Clarus Corp (CLAR) 2010 Q4 法說會逐字稿

Greetings, and welcome to the Black Diamond Inc. fourth quarter and fiscal year 2010 conference call. At this time, all participants are in a listen-only mode. (Operator Instructions)As a reminder this conference is being recorded. It is now my pleasure to introduce your host, James Palczynski of ICR. Thank you. Mr. Palcynski, you may begin.

Thank you, and good afternoon to everyone. Before we get started, I would like to read a brief statement for you. Any redistribution, retransmission or rebroadcast of today's call in any way without the express written consent of Black Diamond Inc. is strictly prohibited.

Please note that today's call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Black Diamond may use words such as anticipates, believes, plans, expects, intends, future and similar expressions to identify forward-looking statements. These forward-looking statements involve a number of risks, uncertainties and assumptions which are difficult to predict. Black Diamond cautions you that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement.

Examples of forward-looking statements include, but are not limited to, one, statements about the benefits of any acquisitions including future financial and operating results that may be realized from the acquisitions. Two, statements of plans, objectives and expectations of Black Diamond or its management or board of directors. Three, statements of future economic performance and four, statements of assumptions underlying such statements and other statements that are not historical facts. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, but are not limited to, one, our ability to successfully integrate future acquisitions, two, our ability to realize financial or operating results as expected, three, material differences in actual financial results compared with expectations, including the impact of the mergers on Black Diamond's future earnings per share. Four, economic conditions and the impact they may have on Black Diamond's business and its respect with customers or demand for products. Five, our ability to implement our acquisition growth strategy or obtain financing to support such strategy. Six, the loss of any member of our senior management and certain other key executives, seven, our ability to utilize our net operating loss carry forward and eight, our ability to adequately protect our intellectual property rights.

Additional factors that could cause results to differ materially from those described in the forward-looking statements can be found in the risk factors section of Black Diamond's filings with the Securities and Exchange Commission, including its latest annual report on Form 10-K and most recently filed Forms 8-K and 10-Q, which may be obtained at the company's website at www.blackdiamond-inc.com or from the Securities and Exchange Commission's website at www.SEC.gov. All forward-looking statements included in this conference call are based upon information available to us as of the date of this conference call and speak only as the of the date hereof. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date of this conference call. Thanks for your patience. With that out of the way, I would now like to turn the call over to Peter Metcalf, the company's Chief Executive Officer.

Good afternoon, and thank you for joining us to review our fourth quarter and year-ended December 31, 2010 results. With me today is Robert Peay, our Chief Financial Officer. As you may know, on February 7, 2011, we pre-released our expected fourth quarter 2010 revenue and provided investors with some insight into our expectations for 2011. I'm pleased to confirm that we achieved $125 million in pro forma full year sales as expected. The primary purpose of today's call is to review the Company's financial results for the fourth quarter and full year 2010. As such, I'm going to keep my comments today relatively brief.

Robert Peay will discuss the fourth quarter and full year 2010 results in some detail in a few moments, but before he does, I would like to say a few words about what we've accomplished during our first seven to nine months as a public Company. It's very gratifying that we have achieved our financial objectives in the midst of the most significant operational and strategic change in our 30 year history, going all the way back to Chouinard Equipment Company in 1981. I'm referring specifically to Black Diamond 2.0, which resulted from the merger of Black Diamond Equipment and Gregory Mountain Products with Clarus Corporation last May. That involved the relocation of the Clarus public company corporate and accounting infrastructure and the Gregory Mountain Products business, including its management team and warehousing here to Salt Lake City. In fact, just last week, both Gregory and Black Diamond Equipment product began shipping from our new enlarged consolidated distribution center here in Salt Lake. Our global operating platform is now integrated. This enables each of our brands to leverage product commercialization, supply chain management, distribution capabilities, manufacturing, IT and compliance infrastructure here in the US, as well as in Europe and Asia. At the same time, each brand has retained a dedicated research and development marketing and sales organization. We are now operating as one increasingly powerful and capable Company, and our vision is set firmly on the future.

