FILED PURSUANT TO RULE 424(b)4 REGISTRATION NUMBER 333-43199
5,600,000 SHARES
[LOGO]
COMMON STOCK
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Of the 5,600,000 shares of Common Stock offered, 4,480,000 shares are being
offered hereby in the United States and 1,120,000 shares are being offered in a
concurrent international offering outside the United States. The initial public
offering price and the aggregate underwriting discount per share are identical
for both offerings. See "Underwriting."
All of the 5,600,000 shares of Common Stock offered are being sold by the
Company.
Prior to this offering, there has been no public market for the Common Stock
of the Company. For factors that were considered in determining the initial
public offering price, see "Underwriting."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR CERTAIN CONSIDERATIONS RELEVANT
TO AN INVESTMENT IN THE COMMON STOCK.
The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "COLM."
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE DISCOUNT(1) COMPANY(2)
-------------------- -------------------- --------------------
Per Share....................... $18.00 $1.24 $16.76
Total(3)........................ $100,800,000 $6,944,000 $93,856,000
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(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933. See
"Underwriting."
(2) Before deducting estimated expenses of $740,000 payable by the Company.
(3) The Company has granted the U.S. Underwriters an option for 30 days to
purchase up to an additional 672,000 shares at the initial public offering
price per share, less the underwriting discount, solely to cover
over-allotments. Additionally, the Company has granted the International
Underwriters a similar option with respect to an additional 168,000 shares
as part of the concurrent international offering. If such options are
exercised in full, the total initial public offering price, underwriting
discount and proceeds to Company will be $115,920,000, $7,985,600 and
$107,934,400, respectively. See "Underwriting."
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The shares offered hereby are offered severally by the U.S. Underwriters, as
specified herein, subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that the shares
will be ready for delivery in New York, New York, on or about April 1, 1998,
against payment therefor in immediately available funds.
GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY SECURITIES LLC
PAINEWEBBER INCORPORATED
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The date of this Prospectus is March 26, 1998.
[Picture of Company advertisement featuring Gertrude Boyle, with caption "In
Oregon This Is Sexy.--Tim Boyle, President, Columbia Sportswear."
[Picture of Company advertisement featuring Gertrude Boyle, with caption "Quotes
From Chairman Ma. Inspiration from Mother Boyle, the skiwear revolutionary who
kowtows to no one. 'Follow the correct path to outdoor comfort, through the
Columbia Interchange System.' 'All that is required to overcome adversity are
reinforced stress points, double sewn seams, taller tunnel collars and storm
flaps.' 'Am I the only one who thinks in this business?' 'Evolution through
adaptation: when weather changes, one's ski parka had better change with it.' 'A
sensible and functional design is well suited to the masses. Have it on my desk
tomorrow.' 'I asked for a fifth outside pocket. Not how much it would cost.' 'A
reversible liner that is also waterproof? Sounds impossible. Build me one.'
'It's perfect. Now make it better.' "]
[Pictures of (i) model on beach wearing Company jacket, (ii) model fly-fishing
in Company vest, (iii) model hunting in Company jacket, (iv) model skiing in
Company jacket, (v) model skiing in Company jacket and (vi) model jumping in
Company sportswear.]
The Company intends to furnish to its shareholders annual reports containing
financial statements audited by an independent public accounting firm.
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CERTAIN PERSONS PARTICIPATING IN THE OFFERINGS MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT, STABILIZING AND SHORT-COVERING TRANSACTIONS IN SUCH
SECURITIES, AND THE IMPOSITION OF A PENALTY BID, IN CONNECTION WITH THE
OFFERINGS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
"Columbia Sportswear Company," "Columbia," "Convert," "Bugaboo,"
"Bugabootoo," "Interchange," "Omni-Dry" and "Silent Rain" are trademarks of the
Company. All other trademarks or trade names referred to in this Prospectus are
the property of their respective owners.
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND CONSOLIDATED FINANCIAL
STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN THIS PROSPECTUS. EXCEPT AS
OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS (I) ASSUMES NO EXERCISE OF
THE UNDERWRITERS' OVER-ALLOTMENT OPTIONS, (II) GIVES RETROACTIVE EFFECT TO THE
RECAPITALIZATION DESCRIBED IN "DESCRIPTION OF CAPITAL STOCK" AND (III) GIVES
RETROACTIVE EFFECT TO A 0.59-FOR-ONE REVERSE SPLIT OF THE COMMON STOCK EFFECTED
IN MARCH 1998.
THE COMPANY
Columbia Sportswear Company ("Columbia" or the "Company") is a global leader
in the design, manufacture, marketing and distribution of active outdoor
apparel. As one of the largest outerwear manufacturers in the world and the
leading seller of skiwear in the United States, the Company has developed an
international reputation across an expanding product line for quality,
performance, functionality and value. The Company believes its award-winning
advertising campaigns effectively position the Columbia brand as active,
outdoor, authentic and distinctly American.
Established in 1938, the family-owned Company has grown from a small,
regional hat distributor to a global leader in the active outdoor apparel
industry. The Company has its roots and developed its initial expertise in the
production of high quality, rugged outdoor fishing and hunting gear for the
serious sportsman. Known for durability and dependability at a reasonable price,
the Company leveraged its brand awareness in the 1990s by expanding into related
merchandise categories and developing its "head-to-toe" outfitting concept. The
Columbia brand appeals to a large, increasingly international consumer base.
Today, the Company distributes its products to over 10,000 retailers in 30
countries. The Company's sales and operating income have increased to $353.5
million and $44.3 million in 1997 from $18.8 million and $1.6 million in 1987,
representing compound annual growth rates of 30.6% and 35.1%, respectively. The
Company believes it will continue to grow by enhancing the productivity of
existing retailers, expanding distribution in international markets and further
developing merchandise categories.
The Company groups its broad range of competitively priced merchandise into
four categories-- outerwear, sportswear, rugged footwear and related
accessories. The durability, functionality and affordability of Columbia's
products make them ideal for use in a wide range of outdoor activities,
including skiing, snowboarding, hunting, fishing, hiking and golf, as well as
for casual wear. Throughout the product development cycle, merchandising and
design teams collaborate with retailers, the Columbia sales force and consumers
to ensure that the final product assortment of coordinated "head-to-toe"
merchandise meets or exceeds customer expectations. Across all of its product
lines, Columbia brings a commitment to innovative, functional product design and
a reputation for durable, high quality materials and construction. Columbia
believes it offers consumers one of the best price-value equations in the
outdoor apparel industry.
BUSINESS STRENGTHS
ESTABLISHED AND DIFFERENTIATED OUTDOOR LIFESTYLE BRAND. The Company
believes the Columbia brand represents a differentiated, active, outdoor,
authentic and distinctly American image built on quality, functionality,
performance and value. The Company's award-winning international marketing
campaigns, which feature Chairman Gertrude Boyle in the role of "Mother Boyle,"
an overbearing taskmaster who enforces tough Columbia quality standards,
emphasize this distinctive brand image.
BROAD AND GROWING APPEAL. Columbia's merchandise appeals to a broad range
of consumers of varying ages and income levels, from serious outdoorsmen to
weekend sports enthusiasts. The Company's price-value equation is attractive to
a large segment of the $10.4 billion U.S. retail outdoor apparel market.
Columbia is effectively positioned to compete against lower priced or unbranded
products based on brand image and product features, and against higher priced,
largely technical or fashion brands based on superior value and generally lower
price points. The Company has benefited in the
3
past and expects to continue to benefit from the trend toward casual dressing
and from the growth in demand for active lifestyle apparel.
PREMIUM QUALITY AT A REASONABLE PRICE. Columbia maintains a strong focus on
providing a superior mix of quality and value, which are defining elements of
the brand. The Company believes it is able to offer merchandise similar in
quality to its competitors at attractive price points by using its long-standing
supplier relationships to source high quality products from around the world
while controlling costs, relying on Company-supervised production of merchandise
by independent manufacturers, involving itself in the supply chain at an earlier
stage than is typical in the industry and avoiding the overdesign of its
products.
PROVEN AND EXPERIENCED MANAGEMENT TEAM. Senior management of Columbia has
substantial experience in the apparel industry and a demonstrated track record
of sales and earnings growth. Chairman Gertrude Boyle has been involved in the
business since 1970; President and Chief Executive Officer Timothy P. Boyle
joined Columbia in 1971; and Executive Vice President and Chief Operating
Officer Don Richard Santorufo joined the Company in 1979. Under their leadership
over the past decade, the Company's sales and operating income have increased at
compound annual growth rates of 30.6% and 35.1%, respectively. Immediately
following the Offerings, senior management will own over 76.8% of the Company.
FUNCTIONAL AND PERFORMANCE-ORIENTED DESIGN. All Columbia merchandise is
designed and developed in-house by experienced merchandising and design teams.
Working closely with internal sales and production teams as well as with
retailers and consumers, the Company's merchandising and design teams can reduce
the risks of fashion swings by developing superior products that are tailored
specifically to meet consumer requirements. Because its products are designed
for functionality and durability, the Company does not attempt to lead consumer
preferences or differentiate its products based primarily on fashion. In fact,
many new products are based on existing designs, such as the Bugaboo Parka, a
consistent best seller for more than a decade.
EFFECTIVE "HEAD-TO-TOE" MERCHANDISING. Columbia's "head-to-toe"
merchandising strategy presents retailers and consumers with a wide selection of
apparel and rugged footwear that shares common color palettes and outdoor
themes. Retailers and consumers both benefit from the ability to use Columbia as
a single source for an attractive array of merchandise. The Company's flagship
store, recently opened in Portland, Oregon, and the Company's successful
store-within-a-store concept ("concept shops") provide showcases for Columbia's
coordinated merchandise.
SOURCING AS A COMPETITIVE ADVANTAGE. Columbia's merchandise is produced
worldwide by independent manufacturers selected, monitored and coordinated by
local Columbia employees to assure conformity to strict quality and cost
standards. The Company believes the use of independent manufacturers, in
conjunction with the use of Columbia sourcing personnel rather than agents,
increases its production flexibility and capacity and allows it to maintain
control over critical aspects of the sourcing process, while at the same time
substantially reducing capital expenditures and avoiding the costs of managing a
large production work force.
SUPERIOR INVENTORY MANAGEMENT. From the time of purchasing through
production, distribution and delivery, the Company manages its inventory to
reduce risk. The sequencing of the product design, sourcing, production and
selling cycle mitigates inventory risk, in part by offering special discounts to
customers that purchase merchandise early. Because the Company's products are
not based primarily on fashion, and because Columbia undertakes extensive
analysis to ensure that its products are what consumers require, the Company
believes its inventory risk is not as great as that of some of its competitors.
A new state-of-the-art inventory management information system, expected to be
fully operational in late 1998, is expected to further enhance the Company's
ability to manage its inventory.
4
GROWTH STRATEGY
ENHANCE CHANNEL PRODUCTIVITY OF EXISTING CUSTOMERS. The Company plans to
improve the productivity of its existing customers by expanding its concept
shops and installing brand enhancement systems. Concept shops, which promote a
consistent brand image, are located within the stores of the Company's customers
and are dedicated exclusively to selling Columbia merchandise. As of December
31, 1997, the Company had 164 concept shops worldwide and plans to double this
number by the end of 1998. The Company believes its concept shops increase sales
by displaying a complete selection of merchandise and promoting
cross-merchandising opportunities on a year-round basis. Smaller-scale brand
enhancement systems, which include signage and fixtures that prominently display
consolidated groupings of Columbia merchandise, offer benefits similar to
concept shops. By the end of 1998, the Company also expects to have installed
1,000 in-store brand enhancement systems.
LEVERAGE THE COLUMBIA BRAND NAME IN INTERNATIONAL MARKETS. The Company
intends to capitalize on its size, strong U.S. brand position and worldwide
brand recognition by targeting certain high opportunity markets for development
or expansion. The Company has identified Europe and Asia as regions where
outdoor activities are consistently popular and where the Company can exploit
its active, outdoor, authentic and distinctly American brand image and
reputation for value. The Company is seeking to enhance its distribution in a
number of countries, including the United Kingdom, Italy, France, Spain, The
Netherlands, Sweden and Germany. The Company will assume control of the
distribution of its products in Japan in late 1998 and recently opened sales
counters dedicated to Columbia merchandise in 15 retail stores in South Korea.
Although the Company has made significant progress in international expansion
over the last several years, substantial opportunity for growth exists. Net
sales outside North America have increased from $9.0 million in 1993 to $35.4
million in 1997, but still represented only 10.0% of the Company's total net
sales in 1997.
DEVELOP EXISTING MERCHANDISE CATEGORIES. The Company intends to realize
growth by further developing existing product categories, such as sportswear and
rugged footwear, where there remains ample room for growth in market share. The
Company's success in designing and marketing products has allowed Columbia to
significantly broaden its assortment in existing categories. From 1993 through
1997, outerwear and sportswear sales increased 43.7% and 221.5%, respectively,
in part as a result of new product introductions. Since it was introduced in
1993, net sales of the Company's rugged footwear have increased from $1.2
million to $24.3 million in 1997. The Company believes opportunities exist for
continued rapid growth in sales of rugged footwear as distribution is expanded
to sporting goods and specialty outdoor stores that carry the Company's
outerwear and sportswear categories.
SELECTIVELY BROADEN RETAIL DISTRIBUTION. The Company believes that over the
longer term significant opportunities exist to increase sales of its products to
department stores and footwear specialty shops. Although sales to department
stores accounted for less than 19% of the Company's U.S. net sales in 1997, the
Company believes this percentage will rise because department store retailers
often prefer to purchase products from vendors that can offer complete
head-to-toe product lines.
The Company was established in 1938 and was incorporated under Oregon law in
1961. The Company's executive offices are located at 6600 North Baltimore,
Portland, Oregon 97203, and its telephone number is (503) 286-3676.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective purchasers of the Common Stock.
5
THE OFFERINGS(1)
Shares of Common Stock offered:
U.S. Offering......................................... 4,480,000 shares
International Offering................................ 1,120,000 shares
Total Common Stock Offered.......................... 5,600,000 shares
Total Common Stock to be outstanding after the
Offerings............................................. 24,392,176 shares(2)
Use of proceeds......................................... Payment of S corporation dividends to existing
shareholders. See "Use of Proceeds."
Proposed Nasdaq National Market symbol.................. COLM
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(1) The offering of 4,480,000 shares of Common Stock initially offered in the
United States (the "U.S. Offering") and the concurrent offering of 1,120,000
shares of Common Stock initially offered outside the United States (the
"International Offering") are collectively referred to as the "Offerings."
The underwriters for the U.S. Offering (the "U.S. Underwriters") and the
underwriters for the International Offering (the "International
Underwriters") are collectively referred to as the "Underwriters." The
completion of the U.S. Offering is conditioned on the completion of the
International Offering, and vice versa.
(2) Excludes 2,500,000 shares reserved for issuance under the Company's 1997
Stock Incentive Plan (the "Stock Incentive Plan"), of which 736,774 shares
were subject to outstanding options at December 31, 1997 at a weighted
average exercise price of $10.40 per share. See "Management--Stock Incentive
Plan."
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes forward-looking statements, including statements
concerning planned expansion and financial resources, in "Summary" under the
captions "The Company," "Business Strengths" and "Growth Strategy," in "Risk
Factors" under the captions "Uncertain Ability to Implement Growth Strategy" and
"Management of Growth; Expansion of Distribution Facility," in "Management's
Discussion and Analysis of Financial Condition and Results of Operations" under
the captions "Overview" and "Liquidity and Capital Resources" and in "Business"
under the captions "Introduction," "Business Strengths," "Growth Strategy,"
"Industry Overview," "Products," "Business Process" and "Management Information
System." These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties related to the Company's
operations, some of which are beyond the Company's control. Certain factors that
could cause results to differ materially from those projected in the
forward-looking statements are described in "Risk Factors," including, but not
limited to, competition, new product offerings by competitors and price
pressures; seasonality, fluctuations in operating results and economic
cyclicality; effects of weather; changes in consumer preferences; the Company's
ability to implement its growth strategy, including management of growth and
expansion of its distribution facility; dependence on key personnel, independent
manufacturers and key suppliers; advance purchases of products; risks related to
collectibility of receivables; product liability and warranty exposures;
international operations, including risks associated with foreign operations
such as currency exchange rate fluctuations; and dependence on proprietary
rights. Risks and uncertainties that could have a material adverse effect on the
Company are also described in "Management's Discussion and Analysis of Financial
Condition and Results of Operations" under the captions "Quarterly Results of
Operations and Seasonality" and "Liquidity and Capital Resources," and in
"Business" under the captions "Intellectual Property," "Competition" and
"Government Regulation." Any of these risks or uncertainties may cause actual
results or future circumstances to differ materially from any future results or
circumstances expressed or implied by the forward-looking statements contained
in this Prospectus.
6
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
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1993 1994 1995 1996 1997
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STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 192,055 $ 256,426 $ 303,797 $ 298,988 $ 353,452
Gross profit........................... 79,511 107,486 120,826 122,129 154,506
Selling, general and administrative
expense(1)........................... 46,351 64,049 84,583 95,431 110,204
Earnings from operations............... 33,160 43,437 36,243 26,698 44,302
Net income............................. 30,748 38,324 28,726 21,010 39,296
Pro forma net income(2)................ $ 18,883 $ 24,130 $ 18,286 $ 13,487 $ 24,425
Pro forma net income per share(2):
Basic................................ $ 1.00
Diluted.............................. $ 0.99
Pro forma weighted average shares
outstanding(3):
Basic................................ 24,392
Diluted.............................. 24,703
DECEMBER 31, 1997
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ACTUAL AS ADJUSTED(4)
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BALANCE SHEET DATA:
Working capital................................................. $ 69,706 $ 70,722
Inventories..................................................... 48,300 48,300
Total assets.................................................... 174,477 177,377
Long-term debt.................................................. 2,831 2,831
Shareholders' equity............................................ 110,535 111,551
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(1) For 1995 includes a $2.5 million payment in settlement of certain
litigation; for 1996 includes an $8.5 million charge related to the
termination of a compensation arrangement in exchange for the issuance of
Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Management--Certain Transactions" and
Note 13 of Notes to Consolidated Financial Statements.
