UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - ----- EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 -------------- OR - ----- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934 For the transition period from ______________ to ______________ COLUMBIA SPORTSWEAR COMPANY (Exact name of registrant as specified in its charter) Oregon 0-23939 93-0498284 - -------------------------------------------------------------------------------- (State or other jurisdiction of (Commission File (IRS Employer incorporation or organization) Number) Identification Number) 6600 North Baltimore Portland, Oregon 97203 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) (503) 286-3676 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Not Applicable - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- The number of shares of Common Stock outstanding on May 5, 2000, was 25,426,106. COLUMBIA SPORTSWEAR COMPANY MARCH 31, 2000 INDEX TO FORM 10-Q
PAGE NO. PART I. FINANCIAL INFORMATION ITEM 1 - Financial Statements - Columbia Sportswear Company (Unaudited) Condensed Consolidated Balance Sheets..................................... 2 Condensed Consolidated Statements of Operations........................... 3 Condensed Consolidated Statements of Cash Flows........................... 4 Notes to Condensed Consolidated Financial Statements...................... 5 ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations................................... 8 ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk........... 10 PART II. OTHER INFORMATION ITEM 6 - Exhibits and Reports on Form 8-K...................................... 11 SIGNATURES..................................................................... 12
1 ITEM 1 - FINANCIAL STATEMENTS COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS) (UNAUDITED)
MARCH 31, 2000 DECEMBER 31,1999 -------------- ---------------- ASSETS Current Assets: Cash and cash equivalents $ 27,828 $ 14,622 Accounts receivable, net of allowance of $5,000 and $4,535, respectively 81,424 118,709 Inventories (Note 2) 91,636 86,465 Deferred tax asset 11,489 11,822 Prepaid expenses and other current assets 3,574 2,425 --------- --------- Total current assets 215,951 234,043 Property, plant, and equipment, net 66,897 68,960 Intangibles and other assets 1,862 1,987 --------- --------- Total assets $ 284,710 $ 304,990 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Notes payable $ 21,687 $ 31,676 Accounts payable 27,755 36,779 Accrued liabilities 15,820 19,156 Income taxes payable 677 2,075 Current portion of long-term debt 258 252 --------- --------- Total current liabilities 66,197 89,938 Long-term debt 26,599 26,665 Deferred tax liability 4,012 4,012 --------- --------- Total liabilities 96,808 120,615 Commitments and contingencies -- -- Shareholders' Equity: Preferred stock; 10,000 shares authorized; none issued and outstanding -- -- Common stock; 50,000 shares authorized; 25,382 and 25,282 issued and outstanding 126,567 126,265 Retained earnings 68,562 65,290 Accumulated other comprehensive loss (3,987) (3,770) Unearned portion of restricted stock issued for future services (3,240) (3,410) --------- --------- Total shareholders' equity 187,902 184,375 --------- --------- Total liabilities and shareholders' equity $ 284,710 $ 304,990 ========= =========
See accompanying notes to condensed consolidated financial statements 2 COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ----------------------- 2000 1999 ---- ---- Net sales $108,437 $ 89,214 Cost of sales 61,899 56,600 -------- -------- Gross profit 46,538 32,614 Selling, general, and administrative 40,378 31,588 -------- -------- Income from operations 6,160 1,026 Interest expense, net 684 626 -------- -------- Income before income tax 5,476 400 Income tax expense 2,204 160 -------- -------- Net income (Note 3) $ 3,272 $ 240 ======== ======== Net income per share (Note 4): Basic $ 0.13 $ 0.01 Diluted $ 0.13 $ 0.01 Weighted average shares outstanding: Basic 25,373 25,282 Diluted 25,780 25,516
See accompanying notes to condensed consolidated financial statements 3 COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
