Columbia Sportswear Co (COLM) 2002 Q3 法說會逐字稿

: Ladies and gentlemen, this is the operator.

Today's conference is scheduled to begin momentarily.

Until that time your lines will be placed on music hold.

Thank you for your patience.

Good afternoon.

My name is Mark and I will be your conference facilitator today.

At this time I'd like to welcome everyone to the Columbia Sportswear third quarter 2002 earnings conference call..

All lines have been placed on mute to prevent any background noise.

After the remarks, there will be a question and answer period.

If you would like to ask a question during this time, press star and the number one on your telephone keypad.

If you'd like to withdraw your question, press the pound key.

Beers (ph): Good afternoon and welcome to Columbia Sportswear third quarter 2002 conference call W. me this afternoon or Gertrude Boyle, Chairwoman, Timothy Boyle Columbia's president, Bryan Tim, Columbia's Chief Financial Officer and Carl Davis, general counsel.

Continuing our standard practice we will review the results of the third quarter, provide some guidance on future periods, and field any questions that you might have.

You should have received a copy of the earnings release by now, but if you have not, phone Mary Ocksiger (ph) at Columbia at 503-985-4000 and one will be faxed or e-mailed to you.

We encourage you to ask as many questions as you feel are necessary to understand the company's business.

Before we begin, Columbia's Chairwoman, Gert Boyle has a comment to make.

Gertrude Boyle, Chairwoman, Columbia Sportswear: Good afternoon.

This conference call will contain forward-looking statements regarding Columbia's business opportunities and anticipated results of operation.

Please bear in mind that forward-looking information is subject to many risks and uncertainties and actual results may differ materially from what is projected.

Many of these risks and uncertainties are described in Columbia's annual report on 10-K for the year 2001 under the heading factors that may affect your business.

Forward-looking statements in this conference call are based on our current expectations and beliefs, and we do not undertake any duty to update any of the forward-looking statements after the date of this conference call, to conform the forward-looking statements to actual results or to change in our expectations.

Thank you, Gert.

At this point I want to hand the call over to Timothy Boyle, who will provide an overview of the significant developments that occurred during the third quarter of 2002.

Timothy Boyle, President, CEO and Director: Thank you and welcome everyone.

I'd like to review some of the high lights forever the period.

The highlight from the press release, Q3 2002 sales grew 8.5 percent to a record 341.5 million than compared to the third quarter 2001.

The company reported net income of 56.9 million, up 14.7 percent percent increase over net income, 49.6 million for the same period of 2001.

Diluted earnings per share for the third quarter of 2002 came in at $1.42 on 40.2 million shares, compared to diluted earnings per share of $1.24 on 40.1 million shares for the third quarter of 2001.

We're obviously very pleased with today's announcement regarding the company's record setting quarterly operating results.

Geographically the performance for the quarter was the strength of our U.S. business we increased 4.5 percent.

Additionally we continue to experience strong growth in other key markets, including our European, Canadian and other international business division.

Our sales grew by 25.1 percent, 15.9 percent and 18 percent respectively for the third quarter.

When measured in constant dollar terms, the company's European revenue grew by 13.9 percent.

Canadian revenue grew by 17.5 percent and other international revenue grew by 16 percent.

In the current quarter we saw strength in the outer wear and sportswear product categories which increased 10.2 percent and 7.7 percent respectively for the period.

Consolidated footwear shipments for the period were flat at 37.9 million when compared to last year.

It should be noted the single largest limiting factor on the footwear brand coming into the season was the warm weather we experienced in the U.S. last year.

Note also our footwear management team changed in April of 2001 and the current management group had limited impact on the fall, 2002, footwear offering, due to the time lines that they were working under.

We have seen a significant resurgence in growth in our spring '03 bookings for the Columbia branded footwear line which gives me confidence the direction the management is taking in the footwear business generally.

The early feedback we received regarding the fall '03 footwear line has been positive, and I am optimistic and I see opportunity in that business growth for the coming season.

Within the current period, Sorel footwear grew 38.6 percent to $11.1 million, which I believe is the functioning continuing re-emergence of the brand following several years of decline under the stewardship of the previous owner.

Turning to the announcement regarding global spring order backlog growth, came in at 15.2 percent year over year.

We're pleased to see the spring business headed back in the right direction, in what has become one of the toughest retail climates in recent memory.

We saw strong growth in all key spring product categories in all regions, including the men's sportswear business in North America, which if you recall, was the main drag on the backlog numbers we reported from last year.

We feel at this time the personnel changes and the increased management focus on this division have once again helped Columbia to gain the stronger footing in the men's sportswear category in the U.S..

Now on our European distribution center project.

Delivery of the building is on schedule.

We are currently finalizing the testing of the in-bound process and should begin receiving freight the first week of November.

We have begun testing on the outbound system which should be completed by mid December for limited shipping and the back half of December with full implementation scheduled for January 6th, 2003.

Currently, no significant delay issues have been identified.

I would also like to provide you with a quick update on Sorel.

I will remind everyone we believe the brand to be a valuable asset, which we were able to purchase on favorable terms and with a significant long-term potential.

We hired Ed Howell as the president of the Sorel division here at Columbia.

His plan at that point is to operate the Sorel brand as a separate sales and marketing organization within Columbia, utilizing its internal operating structure, including the areas of physical distribution, sourcing and finance, among others.