The business is performing well, and the fourth quarter of 2010 was no exception. We also expect momentum to continue into the first quarter. One of the great strengths of Black Diamond is its revenue visibility, which in part comes from the seasonal ordering cycles. However, as I hope you'll come to appreciate, we also have a highly predictable and diversified business. Excluding Gregory's back pack business, in 2010 the Company generated at least $700,000 in revenue across 21 different product categories. While this creates some complexity, over time we have developed a series of systems and processes that not only enables us to manage our diversity, but also contributed significantly to the success of the integration during the last several months. Gregory's product line and distribution has only added to our anticipated diversity.

On February 7, we outlined for investors our five year strategic plan. The backbone of our strategic plan is 12.5% organic revenue growth on the existing business before any incremental spending to develop new product categories or acquire additional brands. We're making substantial investments in our platform capabilities to achieve our growth objectives, and we're active on the acquisition trail. We expect to remain profitable and to generate cash annually, and we expect our profitability to accelerate in 2013, 2014 and 2015 as we realize meaningful operating leverage. It's important to note that the organic growth contemplated by our five year strategic plan is anticipated to be self funding.

We're currently working to augment the strategic plan by introducing new product categories and with acquisitions. Both of these initiatives are likely to require some additional capital. Currently, we're working towards a limited large technical outdoor apparel under the Black Diamond brand, possibly as early as the fall of the 2013 season. This is a very significant undertaking, and we believe it has the potential to propel our brand to a new level. We're excited about it, but moving purposefully and carefully. We're also continuing to evaluate acquisition candidates. While I don't have anything to report today, other than that there are many good opportunities out there, we certainly consider this to be a core part of our strategy and our opportunity. Thanks, and I'll now turn the call over to Robert Peay to take you through our financial results in some detail.

Good afternoon, everyone. I'm going to focus pro forma comparisons, which we believe are the most meaningful. As a reminder, at the time of the transaction, Clarus had no business operations. As a result, Black Diamond equipment is considered to be our predecessor Company for financial reporting purposes. The results for the 12 month period therefore exclude Gregory Mountain Products for the periods prior to May 28, 2010. We believe pro forma results, in particular pro forma sales and pro forma adjusted gross margin, which excludes the non-cash inventory stepup that includes each of Gregory, BD and Clarus for the full 12 month period are the most useful and instructive comparison.

I'll start with the fourth quarter of 2010. Consolidated sales in the fourth quarter of 2010 grew 13.6% to $34.2 million compared to pro forma sales of $30.1 million during the three months ended December 31, 2009. Pro forma sales include revenue from Black Diamond and Gregory, sales growth was broad based with gains in several product categories, both in Europe and in the US. Our consolidated gross margin for the fourth quarter of 2010 was 36.2%, including a non-cash adjustment of $676,000 for an inventory stepup value included in cost of goods sold during -- due to purchase accounting. Excluding this adjustment, consolidated adjusted gross margin for the fourth quarter would have been 38.2% as compared to 37.8% in the same period last year. Total operating expenses in the fourth quarter were $13 million, which includes a number of cash and non-cash items worth pointing out.

During the quarter, we incurred $693,000 of restructuring charges and $106,000 of merger and integration charges, both associated with the integration of Gregory Mountain Products into Black Diamond Salt Lake City headquarters. As Peter mentioned, Gregory's management team relocated to Salt Lake City in January, and our new distribution facility in Salt Lake went live this month. So, the integration is now complete and the final expenses associated with the May 2010 combination of BD, Gregory and Clarus are expected to run through our financial statements in Q1 2011. In addition, SG&A for the three months included a number of non-cash charges. Including, among other things, $686,000 of non-cash compensation charges related to restricted stock and option packages granted in connection with the May 2010 transactions. Approximately $600,000 of these charges for new equity will be fully expensed by the end of 2011. For the fourth quarter of 2010, we reported a consolidated net loss of $0.5 million, or $0.02 per share. However, excluding the restructuring merger, integration and non-cash items, we reported cash effected, cash earnings per diluted share of $0.09 in the fourth quarter.

Now, turning to the full year, due to the May 2010 combination of BD and Clarus and Gregory Mountain Products, actual results for the 12 months ended December 31, 2010 may be confusing. The results for the 12 month period include, among other things, $5.1 million of transaction costs, $5 million of purchase accounting and related inventory adjustments, $65 million release of a portion of the valuation allowance related to our NOLs, $2.8 million of restructuring charges and $974,000 of merger and integration costs associated with the integration of both Gregory and Clarus into Black Diamond Salt Lake City. Pro forma sales for the 12 month period ended December 31, 2010 increased 10.1% to $125 million from $113.5 million for the same period last year. Pro forma adjusted gross margin for the 12 month period ending December 31, 2010 was 38.6% compared to 38.1% in the same period last year.