(2) The Company was an S corporation and accordingly was not subject to federal
and, generally, state income taxes during the periods indicated. Pro forma
net income reflects federal and state income taxes as if the Company had
been a C corporation, based upon a pro forma effective tax rate of 40%. See
"Dividend Policy and S Corporation Status" and Note 1 of Notes to
Consolidated Financial Statements.
(3) Includes the number of shares to be sold in the Offerings to generate
proceeds to be used for the payment of dividends in the estimated aggregate
amount of $95 million to existing shareholders, which the Company expects to
declare prior to the completion of the Offerings. See "Dividend Policy and S
Corporation Status," "Certain Transactions" and Note 1 of Notes to
Consolidated Financial Statements.
(4) Adjusted to reflect (i) the payment of dividends of approximately $95
million to existing shareholders, declared in March 1998, (ii) the recording
of $2.9 million of deferred income tax benefit as if the Company had been a
C corporation since 1988 and (iii) the sale of the 5,600,000 shares offered
by the Company in the Offerings at an initial public offering price of
$18.00 per share and the application of the estimated net proceeds
therefrom. See "Use of Proceeds," "Dividend Policy and S Corporation
Status," "Certain Transactions" and Note 1 of Notes to Consolidated
Financial Statements.
7
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING RISK
FACTORS SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED BY THIS PROSPECTUS.
COMPETITION
The markets for outerwear, sportswear and rugged footwear are highly
competitive. Within each of its geographic markets, the Company faces
significant competition from global and regional branded apparel and footwear
companies, as well as retailers that market apparel and footwear under their own
labels. These and other competitors pose significant challenges to the Company's
market share in its major U.S. and Canadian markets and make it more difficult
to make gains in newer markets in Europe and Asia. The Company also competes
with other apparel and footwear companies for the production capacity of
independent manufacturers that produce the Company's apparel and for import
quota capacity. See "--Dependence on Independent Manufacturers" and
"Business--Business Process-- Sourcing and Manufacturing." Many of the Company's
competitors are significantly larger and have substantially greater financial,
distribution, marketing and other resources and have achieved greater
recognition for their brand names for product lines or certain products than the
Company. Increased competition by existing and future competitors could result
in reductions in display areas in retail locations, reductions in sales or
reductions in prices of the Company's products. There is no assurance that the
Company will be able to compete successfully against present or future
competitors or that competitive pressures faced by the Company will not have a
material adverse effect on the Company. See "Business--Competition."
SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS; ECONOMIC CYCLICALITY
The Company's results of operations have fluctuated and may continue to
fluctuate significantly from period to period. The Company's products are
marketed on a seasonal basis, with a product mix now weighted substantially
toward the fall season. Consequently, the Company's results of operations for
the quarter ending September 30 have in the past been much stronger than the
results for the other quarters. This seasonality, along with other factors that
are beyond the Company's control, including general economic conditions, changes
in consumer behavior, weather conditions, availability of import quotas and
currency exchange rate fluctuations, could adversely affect the Company and
cause its results of operations to fluctuate. Results of operations in any
period should not be considered indicative of the results to be expected for any
future period. The sale of the Company's products, particularly skiwear, is
subject to substantial cyclical fluctuation. 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 Company's results of operations and financial condition. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results of Operations and Seasonality."
EFFECTS OF WEATHER
Sales of the Company's outerwear are dependent in part on the weather and
may decline in years in which weather conditions do not favor the use of the
Company's outerwear. For example, the Company believes unseasonably warm weather
in the northern United States in late 1994 caused customers to delay, and in
some cases reduce or cancel, orders for the Company's outerwear, including
skiwear and snowboarding apparel, which had an adverse effect on the Company's
net sales and gross margins in 1994 and 1995. Sustained periods of unseasonably
warm weather could have a material adverse effect on the Company.
8
CONSUMER PREFERENCES
The Company believes it has benefited from changing consumer preferences and
increasing consumer interest in outdoor activities and from lifestyle changes
that emphasize apparel designed for these activities, but these trends may not
continue. Any change in consumer preferences or consumer interest in outdoor
activities could have a material adverse effect on the Company. In addition,
although the Company believes its products have not been significantly affected
by past fashion trends, changes in fashion trends could have a greater impact as
the Company expands its product offerings to include more sportswear.
Furthermore, decisions about product designs often are made in advance of
consumer acceptance. Although the Company attempts to manage its inventory risk
through early commitments by retailers, production orders must generally be
placed with manufacturers before all of a season's orders are received by the
Company. Failure to anticipate and respond to changes in consumer preferences
and demands could lead to, among other things, lower sales, excess inventories
and lower margins, which could have a material adverse effect on the Company.
UNCERTAIN ABILITY TO IMPLEMENT GROWTH STRATEGY
As part of its growth strategy, the Company seeks to develop existing
merchandise categories and increase international distribution, including in
countries where the Company has little distribution experience and where the
Company's brand name is not well-known. There is no assurance that these
strategies will be successful. The Company also intends to increase its sales of
products to department stores and expand the number of concept shops located
within retailers. Increasing sales to department stores, and the actual number
of concept shops to be opened and their success, will each depend on various
factors, including strength of the Company's brand name, competitive conditions,
the ability of the Company to manage the increased sales and concept shop
expansion, the availability of desirable locations and the negotiation of terms
with the department stores and the retailers in which the concept shops are
located. There is no assurance that future terms will be as favorable to the
Company as those under which the Company now operates or that these terms will
not adversely affect the Company's ability to manage inventory risk. There is no
assurance that the Company will be able to increase its sales to department
stores or to open and operate new concept shops on a profitable basis. There is
no assurance that the Company's growth strategies will be successful or that the
Company's sales or net income will increase as a result of the implementation of
such strategies. See "Business--Growth Strategy" and "--Business Process."
MANAGEMENT OF GROWTH; EXPANSION OF DISTRIBUTION FACILITY
Successful implementation of the Company's business strategy will require
the Company to manage growth. To manage growth effectively, the Company will
need to continue to implement changes in certain aspects of its business, to
enhance its information systems and operations to respond to increased demand,
to attract and retain qualified personnel and to develop, train and manage an
increasing number of management-level and other employees. Growth could place an
increasing strain on Company management, financial, product design, marketing,
distribution and other resources, and the Company could experience operating
difficulties. The Company is replacing its management information system with an
enterprise system that integrates electronic data interchange ("EDI") and
inventory management capabilities. The system, some aspects of which are already
operational, is expected to be fully operational in late 1998. Delays or other
difficulties in implementing this system could disrupt the Company's ability to
manage its inventory effectively. In addition, the Company plans to increase the
size of its Portland, Oregon distribution facility substantially by early 1999
to meet expected future growth. In connection with this expansion, the Company
plans to implement a new warehouse management system. There is no assurance that
this expansion will be completed on time or will not interfere with existing
operations. Any failure to manage growth effectively could have a material
adverse effect on the Company's results of operations and financial condition.
9
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend in part on the continued service of
certain key management and other personnel, including Gertrude Boyle, the
Company's Chairman, Timothy P. Boyle, the Company's President and Chief
Executive Officer, and Don Richard Santorufo, the Company's Executive Vice
President and Chief Operating Officer, and on the Company's ability to attract
and retain qualified managerial, design, sales and marketing personnel.
Competition for these employees is intense. There is no assurance that the
Company can retain its existing key personnel or that it can attract and retain
sufficient numbers of qualified employees in the future. The loss of key
employees or the inability to hire or retain qualified personnel in the future
could have a material adverse effect on the Company. See "Management."
DEPENDENCE ON INDEPENDENT MANUFACTURERS
The Company's products are produced by approximately 115 independent
manufacturers worldwide. For 1997 product sales, approximately 94% (by dollar
volume) of the Company's products were produced by independent manufacturers,
and approximately 86% (by dollar volume) of the Company's products were produced
outside the United States, principally in the Far East. Other than its facility
for the production of fleece products and accessories in Chaffee, Missouri, the
Company does not operate any production facilities. Six manufacturers engaged by
the Company accounted for approximately 38.5% (by dollar volume) of the
Company's total production for 1997 product sales. The primary production
facilities of these manufacturers are located in Asia. No other manufacturer
accounted for more than five percent of the Company's total production for 1997
product sales.
The inability of a manufacturer to ship orders of the Company's products in
a timely manner or to meet the Company's quality standards could cause the
Company to miss the delivery requirements of its customers for those items,
which could result in cancellation of orders, refusal to accept deliveries or a
reduction in purchase prices, any of which could have a material adverse effect
on the Company. Although the Company enters into a number of purchase order
commitments each season specifying a time frame for delivery, method of payment,
design and quality specifications and other standard industry provisions, the
Company does not have long-term contracts with any manufacturer. In addition,
the Company competes with other companies for the production capacity of
independent manufacturers and import quota capacity. Certain of these competing
companies have substantially greater brand recognition and financial and other
resources than the Company and thus may have an advantage in the competition for
production and import quota capacities. None of the manufacturers used by the
Company produces the Company's products exclusively.
For production of a significant portion of the Company's products,
principally in China, Columbia directly purchases the raw material from
suppliers, obtains or arranges for any necessary import quotas and ships the
materials in a "kit" to the independent manufacturer that has been selected by
Columbia to produce the finished garment. This arrangement advances the timing
for inventory purchases and advances the point in the sourcing process at which
the Company is subject to the risk of loss or damage to the materials before a
finished garment is manufactured. In addition, independent manufacturers may
find traditional vendor relationships more profitable and may therefore perceive
an incentive to give priority to customers using those methods.
The Company requires its independent manufacturers to operate in compliance
with applicable laws and regulations. Although the Company's internal and vendor
operating guidelines promote ethical business practices and the Company's
sourcing personnel periodically visit and monitor the operations of its
independent manufacturers, the Company does not control these vendors or their
labor practices. The violation of labor or other laws by an independent
manufacturer of the Company, or the divergence of an independent manufacturer's
labor practices from those generally accepted as ethical in the United States,
could result in adverse publicity for the Company and could have a material
adverse effect on the Company.
10
DEPENDENCE ON KEY SUPPLIERS
Certain of the specialty fabrics used by the Company and manufactured to its
custom specification may be available, in the short-term, from only one or a
very limited number of sources. While the Company believes it could identify and
qualify additional factories to produce these materials, the unavailability of
certain existing manufacturers for supply of these materials, for any reason,
could have a material adverse effect on the Company.
ADVANCE PURCHASES OF PRODUCTS
To minimize purchasing costs, the time necessary to fill customer orders and
the risk of non-delivery, the Company places orders for its products with its
manufacturers prior to the time the Company has received all of its customers'
orders and maintains an inventory of certain products that it anticipates will
be in greater demand. There is no assurance, however, that the Company will be
able to sell the products it has ordered from manufacturers or that it has in
its inventory. Customer orders, moreover, are cancelable by the customer up to
45 days prior to the date of the shipment of the products. Inventory levels in
excess of customer demand may result in inventory write-downs and the sale of
excess inventory at discounted prices, which could have a material adverse
effect on the Company. As of December 31, 1997, the Company had $82.5 million of
open purchase orders with its manufacturers and $48.3 million of inventory at
cost. See "Business--Business Process."
RISKS RELATED TO COLLECTIBILITY OF RECEIVABLES
The Company extends credit to its customers based on an assessment of a
customer's financial circumstances, generally without requiring collateral. To
assist in the scheduling of production and the shipping of seasonal products,
the Company offers customers discounts for placing pre-season orders and
extended payment terms for taking delivery before the peak shipping season.
These extended payment terms increase the Company's exposure to the risk of
uncollectible receivables. The Company's single largest customer, J.C. Penney
Company, Inc. ("J.C. Penney"), accounted for approximately eight percent of the
Company's net sales for 1997. Significant customers of the Company have
experienced financial difficulties in the past, and future financial
difficulties of customers could have a material adverse effect on the Company.
PRODUCT LIABILITY; WARRANTY EXPOSURE
The Company's products are used in outdoor activities, sometimes in severe
weather conditions. Purchasers of these products depend on products to be well
designed and durable. Although the Company has not experienced any significant
expense as the result of product recalls or product liability claims, there is
no assurance that it will not incur expenses in connection with product recalls
or product liability claims that could have a material adverse effect on the
Company.
Substantially all of the Company's products are backed by a lifetime limited
warranty for defects in quality and workmanship. The Company maintains a
warranty reserve for future warranty claims, but the actual costs of servicing
future warranty claims may significantly exceed the reserve, which could have a
material adverse effect on the Company. See Note 2 of Notes to Consolidated
Financial Statements.
INTERNATIONAL OPERATIONS
Approximately 86% of the Company's products are sourced outside the United
States through arrangements with over 85 manufacturers in 12 countries. In
addition, the Company is increasing its international sales efforts. As a
result, the Company's business is subject to the risks generally associated with
doing business abroad, such as foreign governmental regulations, foreign
consumer preferences, political unrest, disruptions or delays in shipments and
changes in economic conditions in countries in which the Company manufactures or
sells its products. For example, the recent turmoil in Asian markets may
adversely affect the Company's ability to receive and deliver its products.
These factors, among others, could influence the Company's ability to sell its
products in international markets,
11
as well as its ability to manufacture its products or procure certain materials.
If any such factors were to render the conduct of business in a particular
country undesirable or impractical, there could be a material adverse effect on
the Company. The Company continues to monitor the political stability of the
Asian countries and the financial condition of the factories with which it
conducts business. Many of the Company's imports are subject to existing or
potential duties, tariffs or quotas that may limit the quantity of certain types
of goods that may be imported into the United States, including constraints
imposed by bilateral textile agreements between the United States and a number
of foreign countries. These agreements impose quotas on the amounts and types of
merchandise that may be imported into the United States from these countries.
These agreements also allow the signatories to adjust the quantity of imports
for categories of merchandise that, under the terms of the agreements, are not
currently subject to specific limits. The Company's imported products are also
subject to United States customs duties, which comprise a material portion of
the cost of the merchandise. The United States and the countries in which the
Company's products are produced or sold may impose new quotas, duties, tariffs
or other restrictions, or may adversely adjust prevailing quota, duty or tariff
levels, any of which could have a material adverse effect on the Company. A
significant portion of the Company's products is produced in China. In June 1997
President Clinton extended to June 1998 "most favored nation" ("MFN") non-
discriminatory trading status to China. Under U.S. law, MFN status for China is
reviewed annually. The United States has extended MFN status to China each year
since 1980. China is a material source of production for the Company. A
revocation of MFN status would result in a substantial increase in tariff rates
on goods imported from China and therefore could adversely affect the Company's
operations. In addition, in response to alleged transshipment of apparel by
China, the U.S. government may reduce quotas for certain garments imported from
China in 1998. A reduction in quotas for Chinese products could have a material
adverse effect on the Company. See "Business--Business Process--Sourcing and
Manufacturing" and "--Government Regulation."
CURRENCY EXCHANGE RATE FLUCTUATIONS
The Company generally purchases its products in U.S. dollars. The Company,
however, sources a significant amount of its products overseas and the cost of
these products may be affected by changes in the value of the relevant
currencies. Price increases caused by currency exchange rate fluctuations could
make the Company's products less competitive or have an adverse effect on the
Company's margins. The Company's international revenue generally is derived from
sales in foreign currencies, and this revenue could be materially affected by
currency fluctuations, including upon translation of amounts received in foreign
currencies into U.S. dollars following sale by the Company. For example, net
sales and gross margins with respect to the Company's sales in Korea have been
adversely affected by the recent devaluation of the Korean won, although the
effect on the Company's overall operations has not been material. Currency
exchange rate fluctuations could also disrupt the business of the independent
manufacturers that produce the Company's apparel by making their purchases of
raw materials more expensive and adversely affecting their ability to obtain
financing for raw materials. Beginning in late 1997, the Company implemented a
program to hedge against its exposure to currency exchange rate fluctuations.
There is no assurance that the hedging program will be successful or that
foreign currency fluctuations will not have a material adverse effect on the
Company. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview."
DEPENDENCE ON PROPRIETARY RIGHTS
The Company uses a number of trademarks, certain of which it has registered
with the United States Patent and Trademark Office and in selected foreign
countries. The Company believes its registered and common law trademarks have
significant value and that some of its trademarks are important to its ability
to create and sustain demand for its products. The Company also places
significant value on its trade dress, the overall appearance and the image of
its products. Although the Company has not been materially inhibited from
selling its products in connection with trademark or trade dress disputes, there
is no assurance that significant obstacles will not arise as it expands its
product line and geographic scope of its marketing. In markets outside the
United States, it may be more difficult for the Company to
12
establish its proprietary rights and to challenge successfully use of those
rights by other parties. There is no assurance, moreover, that the Company's
trademarks or trade dress do not or will not violate the proprietary rights of
others, that they would be upheld if challenged or that the Company would, in
that event, not be prevented from using its trademarks or trade dress, any of
which could have a material adverse effect on the Company. From time to time,
the Company discovers products that are counterfeit reproductions of the
Company's products or that otherwise infringe upon proprietary rights held by
the Company. If the Company is unsuccessful in challenging a party's products on
the basis of trademark or trade dress infringement, continued sales of these
products by that or any other party could adversely impact the Columbia brand,
result in the shift of consumer preference away from the Company and generally
have a material adverse effect on the Company. There is no assurance that
actions taken by the Company to establish and protect its trademarks and other
proprietary rights will be adequate to prevent imitation of its products by
others or to prevent others from seeking to block sales of the Company's
products as violating of trademarks and proprietary rights. In addition, the
Company could incur substantial costs in legal actions relating to the Company's
use of intellectual property or the use of the Company's intellectual property
rights by others, which even if successful, could have a material adverse effect
on the Company. In 1995 the Company paid $2.5 million to another party to settle
a dispute over the use of certain marks, including the word "Columbia." See
"Business--Intellectual Property."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offerings, there has been no public market for the Company's
Common Stock. There is no assurance that an active trading market will develop
or be sustained after completion of the Offerings or that the market price of
the Common Stock will not decline below the initial public offering price. The
initial public offering price of the Common Stock was determined through
negotiations between the Company and the representatives of the Underwriters.