Prior to Ed joining the company, the operating plans were well laid for the fall, 2003 season, and the first real impact that Ed and his new team will have on the direction of the Sorel brand will be the fall 2004 season.

We will provide with you additional details concerning the development of the Sorel operation over the ensuing months as Ed begins to assemble his infrastructure and formalized plans for the business going forward.

Given the strong results we reported today, we're in a position to update everyone on our guidance for the balance of the fiscal year 2002.

Keep in mind this information is forward-looking in nature and is therefore subject to certain risk factors, some of which are expressed by Gert in her opening comments are described in the company's 10-K dated March 29th, 2002, and in today's press release.

We currently believe the additional sales and earnings that have been reported for Q3 will come at the expense of Q4 and therefore we're lowering our guidance slightly in order to bring the full year 2002 in line with our previous guidance.

For Q4, which I remind you is more weather sensitive, we now believe revenue will decline in the 1 to 2 percent range compared to the fourth quarter of 2001.

This target is slightly lower than the guidance we previously provided, again, due to early shipping patterns patterns during the third quarter that were not anticipated when we last provided guidance.

For Q4, we are targeting gross margins in the 45.8 to 46 percent range and SG&A as a percentage of sales of approximately 27 percent.

For Q4, we are modeling interest expense to be approximately $100,000, versus $830,000 during the fourth quarter of 2001.

Therefore, we currently anticipate a slight increase in net income for the fourth quarter of 2002 of up to 3 percent, when compared to the fourth quarter of 2001.

At present, we are modeling the company's fourth quarter and full year 2002 effective tax rates at 37.5 percent and we are using 40.2 million shares for the purposes of EPS calculation.

Please remember there are factors which may be out of our control that can move that guidance around for the fourth quarter of 2002, including the health of global economies, weather conditions globally, timing of shipments, and product mix issues.

Please keep these factors and the risk factors previously mentioned in mind when modeling the company.

I note this guidance incorporates a very small amount of earnings from the Columbia licensing program in the 2 cents range for the full year 2002.

Based on all of this, we are not modifying our prior full-year 2002 guidance of revenue growth of up to 4 percent and net income growth of between 8 to 11 percent.

Let me give you some perspective on guidance into 2003, based in part on the spring booking number we reported today.

At this point, we are positioned to provide specific guidance only on Q1, 2003.

For Q1, based in part on the backlog numbers we reported today, we currently anticipate revenue growth for the first quarter of '03 of between 13 and 15 percent.

For Q1, we are targeting gross margins in the 43.3 to 43.6 percent range, and SG&A as a percent of sales in the 33.4 to 33.6 percent range.

We are currently modeling some gross margin expansion due to a favorable sourcing environment fpr spring merchandise generally.

Gross margins for 2003 will be based in part on the sales of fall, 2002 inventory that may carry into the first quarter of 2003.

At this point our plans incorporate a small component of fall carryover - excuse me - incorporate a smaller component of fall carryover than the level we experienced last year.

On the SG&A line, we are modeling some pressure due to some additional depreciation and other general and administrative costs, principally resulting from the European distribution center coming online.

Bryan will elaborate more on the cost structure into '03 momentarily.

For Q1 2002, we are modeling interest income of approximately $200,000 versus interest expense of $100,000 during the first quarter of 2002.

Therefore, we are modeling an increase in net income for the first quarter of 2003 the 14 to 16 percent range, when compared to the first quarter of 2002.

At present, we are modeling the company's quarterly and full-year effective tax rates for 2003 at 37.5 percent and we are using 40.2 million shares for the purposes of EPS calculations.

As a reminder, spring accounts for a relatively small percentage off our overall business.

The bulk of our revenues and profits are historically generated in the second half of the year.

It's difficult for us to gauge revenue and profitability levels until we gain more visibility into the fall, 2003 season.

We'll be in a better position to provide additional detail regarding the balance of 2003 at the year-end conference call on January 30th, 2003.

Bearing all of this in mind, we will continue to operate the company using a lean, non-speculative inventory model, while maintaining prudent practices with the objective of preserving a very strong balance sheet.

Although we have enough visibility into the first quarter of 2003 to offer preliminary guidance, we are particularly mindful of some extenuating circumstances that could interfere with our projections, most notably the potential for war in the Middle East and continuing labor disputes at west coast ports.

With regard to the latter, we rely on open and operational ports to receive spring, 2003 product, primarily in the months of November, December and January.

Again, please understand that this information is forward-looking in nature is therefore subject to the risk factors as previously mentioned.

Consult the company's annual report on 10Q (ph).

At this point I'd like to hand the call over to Bryan Tim (ph), our Chief Financial Officer.

Brian Tim (ph), Chief Financial Officer I'll start with a quick review of the third quarter income statement and I will compare current quarter line items with prior year periods to build an accurate comparison.

Starting with the top line, net sales for the third quarter, $331.5 million, increase of 8.5 percent over the 305.6 million net sales for the same period last year.

By region, U.S. shipments were up 4.5 percent to 234.2 million.

Canadian shipments increased 15.9 percent to 41.5 million.

European shipments increased 25.1 percent to 32.9 million, and international shipments increased 18 percent to 22.9 million.

Please note that on a constant dollar basis, Canadian increases increased 17.5 percent (inaudible) and other international shipments increased 16 percent.

The company's consolidated gross margins for the third quarter 2002 expanded by 50 basis points to 48.5 percent from 48 percent during the third quarter of2001.

