Wolverine World Wide Inc (WWW) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to Wolverine World Wide's 3rd Quarter 2002 results conference call. At this time, all lines are in a listen-only mode. Later we will conduct a question and answer session for analysts and portfolio managers. As a reminder, this conference call is being recorded at the request of Wolverine World Wide.

At this time, I'd like introduce you to Mr. Tom Mundt, Vice President of Corporate Strategy and Communications for Wolverine World Wide. Go ahead, sir.

Thank you, Laurel, and good morning to everyone. Today's conference call are Tim O'Donovan, the company's President and CEO, Steve Gulis, Executive Vice President and Chief Financial Officer, Steve Duffy, Executive Vice President, Blake Krueger, Executive Vice President and General Counsel, and Nick Ottenwess, Vice President of Finance and our Corporate Controller.

This morning, we issued a news release announcing our record 3rd Quarter 2002 financial results. If you don't have a copy, call Lori Williamson at 1-800-435-9539 to have a copy faxed to you. It is also out on the wires in full text, or can be viewed from our corporate website at www.WolverineWorldWide.com. That's all one word.

Before I turn the call over to Tim O'Donovan to comment on the 3rd quarter results, I'd like to remind you that the predictions and projections made in today's conference call regarding Wolverine World Wide and its operations may be considered forward-looking statements by securities laws. As a result, we must caution you that, as with any prediction or projection, there are a number of factors that could cause results to differ materially. These risk factors are identified in the company's SEC filings and are contained in our press releases.

That being said, I will turn the call over to Tim O'Donovan, and then Stephen Gulis, for their comments on the 3rd Quarter of 2002. Tim?

Thank you, Tom and good morning. Thanks for joining us today. I'm pleased to report record sales and record net earnings for our 3rd Quarter of 2002. Earnings per share of 37 cents were up 3 cents from last year's 3rd quarter, and equaled the consensus estimate. Sales were strong in the quarter, up 17.7% to $219.2 million.

Our European CAT and Merrill acquisitions added approximately 12.4% to our 3rd Quarter sales volume, while ongoing businesses accounted for the remaining 5.3% increase.

On a year to date basis, the European acquisitions represented 10.4% of sales, close to our projected 10% for the year.

The 3 cent per share earnings increase for the quarter was about evenly divided between contributions from the acquired European businesses and our ongoing businesses.

On a year to date basis, our European acquisitions are now earnings neutral, as we had forecasted at the beginning of the year.

The integration of the European CAT and Merrill businesses is moving forward at a rapid pace. New logistics support and warehousing distribution moves were successfully executed during this quarter. These moves will improve customer service, and are an important step in establishing our central services operating structure for Europe.

With regard to our balance sheet, I'm please with our progress during the quarter. Historically, our working capital needs peak in the 3rd Quarter, and excluding our European acquisitions, the level of both inventory and receivables were down from the quarter end last year. We've made steady progress managing our working capital in each of the last three quarters, and anticipate making more progress in the 4th Quarter.

From a sales perspective, Merrill had a very strong quarter, slightly exceeding our 20% growth goal. Increases were strongest in the U.S., but were also significant in Canada and the UK.

Merrill's sell-through at retail continues to be excellent, which is translating in increased open to buy and shelf space for the brand.

As Merrill has gained market share and become a significant brand for our retail partners, we are not only receiving larger future orders, but also receiving them earlier in the booking season. As a result, we have significant buys in place for the spring '03 season from a number of our major accounts. Merrill's order backlog at quarter end was up over 40%, with fairly dramatic increases in future orders for spring '03 delivery.

In addition to strong response to new Merrill product, our retail partners are also enthusiastic about Merrill's shop in shop program. We currently have requests from a variety of retail partners for approximately 60 shop in shop locations. While there have been some prototype tests this fall, the bulk of the shop in shop rollout will occur in 2003.