THREE MONTHS ENDED MARCH 31, ---------------------------- 2000 1999 ---- ---- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 3,272 $ 240 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 3,283 2,408 Non-cash compensation 170 241 Loss on disposal of property, plant, and equipment 8 16 Deferred income tax provision 333 405 Changes in operating assets and liabilities: Accounts receivable 36,300 25,182 Inventories (5,448) 929 Prepaid expenses and other current assets (1,146) 280 Intangibles and other assets 60 40 Accounts payable (8,842) 2,027 Accrued liabilities (3,312) (2,345) Income taxes payable (1,400) (3,355) -------- -------- Net cash provided by operating activities 23,278 26,068 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Additions to property, plant, and equipment (1,234) (4,631) Proceeds from sale of property, plant, and equipment 22 11 -------- -------- Net cash used in investing activities (1,212) (4,620) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Repayment on notes payable (9,447) (19,078) Repayment on long-term debt (60) (50) Proceeds from issuance of common stock 302 147 -------- -------- Net cash used in financing activities (9,205) (18,981) -------- -------- NET EFFECT OF EXCHANGE RATE CHANGES ON CASH 345 (137) -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS 13,206 2,330 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 14,622 6,777 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 27,828 $ 9,107 ======== ========
See accompanying notes to condensed consolidated financial statements 4 COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared by the management of Columbia Sportswear Company (the "Company") and in the opinion of management contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company's financial position as of March 31, 2000, and the results of operations for the three months ended March 31, 2000 and 1999 and cash flows for the three months ended March 31, 2000 and 1999. It should be understood that accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the three months ended March 31, 2000 are not necessarily indicative of the results to be expected for the full year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. It is suggested that these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. NOTE 2. INVENTORIES Inventories consist of the following (in thousands):
March 31, 2000 December 31, 1999 -------------- ----------------- Raw materials $ 3,391 $ 3,459 Work in process 10,117 9,197 Finished goods 78,128 73,809 ------- ------- $91,636 $86,465 ======= =======
NOTE 3. COMPREHENSIVE INCOME Comprehensive income and its components, net of tax, is as follows:
Three Months Ended March 31, -------------------- 2000 1999 ------- ------- Net income $ 3,272 $ 240 Foreign currency translation adjustments 13 (54) Unrealized loss on derivative transactions (230) 0 ------- ------- Comprehensive income $ 3,055 $ 186 ======= =======
NOTE 4. NET INCOME PER SHARE Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share," requires dual presentation of basic and diluted earnings per share ("EPS"). Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. 5 There were no adjustments to net income in computing diluted net income per share for the three months ended March 31, 2000 and 1999. A reconciliation of the common shares used in the denominator for computing basic and diluted net income per share is as follows:
Three Months Ended March 31, -------------------- 2000 1999 ------ ------ Weighted average common shares outstanding, used in computing basic net income per share 25,373 25,282 Effect of dilutive stock options 407 234 ------ ------ Weighted-average common shares outstanding, used in computing diluted net income per share 25,780 25,516 ====== ====== Net income per share of common stock: Basic $ 0.13 $ 0.01 Diluted $ 0.13 $ 0.01
NOTE 5. SEGMENT INFORMATION The Company operates in one industry segment: the design, production, marketing and selling of active outdoor apparel, including outerwear, sportswear, rugged footwear, and accessories. The geographic distribution of the Company's net sales, income before income tax, and identifiable assets are summarized in the following table (in thousands). Inter-geographic net sales, which are recorded at a negotiated mark-up and eliminated in consolidation, are not material.