Strong margin for the quarter was primarily the result of favorable sourcing environment generally, as well as (inaudible) selling for the quarter.

For the third quarter, the company's SG&A increased by 7.9 percent for 5.1 million on an absolute basis to 69.6 million or 21.0 percent of sales for the third quarter 2002, versus 64.5 million or 21.1 million percent of sales for the comparable period in '01.

SG&A sales improved by 10 basis points as the company continues to leverage existing investments and infrastructure and maintain prudent cost control measures given the current economic environment.

The dollar increase was driven primarily by increased selling expenses in support of the higher sales volume and an approximate $500,000 of operating expenses related to bringing our European D.C. online, which will not be replicated next year.

Our Q4 guidance incorporate approximately 500,000 of non-recurrent expenses reeled to the European D.C. expenses.

Looking into 2003 and depending on the sales volumes, there may additional sales pressure on SG&A as the current capital projects come online.

In addition, we'll have third party costs for the European footwear distribution in the first half of 2003, which we estimate could be about 250,000 per quarter.

Again, these costs are nonrecurring and have been incorporated into the guidance Tim provided earlier.

I will elaborate on capital spending in a moment.

Turning into depreciation amortization, totaled 4.5 million for the third quarter of 002 compared to 4.2 million for the third quarter of '01.

This modest increases in depreciation is primarily as a result of the capital spending for our domestic distribution center.

Second quarter release, the company's annual tax rate for 2002 has been adjusted downward to 37.5 percent, as a reminder the reduction in our effective tax rate from 39.5 as we originally projections to 37.5 is as we are now modeling, is due to the U.S. profitability and to a lesser degree the utilization of foreign tax rates.

Applying an effective tax rate of 37.5 percent, net income of 56.9 million for the third quarter of 2002, versus 39.6 million for the third quarter in 2001.

This resulted in earnings per share or the third quarter of 2002 of $1.42, versus earnings of $1.24 per share for the third quarter of 2001 based on a diluted share count of 40.2 and 40.1 million representatively.

I'll quickly run through the balance sheet , and again I'll compare September, 2002 balances to September, 2001 balances.

Our balance sheet continues to remain very strong.

Historically, we have been a net borrower at this time of year, due to moderate growth and using less cash in operations, our consolidated cash balance in 2002 was 38.4 million compared to 10 million at September 30th, 2001.

Accounts receivable increased 3 percent to 268.4 million, September 30th 2002, versus the prior year balance of 260.7 million.

The increase was inline with the sales growth for the third quarter.

Going into the fourth, we're in good shape and feel we're adequately reserved.

Inventories were down 17.1 percent for the period to 133.6 million, compared to 161.2 million at the end of the third quarter 2001.

This decrease is due to the following significant drivers.

First, a reduction of raw materials and working process inventory as a result of less (inaudible) and more packaged FOB sourcing of goods.

Second, a reduction in spring '03 inventory on hand at September 30th, 2002 compared to spring '02 inventory on hand at the same time in the prior year, and third, a reduction in finished with inventory in our (inaudible) operations.

Consists primarily of current fall merchandise in the fourth quarter.

Currently our excess inventory is well within the guidelines of our conservative inventory model which is very manageable from the liquidation standpoint incorporated into our guidance for the fourth quarter of this year and first quarter 2003.

Overall we're pleased with the inventory positions given the current retail environment.

I will now move to a quick recap on capital spending.

As you will recall, European distribution project in France is a primary driver of our capital spending plans for 2002.

Year-to-date, we have spent approximately 34.7 million on capital and maintenance projects.

Of them, 25 million relates to the European distribution center and 9.7 million relates to other North American distribution related projects completed earlier in the year, as well as maintenance capital.

We currently expect to spend approximately 6.3 million for the fourth quarter, which will result in projected 2002 capital expenditures of approximately 41 million, in line with our last quarterly guidance.

While spending plans have not been finalized at this point for 2003, we anticipate a total cap ex- budget of 15 million, consisting of 10 million in maintenance CAPEX, and 5 million on anticipated IT and distribution projects.

It would be reasonable to anticipate capital spending to incur over the year and forecasting depreciation.

Our next major capital project is for domestic footwear distribution facility in the Midwestern United States.

We'll update you on the status of this project in our year-end conference call.

At this point, we have 24 million projected for depreciation and amortization (ph) in 2003, which is an increase of approximately 6 million from the 18 million currently projected for '02.

Remodeling purposes would be reasonable for to you assume that 6 million increase is (inaudible) over the fourth quarter.

That covers the financials for the third quarter 20026789 I reiterate from the balance sheet perspective, we remain very pleased with the way the third quarter was managed.

Inventories, receivables remain in good shape and the balance sheet is very strong.

At this point I'll hand the call back who will review Columbia's business environmental development.

Let me run for you the third quarter 2002 cat categorical sales results with comparisons to the third quarter 2001.

Outer wear, 214 million versus 194.2 million last year, an increase of 10.2 percent.

We saw strong increases in each of our key markets led by Europe, Canada and Japan.

Sportswear, 62.9 million, versus 58.4 million, increase of 7.7 percent.

Growth in the sportswear category was led geographically by Europe Japan and the U.S..

Footwear, remain flat for the period at 37.9 million, in footwear we saw strong dollar and percentage gains in Canada and Europe.

Sorel contributed approximately 11.1 million in sales for the period, an increase of 38.6 percent.