With the continued growth in the Merrill business, we announced today that we are establishing Merrill as a stand-alone entity within the company, on a par with our Wolverine footwear group, Hush Puppies company, and Catapiller footwear company. This move recognizes Merrill's success to date, but more importantly puts in place the organizational structure and resources necessary for this business to reach its full potential.

While Merrill was a significant growth driver in the quarter, I was pleased that we realized sales increases across many of our businesses, including the U.S. Hush Puppies and U.S. CAT footwear businesses.

We achieved a double-digit sales increase in all of the Hush Puppies divisions, including the U.S., U.K., Canadian, and international licensing operations.

Retailers are responding favorably to the more upscale Hush Puppies product and and more contempory brand imagery. The 3rd Quarter results for the hush puppy business were encouraging. However, we recognize we're at a relatively early stage in our repositioning efforts, and have more work ahead of us.

Excluding the newly-acquired European business, CAT footwear sales were also up the quarter on the strength of a double-digit strength increase in the U.S. The strategy to refocus the U.S. business with younger lifestyle CAT product and brand positioning, which have proven so successful in Europe, is gaining momentum.

As with the Hush Puppies repositioning, we're at a relatively early stage in the process. However, the retailer response is positive, new Fall product is retailing well, and the recent order trends have been favorable.

While Harley-Davidson footwear and Bates uniform footwear sales were up in the quarter, but the overall Wolverine footwear sales were down, as a result of lower Wolverine brand, Hytest, and Stanley work and industrial boot shipments, and also the decision late last year to discontinue the U.S. Coleman footwear business.

While the industrial segment of the market remains soft, the Wolverine footwear group is leveraging its growing position in the lifestyle portion of the market with exciting new product under the Harley-Davidson brand, and also the Wolverine brand rugged, casual, and sport boot categories. While it is early in the Fall season, our new Wolverine sport boots are been delivered to a number of our major retailers, and we have the number-one selling sport boot at both Cabella's and Dick's Sporting Goods.

We recently marked our 4th anniversary since we shipped the first Harley-Davidson footwear product back in 1998. We have enjoyed consistent year-over-year double-digit growth, and are on track to achieve that goal again in 2002.

We are setting the stage now for another successful year in 2003, with a sell-in of a new collection of boots to coincide with Harley-Davidson's 100th anniversary celebration in 2003. We believe the year-long celebration with motorcycle rallies and other public relations events will be a big plus for our business over the next 12 months.

With regard to our other businesses, our retail division sales were about flat in the quarter, slipper sales were up slightly, and our leather division had a very good quarter on the strength of internal demand from Merrill and Hush Puppies, as well as outside sales to New Balance and other upper tier brands who utilize our performance suede leather.

In summary, the overall retail environment remains difficult. However, in the categories in which we compete, retail inventories appear to be in relatively good shape, and retailers are stepping up and making future order commitments for our brands.

Our 3rd quarter ending order backlog was at a record level, up 23.5% from the comparable quarter last year, with strong increases in both our acquired European businesses as well as our preposition businesses.

We also should note that we have adjusted our European acquisition backlog numbers from the prior year to give us the ability to give apples to apples comparisons, and that's reflected in the 23.5% increase.

While a portion of our backlog is for shipment in '03, orders calling for delivery in the 4th Quarter of this year were up 17.5% over the comparable quarter end last year. This is a significant backlog increase. However, we remain heavily dependent on 4th Quarter reorders to achieve our 4th Quarter sales goal.

Based on the information at hand, we continue to target 2002 full-year sales in the range of 820 to $830 million, and earnings per share in the range of $1.12 to $1.15.

Looking ahead to next year, we're seeing a strong response to our new product offerings, and this is reflected in our order backlog for delivery in 2003. At quarter end, the order backlog for delivery in 2003 is up about $20 million from the levels that it -- that it was at the same time a year ago. A significant portion of this increase is attributable to Merrill, and the decision by major retailers to give Merrill more of their open to buy dollars, and also to make early commitments for Merrill product to assure early deliveries and maximize sales for the spring '03 season.

