein are discussions and reconciliations of Total Company, Europe and Asia revenue changes to constant dollar revenue changes. Constant dollar revenue changes, which exclude the impact of changes in foreign exchange rates, are not Generally Accepted Accounting Principle (''“GAAP’’”) performance measures. The difference between changes in reported revenue (the most comparable GAAP measure) and constant dollar revenue changes is the impact of foreign currency exchange rate fluctuations. We calculate constant dollar revenue changes by recalculating current year revenue using the prior year’s exchange rates and comparing it to the prior year revenue reported on a GAAP basis. We provide constant dollar revenue changes for Total Company, Europe and Asia results because we use the measure to understand the underlying results and trends of the business segments excluding the impact of exchange rate changes that are not under management’s direct control. The limitation of this measure is that it excludes exchange rate changes that have an impact on the Company’s revenue. This limitation is best addressed by using constant dollar revenue changes in combination with revenue reported on a GAAP basis. We have a foreign exchange rate risk management program intended to minimize both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. The actions we take to mitigate foreign exchange risk are reflected in cost of goods sold and other, net.

Form 10-Q Page 19

Company, Europe and Asia results because we use the measure to understand the underlying results and trends of the business segments excluding the impact of exchange rate changes that are not under management’s direct control. The limitation of this measure is that it excludes exchange rate changes that have an impact on the Company’s revenue. This limitation is best addressed by using constant dollar revenue changes in combination with revenue reported on a GAAP basis. We have a foreign exchange rate risk management program intended to minimize both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. The actions we take to mitigate foreign exchange risk are reflected in cost of goods sold and other, net.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to sales returns and allowances, ~~realization of outstanding accounts receivable, derivatives, other~~ contingencies, impairment of assets, incentive compensation accruals, share-based compensation and the provision for income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from our estimates. Notwithstanding the foregoing, because of the uncertainty inherent in these matters, actual results could differ from the estimates used in, or that result from, applying our critical accounting policies. Our significant accounting policies are described in Note 1 to the Company’s consolidated financial statements included in Part II, Item 8: Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2010. Our estimates, assumptions and judgments involved in applying the critical accounting policies are described in Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2010.

Form 10-Q
Page 26

realization of outstanding accounts receivable, derivatives, other contingencies, impairment of assets, incentive compensation accruals, share-based compensation and the provision for income taxes. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Historically, actual results have not been materially different from our estimates. Notwithstanding the foregoing, because of the uncertainty inherent in these matters, actual results could differ from the estimates used in, or that result from, applying our critical accounting policies. Our significant accounting policies are described in Note 1 to the Company’s consolidated financial statements included in Part II, Item 8: Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2010. There have been no changes to these critical accounting policies during the six months ended July 1, 2011. Our estimates, assumptions and judgments involved in applying the critical accounting policies are described in Part II, Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations, of our Annual Report on Form 10-K for the year ended December 31, 2010.

During the quarter ended July 1, 2011, management concluded that the carrying value of the howies trademark exceeded the estimated fair value and, accordingly, recorded an impairment charge of $0.7 million. The Company’s North America Wholesale and Europe Wholesale business units have fair values substantially in excess of their carrying value. See Notes 2 and 9 to the unaudited condensed consolidated financial statements for additional information.

During the quarter ended July 2, 2010, management concluded that the carrying value of goodwill exceeded the estimated fair value for its IPath, North America Retail and Europe Retail reporting units and, accordingly, recorded an impairment charge of $5.4 million. Management also concluded that the carrying value of the IPath and howies trademarks and other intangible assets exceeded the estimated fair value and, accordingly, recorded an impairment charge of $7.8 million. The Company’s North America Wholesale and Europe Wholesale business units have fair values substantially in excess of their carrying value. See Notes 2 and 9 to the unaudited condensed consolidated financial statements for additional information.

These non-recurring fair value measurements were developed using significant unobservable inputs (Level 3). For goodwill, the primary valuation technique used was the discounted cash flow analysis based on management’s estimates of forecasted cash flows for each business unit, with those cash flows discounted to present value using rates proportionate with the risks of those cash flows. In addition, management used a market-based valuation method involving analysis of market multiples of revenues and earnings before interest, taxes, depreciation and amortization for a group of similar publicly traded companies and, if applicable, recent transactions involving comparable companies. The Company believes the blended use of these models balances the inherent risk associated with either model if used on a stand-alone basis, and this combination is indicative of the factors a market participant would consider when performing a similar valuation. When completing the analysis at July 1, 2011, we elected to carry forward the fair values determined at July 2, 2010 for our North America Wholesale and Europe Wholesale reporting units rather than reassess their fair value. For trademark intangible assets, management used the relief-from-royalty method in which fair value is the discounted value of forecasted royalty revenue arising from a trademark using a royalty rate that an independent third party would pay for use of that trademark.

Our estimates of fair value are sensitive to changes in the assumptions used in our valuation analyses and, as a result, actual performance in the near and longer-term could be different from these expectations and assumptions. These differences could be caused by events such as strategic decisions made in response to economic and competitive conditions and the impact of economic factors on our customer base. If our future actual results are significantly lower than our current operating results or our estimates and assumptions used to calculate fair value are materially different, the value determined using the discounted cash flow analysis could result in a lower value. A significant decrease in value could result in a fair value lower than carrying value, which could result in impairment of our remaining goodwill. While we believe we have made reasonable estimates and assumptions used to calculate the fair value of the reporting units and other intangible assets, it is possible a material change could occur, which may ultimately result in the recording of an additional non-cash impairment charge.

These non-cash impairment charges do not have any direct impact on our liquidity, compliance with any covenants under our debt agreements or potential future results of operations. Our historical operating results may not be indicative of our future operating results. We will revise our estimates used in calculating the fair value of our reporting units as needed.

Overview

Our principal strategic goal is to become the #1 Outdoor Brand on Earth by offering an integrated product selection that equips consumers to enjoy the experience of being in the outdoors. We sell our products to consumers who embrace an ~~outdoor-inspired lifestyle through high-quality~~ ~~distribution channels, including our own retail stores, which reinforce the premium positioning of the Timberlandâ brand.~~

Form 10-Q
Page 27

outdoor-inspired lifestyle through high-quality distribution channels, including our own retail stores, which reinforce the premium positioning of the Timberland^â brand.

Our ongoing efforts to achieve this goal include (i) enhancing our leadership position in our core Timberland^® footwear business through an increased focus on technological innovation and “big idea” initiatives like Earthkeepers, (ii) expanding our global apparel and accessories business by leveraging the brand’s equity and initiatives through a combination of in-house development and licensing arrangements with trusted partners, (iii) expanding our brands geographically, (iv) driving operational and financial excellence, (v) setting the standard for social and environmental responsibility, and (vi) striving to be an employer of choice.

AOn ~~summary~~June 12, 2011, the Company entered into an Agreement and Plan of ~~our~~Merger ~~first~~(the ~~quarter~~“Merger Agreement”) with V.F. Corporation (“VF”) and VF Enterprises, Inc., a wholly owned subsidiary of ~~2011~~VF ~~financial~~(“Merger Sub”). ~~performance~~The Merger Agreement provides that, ~~compared~~upon the terms and subject to the ~~first~~conditions ~~quarter~~set offorth ~~2010~~in the Merger Agreement, ~~follows:~~Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of VF. Holders of the outstanding shares of the Company’s common stock at the effective time of the Merger will receive $43.00 per share in cash.

•A ~~First~~summary ~~quarter~~of ~~revenue~~our ~~increased~~second ~~10.1%, or 8.5% on a constant dollar basis, to $349.0 million. • Gross margin decreased 300 basis points to 46.8%. • Operating income was $27.9 million, compared to $39.4 million in the first~~ quarter of ~~2010.~~2011 •financial ~~Net income was $18.0 million~~performance, compared to ~~$25.7 million in~~ the ~~first~~second quarter of 2010., ~~• Diluted earnings per share decreased to $0.35 from $0.47. • Cash at the end of the quarter was $265.3 million with no debt outstanding.~~follows:

	•		Second quarter revenue increased 27.1%, or 20.6% on a constant dollar basis, to $240.1 million.

	•		Gross margin decreased from 49.5% to 47.4%.

	•		Operating expenses were $144.7 million, an increase of 14.1% from $126.8 million in the prior year period. Operating expenses for the second quarter of 2011 include impairment charges of $0.7 million. Operating expenses for the second quarter of 2010 include impairment charges of $13.2 million and a gain on the termination of a licensing agreement of $1.5 million.

	•		We recorded an operating loss of $30.9 million in the second quarter of 2011, compared to an operating loss of $33.3 million in the prior year period. Operating loss includes impairment charges of $0.7 million and $13.2 million for the second quarter of 2011 and 2010, respectively.

	•		Net loss was $20.1 million in the second quarter of 2011, compared to $23.5 million in the second quarter of 2010.

	•		Loss per share decreased from $0.44 in the second quarter of 2010 to $0.39 in the second quarter of 2011.

	•		Cash at the end of the quarter was $233.8 million with no debt outstanding.