Please note we have continued to see positive responses to the Sorel product from customers and consumers with the second season of this brand and we main encouraged for the growth in the future.

As we previously disclosed earlier this year the Canadian government commenced the dumping investigation into certain cold weather footwear imported into Canada from Vietnam, including Sorel and Columbia products, as well as other brands.

The Sorel and Columbia products subject to this investigation constitutes less than 10 percent of our global footwear business.

Since our disclosure, Canadian government has imposed substantial but temporary duties on this footwear.

Pending the outcome of administrative and judicial process of January, 2003, this matter does not affect our outlook for 2002 or spring, 2003.

If we are not successful in contesting this matter, however, there could be an adverse effect on the relatively small percentage of sales and earnings associated with this type of footwear in Canada in fall, 2003.

In addition to contesting the dumping claims vigorously, we are exploring alternate sourcing and pricing methods to minimize any adverse effects to our business.

Although we are concerned about any potential limitation on imports into Canada at this time, we do not believe this investigation is likely to have a significant effect on our business as a whole.

Accessories, 16.7 million versus 15 million an increase of 11.3 percent.

Geographic, let me give you basic background for the third quarter, 2002 versus third quarter '01.

USA, sales of 234.2 million versus 224.1 million, increase of 4.5 percent.

Outer wear, sportswear and Sorel were the key drivers.

Canada sales up 41.5 million, versus 35.8 million, an increase of 15.9 percent.

Outer wear and footwear including both the Columbia and so roll brands, key drivers for Canada during the period.

Measured in constant dollar terms, Canadian revenue grew by 17.5 percent over the third quarter of 2001.

Europe, sales of 32.9 million versus 26.3 million for the same periodlast year, increase of 25.1 percent.

The increase was driven by dollar growth in each key product category, particularly in outer and sportswear.

Sales in Europe increased 13.9 percent over the third quarter of '01.

Other international, sales of 22.9 million versus 19.4 million an increase of 18 percent, Japan, which is a component of other international recorded sales up 8.7 million versus 6.7 million for the same period last year, an increase of 29.9 percent.

While measured in constant dollar terms, sales in Japan increased 26.1 percent in the third quarter of '01, over the third quarter.

Growth in Japan came principally from the outer and sportswear categories.

Let me provide you additional commentary regarding sales efforts in the U.S. and internationally.

The third quarter in the U.S. was a difficult economic period for retailers, though based on the information we have available, our early fall sale activity has been better than that of our competitors.

Based on the sell-through information we have seen to date outer wear, we have definitely performed - outperformed the competition.

As many of you recall, we initiated a trial of apparel offering for '2.

The merchandise was well received by the limited number of retailers it was shown to and the product has been selling well during the early fall season.

Europe, the company experienced reasonable sell-through activity at retail during the early fall season, particularly in the Europe markets.

Certain key accounts can stepped up their sell-through activity in recent weeks in our larger markets in Europe, despite fairly mild temperatures throughout the early fall season.

That said, backlog growth for spring '03 in Europe was robust, particularly in the Columbia branded footwear and remain optimistic about our ability for strong growth in a that region.

We continue to increase our customer base in Europe for spring, 2003.

I believe when we continue to be well-positioned in the European market when compared to our competition.

Canada, sell-through at retail during the early fall period in Canada has been steady, with the youth program performing very well and men's and ladies outer wean and sportswear programs also contributed.

Growth in Canada continues to come through several key retailers in the region.

In general, the current retail climate in the region remains steady for strong and growing customers in the region, boding well for future growth in can (inaudible) Japan, we saw solid sell-through activity in the third quarter in Japan, particularly in light outer wear among other categories.

Backlog trends in Japan are respectable, below the corporate average for Spring '03 due in part to a very weak economic environment.

We did experience strong bookings growth in the categoryfor spring '03 and we take market share from our competitors in all categories.

Japan continues to be a strong market with significant population base, the Columbia brand is well-recognized by consumers there.

Therefore, I main that longer term, Japan will be a very good business opportunity for Columbia Sportswear.

Going forward, our business strategy remains steady and we will continue to focus our on a tension on growing our business on our four growth strategies.

We will continue to enhance the channel productivity of our existing customers, through effective point of purchase marketing activities.

Second, we will continue to leverage our brand internationally and focus on building the business in Europe and year to midterm.

Third, we will continue to develop the merchandise categories of sportswear and footwear more completely, which includes building our footwear business in part but the Sorel acquisition, selectively add distribution as we seek to grow out our department store and footwear business.

We will continually seek licensing opportunities as we attempt to leverage both the Columbia and Sorel brands.

Thank you for listening in.

We'd be happy to field any questions.

At this time, I would like to remind everyone, in order to ask a question, press star and the number one on your telephone keypad.

Please hold just a moment to compile the Q&A roster.

Your first question from the line of Mr. Bob Drbul from Lehman Brothers.

Bob Drbul, Lehman Brothers: Good afternoon.

Nice backlogs.

Congratulations.

Thank you.

A couple questions.

The first one is, on the Sorel brand, Tim, can you give us an idea of the dollar number for '02 and your expectations for this brand for '03?

You're talking about the footwear or the combined businesses?

If you could break it down T would be great, but both, actually.

OK, well, we would expect that we're talking about numbers in the low 20s for 2002, and we would expect that the apparel portion would be a very small percentage of that, maybe less than $1 million.

Maybe a million, million and a half in that range.

In 2003, we would expect with the increased focus that it would grow faster than the company's average.

