Welcome to the Crocs Incorporated third quarter fiscal 2007 earningsconference call. (Operator Instructions) Before we begin, I would also like to remind everyone of thecompany’s Safe Harborlanguage. Please note that some of the information provided in this call willbe forward-looking statements within the meaning of the securities laws. Thesestatements concern Crocs’ plans, projections, expectations, estimates and objectivesfor future operations. The company cautions you that a number of risks anduncertainties could cause Crocs’ actual results to differ materially from thosedescribed on this call. Crocs has explained some of these risks anduncertainties in the risk factor section of its annual report on Form 10-K andits other documents filed with the SEC and you are encouraged to read thatsection and all other disclosures appearing in our filings with the SEC. Crocs intends that all of its forward-looking statements inthis call will be protected by the Safe Harbor provisions of the SecuritiesExchange Act of 1934. Crocs is not obligated to update its forward-lookingstatements to reflect the impacts on future events. I would now like to turn the conference over to thePresident and Chief Executive Officer, Ron Snyder. Please go ahead, sir.

Good afternoon and thank you for joining us to discuss ourthird quarter results. With me on the call today is Peter Case, our ChiefFinancial Officer, and John McCarvel, our Chief Operating Officer. We are verypleased with our performance during the quarter as we once again exceeded ourfinancial targets and posted strong results. Importantly, we are increasingly well-positioned to executeour strategy while our opportunities for growth have never been morecompelling. Let me begin with a few financial highlights. Sales increased to130% to a record $256.3 million versus $111.3 million last year. Gross marginrose 240 basis points to 60.6%, and our earnings per share increased 144% to$0.66 versus $0.27 in the year ago quarter. The strength of the quarter was once again driven by robustglobal demand for our brands and products. Consumer response to our expandedfootwear offering has been excellent both in the United States and international markets,highlighted by Europe and Japan.At the same time, our Jibbitz business is rapidly expanding with more SKUs andmore doors being added each month. To keep pace, we are continuing to make importantinvestments in our infrastructure. During the third quarter we opened a newmuch larger distribution facility in Europe, increasedour production capacity, upgraded our worldwide IT systems and added personnelin key areas around the world. To review, with all of our various footwear brands that wenow have 14 manufacturing facilities, including five third-party operators inChina and one each in Italy, Romania, Bosnia, the Ukraine and Florida -- and asof October, Vietnam -- along withcompany-owned plants in Canada, Mexico and Brazil. We also have three Jibbitzfacilities in Chinaas well. Production currently stands at approximately 6.8 millionpairs per month with the ability to increase capacity to beyond 7.5 millionpairs quite seamlessly. We now have 15 company-operated distribution centersaround the world serving our key markets and our headcount is…

Thank you, Ron. Sales for the third quarter increased 130%to $256.3 million, compared to sales of $111.3 million in the third quarter of2006. For the quarter, domestic sales rose over 78% to $125.4 million andinternational sales increased to $130.9 million from $40.9 million a year ago.Revenue for Canadaand Mexico was $11.4million; revenue for Europe was $58.1 million; revenuefor Asia was $53.9 million; and the balance of $7.5million was from elsewhere in the world. Footwear sales accounted for 87% of revenue and represented13.8 million units for an average selling price of $16.29. Sales of ourclassics represented 35% of footwear sales. Gross profit for the third quarterof fiscal 2007 was $155.4 million, or 60.6% of sales, compared to $64.8 millionor 58.2% of sales in the third quarter of 2006. The increase in gross marginwas primarily driven by higher percentages of total sales in Europe,Asia, Jibbitz and also through our global direct salesoperations. SG&A for the third quarter was $77.2 million or 30.1% ofsales compared to $33.3 million or 29.9% of sales in the corresponding periodlast year. The increase in the SG&A as percent of sales is a result ofincreased global marketing spend and our sensing additional opportunities inBrazil, China and India and deciding to aggressively increase our investmentsin both personnel and infrastructure to position for strong growth in 2008. Wefeel it is important to move quickly in these important countries to establishour brands. Income from operations for the quarter was robust $78.2million or 30.5% of sales, which is above our stated goal of between 26% and28%. Net earnings were $56.5 million compared to $21.5 million a year ago and dilutedearnings per share was $0.66 versus $0.27 in third quarter of 2006. Our EPS was helped by our improved year ending forecastedtax rate of 30%, which pushed our Q3 rate down to 28.6%.…