We have undertaken a multi-year business system transformation initiative, pursuant to which we will develop and implement an integrated enterprise resource planning, or ERP, system to better support our business model and further streamline our operations. The Company incurred incremental expenses of approximately $1.2 million during the quarter ended July 1, 2011 related to this ERP implementation, as well as $3.3 million in capital spending, primarily related to software implementation and hardware.

Results of Operations for the Quarter Ended July 1, 2011 as Compared to the Quarter Ended July 2, 2010

Revenue

In the second quarter of 2011, our consolidated revenues grew 27.1% to $240.1 million, reflecting double-digit growth across North America and each of our major markets in Europe and Asia. On a constant dollar basis, consolidated revenues increased 20.6%.

Form 10-Q Page 2028

~~We are undertaking a multi-year business system transformation initiative, pursuant to which we~~Products will develop and implement an integrated enterprise resource planning, or ERP, system to better support our business model and further streamline our operations. The Company incurred incremental expenses of approximately $1.0 million during the quarter ended April 1, 2011 related to this ERP implementation, as well as $3.1 million in capital spending, primarily related to software implementation and hardware.

~~Results~~By ofproduct ~~Operations~~group, ~~for~~our footwear revenues increased 28.2% to $168.7 million compared to the ~~Quarter~~prior year ~~Ended~~quarter, ~~April~~and apparel and accessories revenues grew 26.8% to $66.0 1million. Growth in footwear revenues was driven primarily by strong growth in men’s footwear in both wholesale and retail channels across all geographic regions, ~~2011~~as well as ~~Compared~~benefits from foreign exchange. The improvement in apparel and accessories revenues compared to the ~~Quarter~~prior ~~Ended~~year quarter reflects revenue growth ~~April 2~~across all regions as well, ~~2010~~with Europe wholesale accounts and Asia retail stores driving growth in apparel and SmartWool driving growth in accessories. Royalty and other revenue increased slightly to $5.4 million.

In May 2011, the Company signed an agreement (the “Agreement”) allowing for the early expiration and wind-down of the licensing agreement associated with the supplier of men’s apparel in North America. The Agreement calls for the licensing term to expire on December 31, 2011, but allows for the licensee to sell licensed products to certain accounts through April 1, 2012, and to sell certain products to the Company for delivery through May 2012 for subsequent resale in its stores. In addition to royalties payable under the Agreement, in consideration of the early expiration of the licensing agreement, the Company will receive a payment of approximately $6.0 million payable between January 30, 2012 and February 29, 2012.

Channels

Wholesale revenue was $151.1 million in the second quarter of 2011, a 28.7% increase compared to the prior year quarter, driven by double-digit growth in North America, Europe and Asia and the benefits of foreign exchange rate changes.

Retail revenues grew 24.5% to $89.0 million in the second quarter of 2011, driven by strong comparable store sales growth, the net addition of 16 stores and favorable foreign exchange rate impacts.

Comparable store sales were up 14.3% compared to the second quarter of 2010, reflecting double digit growth in North America and Asia, and strong growth in Europe. Comparable store sales include revenues from Company-operated stores for which all of the following requirements have been met: the store has been open at least one year, square footage has not changed by more than 25% within the past year, and the store has not been permanently repositioned within the past year. Sales for stores that are closed for renovation or relocation are excluded from the comparable store calculation until such stores are reopened. Prior year foreign exchange rates are applied to both current year and prior year comparable store sales to achieve a consistent basis for comparison.

We had 240 and 224 Company-owned stores, shops and outlets worldwide at the end of the second quarters of 2011 and 2010, respectively.

Gross Profit

Gross profit as a percentage of sales, or gross margin, was 47.4% for the second quarter of 2011, a 210 basis point decline compared to the second quarter of 2010. The decrease in gross margin reflects higher product costs associated with leather, transportation and labor costs, partially offset by favorable foreign exchange rate impacts. The Company expects these input costs to continue to adversely impact gross margin through 2011, although price increases are expected to help mitigate the impact of these costs in the second half of 2011.

Operating Expense

Operating expense for the second quarter of 2011 was $144.7 million, an increase of $17.9 million, or 14.1%, when compared to the second quarter of 2010. The increase in operating expense was driven by an increase in selling expense of $21.5 million and in general and administrative expense of $7.4 million, partially offset by a decrease in impairment charges related to goodwill and intangible assets of $12.5 million. Additionally, operating expense in the second quarter of 2010 included a $1.5 million gain related to the termination of a licensing agreement. Foreign exchange rate changes increased operating expense by approximately $7.9 million in the second quarter of 2011.

Selling expense was $107.7 million in the second quarter of 2011, an increase of 25.0% over the same period in 2010. Selling expense reflects planned investments in marketing and advertising and retail expansion, as well as variable costs associated with strong revenue growth. Selling expense as a percent of revenue was 44.8% in the second quarter of 2011 compared to 45.6% in the second quarter of 2010.

We include the costs of physically managing inventory (warehousing and handling costs) in selling expense. These costs totaled $8.1 million and $7.1 million in the second quarters of 2011 and 2010, respectively.

Form 10-Q
Page 29

In each of the second quarters of 2011 and 2010, we recorded $0.5 million of reimbursed shipping expenses within revenues and the related shipping costs within selling expense. Shipping costs are included in selling expense and were $4.1 million and $2.8 million for the quarters ended July 1, 2011 and July 2, 2010, respectively.

Advertising expense, which is included in selling expense, was $9.7 million and $5.5 million in the second quarters of 2011 and 2010, respectively. The increase was driven by a planned investment in out of home, Internet and digital media, television and print campaigns. Advertising expense includes co-op advertising costs, consumer-facing advertising costs such as print, television and Internet campaigns, production costs including agency fees, and catalog costs. Advertising costs are expensed at the time the advertising is used, predominantly in the season that the advertising costs are incurred. Prepaid advertising recorded on our unaudited condensed consolidated balance sheets as of July 1, 2011 and July 2, 2010 was $3.3 million and $2.2 million, respectively.

General and administrative expense for the second quarter of 2011 was $36.3 million, an increase of 25.5% compared to the $28.9 million reported in the second quarter of 2010, driven by increases in incentive compensation and other employee related costs of $4.4 million, $1.8 million in costs associated with the proposed acquisition of the Company by V.F. Corporation, and incremental costs of $1.2 million related to business system transformation initiatives. General and administrative expense as a percent of revenue was 15.1% in the second quarter of 2011 compared to 15.3% in the second quarter of 2010.

Total operating expense in the second quarter of 2011 also included an impairment charge of $0.7 million related to an intangible asset. 2010 included an impairment charge of $7.8 million related to certain intangible assets, an impairment charge of $5.4 million related to goodwill, and a gain of $1.5 million associated with the termination of a licensing agreement. Approximately $12.0 million of the total $13.2 million in impairment charges recorded in the second quarter of 2010 related to IPath and howies. See Note 2 to the unaudited condensed consolidated financial statements.

Operating Loss

We recorded an operating loss of $30.9 million in the second quarter of 2011, compared to an operating loss of $33.3 million in the prior year period. Operating loss included an impairment charge of $0.7 million in the second quarter of 2011. In the second quarter of 2010, operating loss included impairment charges of $13.2 million and a gain of $1.5 million associated with the termination of a licensing agreement.

Other Income/(Expense) and Taxes

Interest income was $0.1 million in each of the second quarters of 2011 and 2010. Interest expense, which is comprised of fees related to the establishment and maintenance of our revolving credit facility and bank guarantees, and interest paid on short-term borrowings, was $0.1 million in each of the second quarters of 2011 and 2010.

Other, net, included foreign exchange gains of $1.1 million and $1.0 million in the second quarters of 2011 and 2010, respectively, resulting from changes in the fair value of financial derivatives, specifically forward contracts not designated as cash flow hedges, and the currency gains and losses incurred on the settlement of local currency denominated receivables and payables. These results were driven by the volatility of exchange rates within the second quarters of 2011 and 2010 and should not be considered indicative of expected future results.

The effective income tax rate for the second quarter of 2011 was 32.4%. The Company anticipates that its effective tax rate for 2011 will be lower than its overall statutory rate of 39%. The effective income tax rate for the second quarter of 2010 was 29.0%.

In December 2009, we received a Notice of Assessment from the Internal Revenue Department of Hong Kong for approximately $17.6 million with respect to the tax years 2004 through 2008. In connection with the assessment, the Company made required payments to the Internal Revenue Department of Hong Kong totaling approximately $7.5 million in the second quarter of 2010. These payments are included in prepaid taxes on our unaudited condensed consolidated balance sheet. We believe we have a sound defense to the proposed adjustment and will continue to firmly oppose the assessment. We believe that the assessment does not impact the level of liabilities for our income tax contingencies. However, actual resolution may differ from our current estimates, and such differences could have a material impact on our future effective tax rate and our results of operations.

Form 10-Q
Page 30

Segments Review

We have three reportable business segments (see Note 7 to the unaudited condensed consolidated financial statements contained herein for additional information): North America, Europe and Asia.