While it is still early in the planning process, we've provided our initial guidance for 2003 in this morning's press release. We are currently targeting next year's sales in the range of 875 to $885 million, and earnings per share in the range of $1.21 to $1.24, which includes the impact of an estimated 2003 increase in our pension expense, approximating 11 cents per share.

Steve Gulis, our CFO, now has additional details about this year, as well as address a couple of issues for next year. Steve?

Thank you, Tim, and good morning everyone. This morning we announced record 3rd Quarter sales of $219.2 million, which was a 17.7% increase over to the 3rd Quarter of 2001. This quarterly increase brought our year to date sales total to $565.8 million, which is a 14% increase over 2001.

We were pleased with our sales results, as our pre-acquisition businesses reported a 5.3% sales gain over 2001 in the quarter, resulting in a 3.6% increase for the year in these businesses.

The European acquisitions are tracking as planned. They contributed 12.4% of the sales increase in the quarter, and account for 10.4% of the year to date sales increase.

3rd Quarter sales gains were fueled by the Merrill business. However, several other businesses contributed to the gain, as the Harley-Davidson, Hush Puppies, Bates DOD, CAT U.S., and Wolverine leather operations all had strong single digits or double digit quarterly increases.

The one soft spot in the quarter was the shipment of work products, which resulted in a sales decline in the core Wolverine branded boots and shoes, HyTest, and Stanley businesses.

Recorded gross margins for the 3rd Quarter of 35.6% were 80 basis points below the reported level in 2001. This gross margin decline was primarily due to the refocusing of the product line of our European acquisitions.

Gross margins on pre-acquisition businesses of 36.4% were flat with 2001. These flat gross margins on pre-acquisition businesses include the impact of inventory reductions programs. As we were aggressively clearing inventories in order to reduce working capital investment and improve customer service.

For the first three quarters of 2002, gross margins on preacquisition businesses have improved 60 basis points to 36.2%. An improved business mix of higher margin lifestyle sales, improved product pricing from factory sources, and better pricing on clearance goods, contributed to the margin improvement.

Selling and administrative expenses in the 3rd Quarter of 2002 was 24.4%, which compares to the 23.7% recording in 2001. Year to date, selling and administrative expenses are 26.7% of net sales in 2002, as compared to 25.6% in 2001. Both increases are related to investment spending in branded marketing initiatives, and higher pension costs, which was planned. Pension expense increased 1.5 cents per share in the 3rd Quarter, and is up 4.5 cents per share for the year.

We continue to be dedicated to supporting our branded initiatives with strong marketing programs for the Merrill, Harley-Davidson, Hush Puppies, CAT, and Wolverine brands. For the year, corporate overhead costs are up only 1.1%, thus, our focus on spending to support our brand.

Interest expense for the quarter and year to date was below 2001 levels, as average borrowings and the interest rate on the resolving debt facility are both lower. We have estimated our annualized tax rate for 2002 to be 33%, which compares to the 34% in 2001.

Additionally, our shares used to calculate year to date earnings per share, as of the 3rd Quarter of 2002, was 42,160,000 shares, which reflects the impact of our share repurchases.

Record net earnings of $15.3 million for the 3rd Quarter of 2002 reflects a 6.8% increase over the $14.4 million reported in 2001. This equates to earnings per share of 37 cents, which is a 3-cent or 8.8% increase over 3rd Quarter of 2001. Year to date earnings per share of 73 cents in 2002 is a 4-cent per share increase over 2001, for a 5.8% increase. The European acquisitions -- acquisitions contributed approximately 1/2 of the earnings per share increase in the 3rd Quarter, and on a year to date basis, are break-even.

From a balance sheet perspective, we continue to make improvements in the management of our accounts receivable and inventories. Accounts receivable for our pre-acquisition businesses were down 8.5% when compared to the end of the 3rd Quarter of 2001. This reduction assisted us in reaching our short-term DSO goal of 75 days. We continue to focus on additional improvements and further reduction in our day sales outstanding. Total accounts receivable, including acquisitions, were up 3.4% over 2001 level.