Thanks, Peter. Through the first nine months of 2007, wehave reported exceptionally strong financial gains with sales increasing 157%to $622.6 million and earnings per share increasing 188% to $1.55. Clearly, weare experiencing rapid growth with several markets, namely Europeand Asia, developing even faster than we hadanticipated. The demand for our brand and acceptance of our products continuesto reach new levels, which gives us great confidence in our future prospectsand is reflected in our robust growth target for next year. Domestically, our diversified product offering which nowtotals more than 90,000 footwear is selling well across the board while at thesame time providing us with new distribution possibilities in broader targetmarket. Overseas, we are in the early stages of rolling out many of our recentfootwear introductions and as the process ramps up in 2008, we are confidentthat the product segment distribution strategy we have implemented in the U.Swill deliver similar success in our international markets. We have also created a solid portfolio of complementarygrowth vehicles, including Jibbitz, Ocean Minded, Fury, Mambas, You by Crocs,Bite Apparel and Accessories, CrocsRx, and Crocs Work product that furtherdiversify our operations and take the company in new and exciting directions. Today we are more bullish than ever on the outlook for ourcompany, and we are confident that our infrastructure investments over the past12 months have created a stronger platform that will allow us to maximize ouropportunities that lie ahead. I will now turn it back to the operator to open it up forquestions.

We will take our first question from Jeff Klinefelter -Piper Jaffray.

Congratulations guys on another great quarter. First of all,getting a little more into guidance, 35% to 40% for next year is yourpreliminary guidance. Peter, you mentioned that it would be stacked a littlebit more towards the front end. Could you expand on that more, specificallywith respect to Europe and what it sounds like are fairlystrong bookings in that market. How should we think about the seasonal flow ofearnings as we as we move into next year?

Jeff, I would say that we will see more of the uptick inQ1and Q2 because we come off of a fairly low quarter from last year and ourbookings in both Europe and Japan we were not able to fulfill the demand in thelatter part of the summer; we were only shipping about 50% of the orders inthose areas, which have now essentially gone out into Q1. So we are fairly bullish on Q1 and Q2 of 2008. So without giving you a real clarity there, I would justskew your models more into the first part of the year than the second.

Specifically, what was Japanin the quarter revenue? You said Asia was $53.9 million,what was Japan ofthat total?

It was very close to $30 million.

Turning to the inventories, given that the inventory buildtook place in the third quarter and you had this delay of shipments, may be alittle bit more specifically on that, is it that the orders were there and ittook a little longer to ramp up to manufacturing so the inventory ended upthere and it was too late to ship the orders at that time?

That is what happened to a little bit of the build ininventory. We very consciously have been aggressive in building inventorybecause we just haven’t been able to catch the wave of demand for our products,primarily in some of the new markets in Europe and Japan,in China, in Southeast Asia; and even some of the Middle East. Wejust haven’t been able to get enough products into these other markets. We evenmissed some opportunity here in the U.S as we went through a very strong summerseason. We consciously built our inventory up in order to give uscapacity for some of the new styles and actually it’s a good thing we didbecause we are now having to divert some of the capacities to the Mammoths, tothe Alice, to some of the other very strong models that we have designed andare introducing in Q4 and Q1.

So this is similar to the end of last year, Ron, you wentthrough the same thing where you built up your inventory of basics to open upthe capacity to produce style?

Yes. This is a build of basics, it’s high margin products,it’s very high velocity products that we have got, we felt that we needed toput more on the shelf. And then as you noted, some of that would have shipped theend of the third quarter and however, it’s difficult getting it through some ofour channels there at the end of Q3.

If we were to look at that inventory composition in total,you would say that the vast majority of it is in basic inventory or any otherbreakdown of composition we can look at?

A majority of it is in the high velocity classics and someof the other high velocity models that we have.

In terms of the fourth quarter, there is seasonality in thebusiness and also I think in Europe there is a littlebit more seasonality in the order flow, but if there were to be upsidepotential, do you think you have the inventory to chase the business? Wherewould there be upside in terms of category or global regional segments if itdoes materialize?

As I think you’ve noted we are an at-once business so if thedemand is there, we have product, we don’t have probably as much Mammoths aswe’d like, but we are working on that. We see good potential in Asia, goodupside potential in Asia. We have upside in ourlicensing business if we can get the product out; that’s been very strong as wego into the fall season. Also like I mentioned with the Alice and some of theother products we’ll see how they sell as we approach the Christmas season. Wedo have inventory in most cases, in most places around the world to hit anyupside. So we will be ready for that.

FootLocker, that sound like a Q1 ship, a new domesticaccount. Is this an all-door program that you will be starting in Q1 or howwill we see that ramp up? Because they have several thousand doors.

Yeah, it will be an international story, it is not justdomestic. We will obviously not open all of their multi-thousand doors in onemonth. We will roll them out. We have designs to open a good number of their doorsas we roll through Q1 and Q2, including we’ll have our licensed products in Champs,which sells I think more licensed product than anybody.