OK, any environments - can you talk about any surprises that you've had so far this selling season and with any of your retailers, if any?

The surprise is that weather is here and it looks like it's going to be an average winter.

We always get a little bit nervous about that.

But really other than that, nothing surprising.

You know, retailers continue to be conservative and cautious and so we're doubly pleased by the backlog growth for spring.

It shows the power of the brand.

And then final question is on the footwear D.C., what kind of economics do you have to have for that to break even?

Can you give us a better idea on the rough timing of when you might open that facility up?

Certainly.

The key driver on the footwear D.C. business center will be the growth of the footwear brand, both Columbia and Sorel.

So when we see the business rebounding and growing to an extent that we think that it can support itself and be a big contributor, then that plus the need, frankly, for additional distribution space in the apparel distribution space, which currently footwear and apparel are shared in the U.S.

So it's difficult to actually put a number to when we would do the distribution center expansion, but we would expect that it will be a function of the growth in footwear primarily.

You know, we're expecting that it will be slightly more expensive than our current cost for some period of time until we get the volumes up, but we think that the growth in the business will demand service levels that can only be supported by another distribution center tp - center.

Next question comes from Noelle Grainger with JP Morgan.

Noelle Grainger, JP Morgan: Good afternoon.

A couple of questions.

First, broadly speaking, I'm hoping we can talk a little bit about 2003 with respect to the top line.

Obviously you've given some favorable guidance for the first quarter, but your comparisons get a little tougher in some of the later quarters, and just curious how you're thinking about those comps versus, you know, an expectation for a building momentum for the brand just based on what you see in your conversations with retailers.

Certainly.

Well, actually, our comparisons I see for '03 are going to be relatively, I don't want to say easy, but we had much slower growth in '2 than in '01 than we were used to.

We want to have our business grow.

We have a lot of visibility obviously into the Q1 area because of the advance ordering customers have been working with us.

Combination of our great product and average weather should propel our growth in the back half of the year to be, you know among the ranges that we are historically used to.

OK.

With respect to your guidance on the first quarter, you gave some indication that you have some built in assumptions that the west coast port remain kind of open and moving.

I'm wondering if you could maybe just walk us through where you stand at this point with respect to continuing your planning for, you know, perhaps alternative scenarios.

I was interested in the fact that your inventories are down so much partly due to the fact that you actually have less spring goods in hand, and I'm just hoping you can kind of give us some comfort there.

Certainly, well, inventory management for us is a key part of our business but I'm going to let Carl speak maybe specifically to the issue of the west coast work interruption, and then we'll come back a little bit and talk about spring goods in general.

Carl (ph): Hi, Noelle.

We continue to monitor on a daily basis what's going on between the two sides, talking with both sides in this situation, and we'll wait and see what happens here at the end of the (inaudible) partly and hopefully something will occur before then with the two sides getting together, which we've encouraged all along to get the strike, the lockout, the problem settled.

As far as what happens after that, we will be in a situation where we continue to look at and deal with our carriers to see what would happen there, but also have explored various aspects of air freight, sea/air combinations, using different ports, and continue to monitor those things and work with various vendors out there to come up with ideas that could be incorporated, if we were forced to do so by a continuation of the labor dispute.

OK, kind of pull the trigger if things head in a negative direction?

To the extent we certainly can, you know, everybody in the country will be ready to pull that trigger as well.

Yes.

But we have some real good relationships with some of our vendors, and so I think we have some options that other people might not have.

As it relates to the spring merchandise receipts, frankly, looking at a perfect plan, receiving spring merchandising for spring '02, prior to the end of quarter 3 last year was too early.

We would expect our flow plan on spring '03 merchandise should be reasonably flat going towards the end of the year.

It just won't be as heavily loaded well in front.

Noelle Grainger OK, and you think that's the better way to be positioned?

Certainly, on a business operation basis, it's best to be receiving this merchandise when it's timely.

Work stoppages are just something you can't foresee when you're setting schedules well in advance.

Noelle Grainger OK.

With respect to the goods that you shipped early in the quarter it seems - was it outer wear driven, and I'm curious if you can give us any sense geographically, was it Canada and Europe or am I misreading that?

Yeah, I'm going to let Bryan speak to that.

It was a small percentage of our total Q3 sales, but Bryan, maybe be more specific there.

Yeah, I mean, the earlier shipments were mostly coming from domestic, and I believe, you know, the shipments were about 4 million over, you know, guidance.

Some of that is coming from - we don't always bring goods directly to our domestic distribution center.

There is some direct ships, and, you know, based on customer requests, we can get a few requests to go ahead and have those shipped, you know, earlier than anticipated, or they may give us a block or a window, and they'll accelerate that at kind of their call.

So it was mostly domestic.

In fact, almost entirely domestically, and I'd equate it mostly to direct ships.

Okay, just the last piece of that would be - it sounds like that kind of early shipments actually used up some of or most of your inventory, you know, kind of incremental inventory ownership for the period, you know, that 5 percent you talked about?

Yeah, I wouldn't hook those two together specifically.

But you can still service replenishment in the fourth quarter.

Absolutely.

As usual, we have modeled that replenishment business to be a certain percentage full price and a certain percentage off price.

So that really dictates what swings there.

Thanks.

Thanks.

Your next question comes from Jeff Edelman with UBS Warburg.

Jeff Edelman, UBS Warburg: Thank you, Tim, three questions.