Revenue by segment for the quarter ended July 1, 2011 compared to the quarter ended July 2, 2010 is as follows (dollars in millions):


	For the Quarter Ended
	July 1,		July 2,
	2011		2010		% Change

North America	$	106.1	$	92.0		15.4	%
Europe		91.7		66.8		37.4
Asia		42.3		30.2		40.0

	$	240.1	$	189.0		27.1

Operating income/(loss) by segment and as a percentage of revenue for the quarters ended July 1, 2011 and July 2, 2010 are included in the table below (dollars in millions). Segment operating income/(loss) is presented as a percentage of its respective segment revenue. Unallocated Corporate expenses are presented as a percentage of total revenue. Europe includes an impairment charge of $0.7 million in the quarter ended July 1, 2011. North America and Europe include impairment charges of $8.1 million and $5.1 million, respectively, in the quarter ended July 2, 2010. Additionally, North America includes a gain of $1.5 million related to the termination of a licensing agreement in the quarter ended July 2, 2010.


	For the Quarter Ended
	July 1,					July 2,
	2011					2010

North America	$	8.1		7.7	%	$	2.9		3.2	%
Europe		(6.2	)	(6.8	)		(11.8	)	(17.7	)
Asia		1.5		3.6			2.6		8.7
Unallocated Corporate		(34.3	)	(14.3	)		(27.0	)	(14.3	)

	$	(30.9	)	(12.9	)	$	(33.3	)	(17.6	)

North America

North America revenues were $106.1 million in the second quarter of 2011, an increase of 15.4% as compared to the same period in 2010. The results reflect solid growth from our Timberland^® and Timberland PRO^® footwear, as well as SmartWool^® accessories. Within North America, revenue from our retail business grew 19.3%, driven by a 20.2% increase in comparable store sales, and a 32.0% increase in e-commerce sales. We had 67 stores at July 1, 2011 compared to 66 stores at July 2, 2010.

Operating income for our North America segment was $8.1 million, compared to $2.9 million for the second quarter of 2010. A 9.7% decrease in operating expenses was due primarily to a decrease in impairment charges of $8.1 million partially offset by increased investments in marketing and retail expansion and the impact in 2010 of a $1.5 million gain associated with the termination of a licensing agreement. Gross profit improved slightly in the second quarter of 2011 compared to the second quarter of 2010, as the benefit of increased volume offset the impact of a rate decline resulting from higher product costs and an increase in provisions for sales returns and allowances.

Europe

Europe recorded revenues of $91.7 million in the second quarter of 2011, a 37.4% increase from the second quarter of 2010, and an increase of 24.6% on a constant dollar basis. Europe recorded double-digit growth in the wholesale channel across

Form 10-Q
Page 31

each of its major markets, as well as strong growth across its retail stores. Sales through both the wholesale and retail channels reflect strong growth in men’s footwear, as well as in apparel sales. Retail growth of 27.1% was driven by comparable store sales growth of 9.4% coupled with retail expansion resulting in the net addition of 4 stores, as well as favorable foreign exchange impacts. We had 67 stores at July 1, 2011 compared to 63 stores at July 2, 2010.

Timberland’s European segment recorded an operating loss of $6.2 million in the second quarter of 2011, compared to an operating loss of $11.8 million in the second quarter of 2010. The improvement was driven by increased gross profit resulting from volume and foreign exchange benefits partially offset by higher product costs and unfavorable mix impacts. This improvement was partially offset by an 18.9% increase in operating expenses, as a lower impairment charge in 2011 as compared to 2010 was more than offset by incremental marketing costs, investments in retail expansion, higher variable costs on increased volume and an unfavorable impact from foreign exchange rates.

Asia

In Asia, revenues increased 40.0%, or 28.1% in constant dollars, to $42.3 million in the second quarter of 2011 driven by double-digit growth in each of our major markets, resulting in part from the impact of new retail stores. Footwear sales drove growth in our wholesale channel, while apparel drove the growth in our retail stores. Retail revenues were up 28.7%, reflecting strong comparable store sales, the net addition of eleven new stores, and favorable foreign exchange rate impacts. Comparable store sales grew 12.4%, and we added eleven new stores year over year. We had 106 stores at July 1, 2011 compared to 95 stores at July 2, 2010.

We had operating income in our Asia segment of $1.5 million for the second quarter of 2011, compared to operating income of $2.6 million for the second quarter of 2010. These results reflect an improvement in gross profit as the impacts of higher volume and favorable foreign exchange rates were partially offset by higher product costs and unfavorable close-out and sales returns and allowance trends. This improvement was more than offset by an increase in operating expense of 40.3% due to investments in retail expansion, higher variable costs on increased volume, incremental marketing costs and an unfavorable impact from foreign exchange rates.

Corporate Unallocated

Our Unallocated Corporate expenses, which include central support and administrative costs not allocated to our business segments, increased 27.2% to $34.3 million, which reflects higher incentive compensation costs, legal expenses associated with the proposed acquisition of the Company by V.F. Corporation, planned investments in brand marketing, incremental costs related to business system transformation initiatives, and unfavorability in certain supply chain costs which are not allocated to our reported segments.

Results of Operations for the Six Months Ended July 1, 2011 as Compared to the Six Months Ended July 2, 2010

Revenue

In the first ~~quarter~~six months of 2011, our consolidated revenues grew 1016.14% to $~~349~~589.01 million, reflecting growth across North America, Europe and Asia and favorable foreign exchange rate impacts. WeNearly ~~experienced~~every ~~strong~~market ~~growth~~ in ~~each~~Europe ofand ~~our~~Asia ~~core~~delivered ~~European~~top-line ~~markets~~growth ~~with~~for the ~~exception~~first six months of 2011 compared to the Uprior year period.K. We recorded double-digit growth in Germany, Italy, Scandinavia, France ~~which~~and ~~decreased~~Spain, ~~compared~~as towell as strong growth in the ~~prior~~UK ~~year~~and ~~quarter~~the Benelux region. ~~Taiwan~~Double-digit revenue growth in Japan, Hong Kong, Taiwan and China ~~drove~~in the ~~favorable~~ ~~year~~first ~~over~~six ~~year~~months ~~comparison~~of in2011 ~~Asia,~~drove ~~partially~~the ~~offset~~favorable byyear over ~~declines~~year improvement in ~~Japan~~Asia. On a constant dollar basis, consolidated revenues increased 812.59%.

Products

By product group, our footwear revenues increased 1016.07% to $~~248~~416.28 million as compared to the prior year ~~period,~~ and apparel and accessories revenues grew 1016.03% to $94160.23 million. Growth in footwear revenues was driven primarily by improved wholesale revenue ~~results~~ in Europe and North America, asand ~~well as~~ benefits from foreign exchange rates. ~~The~~Footwear ~~improvement~~revenue growth in ~~apparel~~North ~~and~~America ~~accessories~~was ~~revenues~~driven by ~~compared~~double-digit togrowth ~~the~~in ~~prior~~our ~~year~~men’s ~~reflects~~footwear ~~apparel~~and ~~revenue~~Timberland ~~growth~~PRO® ~~in Asia~~lines, partially offset by declines in ~~our~~other ~~own~~footwear. ~~stores~~The ~~and~~improvement ~~through our~~in ~~wholesale~~apparel ~~partners,~~and asaccessories ~~well~~revenues ascompared ~~growth~~to inthe prior ~~accessories~~year reflects revenue growth in Asia, Europe and North America~~. Royalty~~ ~~and~~related ~~other~~to ~~revenue~~sales ~~increased~~of ~~$0.8 million,~~apparel orand ~~13.7%,~~accessories toin ~~$6.6 million~~our own ~~compared~~stores toand ~~the prior~~in ~~year period.~~

Form 10-Q
Page 32

Europe through our wholesale partners. Royalty and other revenue increased 8.1% to $12.0 million compared to the prior year period.

Channels

Wholesale revenue was $~~252~~403.01 million in the first ~~quarter~~six months of 2011, ana 815.64% increase compared to ~~the~~ ~~prior~~the ~~year~~first ~~quarter.~~six ~~During~~months ~~the~~of ~~quarter~~2010, wedriven ~~saw~~by ~~strong~~double-digit growth inacross ~~Europe~~all ~~and~~regions ~~North America~~ and ~~flat~~favorable ~~performance~~foreign inexchange ~~Asia~~rate impacts. Retail revenues grew 1418.08% to $97186.0 million in the first ~~quarter~~six months of 2011, driven by ~~solid~~strong comparable store sales growth, the net addition of 816 stores and favorable foreign exchange rate impacts.

Comparable store sales were up 810.29% compared to the first ~~quarter~~six months of 2010, ~~reflecting~~with ~~strong~~ growth in both our specialty and outlet stores across North America and Asia. and our outlet stores in Europe. Comparable store sales include revenues from Company-operated stores for which all of the following requirements have been met: the store has been open at least one year, square footage has not changed by more than 25% within the past year, and the store has not been permanently repositioned within the past year. Sales for stores that are closed for renovation or relocation are excluded from the comparable store calculation until such stores are reopened. Prior year foreign exchange rates are applied to both current year and prior year comparable store sales to achieve a consistent basis for comparison.