See "Underwriting." The Company believes quarterly fluctuations in its financial
results and factors not directly related to the Company's operating performance,
such as product or financial results announcements by other apparel companies,
could contribute to the volatility of the price of its Common Stock, causing it
to fluctuate significantly. These factors, as well as general economic
conditions, such as recessions or high interest rates, may adversely affect the
market price of the Common Stock.
CONTROL BY PRINCIPAL SHAREHOLDERS; BENEFITS TO EXISTING SHAREHOLDERS
Upon completion of the Offerings, Gertrude Boyle, Chairman of the Board,
Timothy P. Boyle, President, Chief Executive Officer and a director and Ms.
Boyle's son, Sarah Bany, Director of Retail Operations and a director and Ms.
Boyle's daughter, and Don Santorufo, Executive Vice President and Chief
Operating Officer, will beneficially own approximately 76.8% of the outstanding
Common Stock. As a result, if acting together they will be able to control all
matters requiring approval by the shareholders of the Company, including the
election of directors and the amendment of the Company's articles of
incorporation, without the cooperation of other shareholders. Furthermore, the
Company will use the net proceeds of the Offerings and increased borrowings to
pay dividends of approximately $95 million to existing shareholders of the
Company. See "Use of Proceeds," "Dividend Policy and S Corporation Status,"
"Certain Transactions" and "Principal Shareholders."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of the Common Stock in the public
market following the Offerings, or the prospect of such sales, could adversely
affect the market price of the Common Stock and the Company's ability to raise
capital in the future in the equity markets. Upon completion of the Offerings,
there will be 24,392,176 shares of Common Stock outstanding. Of these shares,
the 5,600,000 shares to be sold in the Offerings will be eligible for immediate
resale without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless purchased by an "affiliate" of the Company, as that
term is defined in Rule 144 under the Securities Act. Upon expiration of lock-up
13
agreements with the representatives of the Underwriters, 180 days after the date
of this Prospectus (or earlier with the consent of the representatives of the
Underwriters), 17,575,543 shares will be eligible for immediate resale subject
to the limitations of Rule 144. As of December 31, 1997, options to purchase
736,774 shares of Common Stock had been granted under the Stock Incentive Plan.
The Company intends to file as soon as practicable following completion of the
Offerings a registration statement on Form S-8 under the Securities Act covering
shares of Common Stock reserved for issuance under the Stock Incentive Plan.
This registration statement is expected to become effective immediately upon
filing, whereupon, subject to the satisfaction of applicable exercisability
periods, Rule 144 volume limitations applicable to affiliates and, in certain
cases, the agreements with the representatives of the Underwriters referred to
above, shares of Common Stock issued upon exercise of outstanding options
granted pursuant to the Stock Incentive Plan will be available for immediate
resale in the open market.
POTENTIAL ISSUANCE OF PREFERRED STOCK; ANTI-TAKEOVER EFFECT OF OREGON LAW
The Company is authorized to issue up to 10,000,000 shares of Preferred
Stock, and the Board of Directors may fix the preferences, limitations and
relative rights of those shares without any vote or action by the shareholders.
The potential issuance of Preferred Stock, certain provisions of Oregon law and
the concentrated ownership of the Company could make it more difficult for a
party to gain control of the Company. See "Description of Capital Stock."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 5,600,000 shares of
Common Stock by the Company in the Offerings (after deducting the underwriting
discount and estimated offering expenses) are estimated to be $93.1 million
($107.2 million if the Underwriters' over-allotment options are exercised in
full). The Company intends to use the net proceeds to pay dividends to the
Company's existing shareholders.
DIVIDEND POLICY AND S CORPORATION STATUS
The Company expects to retain any earnings to finance the expansion and
development of its business and, except as described below, has no plans to pay
cash dividends after the Offerings for the foreseeable future. The payment of
dividends is within the discretion of the Company's Board of Directors and will
depend on the earnings, capital requirements and operating and financial
condition of the Company, among other factors. Certain of the Company's credit
agreements restrict the Company's ability to pay dividends. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
Since 1988 the Company has been treated for federal income tax purposes as
an S corporation under Subchapter S of the Internal Revenue Code and has
generally been treated as an S corporation for state income tax purposes under
comparable state tax laws. As a result, the Company's earnings through the day
preceding the date of termination of the Company's S corporation status (the
"Termination Date") have been or will be for federal and, generally, state
income tax purposes taxed directly to the Company's shareholders, at their
individual federal and state income tax rates, rather than to the Company. The
Termination Date will occur on or prior to the date of the closing of the
Offerings. Subsequent to the Termination Date, the Company will no longer be
treated as an S corporation and, accordingly, will be subject to federal and
state income taxes on its earnings. See Notes 1 and 2 of Notes to Consolidated
Financial Statements.
In 1997 and 1996, the Company declared cash dividends to its shareholders in
the aggregate amounts of $18,525,000 and $8,543,000, respectively. In March
1998, the Company declared additional dividends to its existing shareholders in
an amount equal to the greater of $95 million or the amount of the Company's
Subchapter S accumulated adjustments account as of the Termination Date, which
the Company believes will be approximately $95 million but could be greater. See
"Use of Proceeds" and "Certain Transactions."
14
DILUTION
As of December 31, 1997, the Company had a net tangible book value (giving
effect to dividends of $95 million expected to be declared prior to completion
of the Offerings and the recording of a deferred tax asset in the amount of $2.9
million as described under "Capitalization") of approximately $17.7 million or
$0.94 per share. Net tangible book value per share is equal to total tangible
assets (total assets less intangible assets) less total liabilities of the
Company, divided by the number of shares of Common Stock then outstanding.
Without taking into account any adjustment in net tangible book value
attributable to operations after December 31, 1997, after giving effect to the
sale by the Company of 5,600,000 shares in the Offerings at an initial public
offering price of $18.00, the net tangible book value of the Company as of
December 31, 1997 (after deduction of the underwriting discount and estimated
offering expenses and the application of the net proceeds as described under
"Use of Proceeds") would have been approximately $110.8 million or $4.54 per
share. This represents an immediate increase in net tangible book value of $3.60
per share to existing shareholders and an immediate dilution of $13.46 per share
to new investors. The following table illustrates this per share dilution:
Initial public offering price per share..................................... $ 18.00
Net tangible book value per share as of December 31, 1997................. 0.94
Increase per share attributable to new investors.......................... 3.60
---------
Net tangible book value per share after the Offerings....................... 4.54
---------
Dilution per share to new investors......................................... $ 13.46
---------
---------
The following table summarizes as of December 31, 1997 the relative
investments of all existing shareholders and new investors, giving effect to the
sale by the Company of shares in the Offerings at an initial public offering
price of $18.00 per share (without giving effect to underwriting discount and
offering expenses payable by the Company):
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- ---------------
Existing shareholders......... 18,792,176 77.0% $ 15,535,000 13.4% $ 0.83
New investors................. 5,600,000 23.0 100,800,000 86.6 18.00
---------- ----- ------------- -----
Total..................... 24,392,176 100.0% $ 116,335,000 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
The above information assumes no exercise of any outstanding options after
December 31, 1997. As of December 31, 1997, there were outstanding options to
purchase an aggregate of 736,774 shares of Common Stock at exercise prices
ranging from $9.68 to $15.20 per share. Purchasers of shares of Common Stock
offered in the Offerings may incur additional dilution to the extent outstanding
stock options are exercised. See "Management--Stock Incentive Plan" and Note 10
of Notes to Consolidated Financial Statements.
15
CAPITALIZATION
The following table sets forth the capitalization and short-term obligations
of the Company on an actual basis as of December 31, 1997 and on an as adjusted
basis to give effect to (i) the payment of dividends after December 31, 1997 and
(ii) the receipt and application of the estimated net proceeds to the Company
from the sale of the 5,600,000 shares of Common Stock offered by the Company in
the Offerings at an initial public offering price of $18.00 per share. This
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and the Consolidated Financial
Statements and notes thereto included elsewhere in this Prospectus.
DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(1)
--------- ---------------
(IN THOUSANDS)
Short-term obligations:
Notes payable(2).............................................. $ 20,427 $ 22,311
Current portion of long-term obligations...................... 154 154
--------- ---------------
Total short-term obligations................................ 20,581 22,465
Long-term obligations, net of current portion................... 2,831 2,831
--------- ---------------
Shareholders' equity:
Preferred Stock, 10,000,000 shares authorized; no shares
issued and outstanding...................................... -- --
Common Stock, 50,000,000 shares authorized; 18,792,176 shares
issued and outstanding, actual; 24,392,176 shares issued and
outstanding, as adjusted(3)................................. 17,886 111,002
Retained earnings............................................. 101,805 9,705
Foreign currency adjustments.................................. (3,806) (3,806)
Unearned portion of restricted stock issued for future
services.................................................... (5,350) (5,350)
--------- ---------------
Total shareholders' equity.................................. 110,535 111,551
--------- ---------------
Total capitalization........................................ $ 133,947 $ 136,847
--------- ---------------
--------- ---------------
- --------------
(1) Adjusted to reflect (i) the payment of dividends in the estimated aggregate
amount of $95 million for S corporation distributions to existing
shareholders, which the Company declared in March 1998,(ii) borrowings of
$1.9 million to pay dividends to shareholders, (iii) the recording of $2.9
million of deferred income tax benefit as if the Company had been a C
corporation and (iv) the sale of the 5,600,000 shares offered by the Company
in the Offerings, receipt of the estimated net proceeds of $93.1 million
therefrom and the application of such proceeds to payment of dividends by
the Company. See "Use of Proceeds," "Dividend Policy and S Corporation
Status," "Certain Transactions" and Notes 1 and 2 of Notes to Consolidated
Financial Statements.
(2) Represents amounts due under certain of the Company's credit lines. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and Note 7 of Notes to
Consolidated Financial Statements.
(3) Excludes 2,500,000 shares reserved for issuance under the Stock Incentive
Plan, of which 736,774 shares were subject to outstanding options at
December 31, 1997 at a weighted average exercise price of $10.40 per share.
See "Management--Stock Incentive Plan" and Note 10 of Notes to Consolidated
Financial Statements.
16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below for, and as of the end of, each
of the years in the five-year period ended December 31, 1997 have been derived
from the audited financial statements of the Company. The financial data should
be read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
and related notes thereto included elsewhere in this Prospectus.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF OPERATIONS DATA:
Net sales.............................. $ 192,055 $ 256,426 $ 303,797 $ 298,988 $ 353,452
Cost of sales.......................... 112,544 148,940 182,971 176,859 198,946
--------- --------- --------- --------- ---------
Gross profit........................... 79,511 107,486 120,826 122,129 154,506
Selling, general and administrative
expense(1)........................... 46,351 64,049 84,583 95,431 110,204
--------- --------- --------- --------- ---------
Income from operations................. 33,160 43,437 36,243 26,698 44,302
--------- --------- --------- --------- ---------
Interest expense, net.................. 1,688 3,220 5,767 4,220 3,593
--------- --------- --------- --------- ---------
Provision (benefit) for income taxes... 724 1,893 1,750 1,468 1,413
Net income............................. $ 30,748 $ 38,324 $ 28,726 $ 21,010 $ 39,296
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Earnings per share:
Basic................................ $ 1.81 $ 2.26 $ 1.69 $ 1.24 $ 2.09
Diluted.............................. $ 1.81 $ 2.26 $ 1.69 $ 1.24 $ 2.06
Weighted average shares outstanding:
Basic................................ 16,973 16,973 16,986 16,997 18,792
Diluted.............................. 16,973 16,973 16,986 16,997 19,103
Pro forma net income(2)................ $ 18,883 $ 24,130 $ 18,286 $ 13,487 $ 24,425
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income per share(2):
Basic................................ $ 1.00
Diluted.............................. $ 0.99
Pro forma weighted average shares
outstanding(3):
Basic................................ 24,392
Diluted.............................. 24,703
DECEMBER 31,
-----------------------------------------------------
1993 1994 1995 1996 1997
--------- --------- --------- --------- ---------
BALANCE SHEET DATA:
Working capital........................ $ 35,002 $ 48,971 $ 47,726 $ 59,797 $ 69,706
Inventories............................ 18,937 43,442 48,404 34,638 48,300
Total assets........................... 78,428 133,349 162,301 135,967 174,477
Long-term debt......................... 3,750 1,250 -- 2,963 2,831
Shareholders' equity................... 43,394 61,992 70,458 91,936 110,535
- --------------
(1) For 1995 includes a $2.5 million payment in settlement of certain
litigation; for 1996 includes an $8.5 million charge related to the
termination of a compensation arrangement in exchange for the issuance of
Common Stock. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Management--Certain Transactions" and
Note 13 of Notes to Consolidated Financial Statements.
17
(2) The Company was an S corporation and accordingly was not subject to federal
and, generally, state income taxes during the periods indicated. Pro forma
net income reflects federal and state income taxes as if the Company had
been a C corporation, based upon a pro forma effective tax rate of 40%. See
"Dividend Policy and S Corporation Status" and Note 1 of Notes to
Consolidated Financial Statements.
(3) For 1997 includes the number of shares to be sold in the Offerings to
generate proceeds to be used for the payment of dividends in the estimated
aggregate amount of $95 million to existing shareholders declared in March
1998. See "Dividend Policy and S Corporation Status," "Certain Transactions"
and Note 1 of Notes to Consolidated Financial Statements.
18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Established in 1938, Columbia has grown from a small, regional hat
distributor to a global leader in outdoor apparel. The Company has its roots and
developed its initial expertise in the production of high quality, rugged
outdoor fishing and hunting apparel for the serious sportsman. The Company
broadened its product offerings in the 1980s to include related merchandise
categories. In 1985 the Company introduced the Interchange System into its
outerwear line and opened the first of its six international sourcing offices,
further enhancing the value component of the Company's merchandise. In the 1990s
the Company leveraged its brand awareness by expanding its sportswear offerings
and introducing a rugged footwear line to complement its successful outerwear
line. Based on this success, the Company expanded into the international markets
through the establishment of direct sales operations in Canada, Europe and South
Korea and a network of independent distributors in South America, Japan,
Australia, New Zealand and certain European countries. Today, the Company sells
its products in 30 countries and its sales have increased to $353.5 million in
1997 from $18.8 million in 1987.
From 1992 through 1995, sales increased at a compound annual growth rate of
34%. During this period of rapid sales growth, the Company recognized the need
to diversify its product offerings, which were dominated by the
fall/winter-oriented outerwear and accessory lines (84.6% in 1993), and to
expand its geographic distribution, which was dominated by domestic sales (88.5%
in 1993). To accomplish this, the Company established an internal merchandise
and design department for its sportswear line and purchased its Canadian
distributor in 1992. In 1993 the Company introduced its first footwear offering
to the market and expanded its wholesale distribution into Europe. In 1997 the
Company opened a flagship store in South Korea, and in the fall of 1998 the
Company will assume the wholesale operations in Japan now operated by its
Japanese distributor. See "Business--Business Process-- Sales and
Distribution--Asia." These actions diversified the Company's product offerings
and geographic distribution. For 1997 sales of the Company's sportswear and
footwear accounted for 25.8% and 6.9% of net sales, respectively, and sales
outside the United States accounted for 18.8% of net sales.
Sales decreased slightly in 1996, primarily as a result of a poor retail
environment in 1995 that caused domestic customers to hold unseasonably high
inventories during the fall 1996 order season. This had the effect of depressing
fall 1996 orders. In addition, two of the Company's larger customers, which
together accounted for $10.2 million of the Company's net sales in 1995,
declared bankruptcy after the fall 1995 season. The decrease in the domestic
business was offset in part by a $10.3 million, or 65%, increase in foreign
sales for 1996. After 1996 the Company's sales growth resumed, with an 18.2%
increase for 1997. This increase in sales was the result of an improved retail
environment for most of the Company's significant U.S. customers, the continued
growth in sportswear and rugged footwear sales and the Company's increasing
brand acceptance in its foreign markets.
The Company's gross margins are affected by its ability to maintain or
increase the price of its products and control production costs. Sales prices
are influenced by the strength of the Company's brand, competitive conditions
and the amount of inventory sold in close-out sales, which depends in part on
weather conditions and the retail environment as well as the Company's ability
to control inventory levels. Prior to 1995 the Company had experienced several
years of improved gross profit margins. This increase was the result of improved
efficiencies in the production of the foreign-sourced goods as well as the
strength of the brand in the marketplace. In 1995 and 1996 the Company
experienced a decline in gross margins from the prior years. For both years the
decrease was attributable to close-out sales of excess fall inventory from the
prior season. The excesses were the result of lower than anticipated reorders
due to a late winter in 1994 and a poor retail environment in 1995. In response
to the adverse effect on margins in 1995 and 1996, the Company implemented an
inventory management strategy to reduce the exposure to excess inventory
positions. This strategy includes obtaining customer orders closer to the
production cycle as well as reducing the reorder percentage assumed in the
production schedule. For 1996 the Company sold out of fall products with only
minimal
19
off-priced sales. Excess inventories also were minimal for 1997 and the
Company's gross margins improved significantly. The Company believes this
inventory management strategy, its increasing revenue derived from international
operations and the greater significance of sportswear and footwear in the
product offering have substantially reduced its exposure to weather-related
sales fluctuations.