Inventory improvements continued in the quarter, as pre-acquisition inventories were down 6.4% when compared to 2001. Total inventories are up 1.8%. During the quarter, we aggressively moved slow-moving merchandise. We are quite pleased with the inventory improvements which have been made, but feel that further inventory reductions can be made.

Interest-bearing debt at the end of the 3rd Quarter totaled $102.6 million, a $19.7 million reduction from 3rd Quarter 2001 end.

Our total debt to total capital ratio of 21.1% is on the at the low end of our 20% to 40% operating range, despite the end of the 3rd Quarter being our peak working capital season. We anticipate our year-end total debt to total cap ratio to be below our operating range.

During the quarter we repurchased 783,800 shares of stock under our October 2000 repurchase program, at an average price of $14.25. We substantially completed the October 2000 repurchase program, as we repurchased 1,971,800 shares at a total price of $29.6 million. The repurchase was funded through cash generated from the operating activities of the business. The October 2000 repurchase program has now expired, and further shares repurchased will be under the $2 million share program approved in August of 2002.

Past generation continues to be a key focus for the business. This ties directly to our asset management programs and share repurchase opportunities. During the 3rd Quarter of 2002 we used $13.2 million of cash versus using $20.6 million of cash in the 3rd Quarter of 2001. A 36% improvement. This result has allowed us to improve our overall cash generation from operating activities by $44.2 million when compared to 2001 activities. We appear to be on track to reach our goal of generating $75 million of cash from operating activities this year.

Another item of interest, which has been getting significant news coverage, is the status of the long shoreman contract negotiations on the West Coast. We took early actions to reroute our goods through Vancouver last June, and to date have experienced only minor interruptions. However, given the current situation, we are expecting increased pressure at Vancouver, and will be working diligently to continue uninterrupted service.

Looked towards the 4th Quarter, we have a good start as we have a 23.5% increase in order backlog. 4th Quarter backlogs are up 17.5%, which means that we will need solid reorders in the 4th Quarter to achieve our sales goal.

Our brands are in demand, despite the challenging retail environment.

Additionally, we will need to achieve gross margins equal to last year's levels, and control spending, in order to achieve our bottom line results. If we achieve our sales goals of $820 million to $830 million, and our earnings per share target of $1.12 to $1.15, 2002 will be considered a very successful year.

As outlined in our press release, we have issued our initial guidance for 2003, with sales ranging from 875 to $885 million, and an earnings per share of $1.21 to $1.24. Key components of the initial plan include a modest expansion of gross margins, and leverage to be obtained in selling and administrative expenses prior to anticipated pension cost increases.

Our preliminary calculation of our non-cash pension cost increase approximates 11 cents per share. Our pension plan utilizes a September 30 market valuation date, which as you know, was an extreme low point in the market. The reduction in the market value of the pension assets, combined with a low discount rate factor for pension liabilities, will create a significant increase in the 2003 pension expense. Despite the market value reduction, our plans continue to be adequately funded, and do not require additional funding under our [INAUDIBLE] guideline.

Excluding this pension cost increase, we would continue to achieve operating income leverage, and that sets up twice the rate of our sales increase. Additionally, we are forecasting continued strong cash flow generation in 2003.

I thank you for your time, and I would now like to turn the call back to Tim for a couple of closing comments.

Thanks, Steve. In closing, I'm pleased that we are achieving solid growth in spite of a difficult market. Also, I'm very encouraged by the unusually good retailer response to our spring '03 product lines, which is an indicator of our future growth prospects.

While shipments during the quarter were at record levels, up nearly 18%, our order uptake was even stronger, resulting in a significant increase in our order backlog during the quarter.

Merrill is our major growth driver, and is certainly showing no signs of letting up. But of equal importance, we had solid increases for most of our other businesses during the quarter.

The increase in order backlog is a clear signal that our retail partners are excited about our Spring '03 product lines. This level of acceptance and enthusiasm for our brands and product ranges is very encouraging.