We had 229 Company-owned stores, shops and outlets worldwide at the end of the first quarter of 2011 compared to 221 at the end of the first quarter of 2010.

Gross Profit

Gross profit as a percentage of sales, or gross margin, was 4647.80% for the first ~~quarter~~six months of 2011, a ~~300~~a 270 basis point decline compared to the first ~~quarter~~six months of 2010. ~~The~~Gross ~~decrease~~margin indecline ~~gross~~for ~~margin~~the ~~reflects~~first half of the year was driven by higher product costs associated with leather, transportation and ~~non-leather~~labor ~~materials~~costs, ~~transportation~~partially ~~and labor~~offset by favorable foreign exchange rate impacts. The Company expects these input costs to continue to adversely impact gross margin through 2011, although price increases ~~will~~are ~~help~~expected to help mitigate the impact of these costs in the second half of 2011.

Operating Expense

Operating expense for the first ~~quarter~~six months of 2011 was $~~135~~280.41 million, an increase of $1634.8 7 million, or 14.2%, when compared to the first ~~quarter~~six months of 2010. AsThe aincrease ~~percentage~~in ~~of sales,~~ operating ~~expense~~ expense was ~~38.8%~~driven ~~compared~~by ~~to 37.4% in the prior year period. The increase reflects~~ an increase ~~of $10.4 million~~ in selling expense ~~and~~of $631.49 million and in general and administrative expense. ~~Foreign exchange~~of ~~rate~~$12.3 million, ~~impacts~~partially ~~increased~~offset ~~selling~~by ~~and~~a ~~general~~decrease ~~and~~in ~~administrative~~impairment ~~expenses by approximately~~charges ~~$2.2 million~~related into ~~the~~goodwill ~~first~~and ~~quarter~~intangible assets of ~~2011~~$12.5 million. ~~Operating~~Additionally, ~~expense~~results infor the first six ~~quarter~~months of 2010 included a $13.50 million gain related to the termination of a licensing ~~agreement~~agreements. Foreign exchange rate changes increased operating expense by $10.1 million in the first six months of 2011.

Selling expense was $210.7 million in the first six months of 2011, an increase of 17.9% over the same period in 2010. Selling expense reflects planned investments in marketing, advertising and retail expansion, variable costs associated with strong revenue growth and higher compensation costs. Selling expense as a percent of revenue was 35.8% in the first six months of 2011 compared to 35.3% in the first six months of 2010.

We include the costs of physically managing inventory (warehousing and handling costs) in selling expense. These costs totaled $17.1 million and $15.4 million in the first six months of 2011 and 2010, respectively.

In the first six months of 2011 and 2010, we recorded $1.2 million and $1.1 million, respectively, of reimbursed shipping expenses within revenues and the related shipping costs within selling expense. Shipping costs are included in selling expense and were $9.5 million and $8.0 million for the six months ended July 1, 2011 and July 2, 2010, respectively.

Advertising expense, which is included in selling expense, was $14.8 million and $9.3 million in the first six months of 2011 and 2010, respectively. The increase was driven by a planned investment in out of home, Internet and digital media, television and print campaigns. Advertising expense includes co-op advertising costs, consumer-facing advertising costs such as print, television and Internet campaigns, production costs including agency fees, and catalog costs.

General and administrative expense for the first six months of 2011 was $68.7 million, an increase of 21.9% compared to the $56.3 million reported in the first six months of 2010, driven by increases in incentive compensation and other employee related costs of $8.7 million, incremental costs of $2.2 million related to business system transformation initiatives and $1.8 million in costs associated with the proposed acquisition of the Company by V.F. Corporation. General and administrative expense as a percent of revenue was 11.7% in the first six months of 2011 compared to 11.1% in the first six months of 2010.

Form 10-Q Page 2133

~~Selling~~Total operating expense ~~was $103.1 million~~ in the first ~~quarter~~six months of 2011, also includes an ~~increase~~impairment charge of 11$0.2%7 million ~~over~~related ~~the~~to ~~same period~~an inintangible ~~2010~~asset. ~~The~~Total ~~increase~~operating expense in ~~selling~~the ~~expense~~first ~~reflects~~six ~~planned~~months ~~investments~~of in2010 includes ~~retail~~an ~~and advertising~~impairment charge of $7.8 million related to certain intangible assets, ~~variable~~an ~~costs~~impairment charge ~~associated~~of ~~with~~$5.4 million ~~strong~~related ~~revenue~~to ~~growth~~goodwill, and ~~higher~~a ~~incentive~~gain ~~compensation~~of ~~costs~~$3.0 million associated with the termination of licensing agreements.

We include the costs of physically managing inventory (warehousing and handling costs) in selling expense. These costs totaled $8.9 million and $8.4 million in the first quarters of 2011 and 2010, respectively.

In each of the first quarters of 2011 and 2010, we recorded $0.7 million of reimbursed shipping expenses within revenues and the related shipping costs within selling expense. Shipping costs are included in selling expense and were $5.4 million and $5.2 million for the quarters ended April 1, 2011 and April 2, 2010, respectively.

Advertising expense, which is included in selling expense, was $5.1 million and $3.9 million in the first quarters of 2011 and 2010, respectively. Advertising expense includes co-op advertising costs, consumer-facing advertising costs such as print, television and Internet campaigns, production costs including agency fees, and catalog costs. Advertising costs are expensed at the time the advertising is used, predominantly in the season that the advertising costs are incurred. Prepaid advertising recorded on our unaudited condensed consolidated balance sheets as of April 1, 2011 and April 2, 2010 was $2.6 million and $1.3 million, respectively.

General and administrative expense for the first quarter of 2011 was $32.3 million, compared to the $25.9 million reported in the first quarter of 2010, driven by increases in incentive compensation and other employee related costs of $3.9 million and incremental costs of $1.0 million related to our business system transformation initiatives. Additionally, general and administrative expense in the first quarter of 2010 included a gain of $1.5 million associated with the termination of a licensing agreement.

Operating Income/(Loss)

We recorded an operating ~~income~~loss of $273.90 million in the first ~~quarter~~six months of 2011, compared to ~~operating~~ operating income of $396.41 million in the prior year period as an increase in gross profit on higher volume was offset by increased operating expense resulting primarily from higher variable selling costs, and investments in marketing and retail expansion. Operating loss in the first six months of 2011 includes an impairment charge of $0.7 million related to an intangible asset. Operating income in the first ~~quarter~~six months of 2010 included a ~~gain~~goodwill and intangible asset impairment charge of $113.52 million ~~associated~~and ~~with~~gains ~~the~~on termination of a licensing ~~agreement~~agreements of $3.0 million.

Other Income/(Expense) and Taxes

Interest income was $0.13 million inand ~~each~~$0.2 million ofin the first ~~quarters~~six months of 2011 and 2010, respectively. Interest expense, which is comprised of fees related to the establishment and maintenance of our revolving credit facility, ~~was~~and ~~$0.2 million~~bank guarantees, and interest paid on short-term borrowings, was $0.13 million in each of the first ~~quarters~~six months of 2011 and 2010~~, respectively~~.

Other, net, included foreign exchange gains of $12.67 million inand ~~the first quarter of 2011 compared to foreign exchange losses of~~ $0.45 million in the first ~~quarter~~six months of 2011 and 2010, respectively, resulting from changes in the fair value of financial derivatives, specifically forward contracts not designated as cash flow hedges, and the currency gains and losses incurred on the settlement of local currency denominated receivables and payables. These results were driven by the volatility of exchange rates within the first ~~quarters~~six months of 2011 and 2010 and should not be considered indicative of expected future results.

~~The~~During ~~effective income tax rate for~~ the first ~~quarter~~six months of 2011 ~~was 39.1%. During the first quarter of 2011~~, the Company recorded a charge of approximately $2.2 million to income tax expense related to certain prior year matters. The Company anticipates that its effective tax rate for 2011 will be lower than its overall statutory rate of 39%. This rate may vary if actual results differ from our current estimates, or there are changes in our liability for uncertain tax positions. The effective income tax rate for the first ~~quarter~~ six months of 2010 was 3462.37%.

In December 2009, we received a Notice of Assessment from the Internal Revenue Department of Hong Kong for approximately $17.6 million with respect to the tax years 2004 through 2008. In connection with the assessment, the Company ~~was~~made required ~~to make~~ payments to the Internal Revenue Department of Hong Kong totaling approximately $8.4 million in ~~2010, of which $0.9 million was paid in~~ the first ~~quarter~~six months of 2010. These payments are included in prepaid taxes on our unaudited condensed consolidated balance sheet. We believe we have a sound defense to the proposed adjustment and will continue to firmly oppose the assessment. We believe that the assessment does not impact the level of liabilities for our income tax contingencies. However, actual resolution may differ from our current estimates, and such differences could have a material impact on our future effective tax rate and our results of operations.