One, was there much shift in shipments to distribution channels this year than typical?

In the U.S.?

Yeah, I don't think so, but I'm going to ask somebody here to double check.

It wasn't something that jumped out in our preparation for the call.

OK, secondly, you've always been able to kind of scramble at the last minute with cold weather.

Do you still have that capability, if weather stays cold, to airship additional product for delivery?

Well, yeah, the answer is no, we can't really airship anything in to get it here for fourth quarter.

Again, that's a function of our early planning in March about what percent our backup inventory should be or unsold inventory position should be.

So we have inventory to sell and if the weather stays cold, we'll be able to convert some of that preplanned off price inventory into full priced sales.

Third, Bryan, you're building a lot of cash this year.

Could you give us a sense of what kind of interest income you could possibly be running?

Bryan Tim (ph): If I look forward, I mean, you're right, I think it's a little bit exacerbated by the fact we've hit a little bit of moderate growth, so the amount of working capital that we're plowing back into the business is kind of curtailed.

I would say looking forward to maybe year-end, I would expect, you know, even a cash position of probably somewhere in the 140 to 150 range.

As you know, this particular quarter has been with the tight volumes, we'll go ahead and receive a lot of that cash and ship the inventory in the fourth quarter, thus building up our cash position.

In terms of the overall rate, it's certainly in today's environment the rates at which we can earn is moderate, to say the least.

It's 2 percent.

Obviously, principal safety is key in this particular environment, and therefore we maintain a fairly conservative investment policy, if you will.

OK, so overall, we could budget a million and a half, $2 million in interest income then or seasonal borrowing ... -

Yeah, I mean, you know, as Pat probably mentioned in previously calls, I mean, our business, when you look at the domestic company, you also look out to all of our subsidiaries overseas.

We used to be on about the same investment cycle, so we would follow money at the same time and of course, going into a revolver.

Now, it seems to be you've got a little bit of shift with respect to our European business, and Japanese business as well, that they may actually go into a borrowing mode when we have a surplus of cash.

So there's a little bit of consolidated netting of cash.

I'm not sure you can extrapolate that particular rate for all of next year.

Obviously, the company hasn't quite, you know, hasn't quite figured whether or not we're going to spend additional capital funds next year.

So we'll let you know more year-end on that one.

OK, thank you.

Jeff, on the customer type, we don't expect third quarter there was any significant change, but we will have a full summer annually for the year.

thank you.

Yes.

Your next question comes from Kendall Byeses (ph) with RBC Capital Markets.

Kendall Byeses, RBC Capital Markets (ph): How are you guys doing.

A few questions.

The north Face is reporting a strong quarter regarding their sportswear backlog.

Are you seeing retailers becoming more comfortable or do you feel the north base and Columbia are the head of the pack this season?

Well, you know, frankly ... - Kendall Byeses (ph): I was going to say as they look out.

So if they were looking for spring, do they get more comfort as they order?

You're talking about our customers?

Yes.

Kendall Byeses (ph): They'd be more bullish on spring than they would -

yes.

Well, I think we get somewhat internalized in terms of reviewing our results on the order backlog, and of course, you remember our largest competitors, really our customers and own private label merchandise.

What we see would be an overriding trend, is that our brand strength and our sourcing strength really are combining to in addition to taking orders from - they're opening the buying dollars away from other competitors, also taking open to buy dollars that customers might typically give to a private label contractor.

So that's been in terms of our results, I think, the most impactful, and we talk at length about companies who we'd like to compete with going in and do compete with us, Northface and Nike, ACG and Timberland, all daunt auctioning high quality competitors and we're cautious and respectful of all of them.

Kendall Byeses (ph): the follow up on the Sorel brand, correct me, is this being marketed, is this brand being marketed internationally?

Yes, it is.

High percentage of the sales obviously are in Canada, where they're coming in very strong, but we also have some sales in Japan and in Europe as well.

Kendall Byeses (ph): OK, and then one final question.

Looking at the weather line, you mentioned a higher appreciation looking ahead it will ahead the Virginia line.

Anything else going on with the Virginia line in upcoming quarters?

I'm going to let Bryan (ph) speak to that specifically.

Bryan Tim (ph):.

The guidance that we give for Q1 of 2003, I mean, certainly if you look to the depreciation lines specifically, I think we've guided up about 6 million in depreciation, which is certainly a big nut.

I would probably say 4.25 million of that is related to our facility in Europe, so in terms of the other maintenance CAPEX and other IT and distribution-related projects, that accounts for the rest.

I would say that looking at their P&L, that's definitely the main driver for next year, and even with that coming on, I believe, you know, if you look at the European financial statements, it's kind of a standalone, if you will, will probably, even with the initial depreciation, will probably, you know, down to the or up to the low double-digit on the operating income line, all know specifically on the SG&A, probably not leveraging.

Kendall Byeses (ph): one more question.

I was just curious, would you have taken a bigger speculative inventory depreciation an 5 percent as you sit here today in this position?

Likely, no.

We've been - we're thrilled if we run out of merchandise.

Kendall Byeses (ph): OK, right.

I was just curious.

Thank you.

Your next question comes from the line of Ted Janis (ph) with Investors.

Ted Janis (ph): Carl, hi Tim.

Could you talk about your sales?

Your flat is about 38 million and your branded footwear I guess went down about 10.4 percent.

We seen the brand at which point we're surprised about that.

You want to talk about that?