Exciting product and marketing, backed by our financial strength, logistics capabilities, and commitment to service excellence, are a winning formula, particularly in a difficult market where retailers are searching for strong partners to assist them growing their businesses.

We believe we are well-positioned to achieve our vision of becoming the world's premiere footwear company in the non-athletic segment of the market.

Again, thanks for joining us this morning.

Thank you, Tim. Laurel, at this time we'd like to open up the conference call for questions.

Certainly. If you would like to ask a question, please press star 1 on your touch-tone phone. To withdraw your question, press star 2.

Our first question comes from Bob Brugel. Please go ahead, and state your company name.

Lehman Brothers, good morning.

Good morning, Bob.

Tough environment, nice quarter.

Thank you.

Thank you.

A couple of questions. The -- the first one is can you maybe further elaborate on the shop in shop program that you're talking about with Merrill, in terms of some of the retail partners and the magnitude, you know, sort of store numbers and the plan on that one?

Sure, Bob. You know, we've had -- with a growing success of Merrill and the amount of shelf space that Merrill is occupying in a lot of major retail accounts today, we felt there is clearly an advantage to us in even creating a greater focus area, so that the consumer entering into the retail environments will be met by the strong Merrill presence.

We've had a number of our retail partners come to us requesting that we develop the shop. We've gone out and put together, I think, some very strong visuals, great fixturing program, and we did a test initially with Harry's, the largest independent better grade shoe retailer in New York City. That shop is in place. He's selling 32 pair of Merrill shoes a day on average out of that shop. Which is a pretty significant increase from the rate of sale prior to putting the shop in a store. So, it's -- initial tests are getting the results we want.

The partners who we're talking to, really it is quite a cross-section of Merrill accounts. Everyone from, you know, the better-grade independent retailers to department stores to sporting good stores to outdoor specialty stores.

Okay.

We have about 60 -- about 60 locations that have been requested right now, and we anticipate that's going to grow. Our target for '03, to have 100 of these shop in shops in place by the end of next year.

Okay. Two more questions. Thanks.

The first is, can you talk a little bit about the reorder of business, what you saw through the third quarter, and maybe what you're seeing so far this quarter, and your expectations that are in these numbers we're talking about for '02?

Overall, our reorder business in the 3rd Quarter held up quite well. We're -- you know, we're not anticipating dramatic increases in reorders, but we do expect we will see some reorder increase in the 4th Quarter, on the strength of the fact that, you know, we have product that's strongly selling through right now.

Okay. The final question, Tim, on the Hush Puppies business, the -- the high single digit increase this quarter, are we starting to see -- are you encouraged by what you're seeing with the turn around and the new management going into that brand?

Bob, absolutely. I think we have -- you know, a very skilled management team there who have a -- an excellent game plan in place, know what to do, and are going about execute taking very effectively. The results in the quarter were really encouraging. I think we also recognize that we're still at a pretty early stage in -- in -- in achieving for that business, you know, it's -- our ultimate goals for it.

We're -- our measure of success is not just sales increases, our measure of success is what we're selling and who we're selling it to. And by that, I mean we're -- we want to move -- move price points up, move quality up, increase our share in the really contemporary casual business. We believe there is a market opening there for us, and that's -- that's where the focus is.

There is other parts of, you know, the Hush Puppy business that we really plan on changing over time. So volume increases alone, I don't think should be the score card. It's not the score card we're using internally.

Okay. All right. Okay. Thank you.

Thanks, Bob.

John Shanley, please go ahead, and state your company name.

Wells Fargo Securities. And let me add my congratulations, guys, a nice, impressive quarter.

Thanks, John.

Tim, on the company's Merrill business, I wonder if you could give us an indication now approximately what percentage of the overall company revenues are now being derived from Merrill. And does the announcement of Merrill being treat as a separate operating unit indicate that you'll give more specifics in terms of what's happening with that business than you have in the past?