Form 10-Q Page 2234

Segments Review

WeRevenue ~~have~~by ~~three~~segment ~~reportable~~for ~~business~~the ~~segments~~six ~~(see~~months ~~Note~~ended 7July 1, 2011 compared to the ~~unaudited~~six ~~condensed~~months ~~consolidated~~ended July 2, ~~financial~~2010 ~~statements~~is ~~contained~~as ~~herein):~~follows ~~North~~(dollars ~~America,~~in ~~Europe and Asia.~~millions):

Revenue by segment for the quarter ended April 1, 2011 compared to the quarter ended April 2, 2010 is as follows (dollars in millions):


	For the Six Months Ended
	July 1,		July 2,
	2011		2010		% Change

North America	$	238.1	$	213.9		11.3	%
Europe		257.4		218.4		17.9
Asia		93.6		73.7		26.9

	$	589.1	$	506.0		16.4

	For the Quarter Ended
	April 1,		April 2,
	2011		2010		% Change
North America	$	132.0	$	121.9		8.3	%
Europe		165.7		151.6		9.3
Asia		51.3		43.5		17.8
	$	349.0	$	317.0		10.1

Operating income/(loss) by segment and as a percentage of revenue for the six months ended July 1, 2011 and July 2, 2010 are included in the table below (dollars in millions). Segment operating income is presented as a percentage of its respective segment revenue. Unallocated Corporate expenses are presented as a percentage of total revenue. North America includes impairment charges of $8.1 million and a gain related to the termination of licensing agreements of $3.0 million in the six months ended July 2, 2010. Europe includes impairment charges of $0.7 million and $5.1 million in the six months ended July 1, 2011 and July 2, 2010, respectively.

Operating income/(loss) by segment and as a percentage of revenue for the quarters ended April 1, 2011 and April 2, 2010 are included in the table below (dollars in millions). Segment operating income is presented as a percentage of its respective segment revenue. Unallocated Corporate expenses are presented as a percentage of total revenue.


	For the Six Months Ended
	July 1,			July 2,
	2011			2010

North America	$	29.4			12.4	%	$	24.6		11.5	%
Europe		22.7			8.8			25.4		11.7
Asia		9.8			10.4			9.5		12.8
Unallocated Corporate		(64.9	)		(11.0	)		(53.4	)	(10.6	)

	$	(3.0	)		(0.5	)	$	6.1		1.2

	For the Quarter Ended
	April 1,					April 2,
	2011					2010
North America	$	21.3		16.1	%	$	21.6		17.8	%
Europe		28.9		17.4			37.3		24.6
Asia		8.2		16.1			6.9		15.7
Unallocated Corporate		(30.5	)	(8.7	)		(26.4	)	(8.3	)
	$	27.9		8.0		$	39.4		12.4

North America

North America revenues were $~~132~~238.01 million in the first ~~quarter~~six months of 2011, an increase of 811.3% as compared to the same period in 2010. ~~The~~We ~~results~~recorded ~~reflect~~double-digit ~~solid~~ growth from our Timberland® men’s and women’s footwear and Timberland PRO® footwear lines, as well as solid growth from SmartWool® accessories. Within North America, ~~revenue from~~ our retail business grew 813.3%, driven by ~~a 9.6% increase in~~ comparable store sales. Wegrowth ~~had~~in 64our outlet stores atand ~~April 1,~~a ~~2011~~38.4% increase ~~compared~~in toour 67e-commerce ~~stores at April 2, 2010~~business.

Operating income for our North America segment was $2129.34 million, compared to $2124.6 million for the first ~~quarter~~six months of 2010. AGross ~~7.1%~~profit ~~increase~~improved inby ~~operating~~3.6% ~~expenses~~as ~~was~~the ~~partially~~benefits ~~offset~~of byhigher ~~improved~~volume and ~~gross~~favorable ~~profit,~~mix ~~where~~were ~~benefits~~partially ~~from~~offset ~~increased~~by ~~volume~~a ~~and~~gross ~~more~~margin ~~profitable~~rate ~~product~~decline ~~mix~~driven ~~offset~~by ~~the~~increased product ~~impact~~costs ofand ahigher ~~rate~~provisions ~~decline~~for ~~from~~sales ~~higher~~returns ~~product~~and ~~costs~~allowances. Operating expenses decreased 1.8% as increased ~~due~~investments toin marketing, retail expansion, higher volume- related ~~selling~~costs ~~expenses~~ and the impact in 2010 of a $13.50 million gain associated with the termination of a licensing agreement were offset by the absence of goodwill and intangible asset impairment charges in 2011 as compared to 2010.

Europe

Europe recorded revenues of $~~165~~257.74 million in the first ~~quarter~~six months of 2011, a 917.39% increase from ~~the~~ the first ~~quarter~~six months of 2010, and an increase of 813.3% on a constant dollar basis. ~~Growth~~Europe recorded strong growth across ~~Southern and~~its ~~Central~~major ~~Europe~~markets, asin ~~well~~particular asGermany, Italy, Scandinavia and France, ~~was~~as well ~~partially~~as ~~offset~~its bydistributor amarkets. ~~decline~~Both inwholesale ~~the~~and ~~U.K. Wholesale~~retail channels showed ~~strong~~double-digit growth in men’s ~~footwear,~~and ~~while~~women’s ~~growth~~footwear inas ~~retail~~well ~~was~~as ~~driven~~in by apparel ~~sales~~ and accessories. Retail growth of 916.29% was driven by ~~the net addition of 4 stores, as well as~~ comparable store sales growth of 15.71%., ~~Comparable~~the ~~store~~net ~~growth~~addition inof ~~outlet~~4 stores ~~was~~and ~~partially~~favorable ~~offset by~~foreign ~~declines~~exchange inrate ~~our specialty stores~~impacts. ~~We had 67 stores at April 1, 2011 compared to 63 stores at April~~ ~~2, 2010.~~

~~Table~~Timberland’s European segment recorded operating income of ~~Contents~~$22.7 million in the first six months of 2011, compared to operating income of $25.4 million in the first six months of 2010, as a 9.0% increase in gross profit was offset by a 14.8% increase in operating expenses. Gross profit improvement was driven by volume and favorable foreign exchange impacts, partially offset by a gross margin decline resulting from higher product costs and unfavorable mix impacts. Operating expense increases were the result of the impact of foreign exchange rate changes, higher advertising spending, retail expansion, and higher variable selling costs on increased volume, partially offset by a decrease in impairment charges.

Form 10-Q Page 23

Timberland’s European segment recorded operating income of $28.9 million in the first quarter of 2011, compared to operating income of $37.3 million in the first quarter of 2010. Declines in Europe were driven by lower gross margin and a 10.7% increase in operating expense. Gross margin declines reflect higher product costs, unfavorable product mix, and the impact of foreign exchange. Operating expense increases were driven primarily by employee-related costs, selling expense, and higher rent and occupancy costs from store expansion and volume.

Asia

In Asia, revenues increased 1726.89%, or 1017.04% in constant dollars, to $5193.36 million in the first six ~~quarter~~months of 2011 due to ~~strong~~double-digit ~~retail~~growth ~~performance~~in ofboth ~~apparel~~wholesale and ~~men’s~~retail ~~footwear.~~channels ~~Retail~~and ~~revenues~~favorable ~~were~~foreign upexchange 30rate impacts.~~0%,~~ ~~driven~~Men’s byfootwear, ~~favorable~~along ~~foreign~~with ~~exchange~~a ~~rate~~strong ~~impacts~~apparel ~~and~~product ~~retail~~offering, ~~expansion~~drove growth in ~~Hong~~both ~~Kong and Taiwan~~channels. ~~Comparable~~Retail ~~store~~revenues ~~sales~~were ~~grew~~up 1529.4%~~. We had 98 stores at April 1~~, ~~2011~~driven ~~compared to 91~~by ~~stores at April 2, 2010.~~

WeTable had operating income in our Asia segment of $8.2 million for the first quarter of 2011, compared to operating income of $6.9 million for the first quarter of 2010. Improvement in gross margin reflects favorable foreign exchange rate and mix impacts, partially offset by higher product costs. This improvement was partially offset by an increase in operating expense of 24.9% due to higher rent and occupancy costs from store expansion and volume, and higher employee-related costs. Contents

~~In March~~Form ~~2011, an earthquake occurred off the northeast coast of Japan. The Company’s organization~~10-Q ~~and~~Page ~~assets in Japan were not materially damaged by the earthquake and resultant tsunami. However,~~35 the implications of these events and the resulting damage to Japan’s infrastructure, consumer confidence, and overall economy remain unclear. While we cannot yet fully assess the impact on our Japan business, we believe there could be a negative impact on our revenues and profits for this geography throughout the remainder of fiscal 2011 and into fiscal 2012.

comparable store sales growth of 13.8%, the addition of 11 stores, and favorable foreign exchange rate impacts.