Both pro forma sales and pro forma adjusted gross margins are in line with the preliminary results that we addressed in detail on our February 7 call. We were not able at that time in the February call to discuss in detail operating cash flow for the fourth quarter of 2010, which is typically a seasonal strong cash flow generating quarter for the Company, as working capital converts to cash following the fall/winter inventory build. For the three months ended December 31, 2010, we anticipated at least $5 million of cash generated from operations, and the Company generated $6.9 million of cash from operations. As a result of the strong fourth quarter cash flow, our balance sheet at December 31, 2010 reflected $2.8 million in cash, $14.7 million outstanding on our $35 million revolving credit with Zions Bank, total long-term debt which includes, among other things, $14 million of 5% subordinated notes due in 2017 stood at $29.8 million. With 2010 behind us and the Gregory/Clarus integration project complete, we believe that our balance sheet is well positioned for 2011.

The Company expects its fourth quarter momentum to continue into the first and second quarters, based on its order bookings, it's well received innovative new product lines and heightened activity at retail. For the three months ended March 31, 2011, we anticipate sales to be in a range of between $37 million to $38.5 million which, using the mid point of that range, is approximately 14% higher than pro forma sales of approximately $33 million in Q1 of 2010. While we ended the year with strong momentum for the fourth quarter, warmer, dryer weather in Europe during the first quarter caused some softening. However, foreign currency gains have partially offset this weakness. At the same time the balance of the business in North America, Canada and Asia has performed very well. We're still comfortable with our full year 2011 revenue guidance of $135 million to $140 million with gross margin in a range of 36% to 39% before any acquisitions or new category development. At this time, I would like to turn the call back over to Peter for some concluding remarks.

Thanks, everyone, for joining us. I think we're off to a very good start for fiscal 2011. We're excited to see our growth continue, to be putting the finishing touches on our merger and integration activity and to be turning our vision squarely on a variety of projects expected to enhance our brand, re-enforce our operating infrastructure and to bring great value to our partners in the specialty retail industry and to the consumers in our community. The future of this Company will be built upon the same ethos that we've operated with for decades to provide people with innovative technical products that enable them to perform better, be more comfortable and to be safer in pursuit of the sports we serve. It is also our responsibility as a leader in the industry to champion for issues of great importance to our user communities.

Earlier this month, I had the honor to testify before the US House Committee on Natural Resources for just such a purpose. Generally, I spoke to our lawmakers about "the impact of the administration's wildlands order on jobs and economic growth." More specifically, I had the opportunity to make several very important points that I would like to reiterate to each of you. First, the outdoor industry is both a large, vibrant growing and stable contributor to the American economy to the tune of some $88 billion in annual state and federal tax revenue in 6.5 million American jobs. Secondly, Americans alone spend $46 billion each year on active outdoor equipment, apparel footwear, accessories and services and an additional $243 billion on outdoor excursions. The outdoor industry is a large part, both built and dependent upon our country's iconic and unique wilderness and wildlands. And thirdly, in the words of the future of Stewart Brand, "Natural systems are priceless in value and nearly impossible to replace, but they are cheap to maintain. All you have to do is defend them." Thanks for your interest and support at this time, and I would like to open the call to your questions.

(Operator Instructions)Our first question comes from the line of Sean McGowan from Needham and Company, please proceed with your question.

Thank you, hi, guys. A couple questions and then I'll jump back on the queue. May be a few, Robert. The gross margins in the fourth quarter, if you executed the stepup adjustment, would you characterize them as normal, or were there any other unusual adjustments that might not be need to be called out, but might not also be recurring.

Sean, good question. And as I think about the last quarter, I would typically say in general terms that it was more normal than not normal. We had good growth at our -- in all of our distribution channels, which resulted in 13.5% growth for the quarter, and we didn't have to do any heavy discounting or we didn't have to do anything abnormal to obtain those results. So, I think those margins were in line with historically what we've seen and also in line with what we had anticipated.