John, I think we've probably been giving more information about the specifics of the Merrill business, you know, than typically we have each of our divisions over time. Clearly it, you know, as we've been saying for some time, we believe we have the opportunity here to have a very large business. And we feel that way because we have a brand that appeals men, women and children. It is a brand that is working across a variety of distribution channels. We have strong business in department stores now, very strong business in the better grade independent shoe retailers, strong business in the outdoor specialty stores, and in the better grade sporting goods stores. And our decision to set it up as a -- as a -- you know, as a separate business entity really is to make sure we're devoting all the resources necessary take full advantage of what we see at the opportunity there.

In terms of the overall, you know, percentage of the business, this year we anticipate that Merrill will be a little over 20% of our total Corporation's sales. And it's, you know, had nearly a sevenfold increase from when we acquired the business just about five years ago right now. So it, you know, and we believe it will continue to be a very significant growth vehicle and we're particularly excited about the response we've gotten to Merrill's Spring '03 product line. We're getting a strong response there.

Tim, are the margins in Merrill substantially above that of the rest of the company's brands?

John, to say substantially, they are -- they are -- both Merrill and Harley-Davidson have -- have somewhat higher margins than our other businesses, not dramatically higher, but certainly higher.

Okay. Was that the primary reason why, with the 40% increase in the back order on the brand, that you're encouraging as to take our numbers up for the -- for '03? That's growing at a more rapid clip than the rest of the business segments.

Yeah, if we exclude the increase in the 11% projected increase in pensions, John, that's correct. And we believe, you know, based on the response we're getting to our Spring '03 product lines, gives us encouragement that we can have another very good, good year next year.

Okay, great. And on the Hush Puppies, I also had a question on that. Was there much of a change in the U.S. Hush Puppies brand in terms of either channels of distribution or selling more product through one channel, as you've done in the past, to help really get the business turned around as quickly as you've done? Is it in department stores versus general merchandise chains that's really helping it?

Yes, John, what helped the increase for Hush Puppies in this 3rd Quarter -- the most significant contributor to that was Nordstrom. We, you know, we've been talking about we moved from a -- a, you know, being in certain regions of Nordstroms to an all store program in womens, and we shipped those fall goods in the 3rd Quarter, and that certainly helped.

Also, the better grade independent shoe stores, you know, we're having success getting the brands positioned back in those stores, which, you know, we think is going to be a key driver. Oftentimes it's getting those stores, you know, really strongly supporting the brand again as a precursor to getting broader, better-grade department store distribution.

All right. Super. The last question, on the free cash flow, can you give us some kind of indication of what you intend to do with the accelerated level of free cash flow? Is it going to go more share repurchase? Debt reduction? Or is there some other use of it that, you know, or maybe a ranked use you'd give us in terms of what's first and second and so on?

John, this is Steve. I think it is a combination and a balance of all of those. We have $10 million of principal debt we have a payment for in December of this year. Obviously we will pay that down, and we will be out of our revolving credit facility by the end of the year, also. And I think we had about $16 million worth of revolver debt, maybe a touch more than that, at the end of the quarter. But, so, obviously we want to keep our balance sheet clean.

And then I think that, you know, we will continue to be active in our share repurchase program as we feel appropriate. And, you know, we were -- there's a lot of share repurchase programs that get announced that never get executed. We executed our October 2000 plan, and we would look for additional opportunities to do that.

And I think the other key is that, you know, we've always said in the past we want to keep our balance sheet in a position, so that if and when the right opportunities come along, we don't have to put our balance sheet in an overleveraged position in order to take advantage of opportunities. And I think that, you know, continuing to use the balance will keep us in that position, so that if the right -- if and when the right opportunity comes we can take advantage of it.

That sounds great, I'm sure that's exactly what investors want to hear. Again, congratulations on a great quarter, guys.

Thanks, John.

Allen Matronni, please go ahead, and state your company name.

Copper Beach Capital. Just to update us, I'm not as familiar with the pension plan. What's the discount rate you're using?

Our discount rate is 646 or something like that, anticipated for this year, I believe it is.

Have you moved the discount rate around for the last few years?