We had operating income in our Asia segment of $9.8 million for the first six months of 2011, compared to operating income of $9.5 million for the first six months of 2010, as an improvement in gross profit was partially offset by an increase of 32.6% in operating expenses. Gross profit improvement was driven by volume and favorable foreign exchange impacts, partially offset by higher product costs. Operating expense rose as the result of higher selling related costs on increased volume, retail expansion, rent costs, and increased marketing spending.

Corporate Unallocated

Our Unallocated Corporate expenses, ~~increased~~which ~~15.8% to $30.5 million in the first quarter of 2011. Unallocated Corporate expenses~~ include central support and administrative costs, asnot allocated ~~well~~to asour ~~supply chain~~business ~~costs~~segments, ~~including~~increased ~~sourcing~~21.5% ~~and~~to ~~logistics,~~$64.9 million ~~inventory~~in ~~cost~~the ~~variances~~first ~~and~~six ~~adjustments~~months ~~to standard~~of ~~costs~~2011, which ~~are not allocated to our reportable business segments. The increase in costs~~ reflects higher incentive compensation costs, incremental costs related to business system transformation initiatives, ~~partially~~legal ~~offset~~expenses associated with the proposed acquisition of the Company by ~~favorability~~V.F. inCorporation, ~~our~~planned ~~inventory~~investments ~~standard~~in ~~cost~~brand ~~adjustment~~marketing, ~~compared~~and tofavorability in certain ~~the~~supply ~~adjustment~~chain ~~made~~costs inwhich ~~the~~are ~~prior~~not ~~year~~allocated ~~period~~to our reported segments.

Reconciliation of Total Company, Europe and Asia Revenue Changes To Constant Dollar Revenue Changes

Total Company Revenue Reconciliation:

	For the Quarter					For the Six Months
	Ended April 1, 2011
	Ended July 1, 2011					Ended July 1, 2011
	$ Change
	$ Millions Change		% Change			$ Millions Change		% Change
	(millions)		% Change
Revenue increase (GAAP)	$	51.2		27.1	%	$	83.1		16.4	%
Revenue increase (GAAP)	$	32.0		10.1	%
Increase due to foreign exchange rate changes		12.4		6.5	%		17.5		3.5	%
Increase due to foreign exchange rate changes		5.1		1.6	%
Revenue increase in constant dollars	$	38.8		20.6	%	$	65.6		12.9	%
Revenue increase in constant dollars	$	26.9		8.5	%

Europe Revenue Reconciliation:

	For the Quarter					For the Six Months
	Ended April 1, 2011
	Ended July 1, 2011					Ended July 1, 2011
	$ Change
	$ Millions Change		% Change			$ Millions Change		% Change
	(millions)		% Change
Revenue increase (GAAP)	$	25.0		37.4	%	$	39.0		17.9	%
Revenue increase (GAAP)	$	14.0		9.3	%
Increase due to foreign exchange rate changes		8.5		12.8	%		9.9		4.6	%
Increase due to foreign exchange rate changes		1.4		1.0	%
Revenue increase in constant dollars	$	16.5		24.6	%	$	29.1		13.3	%
Revenue increase in constant dollars	$	12.6		8.3	%

Form 10-Q Page 24

Asia Revenue Reconciliation:

	For the Quarter					For the Six Months
	Ended April 1, 2011
	Ended July 1, 2011					Ended July 1, 2011
	$ Change
	$ Millions Change		% Change			$ Millions Change		% Change
	(millions)		% Change
Revenue increase (GAAP)	$	12.1		40.0	%	$	19.8		26.9	%
Revenue increase (GAAP)	$	7.7		17.8	%
Increase due to foreign exchange rate changes		3.6		11.9	%		7.0		9.5	%
Increase due to foreign exchange rate changes		3.4		7.8	%
Revenue increase in constant dollars	$	8.5		28.1	%	$	12.8		17.4	%
Revenue increase in constant dollars	$	4.3		10.0	%

Form 10-Q
Page 36

The difference between changes in reported revenue (the most comparable GAAP measure) and constant dollar revenue changes is the impact of foreign currency exchange rates. We calculate constant dollar revenue changes by recalculating current year revenue using the prior year’s exchange rates and comparing it to the prior year revenue reported on a GAAP basis. We provide constant dollar revenue changes for Total Company, Europe and Asia results because we use the measure to understand the underlying results and trends of the business segments excluding the impact of exchange rate changes that are not under management’s direct control. We have a foreign exchange rate risk management program intended to minimize both the positive and negative effects of currency fluctuations on our reported consolidated results of operations, financial position and cash flows. The actions taken by us to mitigate foreign exchange risk are reflected in cost of goods sold and other, net.

Accounts Receivable and Inventory

Accounts receivable were $~~178~~116.57 million asat ~~of April~~July 1, 2011, compared with $188.3 million atas of December 31, 2010 and $~~157~~86.68 million atas ~~April~~of July 2, 2010~~, an increase of 13~~.2% asDays ~~compared to the prior year quarter, driven primarily by revenue growth of 10.1% and timing of~~ sales. ~~Day’s sales~~ outstanding were 4643 days as of ~~April~~ July 1, 2011, compared with 35 days as of December 31, 2010 and 45 41 days as of ~~April~~July 2, 2010. Wholesale ~~day’s~~days sales outstanding were 5358 days asfor ofthe ~~April 1,~~second quarter of 2011, ~~compared~~ ~~with~~ 44 days asat of December 31, 2010 and 5155 days asfor ofthe ~~April 2,~~second quarter of 2010. The increase in ~~day’s~~ days sales outstanding is primarily attributable to the timing of sales ~~and~~within ~~lower~~the ~~doubtful account requirements~~quarter.

Inventory was $~~186~~251.97 million as of ~~April~~July 1, 2011, compared with $180.1 million asat of December 31, ~~2010~~ 2010 and $~~136~~177.92 million as of ~~April~~ July 2, 2010. The increase of 3642.50% ~~over a low level in the prior year quarter~~ is the result of expected growth for the business in 2011, increased product costs, and ~~efforts~~the topurchase ~~secure~~of product in advance of potential factory capacity constraints.

Liquidity and Capital Resources

Net cash used by operations for the first ~~quarter~~half of 2011 was $3420.32 million, compared with cash provided by operations of $261.3 0 million for the first ~~quarter~~half of 2010., ~~The~~reflecting ~~increase~~a innet ~~cash~~loss ~~used~~for bythe first ~~operations~~six ~~was~~months ~~driven primarily~~of by2011 aand ~~decrease~~an increased investment in ~~net~~operating ~~income~~assets and liabilities. Overall, in 2011 we invested $6644.42 million in operating assets and liabilities compared to an investment of $6227.57 million in the first ~~quarter~~six months of 2010, reflecting higher inventory investment and related accounts payable to support our expected growth.

Net cash used byfor investing activities was $819.07 million in the first ~~quarter~~half of 2011, compared with $27.84 million in the first ~~quarter~~half of 2010. Capital spending totaled $819.72 million in the first ~~quarter~~ half of 2011 compared to $27.83 million in the first ~~quarter~~half of 2010. The increase was driven by ~~capital~~ capital spending associated with our multi-year business systems transformation initiative, as well as as sourcing, logistics and retail related investments.

Net cash ~~provided~~used by financing activities was $330.95 million in the first ~~quarter~~half of 2011, compared ~~with~~ with $1841.98 million ~~of cash used by financing activities~~ in the first ~~quarter~~half of 2010. Cash flows used for financing activities ~~reflected~~reflect share repurchases of $040.9 million in the first ~~quarter~~six months of 2011, compared with $1944.52 million in the first ~~quarter~~six months of 2010. We received cash inflows of $3136.4 5 million in the first ~~quarter~~half of 2011 from the exercise of employee stock options, compared with $02.74 million from such exercises in the first half ~~quarter~~ of 2010.

We are exposed to the credit risk of those parties with which we do business, including counterparties on our derivative contracts and our customers. Derivative instruments expose us to credit and market risk. The market risk associated with these instruments resulting from currency exchange rate movements is expected to offset the market risk of the underlying transactions being hedged. We do not believe there is a significant risk of loss in the event of non-performance by the counterparties associated with these instruments because these transactions are executed with a group of major financial institutions and have varying maturities through January 2013. As a matter of policy, we enter into these contracts only with counterparties having a minimum investment-grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Form 10-Q Page 25

are executed with a group of major financial institutions and have varying maturities through July 2012. As a matter of policy, we enter into these contracts only with counterparties having a minimum investment-grade or better credit rating. Credit risk is managed through the continuous monitoring of exposures to such counterparties.

Additionally, consumer spending continues to be affected by the current macro-economic environment. Continued deterioration, or lack of improvement, in the markets and economic conditions generally could adversely impact our customers and their ability to access credit.