The Company's gross margins are also influenced by changes in its product
mix and relative levels of domestic and international sales. Generally, the
Company's outerwear products have generated higher gross margins than its
sportswear and rugged footwear products. In addition, the Company's
international sales have typically generated higher gross margins than those
realized on its domestic sales. Accordingly, the Company believes its increasing
emphasis on sportswear and rugged footwear products may tend to reduce gross
margins, while its expansion of international sales activity may strengthen
gross margins.
In 1993 the Company experienced sales growth of 50.4%, followed by a 33.5%
increase in 1994. This near doubling of sales in a two-year period strained the
supporting infrastructure and resulted in relatively low selling, general and
administrative expense as a percentage of sales. During this period of rapid
sales growth, the Company focused on investing in its infrastructure to enable
continued expansion. Major areas of investment consisted of expansion of the
domestic distribution facilities, the establishment of sportswear and footwear
design and development departments, creation of a product development facility
in Hong Kong and establishment of a European sales headquarters. Significant
investment in infrastructure contributed to an increase in selling, general and
administrative expense as a percentage of sales to 31.2% for 1997 from 24.1% in
1993. The Company anticipates that it will be able to leverage selling, general
and administrative expense as a percentage of sales as the international sales
operations become more established and the sportswear and footwear segments of
the business continue to expand.
The Company generally purchases its products in U.S. dollars. The Company,
however, sources a significant amount of its products overseas and the cost of
these products may be affected by changes in the value of the relevant
currencies. Price increases caused by currency exchange rate fluctuations could
make the Company's products less competitive or have an adverse effect on the
Company's margins. The Company's international revenue generally is derived from
sales in foreign currencies, and this revenue could be materially affected by
currency fluctuations, including upon translation of amounts received in foreign
currencies into U.S. dollars following sale by the Company. For example, net
sales and gross margins with respect to the Company's sales in Korea have been
adversely affected by the recent devaluation of the Korean won, although the
effect on the Company's overall operations has not been material. Currency
exchange rate fluctuations could also disrupt the business of the independent
manufacturers that produce the Company's apparel by making their purchases of
raw materials more expensive and adversely affecting their ability to obtain
financing for raw materials. Beginning in late 1997, the Company implemented a
program to hedge against its exposure to currency exchange rate fluctuations.
See "Risk Factors--Currency Exchange Rate Fluctuations."
The Company has operated as an S corporation since 1988 and, as a result,
has not been subject to federal or, generally, state income taxes. Accordingly,
the following discussion of the Company's historical results of operations does
not include a discussion of income tax expense. In connection with the
Offerings, the Company will become a C corporation subject to federal and state
income taxation and will record a net deferred tax asset of approximately $2.9
million and a corresponding nonrecurring benefit to income tax expense. See
"Dividend Policy and S Corporation Status" and Note 1 of Notes to Consolidated
Financial Statements.
20
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the Company for
the periods indicated as a percentage of revenue.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------
1993 1994 1995 1996 1997
---------- ---------- ---------- ---------- ----------
STATEMENT OF OPERATIONS DATA:
Net Sales:
United States................................ 88.5% 88.8% 86.2% 82.1% 81.2%
Canada....................................... 6.8 6.9 8.6 9.1 8.8
Other International.......................... 4.7 4.3 5.2 8.8 10.0
----- ----- ----- ----- -----
Total...................................... 100.0 100.0 100.0 100.0 100.0
Cost of sales.................................. 58.6 58.1 60.2 59.2 56.3
Gross profit................................... 41.4 41.9 39.8 40.8 43.7
Selling, general and administrative expense.... 24.1 25.0 27.8 31.9 31.2
Income from operations......................... 17.3 16.9 11.9 8.9 12.5
- --------------
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
NET SALES. Net sales increased 18.2% to $353.5 million in 1997 from $299.0
million in 1996. Domestic sales increased 16.8% to $287 million in 1997 from
$245.6 million in 1996. The domestic sales increase was due to strong growth in
volume for outerwear and sportswear categories, including the youth and fleece
products. Rugged footwear increased 87.1% or $10.0 million in 1997. The growth
in the sportswear and outerwear categories was primarily due to larger existing
customers who had experienced strong sell through on the 1996 product, while the
increase in rugged footwear was attributable to several new customers in
addition to the existing customer base. International sales, excluding Canada,
increased 34.9% to $35.4 million in 1997 from $26.3 million in 1996. The
increase was due primarily to a $5.3 million or 49.6% increase in European
direct sales. The increase is also attributable to volume growth in the
international markets where the Company's brand is gaining recognition. Canadian
sales grew 14.7% to $31.1 million in 1997 from $27.2 million in 1996.
GROSS PROFIT. Gross profit as a percentage of net sales was 43.7% in 1997
compared to 40.9% in 1996. The increase in gross margin was due to improved
inventory management resulting in fewer mark downs and close-outs as well as
efficiencies in the manufacturing process and continued strength of the brand in
the market.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general, and
administrative expense increased 15.5% to $110.2 million in 1997 from $95.4
million in 1996. As a percentage of sales, selling, general, and administrative
expense decreased from 31.9% to 31.2%. Net of the $7.5 million nonrecurring
portion of the compensation expense recognized in 1996 for the conversion of
participation shares described below under "--Year Ended December 31, 1996
Compared to Year Ended December 31, 1995--Selling, General and Administrative
Expense," selling, general and administrative expense actually increased $22.3
million, or 25.3%. This increase was primarily attributable to the Company's
investment in personnel and operational infrastructure to support the product
line expansion, additional advertising and promotional expenditures to support
the brand and international expansion into Europe, South Korea and Japan.
Because these markets are in the start-up phase, personnel expenses and
advertising and promotional expenditures are disproportionately high as the
Company establishes the Columbia brand. The Company believes it can leverage
selling, general, and administrative expenses as a percentage of sales as its
international operations become more established and its sportswear and footwear
sales expand.
21
INTEREST EXPENSE. Interest expense decreased 14.9% in 1997 from 1996. The
decrease was attributable to lower borrowing requirements for working capital in
1997.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
NET SALES. Net sales decreased 1.6% to $299.0 million in 1996 from $303.8
million in 1995. This decrease was due to a decline in domestic sales, which
decreased 6.2% to $245.6 million in 1996 from $261.9 million in 1995. The
domestic sales decrease primarily reflects the poor retail environment
experienced in the industry in fall 1995 selling season that resulted in
decreased preseason orders for 1996. In response to significant excess inventory
levels from the fall 1995 season and the high inventory levels held at the
retailers, the Company deliberately reduced the production of fall 1996
merchandise to limit the Company's exposure to reorder business. In addition,
two of the Company's larger customers, which together accounted for $10.2
million of the Company's sales in 1995, filed for bankruptcy after the fall 1995
season. This decrease was partially offset by the opening of two new outlet
stores in late 1995 and the Company's flagship store in late 1996. International
sales, excluding Canada, increased 65.4% to $26.3 million in 1996 from $15.9
million in 1995. The increase was due primarily to a $5.2 million, or 96.1%,
increase in European direct sales and a $5.1 million increase in sales to
international distributors. Canadian sales increased 4.6% to $27.2 million in
1996 from 1995.
GROSS PROFIT. Gross profit as a percentage of net sales was 40.8% in 1996
compared to 39.8% in 1995. The lower gross margin experienced in 1995 was
attributable to excess off-priced inventory sales. Due to a very mild fall 1994
in the United States, the Company experienced a low reorder rate, resulting in
excess inventory that was sold off-price in the first quarter of 1995. In fall
1995, many of the Company's retail customers experienced poor sales, resulting
in cancellations for fall 1995 merchandise. In anticipation of lower reorders,
the Company elected to sell a significant amount of excess inventory in late
1995 at discount prices. The effect of these sales was lower gross margins for
the first and fourth quarters of 1995. Gross margins for the first quarter of
1996 were negatively affected by off-priced inventory sales carried over from
fall 1995. In 1996 the Company deliberately reduced the reorder factor for fall
1996 production. The reduced inventory exposure, coupled with a healthier retail
environment, resulted in minimal markdown sales in the fall 1996 selling season
and, consequently, improved gross margins in 1996 over the prior year.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense increased 12.8% to $95.4 million in 1996 from $84.6
million in 1995. As a percentage of net sales, selling, general and
administrative expense increased to 31.9% of sales in 1996 from 27.8% in 1995.
The increase was primarily due to the Company's investment in personnel and
systems infrastructure to support the growth of the Company's product offering
and the expansion of the European operation. In addition, the second phase of
the distribution center became operational in late 1995. The increase as a
percentage of sales was also affected by lower than anticipated preseason order
volume in 1996, influenced by the poor 1995 retail selling season. Based on the
lower order volume, the Company initiated a corporate cost containment strategy
for 1996 which included a reduced advertising budget, a delay in hiring of
additional personnel and reduced spending for discretionary projects. Selling,
general and administrative expense includes compensation recognized upon
conversion of participation shares to Common Stock for Don Richard Santorufo,
the Company's Executive Vice President and Chief Operating Officer. Total
non-cash compensation recognized by the Company for 1996 related to the
conversion was $5.7 million. In addition to the non-cash compensation
recognized, the Company awarded Mr. Santorufo a cash bonus of $2.8 million to
cover the personal tax liability associated with the transaction. The Company
will continue to recognize additional compensation relating to the vesting of
these shares through the year 2004.
INTEREST EXPENSE. Interest expense decreased 26.8% in 1996 from 1995. The
decrease was attributable to lower borrowing requirements for working capital
needs.
22
QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
FOR THE QUARTER ENDED
------------------------------------------------------------------------------------------------------
1995 1996
-------------------------------------------------- --------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
STATEMENTS OF
EARNINGS DATA:
Net sales........... $ 44,762 $ 62,933 $ 126,409 $ 69,693 $ 49,292 $ 55,350 $ 121,597 $ 72,749
As a % of full
year.............. 14.7% 20.7% 41.6% 23.0% 16.5% 18.5% 40.7% 24.3%
Gross profit........ $ 14,851 $ 26,551 $ 54,604 $ 24,820 $ 16,035 $ 20,192 $ 54,386 $ 31,516
As a % of full
year.............. 12.3% 22.0% 45.2% 20.5% 13.1% 16.5% 44.5% 25.9%
As a % of net
sales............. 33.2% 42.2% 43.2% 35.6% 32.5% 36.5% 44.7% 43.3%
Income (loss) from
operations........ $ (1,070) $ 7,989 $ 30,074 $ (750) $ (2,890) $ 1,572 $ 28,338 $ (322)
As a % of net
sales............. (2.4)% 12.7% 23.8% (1.1)% (5.9)% 2.8% 23.3% (0.4)%
1997
--------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31
----------- ----------- ----------- -----------
STATEMENTS OF
EARNINGS DATA:
Net sales........... $ 54,495 $ 49,695 $ 154,165 $ 95,097
As a % of full
year.............. 15.4% 14.1% 43.6% 26.9%
Gross profit........ $ 20,752 $ 21,623 $ 71,409 $ 40,722
As a % of full
year.............. 13.4% 14.0% 46.2% 26.4%
As a % of net
sales............. 38.1% 43.5% 46.3% 42.8%
Income (loss) from
operations........ $ (1,131) $ (852) $ 38,010 $ 8,275
As a % of net
sales............. (2.1)% (1.7)% 24.7% 8.7%
The Company's business is based on two primary wholesale selling seasons,
spring (December to June), which represented 20% of the 1997 business, and fall
(June to December), which represented 80% of the 1997 business by wholesale
dollar volume. The spring product mix is weighted toward sportswear, footwear
and lighter outerwear. These products generally have a lower unit selling price
and lower gross margin than the fall products. The fall product mix is weighted
toward the higher unit priced, higher margin outerwear. These seasonal
differences lead to significant fluctuations in operating results from quarter
to quarter. Historically the Company has recognized the majority of its profits
in the third quarter and has realized losses in the first quarter. Second and
fourth quarter results vary from year to year based on the shipping efficiencies
and reorder activity for fall product.
LIQUIDITY AND CAPITAL RESOURCES
The Company's main sources of liquidity have been cash flows from operations
and borrowings on short term credit facilities. Net cash provided by operations
for the years ended December 31, 1997, 1996 and 1995 was $18.9 million, $66.8
million and $11.8 million, respectively.
The Company's primary capital requirements have been for working capital,
investing activities associated with expansion of the distribution center,
systems development, build-out of the new flagship store and general corporate
needs. Net cash used in investing activities for the years ended December 31,
1997, 1996 and 1995 was $14.0 million, $10.9 million and $13.0 million,
respectively.
Financing activities consist primarily of distributions to shareholders for
tax payments and net changes in the short term borrowings. Net cash provided by
(used in) financing activities for the years ended December 31, 1997, 1996 and
1995 was $(3.6 million), $(53.7 million) and $588,000, respectively.
Prior to the Offerings, the Company was an S corporation and net income was
included in the shareholders' income for federal and certain state income tax
filings. To accommodate the payment of taxes, the Company generally made
substantial cash distributions to the shareholders in the first, third and
fourth quarters of each year. After the Offerings, the Company's cash flows from
financing activities will no longer reflect the distribution to shareholders for
tax purposes. The Company will be responsible, however, for corporate tax
payments, which will be reflected in the cash flow from operating activities.
The Company has an unsecured revolving line of credit for $50 million with
Wells Fargo Bank, N.A., which expires June 30, 1998. Funds borrowed bear
interest, at the Company's option, at a rate of (i) the CD Rate (as defined
therein) plus up to .75%, (ii) the Base Rate (as defined therein) minus up to
2.1% or (iii) LIBOR plus up to .75%. The amount of interest varies depending on
the ratio of the Company's indebtedness to tangible net worth. If an event of
default occurs, the Company is prohibited, subject to certain exceptions, from
making dividend payments or other distributions. As of December 31, 1997, $14.0
million was outstanding under this line of credit bearing interest at a rate of
6.5%. The Company expects to renew or replace this line of credit upon its
expiration.
23
The Company is party to a Buying Agency Agreement with Nissho Iwai American
Corporation ("Nissho") pursuant to which Nissho provides the Company unsecured
credit, the amount of which varies annually at Nissho's discretion, and acts as
a buying agent on behalf of the Company. At December 31, 1997, the maximum
amount available under the Nissho Agreement was $120.0 million, which includes
$70.0 million allowed under the credit line and amounts available for letters of
credit. Borrowings bear interest at a rate of 0.5% above the three month LIBOR
rate. In addition, the Company pays Nissho a commission of 1.5% of the FOB price
of the goods purchased by Nissho in its capacity as buying agent. The Company is
prohibited from paying dividends in excess of (i) 50 percent of the Company's
income after provision for state and federal income taxes and (ii) 100 percent
of the proceeds of a common stock offering completed following the Offerings.
The Offerings and the distribution of proceeds from the Offerings will not
violate the agreement with Nissho. The agreement expires September 30, 1998. As
of December 31, 1997, $11.0 million was outstanding under the Company's line of
credit with Nissho.
The Company maintains a credit agreement with The Hong Kong and Shanghai
Banking Corporation Limited for an uncommitted and unsecured line of credit with
a combined limit of $60 million. Within this limit, up to $45 million may be
used as an import line of credit for issuing documentary letters of credit and
up to $25 million may be used as a revolving line of credit for working capital.
Funds borrowed under the agreement bear interest, at the Company's option, at
either a fixed rate for a specified number of days at the bank's cost of funds
plus 0.35%, or a floating rate of the prime rate minus 2%. As of December 31,
1997, no balance was outstanding under the agreement.
The Company's Canadian and Japanese subsidiaries also maintain separate
credit arrangements. If a subsidiary's credit arrangement is unsecured, the
Company generally guarantees the subsidiary's obligations under the credit
arrangement.
To assist in the scheduling of production and the smooth shipping of
seasonal products, the Company offers customers discounts for placing pre-season
orders and extended payment terms for taking delivery before the peak shipping
season. Accordingly, the Company may have significant exposure regarding the
collection of receivables from its customers. The Company has credit policies
and procedures in place to manage the credit risk. The Company believes the
additional costs associated with the payment term extension program are more
than offset by the reduced exposure to inventory excesses and the increased
distribution efficiencies. The payment term extension program results in peak
short term borrowing on the credit facilities in October before the first due
date under the payment term extension program. See "Risk Factors--Risks Related
to Collectibility of Receivables."
The Company estimates that capital expenditures for 1998 will be
approximately $40 million. This amount will be primarily for the final
implementation of the new management information system and the expansion and
reconfiguration (including a new warehouse management system) of the existing
distribution center. The new enterprise management information system, which is
expected to be fully operational by late 1998, will address the Year 2000 issue
on all core Company business systems. The Company has other ancillary systems
that will be modified to address the Year 2000 issue. The Company, however,
cannot be certain that these planned system modifications will be completed in a
timely fashion. In addition, the Company has not thoroughly analyzed the impact
of other parties' computer system failures, but the Company believes costs
incurred in responding to other parties' Year 2000 computer system failures,
together with the cost of modifications to the Company's computer systems, will
not have a material impact on the Company's results of operations or financial
condition. The total expenditure for the distribution center project, scheduled
for completion in April 1999, is estimated to be $33 million, including $30
million expected to be expended in 1998 and the remaining $3 million to be
expended in 1999.
The Company's current primary sources of liquidity are cash flow from
operations and borrowings under short term credit facilities. The Company
believes cash flow from operations, funds available under its credit facilities
and funds available under the borrowing arrangement it expects to enter into to
fund the expected construction and reconfiguration of its distribution center
will be sufficient to satisfy
24
the Company's liquidity requirements for the next 12 months. In connection with
the anticipated distribution center project, the Company intends to enter into a
long term borrowing arrangement in mid-1998 to provide funds to complete the
project. The Company believes that its liquidity requirements for the next 12
months and beyond will be adequately covered by the anticipated long term
borrowing facility and its short term arrangements.