Timothy Boyle (?): Certainly, if you remember from prior calls, we made a change in the management of the footwear division last April or April, 2001, and based on the time lines that we work under, we didn't have - the current management did not have time to put significant efforts towards fall, 2002's line.

So that, coupled with very warm weather across the United States and North America, including Europe, really went for sort of a depressing environment or going into 2002, and then when you have, you know, less than stellar products, it just causes a general deflation in the excitement level for the company.

We've talked at length about the key to our success in footwear and frankly, in other product categories that we work in is the products themselves, and so even though we had disappointing results in what we shipped in the third quarter, we were thrilled with the reception and the order book that we're billing on spring, '03.

It really shows that the Columbia branded footwear is back on track and that the product line has been well revived and well-received.

Ted Janis (ph): OK, thank you.

Your next question comes from the line of Margaret Major with Goldman Sachs.

Caroline Jones (ph): This is Caroline Jones (ph) on behalf of Margaret.

Hi, Caroline.

Caroline Jones (ph) I wanted to ask you about the backlog.

You looked at the pieces, you talked about the spring backlog in the total backlog number and I wanted to ask you about the other piece, whether you call that early fall or summer.

Is there anything going on with the timing there or anything affecting that number that we should know about?

Well, let me first say, we report the total backlog, which the two components are the residual fall merchandise, which is left to ship for fall, '02 and then new orders for spring merchandise.

On those, those are really the two components.

In terms of - sorry, I was busy answering the first question.

Can you ask me again?

Caroline Jones (ph): OK, so the spring piece, there's nothing in your backlog number that come after spring, it's all either ahead of spring or spring?

That's correct, it's either fall '02 or spring, '03.

Caroline Jones (ph): OK, so that makes sense.

I wanted to ask you also about the strike impact.

Has it had any impact on your business; was there any cost in the third quarter from the strike?

Well, we were very high - we had received a high percentage of our merchandise prior to the slowdown and then the ultimate strike.

If - there were a few orders that were delayed, - delayed in port but we have not had any significant cross relates as related to the lockout.

Caroline Jones (ph): OK, and then with inventory could you please comment on how inventory looks at retail?

Well, this is the very beginning of the fall season, and at this point, our customers are selling a small percentage of our total open to buy, total inventory holdings, but at this time, it appears that first of all the Columbia brands selling better than the competitors, and that would include their own private label as well, and frankly, relatively lean position in total, as against prior periods.

So we're pleased with where the positioning is right now in terms of the total amount of inventory there, all on the shelves and how we're doing it, selling currently.

Caroline Jones (ph) OK, good, and then just on 2003, again, how do you think about gross margin?

You talked about looking for improvements in the first quarter.

Do you expect that will be sustainable through the full year?

It's going to be tough to tell right now.

We're in the process of doing our costing runs right now, our costing trips, and we don't know much about the exact nature of that, but we'll keep you updated and as we get more visibility, we'll certainly be able to tell you.

Caroline Jones (ph): OK, and then last question on the SG&A, if do you have increases from D&A, do you have areas highlighted where you could cut some costs to offset that a little or how should we think about that

I'll let Bryan speak to that question specifically.

Bryan (ph) Caroline (ph), we're always - certainly you know, the depreciation's one of those that you make the decision and, you know, afterwards - I would imagine, we already have this year, we saw low growth.

We certainly took some steps from the other G&A items, that was spilled milk and non-controllable this year.

We're going to do the same for next year.

We know we have 4.25 depreciation coming on from Europe and 1.75 from the other parts of the company.

We're going to do what we can on the other controllable G&A items to try and, you know, be stood stewards.

I think on an historical perspective, the company's shown we're capable of adjusting our expense levels to match our sales volumes.

Caroline Jones (ph): Right, yeah, you guys did a really good job of that this year.

You know, I was just curious, I guess, if you're pulling back this year, does T you know, I think before you talked about some expenses possibly shifting into next year, some things like that, it's harder sometimes - if you've pulled back a little this year and also to do it again next year, you know?

Right, well, based on the initial reactions, we've got a nice, healthy start on the first half of the year with our good, solid spring backlog.

Caroline Jones (ph): Yes

So that's our plan.

Caroline Jones (ph): OK, sounds great..

Congratulations.

Bye-bye.

Your next question comes from the line of Carol Murray with Salomon, Smith, Barney.

Carol Murray, Salomon Smith Barney: A couple of questions.

First, on the gross margin, just to follow up on that, I know for spring '03, there were some shifts in your initial markups on sportswear and things of that nature to help better position the line, and as you look into fall, '03, are similar actions being contemplated, and your growth margin is so strong.

I'm just curious about what type of opportunities still are out there on a sourcing matrix during April, you know, more competitive pricing versus sustaining, you know, historically very high growth margins.

Right.

Well, you know, I point out that the merchandise - the primary merchandise category in spring is sportswear.

That's an area that we're able to be, have significant impact on the reduction in pricing in Asia.

In the areas of footwear and in outerwear, which are our primary components of fall, I think we have much better initial costing sort of from an historical basis.

That's really the base of our business.

So the chances of those categories moving around significantly are probably less, but really, we'd have to get closer to conclusion of our pricing processes in order to really have a good handle on what we're likely to see, and however, we'll be impactful, again, as it relates to fall '03 based on how well our customers did and what the appetite is for those kinds of, for outerwear and footwear.