The discount rate has to be moved, and according to GAAP, we follow the corporate AA 10-year bonds. So, whenever those float, that's where the discount rate is pegged off of.

Okay. And your pension return assumptions?

Our pension return assumption is at 10%, and has been for about 8 to 10 years now.

Okay. Many companies are moving them to 9 now, given the three-year poor performance of the market. I realize you guys have been very conservative in terms of keeping the pension I guess funded. Just a question, is there any thought to move it down at the end of year, down to 9, or to change that? And also, is your pension plan currently fully funded?

Yeah. The comment against are we fully funded? Yes, under the risk of guidelines, we are not under any obligation to make any pension contributions, so we're okay from that perspective. We were overfunded in the past, but that has come down to some degree.

As far as changing our investments rate of return assumptions, we're analyzing that. I think it is premature to say that we will or we won't. But again, that is really a long-term, and when you look at the pension plan, all of our consultants and guidance tells us we should be looking at 30 to 40-year trends, not current market conditions. That's really what that is based off of.

Okay.

We have no immediate plans to reduce it, but it is under evaluation.

Is there a reason -- Just so I understand. Is it the philosophy of management to keep the pension plan relatively fully funded, so we continue to see the charge, next year will be 11 are we going to continue to see charges?

The funding and the expense are independent of one another. Okay? So, I mean the fact that we don't have to make funding contributions is positive for the cash floor position. The expense is purely driven based on the number of participants in the plan, what our benefit package is, the discount rate factor, and what the market return is. And it is primarily driven by the discount rate and market return. So, the two are independent. Funding it more wouldn't change our expense position.

Okay, thank you. How many shares were -- how many shares should we use for this quarter's calculation to figure out what the earnings were for this specific quarter?

At the end of the 3rd Quarter, our EPS used was 42,160,000 shares.

But that's for the year to date, not for the specific quarter.

But you use that in backing into your quarterly results.

Okay.

You calculate EPS on a year to date basis and then back into the quarter.

So you have less than 42 million shares, for the average shares for this quarter.

That's correct.

Okay. And the minority interest line on your -- in your income statement, can you just give us detail on that? Is it something we expect to recur?

That is our European Caterpillar business. We have a minority partner in that business who was the previous owner of that business -- of the Overland Group. So, that's related strictly to the European Caterpillar business and is a very small piece.

Will it recur every quarter?

It will go up and down with the business, but it should never be anything of magnitude to worry about or be concerned with.

Okay. And on a separate, more philosophical issue, you guys have managed to grow sales pretty well over the last five, six years in what's been a tough category overall, I think. And the -- my question relates sort of to the leverage that you've seen. The SG&A seems to have moved up a lot from '97 as a percentage of sales in terms of where it is now. I realize some of that is pension. But you haven't gotten as much leverage onto the bottom line as I may have liked, I realize you are starting to see the leverage now. Is there a target earnings number, or a long-term number you're looking for?

And at what point, as you build out the Merrill brand, and as you put in the infrastructure, when will we start seeing significant leverage from the top line to the bottom line?

I think one of the things you have to go back, if you go back, you know, to '97, '98, one of the things we were not doing, and we were being criticized for, was not investing enough in our brands. If you look at our SG&A expense and where we've been spending, we've been spending in our brands to support them. And also, in building an infrastructure to support our customer base. I mean, you know, some of that increase in SG&A is related to systems expense, and all of our systems initiatives are there to provide better service to our customers. Retailers are very demanding from a logistics and servicing perspective today. If you don't have, you know, state-of-the-art, top-end systems to provide services, you're just not going to be able to do business with the key retailers.

So, a lot of that has to do with where we're spending the money at the very focus. I would say it is in marketing and advertising initiatives, and also in systems support, so that our customer service and re-order activity can be handled appropriately. You know, we were -- you know, we will be working toward getting more increased leverage off of our SG&A, excluding the pension costs, and in our guidance for 2003 we indicated there would be modest leverage there.