25
BUSINESS
INTRODUCTION
Columbia is a global leader in the design, manufacture, marketing and
distribution of active outdoor apparel. As one of the largest outerwear
manufacturers in the world and the leading seller of skiwear in the United
States, the Company has developed an international reputation across an
expanding product line for quality, performance, functionality and value. The
Company believes its award-winning advertising campaigns effectively position
the Columbia brand as active, outdoor, authentic and distinctly American.
Established in 1938, the family-owned Company has grown from a small,
regional hat distributor to a global leader in the active outdoor apparel
industry. The Company has its roots and developed its initial expertise in the
production of high quality, rugged outdoor fishing and hunting gear for the
serious sportsman. Known for durability and dependability at a reasonable price,
the Company leveraged its brand awareness in the 1990s by expanding into related
merchandise categories and developing its "head-to-toe" outfitting concept. The
Columbia brand appeals to a large, increasingly international consumer base.
Today, the Company distributes its products to over 10,000 retailers in 30
countries. The Company's sales and operating income have increased to $353.5
million and $44.3 million in 1997 from $18.8 million and $1.6 million in 1987,
representing compound annual growth rates of 30.6% and 35.1%, respectively. The
Company believes it will continue to grow by enhancing the productivity of
existing retailers, expanding distribution in international markets and further
developing merchandise categories.
The Company groups its broad range of competitively priced merchandise into
four categories-- outerwear, sportswear, rugged footwear and related
accessories. The durability, functionality and affordability of Columbia's
products make them ideal for use in a wide range of outdoor activities,
including skiing, snowboarding, hunting, fishing, hiking and golf, as well as
for casual wear. Throughout the product development cycle, merchandising and
design teams collaborate with retailers, the Columbia sales force and consumers
to ensure that the final product assortment of coordinated "head-to-toe"
merchandise meets or exceeds customer expectations. Across all of its product
lines, Columbia brings a commitment to innovative, functional product design and
a reputation for durable, high quality materials and construction. Columbia
believes it offers consumers one of the best price-value equations in the
outdoor apparel industry.
BUSINESS STRENGTHS
ESTABLISHED AND DIFFERENTIATED OUTDOOR LIFESTYLE BRAND. The Company
believes the Columbia brand represents a differentiated, active, outdoor,
authentic and distinctly American image built on quality, functionality,
performance and value. The Company's award-winning international marketing
campaigns, which feature Chairman Gertrude Boyle in the role of "Mother Boyle,"
an overbearing taskmaster who enforces tough Columbia quality standards,
emphasize this distinctive brand image.
BROAD AND GROWING APPEAL. Columbia's merchandise appeals to a broad range
of consumers of varying ages and income levels, from serious outdoorsmen to
weekend sports enthusiasts. The Company's price-value equation is attractive to
a large segment of the $10.4 billion U.S. retail outdoor apparel market.
Columbia is effectively positioned to compete against lower priced or unbranded
products based on brand image and product features, and against higher priced,
largely technical or fashion brands based on superior value and generally lower
price points. The Company has benefited in the past and expects to continue to
benefit from the trend toward casual dressing and from the growth in demand for
active lifestyle apparel.
PREMIUM QUALITY AT A REASONABLE PRICE. Columbia maintains a strong focus on
providing a superior mix of quality and value, which are defining elements of
the brand. The Company believes it is able to offer merchandise similar in
quality to its competitors at attractive price points by using its long-standing
supplier relationships to source high quality products from around the world
while controlling
26
costs, relying on Company-supervised production of merchandise by independent
manufacturers, involving itself in the supply chain at an earlier stage than is
typical in the industry and avoiding the overdesign of its products.
PROVEN AND EXPERIENCED MANAGEMENT TEAM. Senior management of Columbia has
substantial experience in the apparel industry and a demonstrated track record
of sales and earnings growth. Chairman Gertrude Boyle has been involved in the
business since 1970; President and Chief Executive Officer Timothy P. Boyle
joined Columbia in 1971; and Executive Vice President and Chief Operating
Officer Don Richard Santorufo joined the Company in 1979. Under their leadership
over the past decade, the Company's sales and operating income have increased at
compound annual growth rates of 30.6% and 35.1%, respectively. Immediately
following the Offerings, senior management will own over 76.8% of the Company.
FUNCTIONAL AND PERFORMANCE-ORIENTED DESIGN. All Columbia merchandise is
designed and developed in-house by experienced merchandising and design teams.
Working closely with internal sales and production teams as well as with
retailers and consumers, the Company's merchandising and design teams can reduce
the risks of fashion swings by developing superior products that are tailored
specifically to meet consumer requirements. Because its products are designed
for functionality and durability, the Company does not attempt to lead consumer
preferences or differentiate its products based primarily on fashion. In fact,
many new products are based on existing designs, such as the Bugaboo Parka, a
consistent best seller for more than a decade.
EFFECTIVE "HEAD-TO-TOE" MERCHANDISING. Columbia's "head-to-toe"
merchandising strategy presents retailers and consumers with a wide selection of
apparel and rugged footwear that shares common color palettes and outdoor
themes. Retailers and consumers both benefit from the ability to use Columbia as
a single source for an attractive array of merchandise. The Company's flagship
store, recently opened in Portland, Oregon, and the Company's successful
store-within-a-store concept ("concept shops") provide showcases for Columbia's
coordinated merchandise offerings.
SOURCING AS A COMPETITIVE ADVANTAGE. Columbia's merchandise is produced
worldwide by independent manufacturers selected, monitored and coordinated by
local Columbia employees to assure conformity to strict quality and cost
standards. The Company believes the use of independent manufacturers, in
conjunction with the use of Columbia sourcing personnel rather than agents,
increases its production flexibility and capacity and allows it to maintain
control over critical aspects of the sourcing process, while at the same time
substantially reducing capital expenditures and avoiding the costs of managing a
large production work force.
SUPERIOR INVENTORY MANAGEMENT. From the time of purchasing through
production, distribution and delivery, the Company manages its inventory to
reduce risk. The sequencing of the product design, sourcing, production and
selling cycle mitigates inventory risk, in part by offering special discounts to
customers that purchase merchandise early. Because the Company's products are
not based primarily on fashion, and because Columbia undertakes extensive
analysis to ensure that its products are what consumers require, the Company
believes its inventory risk is not as great as that of some of its competitors.
A new state-of-the-art inventory management information system, expected to be
fully operational in late 1998, is expected to further enhance the Company's
ability to manage its inventory.
GROWTH STRATEGY
ENHANCE CHANNEL PRODUCTIVITY OF EXISTING CUSTOMERS. The Company plans to
improve the productivity of its existing customers by expanding its concept
shops and installing brand enhancement systems. Concept shops, which promote a
consistent brand image, are located within the stores of the Company's customers
and are dedicated exclusively to selling Columbia merchandise. As of December
31, 1997, the Company had 164 concept shops worldwide and plans to double this
number by the end of 1998. The Company believes its concept shops increase sales
by displaying a complete selection of merchandise and promoting
cross-merchandising opportunities on a year-round basis. Smaller-scale
27
brand enhancement systems which include signage and fixtures that prominently
display consolidated groupings of Columbia merchandise, offer benefits similar
to concept shops. By the end of 1998, the Company also expects to have installed
1,000 in-store brand enhancement systems.
LEVERAGE THE COLUMBIA BRAND NAME IN INTERNATIONAL MARKETS. The Company
intends to capitalize on its size, strong U.S. brand position and worldwide
brand recognition by targeting certain high opportunity markets for development
or expansion. The Company has identified Europe and Asia as regions where
outdoor activities are consistently popular and where the Company can exploit
its active, outdoor, authentic and distinctly American brand image and
reputation for value. The Company is seeking to enhance its distribution in a
number of countries, including the United Kingdom, Italy, France, Spain, The
Netherlands, Sweden and Germany. The Company will assume control of the
distribution of its products in Japan in late 1998 and recently opened sales
counters dedicated to Columbia merchandise in 15 retail stores in South Korea.
Although the Company has made significant progress in international expansion
over the last several years, substantial opportunity for growth exists. Net
sales outside North America have increased from $9.0 million in 1993 to $35.4
million in 1997, but still represented only 10.0% of the Company's total net
sales in 1997.
DEVELOP EXISTING MERCHANDISE CATEGORIES. The Company intends to realize
growth by further developing existing product categories, such as sportswear and
rugged footwear, where there remains ample room for growth in market share. The
Company's success in designing and marketing products has allowed Columbia to
significantly broaden its assortment in existing categories. From 1993 through
1997, outerwear and sportswear sales increased 43.7% and 221.5%, respectively,
in part as a result of new product introductions. Since it was introduced in
1993, net sales of the Company's rugged footwear have increased from $1.2
million to $24.3 million in 1997. The Company believes opportunities exist for
continued rapid growth in sales of rugged footwear as distribution is expanded
to sporting goods and specialty outdoor stores that carry the Company's
outerwear and sportswear categories.
SELECTIVELY BROADEN RETAIL DISTRIBUTION. The Company believes that over the
longer term significant opportunities exist to increase sales of its products to
department stores and footwear specialty shops. Although sales to department
stores accounted for less than 19% of the Company's U.S. net sales in 1997, the
Company believes this percentage will rise because department store retailers
often prefer to purchase products from vendors that can offer complete
head-to-toe product lines.
INDUSTRY OVERVIEW
Between 1991 and 1996 the U.S. retail market for outdoor apparel grew 18.0%
to $10.4 billion from $8.8 billion. The increased sales of outdoor apparel has
resulted, in large part, from the growth in the popularity of outdoor
activities. For example, according to the National Sporting Goods Association,
between 1994 and 1996 the number of people who participated in snowboarding
increased 76%, climbing 39%, in-line skating 31%, mountain biking 27% and
backpacking 17%. The growth in the popularity of outdoor activities has also
spurred an increase in sales of active outdoor apparel to consumers who do not
participate in these activities. The global trend toward casual dressing both in
and out of the workplace has also contributed to the increase in sales of active
outdoor apparel.
Sales of sportswear and rugged footwear have also increased in recent years.
From 1995 to 1996 sales of sportswear and rugged footwear in the United States
increased 6.6% and 4.3%, respectively. The Company believes the growth in the
sportswear market is fueled by a number of factors, including increasing
popularity of casual dressing worldwide, global interest in sports and active
lifestyles, consumer interest in brands, as well as innovative product design,
increased marketing and promotion expenditures and larger and more attractive
retail formats. The Company expects the growth in the rugged footwear market to
continue as the number of products designed to suit a greater variety of outdoor
activities and conditions proliferates.
28
PRODUCTS
The Company offers a broad range of durable and functional outdoor apparel
that represents exceptional value to the consumer. The Company's products are
grouped into four broad categories-- outerwear, sportswear, rugged footwear and
related accessories--and are sold as casual wear as well as for use in a wide
range of outdoor activities, including skiing, snowboarding, hunting, fishing,
hiking and golf.
The Company believes its Columbia brand represents a differentiated active,
outdoor, authentic, value-oriented and distinctly American image and designs its
products to reinforce this image. In both the design and production phases, the
Company focuses its efforts on the development of popular, higher volume
products at moderate price points. The Company's merchandise is durable and
functional, incorporating useful technical details such as pockets that double
as vents, double storm flaps over zippers and "gutters" that facilitate water
run-off. The Company's attention to technical details derives from Columbia's
long experience producing specialized hunting and fishing apparel and
contributes to the authenticity and functionality of Columbia's entire selection
of merchandise. In the manufacture of its apparel, the Company uses special
technical materials that possess functionality similar to branded materials, but
are produced at a lower cost, thereby enhancing the price-value equation.
The charts below set forth net sales information by product category.
NET SALES BY PRODUCT CATEGORY
1993
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Accessories 4.9% ($9.3 million)
Sportswear 14.8% ($28.4 million)
Rugged Footwear 0.6% ($1.2 million)
Outerwear 79.7% ($153.2 million)
Total sales: $192.1
million
1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Accessories 5.0% ($17.6 million)
Sportswear 25.8% ($91.3 million)
Rugged Footwear 6.9% ($24.3 million)
Outerwear 62.3% ($220.2 million)
Total sales: $353.4
million
OUTERWEAR
Outerwear is the Company's most established product category. Although sales
of outerwear drive the Company's business, outerwear sales as a percentage of
the Company's net sales are likely to continue to decrease as Columbia develops
the markets for its growing sportswear and rugged footwear categories. The
Company intends to use its leading U.S. market position and extensive experience
in outerwear as a foundation upon which to grow its international business. The
Company's growth strategy primarily involves expanding the category in
international markets, improving the productivity of its existing customers and
increasing outerwear sales to more department store retailers over the longer
term.
29
The Company's outerwear is designed to protect the wearer from inclement
weather in everyday use and in a variety of outdoor activities, including
skiing, snowboarding, hiking, hunting and fishing. Many of the Company's jackets
incorporate Columbia's revolutionary Interchange System, which was introduced in
1983 and features a 3- or 4-jackets-in-1 design. Jackets incorporating the
Interchange System typically combine a durable, nylon outershell with a
removable, zip-out liner. The outershell and the liner may be worn separately or
together. This layered ensemble provides the wearer with a jacket for all
seasons and weather conditions at a reasonable price.
SKIWEAR. The Company's skiwear line is the best selling brand of skiwear in
the United States. The Company's skiwear products include parkas, vests, ski
pants, ski suits, pullovers and sweaters. Many of the Company's ski parkas
feature the Interchange System. The Bugaboo Parka, which was an early Columbia
skiwear product incorporating the Interchange System, has been the Company's
best selling ski parka for over a decade. Columbia's attention to detail and
commitment to technical and useful features contribute to products with a
distinctive and differentiated look and feel.
SNOWBOARD APPAREL. Columbia's Convert brand is the second best selling
brand of snowboard apparel in the United States. The Convert line includes
parkas, vests, snowboard pants, pullovers and shirts. Columbia was one of the
first major outdoor apparel companies to identify and react to the rapid
emergence of snowboarding as a popular sport. Demonstrating its ability to move
quickly to capture a significant share of a growth niche, Columbia achieved
rapid consumer acceptance as net sales of its snowboard apparel increased to
$14.4 million in 1997 from its introduction in 1994.
HUNTING AND FISHING APPAREL. Hunting and fishing products constitute one of
the Company's oldest product lines and include apparel for the serious sportsman
engaged in a variety of outdoor activities, including waterfowl hunting, upland
hunting, big game hunting and fishing. Products include parkas, shells, vests,
liners, bib pants and rain suits. All of these products incorporate a variety of
specific-purpose, tailored features that enhance Columbia's reputation as a
producer of outerwear. Examples of Columbia's attention to detail include shell
loops and Ethefoam fly patches, terrain and seasonal camouflage patterns, recoil
cushioned shoulders and Silent Rain cloth for noise-proof movement.
YOUTH OUTERWEAR. The Company's youth line of products includes ski parkas,
vests, snow pants, snow suits and pullovers. The youth product line benefits
from the Company's expertise in its adult lines and enables a Columbia customer
to outfit the entire family in dependable outerwear at a reasonable price.
SPORTSWEAR
The Company believes the global market for sportswear is significantly
larger than the global market for outerwear, and the continued development of
this market represents a substantial opportunity for the Company. Beginning in
the latter part of 1993, the Company targeted sportswear as a growth
opportunity. Building on a foundation of authentic fishing and hunting shirts,
the Company rapidly expanded its sportswear product offering, resulting in
sportswear sales increasing as a percentage of the Company's net sales from
14.8% for 1993 to 25.8% for 1997. The Company believes sportswear sales as a
percentage of the Company's net sales are likely to continue to increase.
The majority of the Company's sportswear sales are to sporting goods and
specialty outdoor stores. Department stores, which represent a substantially
larger portion of sportswear distribution, accounted for 18% of the Company's
U.S. net sales for 1997. The Company's growth strategy for sportswear sales
consists of increasing productivity of existing customers, improving
merchandising at the store level (including opening additional concept shops and
installing brand enhancement systems), expanding distribution to department
stores and enhancing the product offerings to take advantage of apparel trends.
The Company's sportswear products consist of durable, functional,
value-priced, authentic, active outdoor apparel that appeals both to the serious
outdoorsman and the more casual wearer who wants to
30
project an outdoor image. Sportswear products are designed to be sold alongside
the Company's outerwear and rugged footwear products as part of a unified
"head-to-toe" outfitting concept. In particular, fleece and pile products are
merchandised to provide a bridge to the outerwear products.
OUTDOOR SPORTSWEAR. The Company's outdoor sportswear is designed to meet
the recreation needs of walkers, hikers, campers, mountain bikers, fishermen,
hunters and the general outdoor enthusiast. Authentic design and affordable
prices also make the Company's sportswear products attractive to active outdoor
apparel consumers who purchase these products for casual wear. The outdoor
sportswear product line consists primarily of jeans, chinos, hiking shorts,
water sport trunks, knit shirts, woven shirts, sweats, sweaters and fleece and
pile products.
GOLF APPAREL. Introduced in 1997, the Company's golf line includes shorts,
pants, polo shirts, fleece products, windshirts and rainwear designed
specifically for the needs of golfers. The Company's golf line is differentiated
from competitors by its focus on golf as an outdoor activity that requires
specific fabrics and features to enhance performance.
GRT. The Company's GRT line of active outdoor performance apparel consists
of pants, shirts, shorts, vests, polo shirts, tee shirts, tank shirts and
lightweight jackets designed specifically for training, trekking and adventure
travel. Many of the items in the line incorporate the Company's Omni-Dry system
of moisture management.
RUGGED FOOTWEAR
The Company's newest product category, rugged footwear, was introduced in
1993. The success of the introduction demonstrates Columbia's ability to expand
its head-to-toe merchandising assortment and to leverage its reputation as a
provider of durable, comfortable outdoor apparel, enabling consumers to broaden
their purchases of Columbia branded apparel. Rugged footwear as a percentage of
the Company's net sales has increased from 0.6% in 1993 to 6.9% in 1997. The
Company believes the market for rugged footwear remains a substantial growth
opportunity. The Company expects sales of its rugged footwear will be driven
primarily by the design and development of new footwear and by expanding the
distribution of rugged footwear within existing U.S. and international
distribution channels, such as sporting goods stores, outdoor specialty and
footwear retailers and department stores.