We will take our next question from Jim Duffy - ThomasWeisel Partners.

As you look out to the guidance for ‘08, can you speak tothe component of it which will be growth in domestic market versus growth ininternational? How do you see that split shaking out?

We will obviously be much higher in the internationalmarkets, that’s where there is nice upside. We didn’t hit nearly the demandthat we had in Europe and throughout Asia,and really now in Brazil,we are fairly new in that market. I would say you could skew it much moreheavily towards international growth. However, with the addition of FootLocker and some otherdoors that we will be adding here in the spring, late this year and spring inthe U.S., we are going to continue to see nice growth here. We will probablyhave about a 15% door add; at least 15% to 20% here in the U.S.next year.

FootlLocker is notorious for being demanding on terms withtheir vendors. What type of margin will those sales come out with your businesswith FootLocker?

They will be the same as all of our other accounts so a verygood relationship here to start with, and we are excited to get started withthem next year. Remember, it’s primarily our new products. We are not evenlaunching the classic line into FootLocker. So we have all of our new productsfor some of the spring stuff from last year, new spring stuff from this yearand some other exciting new SMUs, we will be bringing out there.

So there is some inline products but you are also doing someSMU stuff?

Yes.

Is that mostly color lays or will there be some new productsspecific to FootLocker?

They will have some new products that will initially bespecific there, a model or two.

On the inventory growth, I’m a little bit perplexed by it.You have been talking about being an at-oncebusiness and having a manufacturing platform that allows you to chase business.There seems to be a disconnect with the build that we are seeing in theinventory. What am I missing here?

Jim, I think you are missing the fact that with the largeglobal distribution system that we now have, and we had to get product into thevarious markets and the 15 some odd company warehouses and probably count allof our distributors around the world, there is probably over 70- 75 warehouses;the builds are obviously on our books but we had to build for some of thosewarehouses as well that we will be shipping in late Q4 and Q1. So what we felt this year, we’ve never caught the demand.Our supply has never really caught the wave here. We have decided that with ourhigher margin product, we are just going to put more on the shelf to make surethat we do have the capacity to build more of our new styles. With some of new styles, we are thinking couldbe fairly large contributors for next year, and they are more complex products.More complex to manufacture and they take more capacity. So, we wanted to havecapacity available for that.

Can you speak to what the growth of the U.S.inventory was, just to give us some sense for what’s going on this side of the ocean?

It was probably only about 10%.

Your next question comes from Elizabeth Montgomery - Cowen.

I have two questions, and I apologize if I missed some ofthese. First related to inventory. Aside from the $20 million of Europeanproducts that didn’t ship because of the Netherlands DC, did you expect to seesome upside in this quarter in terms of revenue that didn’t happen because ofthe logistical challenges of getting all of the product out to the various DCsand distributors in some other way?

We also missed some shipments in Japanand China aswell and to a lesser extent in some other markets. So that’s probably another $10million or $15 million on top of that that we missed.

With the number of stores that you guys already have in theU.S., and then plan to open another 15% to 20% next year, what feedback do youget from some of your retailers, especially maybe some of the mom-and-popfamily retailers that I think actually do a pretty big kids business and momsbusiness with you guys, in terms of continuing to expand the distribution,while a lot of them say they are struggling to still get product?

Obviously, one of the reasons we have taken a little bit ofa more aggressive approach in our inventory builds is to make sure we canservice all those. I think with the number of products that we have now, I meanwith over 90 and we are coming up with a number of products really every month.We have got SMUs out there, we have got a lot of licensing product. So frankly,we just needed more distribution capacity out there. We have got some new styles that would be very hot and someof the stores that we have just aren’t big enough to carry this many products.So we actually needed more capacity in our channel, and that’s why we openedthem up. We haven’t heard much yet, because what we do in all cases is to our long-termstrategic accounts, we take products to them first. If they can’t handle thatadditional load, then we obviously offer it to others.

Have you seen any deceleration in terms of the core style sell-throughin the U.S. inthe past two months?

Certainly, we have seen deceleration, expected and the samedeceleration we have seen in every year we have been in business, which I guessisn’t that many years, but mid-September to say mid-November have always beenour slowest months. We have shoes with holes in them, like we have alwaystalked about, which is our classic line. One of the things we did very well with our spring products,the flip flops and some of the other totally open shoes, slides and such thatwe would expect those to slowdown. Now that’s being offset here in the U.S.by licensed product and Mammoths and the Alicesand some of the other products just introduced for this fall. But in our foreign markets, we are still new. We hadlaunched with primarily our classics and some spring product. So we totallyexpected to have a downturn in those markets, and it’s been in our plan thewhole time as we have guided to.