We may utilize our committed and uncommitted lines of credit to fund our seasonal working capital needs. We have not experienced any restrictions on the availability of these lines and the adverse capital and credit market conditions are not ~~expected to significantly affect our ability to meet~~ ~~our liquidity needs.~~

At the end of the first quarter of 2011, we had an unsecured committed revolving credit agreement with a group of banks, which matures on June 2, 2011 (the “Agreement”). The Agreement provided for $200 million of committed borrowings, of which up to $125 million could be used for letters of credit. Any letters of credit outstanding under the Agreement ($1.6 million at April 1, 2011) reduced the amount available for borrowing under the Agreement. Upon approval of the bank group, we could increase the committed borrowing limit by $100 million for a total commitment of $300 million. Under the terms of the Agreement, we could borrow at interest rates based on Eurodollar rates (approximately 0.3% at April 1, 2011), plus an applicable margin based on a fixed-charge coverage grid of between 13.5 and 47.5 basis points that is adjusted quarterly. As of April 1, 2011, the applicable margin under the facility was 47.5 basis points. We paid a utilization fee of an additional 5 basis points if our outstanding borrowings under the facility exceed $100 million. We also paid a commitment fee of 6.5 to 15 basis points per annum on the total commitment, based on a fixed-charge coverage grid that is adjusted quarterly. As of April 1, 2011, the commitment fee was 15 basis points. The Agreement placed certain limitations on additional debt, stock repurchases, acquisitions, and the amount of dividends we could pay, and included certain other financial and non-financial covenants. The primary financial covenants related to maintaining a minimum fixed-charge coverage ratio of 2.25:1 and a maximum leverage ratio of 2:1. We measured compliance with the financial and non-financial covenants and ratios as required by the terms of the Agreement on a fiscal quarter basis.

On April 26, 2011, we entered into an amended and restated unsecured revolving credit facility with a group of banks (the “New Agreement”). The New Agreement, which will expire on April 26, 2016, amends and restates the Agreement. Borrowing availability and financial covenants in the New Agreement are substantially similar to those under the Agreement. Under the terms of the New Agreement, we may borrow at interest rates based on Eurodollar rates plus an applicable margin based on a fixed-charge coverage grid of between 87.5 and 175 basis points that is adjusted quarterly. We will also pay a commitment fee of 12.5 to 25 basis points per annum on the total commitment, based on a fixed-charge coverage grid that is adjusted quarterly.

We have uncommitted lines of credit available from certain banks which totaled $30 million at April 1, 2011. Any borrowings under these lines would be at prevailing money market rates. Further, we have an uncommitted letter of credit facility of $80 million to support inventory purchases. These arrangements may be terminated at any time at the option of the banks or at our option.

We had no borrowings outstanding under any of our credit facilities during, or as of, the quarters ended April 1, 2011 and April 2, 2010.

Management believes that our operating costs, capital requirements and funding for our share repurchase program for the balance of 2011 will be funded through our current cash balances, our credit facilities and cash from operations, without the need for additional financing. We are undertaking a multi-year Business Transformation Initiative pursuant to which we will develop and implement an ERP system to better support our business model and further streamline our operations. It is the Company’s intent to finance these costs with cash from operations, without the need for additional financing. However, as discussed in the sections entitled “Cautionary Note Regarding Forward-Looking Statements” on page 2 of this Quarterly Report on Form 10-Q and in Part II, Item 1A, Risk Factors, of this Quarterly Report on Form 10-Q, several risks and uncertainties could require that the Company raise additional capital through equity and/or debt financing. From time to time, the Company considers acquisition opportunities which, if pursued, could also result in the need for additional financing. However, if the need arises, our ability to obtain any additional financing will depend upon prevailing market conditions, our financial condition and the terms and conditions of such financing.

Form 10-Q Page 2637

~~Off-Balance~~expected ~~Sheet~~to ~~Arrangements~~significantly affect our ability to meet ~~Letters~~our ofliquidity ~~Credit~~needs.

AsOn of April 126, 2011, ~~December 31,~~we ~~2010~~entered into an amended and restated unsecured revolving credit facility with a group of banks which matures on April 226, ~~2010~~2016 (the “Agreement”). The Agreement provides for $200 million of committed borrowings, weof ~~had~~which up to $125 million may be used for letters of credit. Any letters of credit outstanding of under the Agreement ($~~20.~~1.6 million at July 1, ~~$16~~2011) reduce the amount available for borrowing under the Agreement.5 Upon approval of the bank group, we may increase the committed borrowing limit by $100 million ~~and~~for a total commitment of $~~15.7~~300 million. This facility may be used for working capital, ~~respectively~~share repurchases, acquisitions and other general corporate purposes. ~~These~~Under ~~letters~~the terms of ~~credit~~the ~~were~~Agreement, ~~issued~~we may borrow at interest rates based on ~~principally~~Eurodollar inrates ~~support~~(approximately 0.2% at July 1, 2011), plus an applicable margin based on a fixed-charge coverage grid of ~~real~~between ~~estate~~87.5 ~~commitments~~and 175 basis points that is adjusted quarterly. As of July 1, 2011, the applicable margin under the facility was 127.5 basis points. We also pay a commitment fee of 12.5 to 25 basis points per annum on the total commitment, based on a fixed-charge coverage grid that is adjusted quarterly. As of July 1, 2011, the commitment fee was 22.5 basis points. The primary financial covenants relate to maintaining a minimum fixed-charge coverage ratio of 2.25:1 and a maximum leverage ratio of 2:1. The Agreement also contains certain customary affirmative and negative covenants. We measure compliance with the financial and non-financial covenants and ratios as required by the terms of the Agreement on a fiscal quarter basis, and were in compliance for the quarter ended July 1, 2011.

We have uncommitted lines of credit available from certain banks which totaled $30 million at July 1, 2011. Any borrowings under these lines would be at prevailing money market rates. Further, we have an uncommitted letter of credit facility of $80 million to support inventory purchases. These arrangements may be terminated at any time at the option of the banks or at our option.

We had no borrowings outstanding under any of our credit facilities during, or as of, the quarters ended July 1, 2011 and July 2, 2010.

Off-Balance Sheet Arrangements

Letters of Credit

As of July 1, 2011, December 31, 2010 and July 2, 2010, we had letters of credit outstanding of $22.5 million, $16.5 million and $15.9 million, respectively. These letters of credit were issued principally in support of real estate commitments.

We use funds from operations and unsecured committed and uncommitted lines of credit as the primary sources of financing for our seasonal and other working capital requirements. Our principal risks related to these sources of financing are the impact on our financial condition from economic downturns, a decrease in the demand for our products, increases in the prices of materials and a variety of other factors.

New Accounting Pronouncements

A discussion of new accounting pronouncements, none of which had a material impact on our operations, financial condition or liquidity, is included in Note 1 to the unaudited condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Form 10-Q
Page 38


Item 3.		QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our financial position and results of operations 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 cash flows. We regularly assess these risks and have established policies and business practices that should mitigate a portion of the adverse effect of these and other potential exposures.

We utilize cash from operations and U.S. dollar denominated borrowings to fund our 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, we use derivative instruments to manage the impact of foreign currency fluctuations on a portion of our foreign currency transactions. These 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 of less than three months.

We have available unsecured committed and uncommitted lines of credit as sources of financing for our working capital requirements. Borrowings under these credit agreements bear interest at variable rates based on either lender’s cost of funds, plus an applicable spread, or prevailing money market rates. As of ~~April~~July 1, 2011, ~~December 31, 2010~~ and ~~April~~July 2, 2010, we had no short-term or long-term debt outstanding.

Our foreign currency exposure is generated primarily from our European operating subsidiaries and, to a lesser degree, our Asian and Canadian operating subsidiaries. We seek to mitigate the impact of these foreign currency fluctuations through a risk management program that includes the use of derivative financial instruments, primarily foreign currency forward contracts. These derivative instruments are carried at fair value on our balance sheet. The Company has implemented a program that qualifies for hedge accounting treatment to aid in mitigating our foreign currency exposures and decreasing the volatility of our earnings. The foreign currency forward contracts under this program will expire in ~~sixteen~~ 18 months or less. Based upon a sensitivity analysis as of July ~~April~~ 1, 2011, a 10% change in foreign exchange rates would cause the fair value of our derivative instruments to increase/decrease by approximately $1825.95 million, compared to an increase/decrease of $19.4 million at December 31, 2010 and an increase/decrease of $119.54 million at ~~April~~July 2, 2010.

Form 10-Q Page 27


Item 4.		CONTROLS AND PROCEDURES

We maintain a system of disclosure controls and procedures which are designed to ensure that information required to be disclosed by us in reports we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms. These disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed under the federal securities laws is accumulated and communicated to our management on a timely basis to allow decisions regarding required disclosure.

Based on their evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, that occurred during the quarter ended ~~April~~July 1, ~~2011~~ 2011 that have materially affected, or are reasonably likely to materially affect, our internal ~~control~~ control over financial reporting.