Okay, in terms of sales growth in various categories in the quarter, was there a big change in how the categories broke out versus previous years, or was the growth fairly consistent?

Hi, Sean, this is Peter.

Hi, Peter

The growth is pretty consistent. There's always a little bit of movement around different categories in different national markets, but overall, it was relatively consistent.

Okay. Last question for now, in terms of the sales growth again. So, if you look at the full year guidance at the high end and the mid point of your first quarter, the full year rate would be lower than the first quarter. So, what would explain a slowdown and when would we see that? A slowdown not in decline year-over-year, but the slowdown in the rate of growth?

Yes, you're right, Sean, if you take a mid point of our growth and look at the guidance that we just gave for Q1, it would be 14% about, I think 14%, which is a little bit higher than the 8% to 12% range than we had given in our February 7 call. I think the way I would like to answer that is that I think we have better visibility in the first six months of our year than we do in the back half, primarily because of the business that we have with preseason bookings. While not 100% accurate, we do get some comfort into what people are expecting to buy and as a result, we feel pretty confident in being able to tell folks what we think we can do.

As we move out from that, and we're just now in the process of getting fall '11 bookings, and I'll let Peter comment a little bit more about that in this call, but like any financial analyst, the further out you go, there's just a little bit more uncertainty. So, you want to buffer your expectations and what you think you will really be able to achieve. So, we're looking pretty strong for spring and fall. I'll let Peter comment on this, but it looks like it's pretty strong as well. But as we move out from now in the spring into the fall, we just want to book a little bit more uncertainty and a little bit more of a buffer.

And the only thing I'll add to how Robert articulated that, which I think he did a very good job, is simply that we will not really have all of our fall bookings in place here until the beginning of April, which is traditionally when we have them. At that point, we'll be in a better position to look out towards the and of the year and assess whether or not those numbers are robust enough that we're giving at this point in time or not.

Right. Great, thanks, I'll jump back on for some others, thanks.

Our next question comes from the line of Lee Giordano from Imperial Capital. Please proceed with your question.

Thank you, good afternoon, everybody. You touched a little bit on innovation and heading into Q1, are you introducing a similar number of new products than in prior years this year? And then any new products that you can highlight that you are particularly excited about?

Hi, Lee, this is Peter. Thanks, very good question. We're pretty steady relative to the amount of products we launched that are new. We try to launch something innovative in each major category that we play in. Sometimes the products have a bigger -- act as a larger catalyst to sales than others.

This season, the product that we are most excited about that we've been launching that have already begun to accelerate very nicely retail, number one is in the lighting category. Several new head lamps that are doing exceedingly well with our retailers that embodies some very unique innovations that have been put together in really a resonating package. Secondly, the trecking pole business continues to be a rapidly growing business globally and certainly, significant double digit growth for Black Diamond. And we launched a very, very innovative product called the Z-Pole, just this beginning of the spring, and that has been surpassing everybody's expectations and fortunately, we have a pretty flexible supply chain. We began to see that building in the bookings months ago. So, we were fairly aggressive in our numbers. So, I think we're going to meet a lot of that demand.

In addition, we launched several very innovative and patented applied for new hot forged carabiners, especially a locking biner of which every climber needs one of these around the world for belaying, and that thing is raging. And then the last category is we launched a line of really clean new packs, and response to those has also been good from a bookings standpoint. We're just beginning to ship those, so we need some more time in the marketplace to see how well they do. But certainly, the lighting, the Z-Poles, the biners are some of the highlights relative to just how quickly they've accelerated out of the front doors of retail.

That's great, and then a second question just on the distribution opportunity, particularly in the US. As you look ahead at your growth potential, do you see room still to gain shelf space within the existing retailers that you do business with? Or are there any new retailers that you are looking to get into that you haven't yet?