Your next question comes from David Furth - ProvidentInvestment.

Congratulations on the quarter. When is the internationalthat was delayed on the shipments going out? Is it going in the fourth quarteror the first quarter?

Since it was primarily spring and summer product as I said,it has been moved into the first quarter for the most part, that’s why we arevery excited about our prospects as we move into next year. Both in Europeand Asia, we pretty much stopped opening accounts whichwe’ve now begun opening accounts now in those markets for shipments in Q1. Ithought we were pretty bullish on that.

That basically explains the slight difference betweenconsensus and your guidance for this fiscal year?

I think our guidance is up just a little bit over our priorguidance for Q4.

We will take our next question from Shawn Boyd - WestcliffCapital Management.

On the fourth quarter and given the guidance now for thefull-year, I am wondering if there is anything special going on with respect tothe margins? To look at that guidance for the full year and what it implies forthe fourth quarter we have got to bring the gross margins down a bit here orthe operating expenses up. So anything that you can tell us about the build,maybe going on in the fourth quarter on the expenses?

One of the things that we are doing we are expecting apretty nice upside for next year, so we are continuing to invest in some of theemerging market that we talked about including, I guess even Europe and Spainare still emerging for us, but when you look at China, India, Brazil andSoutheast Asia some of the other markets were continuing to put investment andinfrastructure in to grow that. We are continuing to invest in a number of the otherbusinesses that I talked about, some of the new brands that we have, we’vetaken that approach all along, we have invested in the future of this company.So, we are continuing to do that and that impacts fourth quarter a little bit.

So most of that would be more on the SG&A line than inany significant pick up in cost utilization?

Yes.

On the license revenues, can you just give us a feel forroughly how much licensed product was in revenues for this quarter and for thepast few quarters? Because I know anecdotally we have spoken about a big ramp tocome, and I am just wondering where we are at now versus the last couple ofquarters?

This is a stronger quarter, but we actually don’t break thatsegment out at this point, but this obviously, end of Q3 and Q4 are thestrongest quarters for that business for us. So, it’s contra seasonal to therest of our product line.

But just in general, are we looking for license to be 10% ofthe model, 50% at some point out? Anything you can give us on that would behelpful?

We are not breaking that out right now.

Your next question comes from Robert Samuel – JP Morgan. Robert Samuel – JPMorgan: You did mention 15% to 20% door growth in the USnext year. What’s that growth number look like overseas?

Much higher, we would see in probably in the 30% to 40%range. Robert Samuel – JPMorgan: With regard to FootLocker, would you be adding Jibbitz aswell?

Of course. Robert Samuel – JP Morgan: Finally can you just talk a little bit more about Chinaand opportunity that you see over there specifically related to the Olympics?

I just got back from there last week and we now have about200 sales and marketing people there. We are probably doing about 20 events amonth of various sorts, some are around the Olympics, some are aroundfestivals, the types of things we did here in the US.We are very excited about the prospects that we have in China.I mean it’s a great opportunity because there is so much of focus on theOlympics coming. We think that we probably underestimated our opportunitythere early this year and that’s one of the things we are ramping up right now;we are making sure that we have the infrastructure in sales and marketing andwarehousing and logistics to get product from China; to China is not theeasiest thing in the world to do, interestingly enough, but we have put a bunchof infrastructure in place and are continuing to do that to take advantage whatwe think could be a pretty nice upside for next year.

Your next question comes from James Maher - ThinkEquityPartners.

Gross margins, we have been talking about longer-term youhave been guiding to more like the mid 50s; we have been in the high 50s latelyand now in this quarter above 60%, can you elaborate a little bit more on thatand what might be the components of bringing that down and when we might startto see that or if that is still what you are thinking?

It is still. We are still guiding in the mid 50s as alonger-term model. I think I have already said in the short term that we mighthave upticks if we sell more of our molded products; it has a little bit highermargin than products that are sewn and glued and such. So, as we launch newstyles I would say that margins would trend down over time, however in theshort term, we are probably fairly comfortable for being a little bit higherthan our guidance.

I am assuming that the growth of Jibbitz is sufficient; thathas been helping the gross margin in the short term as well. Would you agreewith that?

Jibbitz helps the gross margin and that’s somewhat offset byinvestments we are making in development in lot of these other businesses thatwe don’t expect big upside from until by midway through next year or so.

With no further questions, I would like to turn theconference back over to the speakers for any additional or closing remarks.

Thank you very much. We’re excited about the quarter, we’reespecially excited about our prospects for our fall product for the end of thisyear and very bullish as we move into next year. If anybody has any furtherquestions, Peter and I will be available. Thank you.