But, you know, we continue to want to focus on spending on our big brands to make sure we have the right marketing program. Tim mentioned the shop in shop concept. Okay, that is a very good investment for the business. It is an investment, but it is an expense when we do it. And those are the types of things we look -- look to do in order to support our brand.

So, I shouldn't expect EPS growth of -- or return on equity to top at least 10% and 12% respectively going out?

That would -- for -- over the near-term that would be a good range.

Okay. Okay. And lastly, on the -- in the domestic business, you talked to softness in the U.S. work boot market. Are you seeing any pricing pressure, what is some of your competitors, such as Timberland, are they cutting prices on boots?

I don't think we're seeing, you know, the better-branded people cutting price on boots. I think it is just more of a demand issue right now. Over all, in that market, there has -- as many as there are in many parts of the footwear market, there has been some price deflation in average prices in the overall market, and we're certainly responding to that in terms of the product that we're bringing to market.

I think we're in a cyclical downtrend in that business right now. And it happens from time to time. But we've been in the business for 100 years, and consistently gained market share in it over time, and we think we will continue to do that.

Thanks, I will let someone else ask a question. Appreciate it.

Thank you.

Steve Martin, please go ahead, and state your company name.

Slater capital management. I want to add my congratulations, knowing how tough an environment it is out there.

When we look out to Q4, how much were the increases going to be in Europe? I guess when we look out at the models, what was Europe? I don't know How ask the question, but when we have the same call at the end of Q4, how much of the various increases are going to be attributable to the acquisition in Europe?

Steve, I think, you know, the key is that I think on a year to date basis now, the European acquisitions have added I think 10.4% to our total sales, and we indicated at beginning of the year they would be around 10%. We have no reason to change that at this point in time. So, as you model out, you can back into that.

Okay, so last year's 4th Quarter sales was 220 plus or minus, and you're saying that when we look out to 4th Quarter of this year, $20 million roughly would be added due to the European?

That would be correct.

Okay. Just going through my list, because a couple of questions have been answered. What was the actual outstanding at the end of the quarter?

Actual outstanding --

Shares.

Actual jute standing shares?

Yes.

Shares outstanding would be lower than what I gave you, Steve, because we have all of our option dilution and everything else in that.

Right, I know. That's why I'm asking the actual.

I don't have it off the top of my head, to be honest with you, but I can call you back with that number.

Okay. And tax rate guidance for next year?

I think right now we'd be using 33% in our pro formas.

All right.

Equal to this year.

With the setting up of Merrill as a stand-alone division, do you foresee any initiatives in the licensing or other product categories, since this is a brand you own as opposed to having a restricting license?

Steve, this is Tim. I think, you know, we -- we believe this brand has -- has amazing potential, and certainly some of those kinds of thoughts are on our agenda. We had, in fact, had a discussion with our board of directors yesterday, where Merrill presented a longer term growth plan for the business. So, certainly there is some opportunities there, because of the very strong consumer acceptance of this brand. There is a -- not specifics that we're prepared to, you know, to talk about right now, but it is certainly on our agenda.

All right. Thank you very much.

Thanks, Steve.

Josh Benton, please go head and state your company name.

Hi. Josh Benton with Capelli Asset Management. How are you?

Fine, Josh, how are you?

Good. I missed, you talked about the repurchase for the year to date and the quarter. I missed those numbers. Can you go over them again?

Sure can. In the quarter, we repurchased 784,000 shares, okay, at an average price of about $14.25.

Okay.

I don't have the year to date, but under our October 2000 program, okay, we have substantially completed that program. We've repurchased 1,972,000, for a total price of $29.6 million.

Okay.

Okay?

Thank you.

You bet.

At this time, we're showing no further questions, sir.

Thank you very much. I'd like to thank everyone today for attending our conference call. The conference call will be available for replay at our website, www.Wolverineworldwide.com. The replay is also available by phone until 5:00 p.m. on Wednesday, October 9th, Eastern Standard Time, by calling 888-567-0379.

Again, thank you for listening and this concludes our conference call. Goodbye, everyone.