Three Months Ended March 31, ------------------------- 2000 1999 -------- -------- Net sales to unrelated entities: United States $ 68,901 $ 63,321 Canada 10,471 7,192 Other International 29,065 18,701 -------- -------- $108,437 $ 89,214 ======== ======== Income before income tax: United States $ 1,993 $ 74 Canada 1,093 1,276 Other International 2,178 125 Less interest and other income (expense) and eliminations 212 (1,075) -------- -------- $ 5,476 $ 400 ======== ========
March 31, December 31, 2000 1999 --------- ------------ Total assets: United States $ 251,711 $ 274,222 Canada 19,688 24,905 Other international 48,903 45,254 --------- --------- 320,302 344,381 Eliminations (35,592) (39,391) --------- --------- $ 284,710 $ 304,990 ========= =========
6 NOTE 5. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT As part of the Company's risk management programs, the Company uses or used a variety of financial instruments, including foreign currency option and forward exchange contracts. The Company does not hold or issue derivative financial instruments for trading purposes. Effective April 1, 1999, the Company adopted SFAS No. 133 - "Accounting for Derivative Instruments and Hedging Activities" which requires that all derivative financial instruments, such as foreign exchange contracts, be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments are either recognized periodically in income or shareholders' equity (as a component of comprehensive income). Foreign Currency Exchange Risk Management The Company uses a combination of foreign currency option and forward exchange contracts to hedge against the currency risk associated with Japanese yen, Canadian dollar and European euro denominated, firmly committed and anticipated transactions for the next twelve months. The Company accounts for these instruments as cash flow hedges. In accordance with SFAS No. 133, such financial instruments are marked-to-market with the offset to shareholders' equity and then subsequently recognized as a component of gross margin when the underlying transaction is recognized. The Company measures hedge effectiveness of foreign currency option and forward exchange contracts based on the forward price of the underlying commodity. Hedge ineffectiveness was not material during the quarter ended March 31, 2000. 7 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS The statements in this report concerning certain expected future expenses as a percentage of net sales, future financing and working capital requirements and the impact of euro implementation on our business constitute forward - looking statements that are subject to risks and uncertainties. Many factors could cause actual results to differ materially from those projected in such forward looking statements, including risks described in our annual report on form 10-K for the year ended December 31, 1999 under the heading "Factors That May Affect Our Business". Factors that could adversely affect selling, general and administrative expense as a percentage of net sales include, but are not limited to, increased competitive factors (including increased competition, new product offerings by competitors and price pressures), unfavorable seasonal differences in sales volume, changes in consumer preferences, as well as an inability to increase sales to department stores or to open and operate new concept shops on favorable terms. Other factors could include a failure to manage growth effectively and unavailability of independent manufacturing, labor or supplies at reasonable prices. In addition, unfavorable business conditions, disruptions in the outerwear, sportswear and rugged footwear industries or changes in the general economy could have adverse effects. Factors that could materially affect future financing requirements include, but are not limited to, the ability to obtain additional financing on acceptable terms. Factors that could materially affect future working capital requirements include, but are not limited to, the industry factors and general business conditions noted above. Results of Operations The following table sets forth, for the periods indicated, selected income statement data expressed as a percentage of net sales.
Quarter Ended March 31, ----------------------- 2000 1999 ----- ----- Net sales 100.0% 100.0% Cost of sales 57.1 63.4 Gross profit 42.9 36.6 Selling, general and administrative expense 37.2 35.4 Income from operations 5.7 1.2 Interest expense, net 0.6 0.7 Income before income tax 5.1 0.5 Provision for income taxes 2.1 0.2 Net income 3.0% 0.3%
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999 NET SALES: Net sales increased 21.5% to $108.4 million for the three month period ended March 31, 2000 from $89.2 million for the comparable period in 1999. Domestic sales increased 8.8% to $68.9 million for the three month period ended March 31, 2000 from $63.3 million for the comparable period in 1999. Net international sales, excluding Canada, increased 55.6% to $29.1 million for the three month period ended March 31, 2000 from $18.7 million for the comparable period in 1999. Canadian sales increased 44.4% to $10.4 million for the three month period ended March 31, 2000 from $7.2 million for the same period in 1999. These increases were primarily attributable to increased sales of spring sportswear units across all regions and increased sales of footwear units primarily in Europe and Canada. 