Looking at the spring, '03 backlog, within sportswear, is there any additional color you can give us on, you know, what did particularly well to drive the strong booking rate?

Well, men's apparel really showed some significant strength and that's probably the one area that and footwear were the two categories that we were most pleased with in terms of - first of all, just strength in general, but secondarily, just, you know, a nice turn around based on their prior directions.

Did you add any new accounts for men's sportswear?

Not of any significance.

There was some expansion with virtually of all of our accounts but there wasn't any one single account that made up the increase.

OK, could you just talk a little bit about what your business in Europe, you know, is still growing very nicely.

There's been some commentary on how Europe hasn't escaped the economic issues as well.

You know, how your brand - are you continuing to make market share in existing accounts or are you adding any substantial distribution there as well?

I would say the bulk of our growth in Europe is really a function of increased penetration and existing accounts.

We really don't have any new, significant accounts to show, but we are growing our account base.

That continues to happen; it's ongoing.

OK, and then last question.

Something that Tim, I believe you said in response to an earlier answer regarding '03, that you know, comparisons to '02, not that difficult and you would expect would return to historical growth.

Your growth has been hyperbolic historically.

How do you define historical?

Not hyperbolic, just bolic.

As you can see in our depreciation change for next year, the company's expended significant funds on increasing its infrastructure and its ability to manage a business that's larger.

Our plan is to, you know, utilize our infrastructure and maximize it, so we are certainly not predicting that we're going to have, you know, astronomical growth, but, you know, we've talked at length about the fact that we think our four and a half strategies can net us over time high teens growth.

So that's where - again, it's difficult to predict, and you know, of course, Carl's looking at me to make sure I mention the risk factors we all talk about, but the plan is on a long-term basis, we think we have the strategies to keep us growing at that level.

It won't be, you know, a stair step month-by-month growth, but that's where we think we have the opportunity.

thanks very much.

Thank you.

Your next question comes from Terry Myer with DA Davidson.

Terry Myer (ph), DA Davidson good afternoon.

Great quarterly report.

thank you.

Terry Myer (ph): I wanted to ask a little bit more about understanding of Stoan (ph) being quite a small customer.

If it continuing to be throughout the store chain or if it's a regionalized customer at this point.

Our business with Mervins was relatively small this year in 2002, and it was centered in storage that we and they felt we could be most successful.

They've planned to be a customer in the future, and I still don't think we're in an all-store mode with them and frankly, we really need to make sure we are appropriate for all stores before we go there.

Terry Myer (ph): And in terms of the merchandise profile, I know it's made to be appropriate for where they're positioned in the distribution channel, but it s it a vast array of merchandise or a limited kind of merchandise?

In terms of 2002, it was a limited amount of outer wear, and some small sportswear component.

On a go-forward basis, it's somewhat a larger component of sportswear, but I wouldn't say it's a significant range at this time.

OK, and then from a broader perspective in terms of distribution in the domestic market, are there regions that have performed better in your frame of backlog close?

Not - no, I would say - no, again, we don't have a very significant aberration by geography in the U.S..

So we don't have one region that's jumping up as opposed to others.

Terry Myer (ph): OK, and then I just wanted to clear up on one more thing related to the strength in the backlog.

Was sportswear experiencing stronger category in footwear in the 15 percent number?

No, in fact, I think footwear was slightly larger than the sportswear than the average of

Terry Myer (ph): So the percentage of growth was in the footwear, in terms of the percentage growth being greater than the 15 percent?

Yes.

Terry Myer (ph): OK, thank you very much.

Certainly.

We have a follow-up question from Noelle Grainger with JP Morgan.

Hi, I have actually two additional questions.

The first, in light of some of the pricing shifts that you made for spring, can you comment actually with respect to the 15 percent increase in backlogs in dollars what that might look like in units or, you know, what kind of pricing impact there was?

Yeah, the unit growth is certainly larger than the dollar growth.

Significantly?

Well, I would say it's approximately plus 5 percent, something like that, on a comparison basis.

Noelle Grainger OK, great, that's helpful, thank you, and the other thing is, with respect to your comments about, you know, good, although early, sell-through of your product, have you altered at all your margin assumptions for your kind of replenishment business for the fourth quarter since the last time you gave official guidance?

No.

In our fourth quarter margin assumptions, we'd likely be consistent with our prior, even back into March estimates.

Weather can change and we want to make sure that we're appropriately guiding.

OK, great, thank you.

Thank you.

We have a question from Dan Stifler (ph) with Three Company Notch Capital (ph).

Dan Stifler (ph): I had a follow-up question on the backlog.

I was wondering, if you strip out the spring backlog like the remaining backlog, which is the end of fall, I guess, that that is lower, I think it's actually negative, if I do the math, it's like negative 3 percent or something.

Is that something that should give us concern or is that something that - how does that compare to your expectations?

That's appropriately baked into the guidance for Q4 and Q1.

Dan Stifler (ph): OK, and then in terms of tax rate, should we be using the 37.5 percent for '03, throughout '03 or is that going to get lower or -

No, at this point, I'd go ahead and use the 37.5 for full year 2003.

Dan Stifler (ph): Thank you.

Thank you.

At this time, I'd like to give everyone an additional moment to press star and the number one on your telephone keypad if you would like to ask a question. at this time, there are no further questions.

Mr. Beers, are there any closing remarks?

Thanks everybody for joining us.

We look forward to checking in with you on January 30th, 2003, for our fourth quarter and full-year report.

Thank you.

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