The Company's rugged footwear category consists primarily of active
all-weather and performance outdoor products. Many of the Company's footwear
styles feature innovative technical designs that incorporate
waterproof/breathable constructions, thermal insulation, advanced cushioning
systems and high abrasion, slip-resistant outsoles. Several styles are offered
within each of the following classifications: All-Weather, Active Outdoor,
Performance Outdoor and Classic Columbia Comfort.
ACCESSORIES
The Company also produces and sells hats, caps, scarves, gloves, mittens and
headbands to complement its outerwear and sportswear lines.
ADVERTISING, MARKETING AND PROMOTION
The Company's creative and award-winning print and broadcast advertising
campaigns have built brand awareness and have helped to highlight the strengths
of Columbia's products among consumers. The humorous advertisements, which have
received 18 awards in the past seven years, feature Chairman Gertrude Boyle as
an overbearing taskmaster--'one tough mother'--who demands high quality
standards for Columbia products. The advertisements, which often include witty
dialogue between "Mother Boyle" and her son Tim, Columbia's President, remind
consumers of the Company's long history of providing authentic outdoor apparel
with exceptional value and help to create a distinctly American brand. The
Company's advertising appears in a wide variety of print and broadcast media,
ranging from GQ, ROLLING STONE, SKI (Germany), BE-PAL (Japan) and DESNIVAL
(Spain) to THE DAVID LETTERMAN SHOW, ESPN and MTV. The Company has also
sponsored several high profile sporting events, including three America's Cups,
the Eco Challenge, the Albuquerque International Balloon Fiesta and the
Paris-Dakkar Rally.
31
BUSINESS PROCESS
From the time of purchasing through production, distribution and delivery,
the Company manages its inventory to reduce risk. Because the Company's products
are not based primarily on fashion and because Columbia undertakes extensive
analysis to ensure that its products are what consumers desire, the Company
believes its inventory risk is not as great as that of some of its competitors.
A new state-of-the-art inventory management information system, expected to be
fully operational in late 1998, should further enhance the Company's ability to
manage its inventory.
The Company encourages early purchases by its customers to promote inventory
management. To achieve this goal, the Company offers a select assortment of its
products to its entire roster of customers approximately one to two months
before most competing lines are introduced. Discounts are available for
customers who place early orders. In addition, the Company provides its
customers with staggered delivery times through the spring and fall seasons,
which also permits the Company and its customers to manage inventory effectively
and thereby diminish the likelihood of closeout sales.
The following charts depict the purchasing, order and delivery cycles for
the Company's spring 1997 and fall 1997 merchandise. (For example, as of May
1997 the Company had placed orders for its fall 1997 season with its independent
manufacturers for 98% of its product needs, had already received orders from its
customers for 98% of the planned production and had shipped 9% of its products.)
There is no assurance that future purchasing, order and delivery cycles will be
similar to those illustrated below.
SPRING 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERCENTAGE COMPLETED
Columbia Purchasing Customer Orders Delivery and Invoicing
Mar 1996 1%
April 2%
May 4%
Jun 7% 1%
July 27% 26%
Aug 55% 56%
Sept 83% 78%
Oct 95% 96%
Nov 96% 100% 1%
Dec 97% 100% 5%
Jan 1997 99% 101% 23%
Feb 100% 102% 48%
Mar 103% 75%
Apr 104% 89%
May 100% 96%
Jun 100% 97%
Jul 98%
Aug 99%
Sept 99%
FALL 1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
PERCENTAGE COMPLETED
Columbia Purchasing Customer Orders Delivery and Invoicing
Aug 1%
Sep 1996 3%
Oct 8%
Nov 20% 0%
Dec 35% 5%
Jan 1997 57% 64%
Feb 76% 79%
Mar 89% 87%
Apr 96% 96% 3%
May 98% 98% 9%
Jun 100% 99% 16%
Jul 100% 99% 31%
Aug 99% 49%
Sep 100% 70%
Oct 100% 83%
Nov 96%
Dec 99%
32
The Company attempts to mitigate its inventory risk in part by matching
purchases of inventory to the receipt of customer orders, as illustrated by the
charts above. By avoiding significant inventory build-ups in anticipation of
orders not yet received, the Company believes it is able to reduce the risk of
overcommitting to inventory purchases. Because customer orders can be canceled
up to 45 days prior to shipment, however, this strategy does not eliminate
inventory risk in the event of significant cancellations of customer orders.
PRODUCT DESIGN
All Columbia merchandise is designed and developed in-house by experienced
merchandising and design teams. Working closely with internal sales and
production teams as well as with retailers and consumers, the Company's
merchandising and design teams can mitigate the risks of fashion swings by
developing superior products that are tailored specifically to meet consumer
requirements. Because its products are designed for functionality and
durability, the Company does not attempt to lead consumer preferences or
differentiate its products based primarily on fashion. In fact, many new
products are based on existing designs such as the Bugaboo Parka, a consistent
best seller for more than a decade. By pursuing this strategy, the Company
believes it can attract a wider, value-oriented consumer audience than its more
technical or fashion-oriented competitors.
The Company uses several special materials, such as Omni-Tech and Bergundtal
Cloth, in the design of its products, some of which were developed in
collaboration with textile mills. Omni-Tech fabrics have micro-porous
polyurethane coatings that provide a waterproof finish and breathability.
Bergundtal Cloth, constructed with taslanized filament nylon in the horizontal
direction and filament nylon in the vertical direction, has a water-repellent
finish on its face and is coated with polyurethane on its back to provide added
water resistance and wind protection. The Company's special materials
substantially enhance the value of the Company's products without adding
significant cost.
All designs are created by approximately 70 members of Columbia's product
development team. Prototypes of the designed products are created in the
Company's Hong Kong facility. Prototypes are reviewed by groups of retailers,
sales personnel and consumers for commercial acceptance. The design process
requires approximately six to seven months from conceptualization until the
product line is finalized. After the product line is finalized, costing and
scheduling of manufacture of the product line at factories commences. This
process requires approximately one and one-half months to complete. Pricing of
the product line is then completed over the following two months, after which
the Company's sales force receives samples. At approximately the same time,
placement of orders for the product line commences, and the Company will
purchase finished garments for the following four or five months. When the
finished garments arrive for shipment to retailers, approximately 18 months will
have passed since the initial conceptualization of the product line.
SOURCING AND MANUFACTURING
Columbia's apparel is produced worldwide by independent manufacturers
selected, monitored and coordinated by regional Columbia employees to assure
conformity to strict quality standards. The Company believes the use of these
independent manufacturers, whether producing products from materials provided by
the Company or obtained directly by the manufacturer, increases the Company's
production capacity and flexibility and reduces its costs.
Unlike many apparel companies, Columbia uses few independent agents in its
sourcing activities. Rather, the Company maintains 10 sourcing and quality
control offices in the Far East, in Hong Kong, Thailand, Taiwan, India, Sri
Lanka, South Korea, China (three) and Malaysia, in each case staffed by Columbia
employees and managed by personnel native to the region. At December 31, 1997,
the Company employed a total of approximately 240 persons in these offices,
including approximately 101 persons in its Hong Kong office. Personnel in these
offices include those engaged in direct sourcing activities, such as
specification and sample distribution, production capability certification,
order placement, contract management and price and quantity negotiations, as
well as communications with the
33
U.S.-based design teams, sample preparation, quality control, quota and other
import restriction monitoring, warehouse and shipment coordination and pattern
making. Final pricing for all orders, however, is approved by personnel from the
Company's U.S. headquarters. The Company believes the use of dedicated Columbia
personnel rather than independent agents reduces its sourcing costs. Columbia
personnel who are focused narrowly on the Company's interests are more
responsive to the Company's needs than independent agents would be, and are more
likely to build long-term relationships with key vendors. The relationships
enhance the Company's access to raw materials and factory capacity at more
favorable prices.
The Company's merchandise is produced by approximately 115 independent
manufacturers worldwide. For 1997 product sales, approximately 94% (by dollar
volume) of the Company's products were produced by independent manufacturers,
and approximately 86% (by dollar volume) of the Company's products were produced
outside the United States, principally in the Far East. Other than its facility
for the production of fleece products and headware in Chaffee, Missouri, the
Company does not operate any production facilities. The Company attempts to
monitor its selection of independent factories to ensure that no one
manufacturer or country is responsible for a disproportionate amount of the
Company's merchandise. Six manufacturers engaged by the Company accounted for
approximately 38.5% (by dollar volume) of the Company's total production for
1997 product sales. The primary production facilities of these manufacturers are
located in Asia. No other manufacturer accounted for more than five percent of
the Company's total production for 1997 product sales.
The Company believes the use of independent manufacturers, in conjunction
with the use of Columbia sourcing personnel rather than agents, increases its
production flexibility and capacity and allows it to maintain control over
critical aspects of the sourcing process, while at the same time substantially
reducing capital expenditures and avoiding the costs of managing a large
production work force. There are no formal arrangements between the Company and
any of its contractors or suppliers; however, the Company believes its
relationships with its contractors and suppliers are excellent and that its
long-term, reliable and cooperative relationships with many of its vendors
provide it an advantage over many of its competitors.
The Company's quality control program is designed to ensure its products
meet the Company's high quality standards. The Company monitors the quality of
its fabrics and inspects prototypes of each product before production runs are
commenced. The Company also performs random in-line quality control checks
during and after production before the garments leave the factory. Columbia
quality control personnel visit most of their independent manufacturers'
facilities at least weekly. Final inspections occur when the garments are
received in the Company's distribution centers. The Company employs a total of
approximately 75 full-time quality control personnel in its 10 Far East sourcing
and quality control offices, as well as additional inspectors at its warehouses
in Portland, Oregon and at its one U.S. manufacturing facility. In addition, a
staff of approximately 22 persons in the Company's headquarters facility
oversees and coordinates global quality control standards and efforts. The
Company believes its quality control program is an important and effective means
of maintaining the quality and reputation of its products.
Production of apparel by independent manufacturers is accomplished through
one of two principal arrangements. In the first, the supplier purchases the raw
materials needed to produce the garment from sources approved by Columbia
personnel, at prices and on terms negotiated by that independent supplier. Most
of the Company's merchandise is manufactured under this arrangement. In the
second, sometimes referred to as "cut, make, pack, and quota" and used
principally for production in China, Columbia directly purchases the raw
material, principally fabric, from suppliers, obtains or arranges for any
necessary U.S. import quotas, and ships the materials in a "kit," together with
patterns, samples, and most other necessary items, to the independent
manufacturer that has been selected by Columbia to produce the finished garment.
Prior to shipment, materials for the kits are stored and consolidated at the
Company's Hong Kong warehouse. While this second arrangement advances the timing
for inventory purchases and exposes the Company to certain additional risks
before a garment is manufactured, the Company believes this arrangement further
increases its manufacturing flexibility and frequently
34
provides it with a cost advantage over other production methods. See "Risk
Factors--Dependence Upon Independent Manufacturers."
While the Company has traditionally received a significant portion of its
customers' orders prior to placement of its initial manufacturing orders,
production orders must generally be placed with manufacturers before all of a
season's orders are received by the Company from customers. Columbia, therefore,
takes into account market trends and the early orders received from customers in
placing its orders with suppliers. Many of these customer orders may change with
respect to colors, sizes, allotments or assortments before delivery. The Company
uses these orders and its experience to estimate production requirements to
secure necessary fabrics and manufacturing capacity.
The Company's independent manufacturers sell finished products to the
Company on an FOB basis and are at risk for the quality and timely delivery of
the products. To date, substantially all of the Company's international
production requirements have been financed with letters of credit rather than
purchased under open credit terms. The suppliers are able to obtain payment
under the letter of credit upon delivery of the merchandise to the freight
consolidator chosen by the Company, together with a certificate from a Columbia
quality control inspector, purchase order identification and, if necessary for
the goods in question, a quota "visa." The Company believes payment to its
suppliers under this arrangement, while increasing the Company's need for
inventory financing, enhances its attractiveness to suppliers and improves its
ability to negotiate more favorable terms in other areas. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company transacts business on an order-by-order basis and does not
maintain any long-term or exclusive commitments or arrangements to purchase from
any vendor. The Company competes with other companies for the production
capacity of independent manufacturers and import quota capacity. The Company
believes it has good relationships with its vendors and there will be adequate
sources to produce a sufficient supply of goods in a timely manner and on
satisfactory economic terms in the future. Manufacturers' delivery dates are
generally specified to ensure that products will be available in the Company's
warehouses in a timely manner assuming shipment by ocean freight. Manufacturers
are generally given a grace period after their scheduled delivery date to make
goods available for shipment; they are often obligated to pay any increased
costs resulting from the need to ship products by air as a result of delivery
after this period. The Company has from time to time experienced difficulty in
satisfying its raw material and finished goods requirements, and any such future
difficulties could adversely affect the Company. See "Risk Factors--Dependence
on Independent Manufacturers" and "--Dependence on Key Suppliers."
SALES AND DISTRIBUTION
The Company's products are sold to approximately 10,000 specialty and
department store retailers in the United States, Canada, Asia, Europe, South
America, Australia and New Zealand. The Company believes continued growth will
result from its focus on enhancing the productivity of existing retailers,
expanding distribution in international markets and developing merchandise
categories.
The Company plans to improve the productivity of its existing customers by
expanding its concept shops worldwide and installing brand enhancement systems.
Concept shops create an environment that is consistent with the Company's image
and enables the retailer to display and stock a greater volume of the Company's
products per square foot of retail space. Each concept shop requires an
investment by the Company in display fixtures and other materials of about
$15,000 and, typically, an increased inventory commitment by the retailer. These
concept shops also encourage longer term commitment by the retailer to the
Company's products and enhance consumer brand awareness. As of December 31,
1997, the Company had 164 concept shops worldwide and plans to double this
number by the end of 1998. Smaller-scale brand enhancement systems, which
include signage and fixtures that prominently display consolidated groupings of
Columbia merchandise, offer benefits similar to concept
35
shops. By the end of 1998, the Company expects to have installed 1,000 in-store
brand enhancement systems.
The Company intends to continue to capitalize on its strong U.S. brand
position and its worldwide brand recognition by targeting certain high
opportunity markets for development or expansion. Having already achieved a
significant share of the North American outerwear market, Columbia's strategy
for its existing and new North American customer base is to develop further
sales of its sportswear and rugged footwear. In new markets in Europe and Asia,
Columbia's strategy is to replicate its success in its core North American
market by establishing relationships with retailers through its highly visible
outerwear line. As Columbia's brand image and reputation strengthens through
acceptance of its outerwear, it introduces its sportswear and rugged footwear
lines into these new markets.
The Company believes that over the longer term significant opportunities
exist to increase sales of its products to department stores and footwear
specialty shops. The Company expects to expand its sales to these retailers, in
part by attracting new customers and in part by expanding sales in existing
retailers. In 1997 approximately 82% of the Company's U.S. net sales were to
specialty stores and 18% were to department store retailers.
NET SALES BY REGION
1993
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
International 4.7%
Canada 6.8%
United States 88.5%
1997
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
Canada 8.8%
International 10.0%
United States 81.2%
NORTH AMERICA
The Company sells its products to approximately 3,900 U.S. retailers and
1,100 Canadian retailers. Of these, J.C. Penney is the Company's largest
customer, representing just over nine percent of the Company's net sales in
1997. Not all of the Company's product lines are sold to each of its North
American retailers.
The Company uses 25 independent sales agencies, which employ a total of
approximately 80 sales representatives, to distribute its products in North
America. Columbia operates nine outlet stores in North America: one each in
Portland, Lake Oswego and Lincoln City, Oregon; Gilroy, California; Birch Run,
Michigan; Medford, Minnesota; Kenosha, Wisconsin; Lancaster, Pennsylvania and
Windsor, Ontario. The Company's outlet stores sell excess inventory in a manner
that does not adversely affect its retailers. Columbia also operates a
free-standing flagship store in Portland, Oregon. This retail store is designed
to create a distinctive "Columbia" environment and reinforces the active and
outdoor image of the Columbia brand. In addition, the retail store provides the
Company with the ability to test new marketing and merchandising techniques. The
Company has also established 83 concept shops in retail stores in North America
and plans to more than double this number in 1998.
36
The Company distributes most of its products to U.S. retailers from its
300,000 square foot Rivergate Distribution Center, which is located in Portland,
Oregon. At this distribution facility, the Company's products are inspected,
sorted, packed and shipped. The Company is planning to enlarge its Rivergate
Distribution Center by at least 240,000 square feet within the next two years.
The Company also distributes a small portion of its products in the United
States from a smaller facility adjacent to its Chaffee, Missouri manufacturing
facility. The Company distributes its products in Canada from a 66,000 square
foot warehouse in Strathroy, Ontario.
EUROPEAN COMMON MARKET
The Company sells its products to approximately 3,800 European retailers.
The Company maintains a European sales and marketing office in Strasbourg,
France and, with the exception of the United Kingdom, Switzerland and Greece,
distributes its products in Europe from an independent logistics company based
in The Netherlands. In the United Kingdom, Switzerland and Greece, the Company
sells through independent distributors. The Company has approximately 22 concept
shops in European retailers. Although the Company's marketing and sales efforts
to date have been most successful in France, Spain, The Netherlands and Sweden,
Columbia believes substantial opportunities exist in other countries such as
Germany. Net direct sales of the Company's products in Europe have increased at
a compound annual growth rate of 83% from 1994 to 1997.