8 GROSS PROFIT: Gross profit as a percentage of net sales was 42.9% for the three months ended March 31, 2000 compared to 36.6% for the comparable period in 1999. The increase in gross margin was due primarily to decreased sales of fall close-out products and a higher percentage of net international sales, excluding Canada, during the three months ended March 31, 2000 which generally carry a higher gross margin. SELLING, GENERAL AND ADMINISTRATIVE EXPENSE: Selling, general, and administrative expense increased 27.8% to $40.4 million for the three months ended March 31, 2000 from $31.6 million for the comparable period in 1999, primarily as a result of an increase in variable selling and operating expenses to support the higher level of sales. As a percentage of sales, selling, general, and administrative expenses increased to 37.2% for the three months ended March 31, 2000 from 35.4% for the comparable period in 1999, primarily as a result of an increase in depreciation expense related to our distribution center. We believe that in the longer term we will be able to leverage selling, general, and administrative expense as a percentage of sales as our international operations become more established and our sportswear and footwear sales continue to expand. INTEREST EXPENSE: Interest expense increased by 9.3% for the three months ended March 31, 2000 from the comparable period in 1999. This increase was attributable to a reduction of capitalized interest associated with the expansion of our distribution center, which was completed in 1999. SEASONALITY OF BUSINESS Columbia's business is impacted by the general seasonal trends that are characteristic of many companies in the outdoor apparel industry in which sales and profits are highest in the third calendar quarter. Our products are marketed on a seasonal basis, with a product mix weighted substantially toward the fall season. Results of operations in any period should not be considered indicative of the results to be expected for any future period. The sale of our products is subject to substantial cyclical fluctuation or impact from unseasonal weather conditions. Sales tend to decline in periods of recession or uncertainty regarding future economic prospects that affect consumer spending, particularly on discretionary items. This cyclicality and any related fluctuation in consumer demand could have a material adverse effect on the our results of operations and financial condition. LIQUIDITY AND CAPITAL RESOURCES Our primary ongoing funding requirements are to finance working capital and continued growth of the business. At March 31, 2000, we had total cash equivalents of $27.8 million compared to $14.6 million at March 31, 1999. Cash provided by operating activities was $23.3 million for the three months ended March 31, 2000 and $26.1 million for the comparable period in 1999. This decrease was primarily due to an increase in inventory required to support higher sales levels. Our primary capital requirements are for working capital, investing activities associated with the expansion of our international operations and general corporate needs. Net cash used in investing activities was $1.2 million for the three months ended March 31, 2000 and $4.6 million for the comparable period in 1999. Cash used in financing activities was $9.2 million for the three months ended March 31, 2000 compared to cash used in financing activities of $19.0 million for the comparable period in 1999. The decrease in net cash used in financing activities was primarily due to a reduction of repayments of short-term borrowings as compared to the three months ended March 31, 1999. 9 To fund our working capital requirements, we have available unsecured revolving lines of credit with aggregate seasonal limits ranging from approximately $115 to $135 million. As of March 31, 2000, $21.7 million was outstanding under these lines of credit. Additionally, we maintain credit agreements in order to provide us with unsecured import lines of credit with a combined limit of approximately $105 million available for issuing documentary letters of credit. To finance expansion of our domestic distribution center, we entered into a note purchase agreement in 1998. Pursuant to the note purchase agreement, we issued senior promissory notes in the aggregate principal amount of $25 million, bearing an interest rate of 6.68% and maturing August 11, 2008. Up to an additional $15 million in shelf notes may be issued under the note purchase agreement. EURO CURRENCY CONVERSION European Union finance members approved 11 of the 15 member states for participation in economic and monetary union. On January 1, 1999, the Euro was adopted as the national currency of the participating countries - Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain. Initially, the Euro will be used for non-cash transactions. Legacy currencies of the participating member states will remain legal tender until January 1, 2002. On this date, Euro-denominated bills and coins will be issued for use in cash transactions. The introduction of the Euro is a significant event with potential implications for our existing operations within the participating countries. As such, we have committed resources to conduct risk assessments and to take corrective actions, where required, to ensure that we are prepared for the introduction of the Euro. We are undertaking a review of the Euro implementation both in participating and non-participating countries where we have operations. Progress regarding Euro implementation is reported periodically to management. We have not experienced any significant operational disruptions to date and do not expect the continued implementation of the Euro to cause any significant operational disruptions. In addition, we have not incurred and do not expect to incur any significant costs from the continued implementation of the Euro, including any additional currency risk, which could materially affect our liquidity or capital resources. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The information required by this item is included in the Notes to Condensed Consolidated Financial Statements and is incorporated herein by this reference. 10 PART II. OTHER INFORMATION ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Third Amended and Restated Articles of Incorporation. 3.2 2000 Restated Bylaws of the Company. 10.1 Executive Incentive Compensation Plan, as amended. 27.1 Financial Data Schedule. (b) Reports on Form 8-K None. 11 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLUMBIA SPORTSWEAR COMPANY Date: May 15, 2000 /s/ Patrick D. Anderson __________________ ______________________________________________ Patrick D. Anderson Chief Financial Officer and Authorized Officer 12