Yes, another good question, and really two parts to that. First off, we have strong relationships with our major specialty -- the current major specialty retail partners. That said, as we launch new categories and grow them, whether it's in lighting or packs or trekking poles, we continue to gain shelf space as our products prove themselves out. When we launch innovative new products, we gain additional shelf space. When we launch an innovative new product, we just accelerate the sales on the existing pegs that our products reside on. So, that's how we really generate the growth. As we've talked about, there are new categories that we have announced that we are going to enter ,and we anticipate obtaining shelf space from our retailers because we've talked about it with our retailers, and they are enthusiastic about that. Relative to new distribution, we do continually evaluate our distribution to see where we should be. We're committed to specialty retailing. However, within specialty, we see growing opportunities within the alpine ski sector as our Free Ride line grows in momentum. And likewise, in the arena of hunting, fishing, sportsmen's sort of business, we are seeing a very healthy growth in there as we spent more time focusing in on it from both a product and a distribution side of our business. So, good opportunity there for both Gregory and for Black Diamond.

Great, thanks a lot.

You're welcome.

Our next question comes from the line of Andrew Burns from D.A. Davidson. Please proceed with your question.

Hi, Peter and Robert. Yes, just a couple of quick questions. You mentioned the warmer, dryer weather in Europe caused a little bit of softness in the quarter. If you could provide any detail there, if you think there's going to be a bit of an inventory overhang exiting the season and also, if there's any impact at all for spring/summer as you transition the product. Thanks.

Andrew, thanks. Good question. Let me begin by saying Europe got off to an incredible start, both with cold weather and a huge amount of snow. I think everybody remembers that from Charles de Gaulle and Heathrow being closed, et cetera, and business at retail through New Year's day was very strong in the outdoor snow sports ski space in Europe, and all of us in the industry were very excited about that and please. January rolled in and right after New Year's and high pressure, warmer weather set up and as we walked into the ISPO shows, there was some concern there at the very beginning of February but it was modest. However, the high pressure, et cetera, continued right through all of February into March and it has left inventory clearly unsold in the European retail channels of snow sports, and that is causing some softening to some of the anticipated bookings that we had expected. We are far from written at this point. Our sales guys are out there still collecting orders, but I think it's going to be a little bit softer for the industry in preseason than anticipated. So, it's a matter of how will the winter be and what level of inventory does one want to carry. We're in the process of evaluating that.

As you know, our product does not change every season. We have two to three year cycles to our product and that product which we can carry through without discounting, we will probably take a bit of a more liberal approach inventory-wise on than that which is changing out next season. So, we are analyzing that at this point in time. I can't say with detail what this means to our inventory other than we will have some ski product left in Europe that we didn't sell, but I am aware of the fact that almost all of it does carry through to next season. So, it's a matter of carrying it until September when we ship, and it's not a matter of blowing it out. And if Robert wants to add to that, he can do that.

Andrew, I'll just add, I think this accentuates one of the real positives of Black Diamond's global business. As we've mentioned in the past, our business geographically is roughly 50% in North America, 30% in Europe and 20% everywhere else. And I'm being a little factitious, but I'll borrow a line from our sales guy that say, hey, it's always good somewhere. And so if you have a little bit of a dip or some high pressure that forms in Europe, that doesn't necessarily mean that's going to impact all of the other areas of your business. So, those other areas are actually a little bit more robust than what we had thought they would be, at least for the first 90 days of this year. And then part of that is that January and February in particular are months that are carried on the strength of the ski season. So, if you have a really good ski season carryover in good weather, which means a lot of storms, that can help out our sell through product for January and February, and we certainly sell that in North America. So, we're feeling pretty good about the global biz.

Okay, and on the call here and then even in the ICR presentation, you outlined some new categories like sunglasses and helmets. How many new category launches -- I know you can't give too much detail for competitive reasons, but how many new category introductions like that should we expect prior to apparel? Any of those going to happen in the next two years?

Yes, the -- Andrew, the apparel initiative is a very large one, and that is where all our focus is going right now. And at this point in time, we don't really have any comments to make on other categories that we may enter before apparel. If we feel we're in a position to talk about that later we'll do so, but right now we don't, and our focus now is growing the categories that we're in. Looking at the array of acquisition opportunities that we have and focusing in on what is the largest initiative that we'll ever undertake and with the largest opportunity, and that's apparel.

Okay, great, thanks. Last question. Just if you could help us better understand the growth drivers for the Gregory Brand in 2011. I know you launched this new travel line, but I just was hoping you could maybe build up some of the drivers there with the US business and the lifestyle business in Asia. It would be helpful. Thank you.