Part II — OTHER INFORMATION


Item 1.		Legal Proceedings

Form10-Q
Page 39

Shortly after the Company entered into the Merger Agreement with VF, three putative stockholder class action complaints were filed, on behalf of Timberland’s public stockholders, in the Court of Chancery of the State of Delaware against Timberland, the members of the Timberland Board, VF, and Merger Sub. The complaints generally allege, among other things, that the members of the Timberland Board breached their fiduciary duties owed to Timberland’s public stockholders by causing Timberland to enter into the Merger Agreement, approving the merger, failing to take steps to ascertain and maximize the value of Timberland, failing to conduct a public auction or other market check, and failing to provide Timberland’s public stockholders with the right to vote on whether to approve the merger, and that VF and Merger Sub aided and abetted such breaches of fiduciary duties. In addition, the complaints allege that the Merger Agreement improperly favors VF and unduly restricts Timberland’s ability to negotiate with other potential bidders. The complaints generally seek, among other things, declaratory and injunctive relief concerning the alleged fiduciary breaches, injunctive relief prohibiting defendants from consummating the merger, other forms of equitable relief, and compensatory damages. On June 30, 2011, the three actions described above were consolidated under the caption In re The Timberland Company Shareholder Litigation, C.A. No. 6577-CS. While this litigation is at an early stage, the Company believes that the claims are without merit and intends to defend against the litigation vigorously.

Item 1A. RISK FACTORS

In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in the section entitled “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2010, and Part II, Item 1A of any Quarterly Report on Form 10-Q filed subsequent to our Annual Report on Form 10-K, which could materially affect our business, financial condition or future results. The risks described in this Quarterly Report on Form 10-Q, in our Annual Report on Form 10-K, and in any Quarterly Report on Form 10-Q filed subsequent to our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or future results.

The risk factor described below is anin addition to those risk factors referenced above:

Our business could be adversely impacted byas ~~natural~~a ~~disasters,~~result ~~including~~of ~~earthquakes,~~uncertainty ~~hurricanes, tsunamis~~related orto ~~other~~the ~~adverse~~proposed ~~weather~~Merger with V.F. Corporation and ~~climate~~significant ~~conditions~~costs, expenses and fees.

~~Natural~~The ~~disasters~~proposed ~~such~~Merger ascould ~~earthquakes,~~cause ~~hurricanes,~~disruptions ~~tsunamis~~to orour ~~other~~business ~~adverse weather and climate conditions, whether occurring in the U.S.~~ or ~~abroad,~~business ~~and the consequences and effects thereof~~relationships, ~~including~~ ~~energy~~which ~~shortages and public health issues,~~ could have ~~disrupt~~an ~~our~~adverse ~~operations,~~impact oron ~~the operations of~~ our ~~business~~financial ~~partners~~condition, orresults ~~result~~of inoperations ~~economic instability that may negatively impact our operating results~~ and ~~financial~~cash ~~condition~~flows. For example:

~~On March 11, 2011, an earthquake occurred off~~ •the ~~northeast~~occurrence ~~coast~~ of ~~Japan.~~any ~~The Company’s~~event, ~~organization~~change ~~and~~or ~~assets~~other incircumstances ~~Japan~~that ~~were~~could ~~not~~give ~~materially~~rise ~~damaged~~to by the ~~earthquake and~~termination ~~resultant tsunami. However, the implications~~ of ~~these events and~~ the ~~resulting~~Merger ~~damage to Japan’s infrastructure~~Agreement, ~~consumer~~including ~~confidence,~~a ~~and~~termination ~~overall~~under ~~economy~~circumstances ~~remain~~that ~~unclear. While we cannot yet fully assess the impact on our Japan business, we believe there~~ could berequire aus ~~negative~~to ~~impact on our~~pay ~~revenues and profits for this geography throughout~~ the ~~remainder~~Termination ~~of fiscal 2011 and into fiscal~~Fee; ~~2012.~~

•the failure to obtain, delays in obtaining or adverse conditions contained in any required regulatory or other approvals in connection with the Merger;

•the failure to close or delay in consummating the Merger for any other reason;

•risks that the proposed Merger disrupts current plans and operations and the potential difficulties in employee retention as a result of the Merger;

•the outcome of any legal proceedings that have been or may be instituted against Timberland and/or others relating to the Merger Agreement, including the litigation disclosed above under Part II - Item 1, Legal Proceedings;

•the diversion of our management’s attention from our ongoing business concerns;

•the effect of the announcement, pendency, termination or anticipated consummation of the Merger on our stock price, business relationships, operating results and business generally; and

•the amount of the costs, fees, expenses and charges related to the Merger.

~~Form 10~~Form10-Q Page 2840

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

ISSUER PURCHASES OF EQUITY SECURITIES(1)

For the Three Fiscal Months Ended July 1, 2011


					Total Number		Maximum Number
					of Shares		of Shares
					Purchased as Part		That May Yet
	Total Number				of Publicly		Be Purchased
	of Shares		Average Price		Announced		Under the Plans
Period*	Purchased **		Paid per Share		Plans or Programs		or Programs

April 2 – April 29		-	$	-		-		2,897,437
April 30 – May 27 (a)		1,202,101		33.30		1,202,101		6,695,336
May 28 – July 1		-		-		-		6,695,336

Q2 Total		1,202,101	$	33.30		1,202,101

Footnote (1)

Approved

Announcement

Program

Expiration

Date

Size (Shares)

Date

Program 1

12/09/2009

6,000,000

None

Program 2 (a)

06/01/2011

5,000,000

None

No existing programs expired or were terminated during the period. See Note 12 to our unaudited condensed consolidated financial statements in this Form 10-Q for additional information.


*		Fiscal month

**		Based on trade date — not settlement date

Form10-Q
Page 41

Item 6. EXHIBITS

Exhibit 10.1 – The Timberland Company 2011 Executive Long Term Incentive Program, filed herewith.


		Exhibit 10.1 —		Third Amended and Restated Revolving Credit Agreement dated as of April 26, 2011 among The Timberland Company, certain lenders listed therein and Bank of America, N.A. as a lender and as administrative agent, filed herewith.

		Exhibit 31.1 —		Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

		Exhibit 31.2 —		Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

		Exhibit 32.1 —		Chief Executive Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

		Exhibit 32.2 —		Chief Financial Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

		Exhibit 101.INS		— XBRL Instance Document

		Exhibit 101.SCH		— XBRL Taxonomy Extension Schema Document

		Exhibit 101.CAL		— XBRL Taxonomy Extension Calculation Linkbase Document

		Exhibit 101.DEF		— XBRL Taxonomy Extension Definition Linkbase Document

		Exhibit 101.LAB		— XBRL Taxonomy Extension Label Linkbase Document

		Exhibit 101.PRE		— XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 31.1 – Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

Exhibit 31.2 – Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.

Exhibit 32.1 – Chief Executive Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

Exhibit 32.2 – Chief Financial Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

Exhibit 101.INS – XBRL Instance Document

Exhibit 101.SCH – XBRL Taxonomy Extension Schema Document

Exhibit 101.CAL – XBRL Taxonomy Extension Calculation Linkbase Document

Exhibit 101.LAB – XBRL Taxonomy Extension Label Linkbase Document

Exhibit 101.PRE – XBRL Taxonomy Extension Presentation Linkbase Document

Exhibit 101.DEF – XBRL Taxonomy Extension Definition Linkbase Document

~~Form 10~~Form10-Q Page 2942

SIGNATURES

Pursuant to the requirements 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 (Registrant)
Date: May 5, 2011	By:		/s/ JEFFREY B. SWARTZ
Date: August 4, 2011	By:	/s/ JEFFREY B. SWARTZ
		Jeffrey B. Swartz	~~Jeffrey B. Swartz~~
		Chief Executive Officer	~~Chief Executive Officer~~
Date: May 5, 2011	By:		/s/ CARRIE W. TEFFNER
Date: August 4, 2011	By:	/s/ CARRIE W. TEFFNER
		Carrie W. Teffner	~~Carrie W. Teffner~~
		Chief Financial Officer	~~Chief Financial Officer~~

~~Form 10~~Form10-Q Page 3043

EXHIBIT INDEX

Exhibit		Description
Exhibit 10.1		Third Amended and Restated Revolving Credit Agreement dated as of April 26, 2011 among The Timberland Company, ~~2011~~certain ~~Executive~~lenders ~~Long~~listed ~~Term~~therein ~~Incentive~~and ~~Program~~Bank of America, N.A. as a lender and as administrative agent, filed herewith.
Exhibit 31.1		Principal Executive Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Exhibit 31.2		Principal Financial Officer Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, filed herewith.
Exhibit 32.1		Chief Executive Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
Exhibit 32.2		Chief Financial Officer Certification Pursuant to Section 1350, Chapter 63 of Title 18, United States Code, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.
Exhibit 101.INS	—	XBRL Instance Document
Exhibit 101.SCH	—	XBRL Taxonomy Extension Schema Document
Exhibit 101.CAL	—	XBRL Taxonomy Extension Calculation Linkbase Document
Exhibit 101.LAB	—	XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.PRE	—	XBRL Taxonomy Extension Presentation Linkbase Document
Exhibit 101.LAB		XBRL Taxonomy Extension Label Linkbase Document
Exhibit 101.DEF	—	XBRL Taxonomy Extension Definition Linkbase Document
Exhibit 101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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Filing Compare · TIMBERLAND CO