ASIA
The Company has distributed its products in Japan since the mid-1970s and
sells its merchandise to approximately 1,000 Japanese retailers. In the fall of
1998, the Company will begin distributing its products directly in Japan, which
the Company believes will create the opportunity for significant acceleration of
sales in Japan. Based on its experience in Japan, the Company also believes the
South Korean market represents another significant growth opportunity in Asia.
In 1997 the Company began selling its products in South Korea through 15 retail
locations. Sales and marketing efforts in Asia are directed from Tokyo and
Seoul. The Company's products will be warehoused and shipped in Japan by an
independent company based in Tokyo, and in South Korea from a warehouse near
Seoul.
OTHER COUNTRIES
The Company sells its products to independent exclusive distributors,
representing approximately 350 retailers, in Argentina, Australia, Chile, Czech
Republic, Ecuador, Greece, Hungary, Ireland, Japan, New Zealand, Poland, Russia,
Sweden (hunting and fishing products only), Switzerland and the United Kingdom.
The Company expects to begin selling its products in 1998 to distributors
representing retailers in Mexico, Norway and Turkey.
The Company plans to improve the productivity of its existing international
distributors and, except for the anticipated expansion in 1998, does not intend
to expand sales to additional countries. Over the longer term, the Company
believes international sales to some of its existing countries could be made
directly.
INTELLECTUAL PROPERTY
The Company owns trademarks for many of its products, including "Columbia,"
"Columbia Sportswear Company," "Convert," "Bugaboo," "Bugabootoo," "Silent Rain"
and "Interchange." The Company's trademarks, many of which are registered or
subject to pending applications in the United States and other nations, are for
use on a variety of items of apparel. The Company believes that its reputation,
built through years of providing high quality apparel at a good value for
consumers and through its distinctive advertising, are linked in the minds of
consumers with the Company's trademarks. The Company believes its trademarks are
of great value and are instrumental to its ability to create and sustain demand
for its products. The Company also places significant value on the overall
appearance and image of its products. The Company's trade dress (the overall
appearance and image of its
37
products), as much as its trademarks, distinguishes Columbia's products in the
marketplace. As the Company expands its markets it attempts to establish and
protect its proprietary rights. From time to time the Company discovers products
in the marketplace that are counterfeit reproductions, and the Company attempts
to prevent or terminate such infringing activity. In the past the Company has
successfully resolved conflicts over proprietary rights through legal action and
negotiated settlements. Although the Company has not been materially inhibited
from selling its products in connection with trademark or trade dress disputes,
there is no assurance that significant obstacles will not arise as it expands
its product line and geographic scope. See "Risk Factors--Dependence on
Proprietary Rights."
MANAGEMENT INFORMATION SYSTEM
The Company is committed to maintaining technically advanced systems that
will help it achieve its overall growth strategy. The Company is replacing its
current management information system with an enterprise system that integrates
EDI and inventory management capabilities. This system, some aspects of which
are already operational, is expected to be fully operational by late 1998. The
new system updates current and historical net sales, inventory and merchandise
planning on a daily basis. It also provides a stronger and more timely link
between the Company and its customers, enhancing the Company's ability to
monitor its performance against historical and budgetary benchmarks, to manage
inventory and labor costs as well as to make more informed purchasing decisions.
The Company believes this system will also help to improve customer service and
operating efficiency. The system is expected to serve the Company for at least
the next five years.
BACKLOG
The Company generally receives the bulk of the orders for each of the fall
and spring seasons a minimum of three months prior to the date the products are
shipped to customers. The orders are cancelable by the customer up to 45 days
prior to the date of shipment. At December 31, 1997, the Company's backlog was
$200.3 million, compared to $158.5 million at December 31, 1996. To manage
inventory risk, the Company estimates its production requirements conservatively
and engages in certain other inventory management techniques. See "--Business
Process." For a variety of reasons, including the timing of shipments, product
mix of customer orders and the amount of in-season orders, backlog may not be a
reliable measure of future sales for any succeeding period.
COMPETITION
The active outerwear, sportswear and rugged footwear segments of the apparel
industry are highly competitive. The Company encounters substantial competition
in the active outerwear and sportswear business from, among others, The North
Face, Inc., Marmot Mountain Ltd., Woolrich Woolen Mills, Inc., The Timberland
Company ("Timberland"), Patagonia Corporation ("Patagonia") and Helly-Hansen
A/S. In addition, the Company competes with major sport companies, such as Nike,
Inc. ("Nike"), Adidas AG and Reebok International Ltd., and with
fashion-oriented competitors, such as Polo Ralph Lauren Corporation, Nautica
Enterprises, Inc. and Tommy Hilfiger Corporation. The Company's rugged footwear
line competes with, among others, Timberland, Kaufman Footwear (a division of
William H. Kaufman, Inc.), Nike ACG, Salomon S.A. and The Rockport Company. Many
of these companies have global operations and compete with the Company in Europe
and Asia. In Europe the Company also faces competition from such brands as
Berghaus, Jack Wolfskin and Craft of Sweden, and in Asia the Company faces
competition from such brands as Mont-Bell and Patagonia. In addition to name
brand competitors, the Company also faces competition from its own retailer
customers that manufacture and market clothing and footwear under their own
labels. Some of the Company's competitors are substantially larger and have
substantially greater financial, distribution, marketing and other resources
than the Company. The Company believes the primary competitive factors in the
market for activewear are functionality, durability, style, price and brand
name, and that its product offerings are well positioned within the market. See
"Risk Factors--Competition."
38
GOVERNMENT REGULATION
Many of the Company's imports are subject to existing or potential duties,
tariffs or quotas that may limit the quantity of certain types of goods which
may be imported into the United States and other countries, including
constraints imposed by bilateral textile agreements between the United States
and a number of foreign countries. These agreements, which have been negotiated
bilaterally either under the framework established by the Arrangement Regarding
International Trade in Textiles, known as the Multifiber Agreement, or other
applicable statutes, impose quotas on the amounts and types of merchandise that
may be imported into the United States from these countries. These agreements
also allow the signatories to adjust the quantity of imports for categories of
merchandise that, under the terms of the agreements, are not now subject to
specific limits. The Company's imported products are also subject to United
States customs duties, which are a material portion of the cost of the
merchandise. The United States and the countries in which the Company's products
are produced or sold may impose new quotas, duties, tariffs or other
restrictions, or may adversely adjust prevailing quota, duty or tariff levels,
any of which could have a material adverse effect on the Company. See "Risk
Factors-- International Operations."
EMPLOYEES
At December 31, 1997 the Company had 1,234 full-time employees. Of these
employees, 863 were based in the United States, 62 in Canada, 23 in Europe and
286 in Asia. None of the Company's employees is represented by a labor union.
The Company believes it maintains good employee relations.
PROPERTIES
The principal executive and administrative offices of the Company are
located at 6600 North Baltimore, Portland, Oregon. The general location, use and
approximate size of the Company's principal owned and leased properties are set
forth below:
APPROXIMATE
LOCATION OWNED/LEASED USE SQUARE FEET
- -------------------- ------------ ---------------------------------------- -----------
Portland, Oregon owned distribution facility 300,000
Portland, Oregon leased headquarters offices 172,000
Chaffee, Missouri leased manufacturing and distribution facility 75,000
39
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth the executive officers, directors and certain
key employees of the Company.
NAME AGE POSITION
- ------------------------------ --- -------------------------------------------------
Gertrude Boyle 74 Chairman of the Board
Timothy P. Boyle 48 President, Chief Executive Officer, Treasurer,
Secretary and Director
Don Richard Santorufo 51 Executive Vice President and Chief Operating
Officer
Patrick D. Anderson 40 Chief Financial Officer
Carl K. Davis 49 Vice President and General Counsel
Terry J. Brown 55 Executive Planner and International Distributor
Planner
Robert G. Masin 49 National Sales Manager
Grant D. Prentice 43 General Manager--Outerwear Merchandising
Michael R. Egeck 39 General Manager--Sportswear Merchandising
Rodney R. Gumringer 37 General Manager--Footwear Merchandising
Douglas R. Hamilton 45 Director of Operations--Canada and Europe;
President and Chief Operating Officer--
Columbia Sportswear Canada Limited
Sarah Bany 39 Director of Retail Stores, Director and Assistant
Secretary
Murrey R. Albers(1)(2) 56 Director
Edward S. George(1)(2) 61 Director
John Stanton(1)(2) 42 Director
- --------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
GERTRUDE BOYLE has served as Chairman of the Board of Directors since 1983.
The Company was founded by her parents in 1938 and managed by her husband, Neal
Boyle, from 1964 until his death in 1970. Ms. Boyle also served as the Company's
President from 1970 to 1988.
TIMOTHY P. BOYLE joined the Company in 1971 as General Manager and has
served as President and Chief Executive Officer since 1988. He has been a member
of the Board of Directors since 1978. Mr. Boyle is also a member of the board of
directors of Triad Machinery, a heavy equipment retailer. Mr. Boyle is Gertrude
Boyle's son.
DON RICHARD SANTORUFO joined the Company in 1979 as Purchasing and
Production Manager, and in 1984 he was promoted to Vice President, Manufacturing
and oversaw the development of the Company's Asian manufacturing operations. He
has served as Executive Vice President and Chief Operating Officer of the
Company since January 1995. From 1975 to 1977 Mr. Santorufo was Production and
Purchasing Manager for Alpine Designs, a skiwear manufacturer, and from 1977 to
1979 he was Production Manager for Jen-Cel-Lite Corporation, a sleeping bag and
insulation manufacturer.
40
PATRICK D. ANDERSON joined the Company in June 1992 as Manager of Financial
Reporting, became Corporate Controller in August 1993 and was appointed Chief
Financial Officer of the Company in December 1996. From 1985 to 1992, Mr.
Anderson was an accountant with Deloitte & Touche LLP.
CARL K. DAVIS joined the Company in October 1997 as Vice President and
General Counsel. He was employed by Nike from 1981 to October 1997 where he
served in a variety of capacities, most recently as Director of International
Trade.
TERRY J. BROWN joined the Company in January 1983 as Planner and served as
Executive Planner and International Distributor Manager since November 1995.
Prior to joining the Company, Mr. Brown was Vice President and Chief Financial
Officer of Agoil, Inc., an oil and gas exploration and development company, from
1978 to 1981, and Planner for Jantzen Incorporated, an apparel company, from
1968 to 1978.
ROBERT G. MASIN joined the Company in May 1989 as National Sales Manager.
From 1976 to 1989 he worked for W.L. Gore and Associates, a polymer technology
and manufacturing and service company. From 1982 to 1989 he was National Sales
Manager of Gore's Fabric Division.
GRANT D. PRENTICE joined the Company in May 1984 as General Manager of
Outerwear Merchandising. From 1977 to 1984, Mr. Prentice worked as a sales
representative for Gerry Outdoor Products, a skiwear company based in Colorado.
MICHAEL R. EGECK has been General Manager--Sportswear Merchandising for the
Company since August 1992. From 1983 to 1992, Mr. Egeck was with Seattle Pacific
Industries, a sportswear apparel company, where his most recent position was
Director of Merchandising, Design and Sales Operations.
RODNEY R. GUMRINGER joined the Company in December 1993 as General
Manager--Footwear. From 1988 to 1993, Mr. Gumringer was Product Development
Manager for the casual shoe division of Nike.
DOUGLAS R. HAMILTON became President and Chief Operating Officer of the
Company's Canadian subsidiary in August 1992. In August 1995 he also became
Director of Operations--Canada and Europe. From 1987 to 1992, Mr. Hamilton was a
principal shareholder and President of Canada-Trans Limited, a clothing
distributor and silk screening company, which was acquired by the Company in
1992.
SARAH BANY joined the Company in 1979 and has held various positions since
that time, most recently (since December 1988) as Director of Retail Stores. She
became a director in December 1988. Ms. Bany is Gertrude Boyle's daughter.
MURREY R. ALBERS became a director of the Company in July 1993. Mr. Albers
is President and Chief Executive Officer of United States Bakery, a bakery with
operations in Oregon, Washington, Idaho, Montana and California. Mr. Albers, who
has been in his current position since June 1985, joined United States Bakery as
general manager of Franz Bakery in 1975.
EDWARD S. GEORGE became a director of the Company in April 1989. For 30
years, until his retirement, Mr. George worked in the banking industry and,
since January 1991, has served as a financial consultant to Bell Enterprises.
JOHN STANTON became a director of the Company in July 1997. Since 1994, Mr.
Stanton has served as Chairman and Chief Executive Officer of Western Wireless
Corporation, a publicly held company that operates cellular communications
systems in 23 western states. Mr. Stanton was Chairman and Chief Executive
Officer of General Cellular Corporation, a predecessor and now subsidiary of
Western Wireless Corporation, in 1992. He previously co-founded McCaw Cellular
Communications, where he served as Chief Operating Officer from 1985 to 1988 and
as Vice Chairman from 1988 to 1991. Mr. Stanton also serves as a director of
other corporations, including Advanced Digital Information Corporation and
SmarTone.
Directors are elected at the annual shareholders meeting and hold office
until the next annual shareholders meeting and until their successors are
elected and qualified. Non-employee directors
41
receive an annual retainer of $15,000, $1,000 for each meeting of the Company's
Board of Directors or a committee of the Board of Directors attended and
reimbursement of travel expenses. Non-employee directors also receive an annual
merchandise allowance of $2,000 to acquire the Company's products, and annual
stock option grants to acquire 3,500 shares of Common Stock. Officers are
appointed by the Board of Directors and serve at its discretion.
The Company maintains an Audit Committee and a Compensation Committee. The
Audit Committee oversees actions taken by the Company's independent auditors.
The Compensation Committee reviews the compensation levels of the Company's
executive officers and makes recommendations to the Board of Directors regarding
compensation. The Compensation Committee also administers the Stock Incentive
Plan. See "--Stock Incentive Plan."
In May 1993, Mr. Santorufo pled guilty to one count of falsely understating
to the U.S. Customs Service the prices of certain merchandise imported by the
Company. Mr. Santorufo paid the imposed fine and completed probation.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In the last fiscal year there was no compensation committee of the Company's
Board of Directors. Compensation decisions with respect to executive officers of
the Company were made by Gertrude Boyle, Chairman of the Board, and Timothy P.
Boyle, President and Chief Executive Officer.
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY. The following table sets forth compensation
information for the Chief Executive Officer and the four most highly compensated
executive officers of the Company other than the Chief Executive Officer whose
total annual compensation exceeded $100,000 in 1997 (collectively, the "Named
Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
-------------------
ANNUAL COMPENSATION AWARDS
--------------------------------------- -------------------
OTHER ANNUAL SECURITIES
SALARY BONUS COMPENSATION UNDERLYING OPTIONS
---------- --------- ------------ -------------------
Gertrude Boyle .................. $153,920 $460,000 $4,750(1) --
Chairman of the Board
Timothy P. Boyle ................ 323,733 805,000 4,750(1) --
President and Chief Executive
Officer
Don Richard Santorufo ........... 286,946 690,000 4,750(1) --
Executive Vice President and
Chief Operating Officer
Grant D. Prentice ............... 227,199 90,919 4,750(1) 59,000
General Manager-- Outerwear
Merchandising
Robert G. Masin ................. 213,370 85,385 4,750(1) 29,500
National Sales Manager
- --------------
(1) Represents amounts paid as a matching contribution to the Company's 401(k)
Plan. Excludes a profit sharing contribution, which will be determined in
early 1998.
42
OPTIONS GRANTED IN LAST FISCAL YEAR. The following table summarizes option
grants to Named Executive Officers during the year ended December 31, 1997.
OPTION GRANTS IN 1997
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED ANNUAL
------------------------------------------------------------
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM
OPTIONS EMPLOYEES IN BASE PRICE -------------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) EXPIRATION DATE 5% ($) 10% ($)
- --------------------------- ------------- ------------ ----------- --------------- ----------- -----------
Gertrude Boyle............. -- -- -- -- -- --
Timothy P. Boyle........... -- -- -- -- -- --
Don Richard Santorufo...... -- -- -- -- -- --
Grant D. Prentice.......... 35,400 4.8% $ 9.68 3/12/07 $ 215,459 $ 546,016
23,600 3.2 15.20 11/14/07 225,645 571,830
Robert G. Masin............ 29,500 4.0 9.68 3/12/07 179,549 455,013
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES. No Named Executive Officer exercised stock options during the year
ended December 31, 1997. The following table summarizes information with respect
to option exercises and option values for the year ended December 31, 1997 for
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN 1997
AND YEAR-END OPTION VALUES
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT YEAR-END IN-THE-MONEY(1)
(#) OPTIONS AT YEAR-END ($)
SHARES ACQUIRED VALUE REALIZED ------------------------------- -----------------------------
NAME ON EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------------- ----------------- --------------- -------------- ------------- --------------
Gertrude Boyle.......... -- -- -- -- -- --
Timothy P. Boyle........ -- -- -- -- -- --
Don Richard Santorufo... -- -- -- -- -- --
Grant D. Prentice....... -- -- 0 59,000 $ 0 $ 360,608
Robert G. Masin......... -- -- 0 29,500 0 245,440
- --------------
(1) Options are "in-the-money" at the year-end if the fair market value of the
underlying securities on such date exceeds the exercise price of the
options. The amounts set forth represent the difference between the initial
price to the public in the Offerings of $18.00 per share and the exercise
price of the options, multiplied by the applicable number of option shares.
The Company has not executed employment contracts with any Named Executive
Officer. Pursuant to a Deferred Compensation Conversion Agreement between the
Company and Mr. Santorufo, the Company issued Common Stock to Mr. Santorufo
which vests over time. If Mr. Santorufo's service to the Company is terminated,
all of Mr. Santorufo's unvested shares will vest automatically if not
repurchased by the Company. See "Certain Transactions."
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Second Amended and Restated Articles of Incorporation (the
"Articles") eliminate, to the fullest extent permitted by Oregon law, liability
of a director to the Company or its shareholders for
43
monetary damages for conduct as a director. Although liability for monetary
damages has been eliminated, equitable remedies such as injunctive relief or
rescission remain available. In addition, a director is not relieved of his or
her responsibilities under any other law, including the federal securities laws.