Sure, okay. Thanks, Andrew. Predominantly with Gregory, it's going to be in fall, the travel line. The travel line was very well received. Secondly, there was some energy putting through the lifestyle product in Japan and thirdly, there was good energy put into more midsized packs, where there is the most significant growth in the marketplace. So, those are the areas that we believe will be the product drivers.

But in addition, we've got some new team members at Gregory. Gregory has relocated here to Black Diamond. There's new energy there. Some new leadership, and the fact that Gregory has "come home to a stable home" associated with a predictable and highly respected Black Diamond, is absolutely causing retailers to feel very comfortable with relooking at their Gregory business from the standpoint of how should they commit and grow with it into the future. Obviously, we've given you the forecast for the season. That we haven't accelerated the growth in a substantial way for 2011, but we do believe that it's -- and part of the reason is the preseason nature of the business, but for 2012, we're quite bullish with what some of the opportunities are for Gregory.

Great, thank you and good luck.

Thank you.

Our next question comes from the line of Joe Barton from White Rock Capital. Please proceed with your question.

Hi, Peter. Could you give us the growth rate of Gregory full year and Black Diamond full year?

Tom, this is Robert. Let me take this one. I don't think we've actually disclosed separate growth rates for BD or Gregory, but let me try to give just a little bit of context and color to give you a little bit of help. So Gregory, when Black Diamond, Clarus and Gregory emerged in May, to a large extent, the bookings for Gregory were already more or less baked for spring 2011, which is the season we're in now. So, there's not a whole lot that we've -- that really could be dialed or turned to really do a whole lot with those sales.

I think where you'll see little bit more growth in Gregory is the fall with the travel line. And then in 2012 when Gregory gets put on our European platform, that's when we really expect Gregory to show even higher rates of growth than what it has historically done, just because it's going to open up such a wonderful opportunity for those wonderful products in Europe. And so I think what you're hearing then is that you'll probably see fairly steady growth from Gregory this year, but then it will accelerate next year. In terms of Black Diamond, it's -- we've giving guidance of 12.5% over five years, and in our last call on the 7th, we had a range of roughly 8% to 12% growth, and I think BD's tracking to be on target with those parameters. So --

I get that, but we had a related party transaction when we bought a business, hit a pretty high premium relative to Black Diamond, relative to revenues. So, we have a related party transaction, and there should be transparent on what the heck of growth rate was. Because when they bought the business, they knew those sales were in fact baked in. So, what did we pay for?What do we get for our money as Clarus shareholders when we buy it from an insider, essentially?What is the difference in the growth rate? I don't understand why it's a secret. There's no competitive reason to not put it out.

Joe, this is Robert. I'll let Peter jump in at any point and time but from my view, when you're looking to buying Gregory, it wasn't just for the one year growth rate. It was what that brand could do coupled with Black Diamond, and that it has better leverage and supply chain, better leverage in distribution. It has a lot of synergies. But given the complexity of rolling that business and basically picking it up and moving it to Salt Lake, the 2011 growth rates aren't going to be as high as they will be in 2011. And so it's not just one year, it's the long-term view of what Gregory and Black Diamond can do together.

Let me just add to that, to what Robert said, Joe, is that Gregory has had significantly higher margins than Black Diamond, very profitable business. The Asian lifestyle business was likewise very profitable, and we saw it as a springboard into creating similar businesses in other parts of Asia, which is beginning. It's just starting. It's an iconic brand. It was a company that had to be relocated several times, so it had not had the opportunity to realize all of the potential that was there. But iconic, highly respected, unique IT, highly profitable and significant amount of growth opportunity when combined with Black Diamond.

(Operator Instructions)Our next question is a follow-up question from the line of Sean McGowan, please proceed with your question.

Thanks. A have a couple of housekeeping-type of questions, but first I just want to be clear. The weakness that you're seeing in the European market, that's taken fully into account on your guidance for the first quarter, right?

Yes.

Okay, figured it would be. Regarding the tax rate in the fourth quarter, is there anything unusual there, or should we still be looking for a book tax rate of 28% going forward?

Sean, good question. So, what you're seeing -- pretty good tax rate in the fourth quarter provision, and I will fully admit that taxes have always been a challenge, but have been more challenging when you roll three companies together and you're dealing with purchase accounting. So, in the fourth quarter we had a little deeper dive into looking at our DTLs and DTAs associate with the tax positions and the tax assets and liabilities. And so going forward, we anticipate the rate probably not be as high as it was shown in Q4, but probably more of a historical rate than what we've had.

