REI 2002 Net Income Surges 112% on Total Sales Decline

Recreational Equipment, Inc. (REI)declared a $38.7 million patronage refund to its active members on 2002 sales of $735 million. The cooperative also announced that, based on the 2002 results, its corporate giving commitment will increase by 80 percent to $1.8 million, the largest amount in company history.

REI is the nation’s largest consumer cooperative, with over 2 million active members. While anyone may shop at REI, only members share in the cooperative’s profits based on their eligible purchases. For 2002, the company’s operating income increased from $38.5 million to $50.1 million, and net income more than doubled from $7.5 million to $16.0 million. Company officials attribute the increase to a sharp focus on REI’s core business of multi-channel retail, above expectation performance of new and relocated retail stores, strong financial management and positive consumer acceptance of REI’s own brand of gear and apparel.

The company’s income statement shows a decline in total sales from 2001’s $740 million to $735 million in 2002. The variance is because the sales and income from subsidiary companies sold in 2001 were included in previous years statements. REI’s actual sales growth, from 2001 to 2002 excluding the effect of sold subsidiaries, was 3 percent.

Comp store growth for 2002 was about 1 percent. Direct Sales posted an overall gain of 2.5 percent, led by double-digit growth by REI.com, the company’s online Direct Sales channel. REI’s Direct Sales division includes REI.com, REI-OUTLET.com, and catalog and phone sales.

“Declaring a full patronage refund to our members and reserving adequate profit to support our continued growth in the face of a very challenging year for retail is a significant accomplishment,” said REI CEO Dennis Madsen. “Im particularly pleased that our financial strength allows us the opportunity to further our commitment to environmental conservation, outdoor stewardship, REI store communities and young people through a significant increase in our corporate giving dollars.”

REI began its corporate giving efforts in 1976 and has given millions of dollars to organizations supporting outdoor recreation and conservation. A significant portion of REI’s giving efforts are made to outdoor clubs and organizations in REI’s store communities. Encouraging involvement in stewardship and engaging young people in the outdoors are the central focus of REI’s giving.

Supporting REI’s 2002 business growth were the opening of new retail stores in Santa Rosa and Roseville, Calif., and Tukwila and Tacoma, Wash. The company also relocated a Denver area retail store to Boulder, Colo. For 2003, REI will open seven new stores and relocate its Houston store. The company presently operates 63 retail stores in 24 states, two online stores and an adventure travel company, REI Adventures.

Additionally, in 2002 REI was named one of the country’s best multi-channel retail companies in a December Forrester Research report. REI was identified as a model multi-channel retailer in the report, with key attributes noted as a consistent shopping experience across all channels for its customers, technical integration of sales channels, and supporting services such as in-store pick-up of store entered orders, no-hassle return policies and 45,000 pages of detailed online product information and outdoor resources on REI.com. The company plans to continue to build its multi-channel programs in support of customers in 2003.

                     RECREATIONAL EQUIPMENT, INC.
        Consolidated Statements of Income and Retained Earnings
            for the Years Ended December 31, 2002 and 2001

                                                   2002      2001

                                                   (000)     (000)
                                                  
Sales                                            $735,359  $740,060
Costs and Expenses
      Cost of Sales                               419,096   427,894
      Operating & Administrative Expenses         266,121   273,651
                                                  -------   -------
Total Costs and Expenses                          685,217   701,545
                                                  -------   -------
Operating Income                                   50,142    38,515
Other Income (Expense), Net                         4,338     7,228
                                                  -------   -------
Income Before Dividends & Taxes                    54,480    45,743
                                                  -------   -------

Patronage Dividends Declared                       38,767    36,553
      Less Prior Year Unclaimed Dividends          (9,106)   (7,959)
                                                  -------   -------
      Net Patronage Dividends                      29,661    28,594
                                                  -------   -------

Income Before Income Taxes                         24,819    17,149
Provision for Income Taxes                          8,786     9,588
                                                  -------   -------
Net Income                                         16,033     7,561

Retained Earnings, Beginning of Year              143,316   135,755
                                                  -------   -------
Retained Earnings, End of Year                   $159,349  $143,316
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