What would that be?

Well, typically Sean, I tend to think of it probably about a 35% to 38% range.

38%, okay. And how much variability should we expect from quarter to quarter? I know there's always true ups later in the year, but is there inherently a lot of variability in that because of the geographic location of the profitability?

There shouldn't be a whole lot of volatility. Typically what happens with Qs is that you kind of project what your year-end taxable income will be and you do a rate rec and then you tax effect each quarter based on that anticipation. So, there really shouldn't be a whole lot of be variability in the quarters.

Okay, is there a variable component to your SG&A that -- something that varies directly with sales, like commissions or something?

Yes, Sean, good question. So, in Europe, let me start with that, is that the business matures we've gone from an agent structure to where you have your own in-house sales force, at least in locations in country where it makes sense. We still have some agents in Europe, but we've switched out some of those to be independent -- or to be in-house sales reps. And so there will be a little less variable component of SG&A in Europe going forward, but there still is a component that is. There's still some sales commissions, warehousing and even freight. With Gregory, a similar situation where that there are -- there is an agent structure, and those are variable depending on sales.

Can you roll it all up and give us a ballpark figure for what portion of that might be variable?Is it a mid single digit percentage?

Well, if you think about the different functions of OpEx, sales is going to be the highest component of that, and that's still going to be in your single digits. Marketing generally doesn't have a lot of variability. Products, probably even less so, those are generally more fixed. And so you're primarily -- when you think about this, Sean, I would recommend thinking of a more in sales and also in freight. Those are probably the two bigger areas and then warehousing costs in Europe. In Europe, recall that we have a 3PL. They're part of logistics. And so you're kind of charged on how much volume and how much storage you do.

All right, so it sounds like it could be more like high single digits or so. If you exclude that portion, is there any material variability throughout the year? As you grow the business, of course it will grow, but is there any reason that it shouldn't be fairly steady as the year goes on?

Sean, I think this is one of the things that we're looking at on our five year model is that if you look at what we're planning on spending in the guidance we gave in the call on the 7th, we're going to spend $3 million increment this year, $4 million next year. But then in the out years '13, '14, '15, is when we expect to be able to lever more of that fixed component of SG&A, all things being equal. Also, there's apparel, when we launched this could have a component that's going to have a little bit of a pop in our OpEx spending as a percent of sales.

Okay, that's helpful, and then last question. You said that basically the restructuring in M&I costs, et cetera, would be -- the last piece of that would be run through the first quarter P&L. Can you give us a ball park of what that might add up to in aggregate?

Yes Sean, let me give you some context on what that is. And so when Gregory was relocated from Sacramento to Salt Lake, one of the costs that you incur is when you leave a lease, you're actually not able to accrue the expense even though you kind of have a good idea of what it would be in Q4. You have to wait until you've actually vacated the building, and we didn't do so until the early days of January. So I would -- Q1 is probably going to look somewhere between $0.5 million to $800,000.

Okay. And that includes all of that -- are any that's any kind of restructuring costs or merger and integration? All rolled up would be in that range?

Yes, at the moment, that's what we're seeing. That could obviously change, but when we look out, that's what we're seeing.

Okay, thanks a lot.

This is Peter. One other point I want to make for you is when you look at the fourth quarter numbers for SG&A, it includes Gregory as it was, Black Diamond as it was, and there's a lot that was going on there. It's not until you get to middle of January now that you have the new integrated organization and you will begin to see the savings that accrued to the organization from having integrated these two businesses in the way that we have.

Okay, I get that, thanks.

There are no further questions in the queue. I would like to hand the call back over to management for closing comments.

All right, well thanks everyone for joining us, and thanks for your support. I hope you share our belief that this is a very special Company with a clear mandate from our global consumers and customers to continue to grow its brand, grow its innovative assortment of products and to continue to lead the outdoor industry forward. Robert and I are enjoying the many new relationships we're building with our public shareholders and appreciate the kindness, good advice and encouragement you've all shown us. We look forward to speaking with all of you again soon. Again, thanks very much.

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time, and have a wonderful day.