The Company's Articles require the Company to indemnify its directors to the
fullest extent not prohibited by law. The Company has also entered into
indemnification agreements with each of the Company's directors. The Company
believes that the limitation of liability provisions in its Articles and
indemnification agreements may enhance the Company's ability to attract and
retain qualified individuals to serve as directors.
STOCK INCENTIVE PLAN
1997 STOCK INCENTIVE PLAN. On March 12, 1997, the Board of Directors
adopted, and the shareholders of the Company approved, the Stock Incentive Plan.
The Stock Incentive Plan provides for the award of incentive stock options to
employees and the award of nonqualified stock options, stock appreciation
rights, bonus rights and other incentive grants to directors, employees,
independent contractors, advisors and consultants. The Company has reserved
2,500,000 shares of Common Stock for issuance under the Stock Incentive Plan. At
December 31, 1997, options to purchase 736,774 shares at a weighted average
exercise price of $10.40 per share were outstanding under the Stock Incentive
Plan.
The Stock Incentive Plan is administered by the Board of Directors, which
has the authority, subject to the terms of the Stock Incentive Plan, to
determine the persons to whom options or rights may be granted, the exercise
price and number of shares subject to each option or right, the character of the
grant, the time or times at which all or a portion of each option or right may
be exercised and certain other provisions of each option or right. The Board of
Directors may delegate administration of the Stock Incentive Plan to a
committee.
The exercise price of incentive stock options must not be less than the fair
market value of the Common Stock at the date of the grant or, in the case of
incentive stock options issued to holders of more than 10% of the outstanding
Common Stock, 110% of the fair market value. The maximum term of incentive stock
options is 10 years, or five years in the case of 10% shareholders. The
aggregate fair market value, on the date of the grant, of the Common Stock for
which incentive stock options are exercisable for the first time by an employee
during any calendar year may not exceed $100,000. Options are exercisable over a
period of time in accordance with the terms of option agreements entered into at
the time of grant. Generally, options become exercisable over a five-year
period. Annual stock option awards to non-employee directors will generally
become exercisable over a three-year period. Options granted under the Stock
Incentive Plan are generally nontransferable by the optionee and, unless
otherwise determined by the Board of Directors, must be exercised by the
optionee during the period of the optionee's employment or service with the
Company or within a specified period following termination thereof.
44
CERTAIN TRANSACTIONS
In December 1997 the Company acquired all of the outstanding capital stock
of GTS, Inc. ("GTS") from Gertrude Boyle, Timothy P. Boyle and Sarah Bany. GTS
held a 21 percent interest in each of the Company's Canadian, French and German
subsidiaries and a less than one percent interest in the Company's Korean
subsidiary. GTS was formed because the Company, as an S corporation, was
prohibited from owning 80 percent or more of the stock of another corporation.
As a result of the transaction, all of the Company's subsidiaries are now wholly
owned. The Company issued 45,657, 129,240 and 41,736 shares of Common Stock to
Ms. Boyle, Mr. Boyle and Ms. Bany, respectively, in connection with this
transaction.
The Company leases its corporate headquarters in Portland, Oregon from Ms.
Boyle and leases a warehouse from Ms. Boyle and Mr. Boyle. Pursuant to written
leases dated January 1, 1998 with terms of five years, the Company will pay
$156,096, as adjusted annually for inflation, to Ms. Boyle for use of the
headquarters building and $52,848, as adjusted annually for inflation, to Ms.
Boyle and Mr. Boyle for use of the warehouse. In each of 1995, 1996 and 1997,
the lease payments totaled $132,900.
In December 1996 the Company entered into a Deferred Compensation Conversion
Agreement with Don Richard Santorufo, Executive Vice President and Chief
Operating Officer of the Company, providing for the conversion of deferred
compensation units granted under a prior agreement into an aggregate of
1,800,435 shares of the Company's Common Stock. Of those shares, 1,075,321
shares vested immediately, 333,725 shares vest ratably over three years
commencing December 31, 1997, and 391,389 shares vest ratably over five years
commencing December 31, 2000. The agreement provides the Company with a right to
repurchase unvested shares if Mr. Santorufo's employment is terminated. Shares
not repurchased after termination vest automatically. In connection with the
transaction, the Company loaned Mr. Santorufo approximately $5.7 million for
payment of related income taxes, of which Mr. Santorufo is obligated to repay
$3,818,316 on December 31, 2001 and $1,906,466 on April 15, 2002. These amounts
bear interest at the rates of 6.31% and 6.49%, respectively. Mr. Santorufo has
agreed to repay these amounts at the completion of the Offerings. In addition,
the Company agreed to make a loan for up to 50 percent of any additional tax
liability that may be imposed on Mr. Santorufo with respect to the compensation
received under the agreement as well as to pay a cash bonus to cover 50 percent
of any such tax liability. The amount of this cash bonus will be increased to
offset taxes owed by Mr. Santorufo as a result of such bonus. The agreement also
provided for a cash bonus of $2,750,000 in consideration of past services and
future bonuses in amounts equal to the accrued interest due and owing on Mr.
Santorufo's loan from the Company, increased to offset taxes owed by Mr.
Santorufo as the result of such bonuses. The bonuses are subject to Mr.
Santorufo's agreement to assign certain proceeds and distributions on his shares
to the Company as security for repayment of the loans. Mr. Santorufo pledged and
granted a security interest in his shares to the Company to secure the
performance of his obligations under the agreement.
In connection with the Offerings and the termination of the Company's S
corporation tax status, the Company entered into a tax indemnification agreement
with each of its shareholders, including Gertrude Boyle, Timothy P. Boyle, Sarah
Bany, Don Richard Santorufo and certain trusts. The agreements provide that the
Company will indemnify and hold harmless each of these shareholders for federal,
state, local or foreign income tax liabilities, and costs relating thereto,
resulting from any adjustment to the Company's income that is the result of an
increase or change in character of the Company's income during the period it was
treated as an S corporation. The agreements also provide that if there is a
determination that the Company was not an S corporation prior to the Offerings,
the shareholders will pay to the Company certain refunds actually received by
them as a result of that determination.
In February 1996 the Company acquired its Rivergate facility from Mr. Boyle
and Mr. Santorufo for $4,500,000 (including the assumption of an outstanding
loan). Mr. Boyle and Mr. Santorufo had acquired the property from the Company in
June 1994 for $4,225,000 (including the assumption of the associated loan) and
subsequently leased it back to the Company.
45
Since January 1994 the Company's Canadian subsidiary has leased office and
warehouse space from B.A.R.K. Holdings, Inc., a company owned by Douglas R.
Hamilton, President and Chief Operating Officer of the Company's Canadian
subsidiary and Director of Operations--Canada and Europe, and his wife. The
Company pays basic rent (as defined in the lease) in the amount of C$83,400 per
year under the lease, which terminates in December 2003.
Mr. Hamilton, individually and as trustee for his wife, was a shareholder in
the Canadian company acquired by Columbia in 1992. In the acquisition the
Hamiltons received common stock in the new Columbia Canadian subsidiary, which
was repurchased by the subsidiary in April 1996 for an aggregate of C$724,516.
In March 1998 the Company acquired the assets of a retail store in Bend, Oregon
that specializes in the Company's products and is owned by Gertrude Boyle's
daughter and son-in-law (the sister and brother-in-law of Timothy P. Boyle and
Sarah Bany). The acquisition price, approximately $1,426,500, was based on the
Company's determination of the fair market value of the tangible assets and
goodwill associated with the business.
In connection with the Offerings, the shareholders of the Company entered
into an agreement regarding a plan of recapitalization, which provides for an
issuance of voting Common Stock to the Company's shareholders followed by a
one-for-one conversion of the Company's nonvoting Common Stock into voting
Common Stock. Pursuant to the agreement, Gertrude Boyle will be issued 635,777
shares of voting Common Stock, Timothy P. Boyle will be issued 34,076 shares of
voting Common Stock, Sarah Bany will be issued 5,332 shares of voting Common
Stock and Don Richard Santorufo will be issued 11,319 shares of voting Common
Stock.
46
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership, as of December 31, 1997 and as adjusted to reflect the sale of the
Common Stock in the Offerings, of the Common Stock by (i) each person known by
the Company to own beneficially more than five percent of the Common Stock, (ii)
each director of the Company, (iii) each Named Executive Officer and (iv) all
directors and executive officers as a group. Except as otherwise noted, the
Company believes the persons listed below have sole investment and voting power
with respect to the Common Stock owned by them.
PERCENTAGE OF
COMMON STOCK
SHARES --------------------------
BENEFICIALLY BEFORE AFTER
NAME OWNED(1) OFFERING OFFERING
- ------------------------------------------------------------ ---------------- ----------- ----------
Gertrude Boyle ............................................. 4,033,343(2) 21.5% 16.5%
6600 North Baltimore
Portland, Oregon 97203
Timothy P. Boyle ........................................... 10,545,058(3) 56.1% 43.2%
6600 North Baltimore
Portland, Oregon 97203
Don Richard Santorufo ...................................... 800,435(4) 4.3% 3.3%
6600 North Baltimore
Portland, Oregon 97203
Grant D. Prentice........................................... 11,603(5) * *
Robert G. Masin............................................. 7,375(6) * *
Sarah Bany ................................................. 3,342,890(7) 17.8% 13.7%
6600 North Baltimore
Portland, Oregon 97203
Murrey R. Albers............................................ 1,106(8) * *
Edward S. George............................................ 9,813(9) * *
John Stanton................................................ 36,661(10) * *
All directors and executive officers as a group
(15 persons).............................................. 19,055,475(11) 100% 77.9%
- --------------
* Less than 1.0%
(1) Shares that the person has the right to acquire within 60 days after March
31, 1998 are deemed to be outstanding in calculating the percentage
ownership of the person or group but are not deemed to be outstanding as to
any other person or group.
(2) Includes 874,074 shares held in two grantor retained annuity trusts for
which Ms. Boyle is the income beneficiary and Ms. Bany is the beneficiary
of the remainder.
(3) Includes 123,900 shares held in trust, of which Mr. Boyle's wife is
trustee, for the benefit of Mr. Boyle's children. Also includes 759,550
shares that Mr. Boyle has agreed to purchase from Don Richard Santorufo in
a private sale upon completion of the Offerings.
(4) Excludes 1,000,000 shares that Mr. Santorufo has agreed to sell to certain
persons in a private sale upon completion of the Offerings.
47
(5) Includes options to purchase 11,603 shares of Common Stock exercisable
within 60 days after March 31, 1998. Excludes options to purchase 47,397
shares of Common Stock not exercisable within 60 days after March 31, 1998.
(6) Includes options to purchase 7,375 shares of Common Stock exercisable
within 60 days after March 31, 1998. Excludes options to purchase 22,125
shares of Common Stock not exercisable within 60 days after March 31, 1998.
(7) Includes 118,000 shares held in trust, of which Ms. Bany's husband is
trustee, for the benefit of Ms. Bany's children. Also includes 657,750
shares held in two grantor retained annuity trusts for which Ms. Bany is
the income beneficiary and Ms. Bany's husband and children are the
beneficiaries of the remainder, and 170,000 shares that Ms. Bany has agreed
to purchase from Don Richard Santorufo in a private sale upon completion of
the Offerings.
(8) Includes options to purchase 1,106 shares of Common Stock exercisable
within 60 days after March 31, 1998. Excludes options to purchase 3,319
shares of Common Stock not exercisable within 60 days after March 31, 1998.
(9) Includes options to purchase 2,213 shares of Common Stock exercisable
within 60 days after March 31, 1998. Excludes options to purchase 6,637
shares of Common Stock not exercisable within 60 days after March 31, 1998.
Also includes 7,600 shares that a revocable trust of which Mr. George is
both grantor and trustee has agreed to purchase from Don Richard Santorufo
in a private sale upon completion of the Offerings.
(10) Includes options to purchase 811 shares of Common Stock exercisable within
60 days after March 31, 1998. Excludes options to purchase 3,614 shares of
Common Stock not exercisable within 60 days after March 31, 1998. Also
includes 35,850 shares that Mr. Stanton has agreed to purchase from Don
Richard Santorufo in a private sale upon completion of the Offerings.
(11) Includes options to purchase 56,776 shares of Common Stock exercisable
within 60 days after March 31, 1998. Also includes 993,000 shares that
certain directors and executive officers have agreed to purchase from Don
Richard Santorufo in a private sale upon completion of the Offerings.
Excludes options to purchase 206,523 shares of Common Stock not
exercisable within 60 days after March 31, 1998.
48
DESCRIPTION OF CAPITAL STOCK
In March 1998, pursuant to an agreement regarding a plan of
recapitalization, (i) each share of the Company's voting Common Stock held by
Gertrude Boyle was exchanged for and converted into 1.705 shares of the
Company's voting Common Stock, and each share of the Company's voting Common
Stock held by shareholders other than Gertrude Boyle was exchanged for and
converted into 1.0695 shares of the Company's voting Common Stock, (ii) each
share of the Company's nonvoting Common Stock held by shareholders was exchanged
for and converted into one share of the Company's voting Common Stock, and (iii)
each share of the Company's voting Common Stock was converted into 0.59 shares
of Common Stock pursuant to a reverse stock split. The following description of
rights, as well as all other information presented in this Prospectus, assumes
the completion of these conversions and reverse split.
The authorized capital stock of the Company consists of 50,000,000 shares of
Common Stock and 10,000,000 shares of Preferred Stock.
COMMON STOCK
As of December 31, 1997, 18,792,176 shares of Common Stock were outstanding,
held of record by eleven shareholders. After the Offerings, 24,392,176 shares
will be outstanding.
Holders of Common Stock are entitled to receive dividends as may from time
to time be declared by the Board of Directors of the Company out of funds
legally available therefor. See "Dividend Policy and S Corporation Status."
Holders of Common Stock are entitled to one vote per share on all matters on
which the holders of Common Stock are entitled to vote and do not have any
cumulative voting rights. Holders of Common Stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a liquidation,
dissolution or winding up of the Company, holders of Common Stock are entitled
to share equally and ratably in the assets of the Company, if any, remaining
after the payment of all liabilities of the Company and the liquidation
preference of any outstanding class or series of Preferred Stock. The
outstanding shares of Common Stock are, and the shares of Common Stock offered
by the Company in the Offerings when issued will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to any series of Preferred Stock that the Company may issue in the
future, as described below.
PREFERRED STOCK
The Board of Directors has the authority to issue Preferred Stock in one or
more series and to fix the number of shares constituting any such series and the
preferences, limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption, redemption price or prices,
conversion rights and liquidation preferences of the shares constituting any
series, without any further vote or action by the shareholders of the Company.
The issuance of Preferred Stock by the Board of Directors could adversely affect
the rights of holders of Common Stock.
The potential issuance of Preferred Stock may have the effect of delaying or
preventing a change in control of the Company, may discourage bids for the
Common Stock at a premium over the market price of the Common Stock and may
adversely affect the market price of, and the voting and other rights of the
holders of, Common Stock. The Company has no plans to issue shares of Preferred
Stock.
OREGON CONTROL SHARE AND BUSINESS COMBINATION STATUTES
Upon completion of the Offerings, the Company will become subject to the
Oregon Control Share Act (the "Control Share Act"). The Control Share Act
generally provides that a person (the "Acquiror") who acquires voting stock of
an Oregon corporation in a transaction (other than a transaction in which voting
shares are acquired from the issuing public corporation) that results in the
Acquiror holding more than 20%, 33 1/3% or 50% of the total voting power of the
corporation (a "Control Share Acquisition") cannot vote the shares it acquires
in the Control Share Acquisition ("control shares") unless voting rights
49
are accorded to the control shares by (i) a majority of each voting group
entitled to vote and (ii) the holders of a majority of the outstanding voting
shares, excluding the control shares held by the Acquiror and shares held by the
Company's officers and inside directors. The term "Acquiror" is broadly defined
to include persons acting as a group.
The Acquiror may, but is not required to, submit to the Company a statement
setting forth certain information about the Acquiror and its plans with respect
to the Company. The statement may also request that the Company call a special
meeting of shareholders to determine whether voting rights will be accorded to
the control shares. If the Acquiror does not request a special meeting of
shareholders, the issue of voting rights of control shares will be considered at
the next annual or special meeting of shareholders. If the Acquiror's control
shares are accorded voting rights and represent a majority or more of all voting
power, shareholders who do not vote in favor of voting rights for the control
shares will have the right to receive the appraised "fair value" of their
shares, which may not be less than the highest price paid per share by the
Acquiror for the control shares.
Upon completion of the Offerings, the Company will become subject to certain
provisions of the Oregon Business Corporation Act that govern business
combinations between corporations and interested shareholders (the "Business
Combination Act"). The Business Combination Act generally provides that if a
person or entity acquires 15% or more of the outstanding voting stock of an
Oregon corporation (an "Interested Shareholder"), the corporation and the
Interested Shareholder, or any affiliated entity of the Interested Shareholder,
may not engage in certain business combination transactions for three years
following the date the person became an Interested Shareholder. Business
combination transactions for this purpose include (a) a merger or plan of share
exchange, (b) any sale, lease, mortgage or other disposition of 10% or more of
the assets of the corporation and (c) certain transactions that result in the
issuance or transfer of capital stock of the corporation to the Interested
Shareholder. These restrictions do not apply if (i) the Interested Shareholder,
as a result of the transaction in which such person became an Interested
Shareholder, owns at least 85% of the outstanding voting stock of the
corporation (disregarding shares owned by directors who are also officers and
certain employee benefit plans), (ii) the board of directors approves the
business combination or the transaction that resulted in the shareholder
becoming an Interested Shareholder before the Interested Shareholder acquires
15% or more of the corporation's voting stock or (iii) the board of directors
and the holders of at least two-thirds of the outstanding voting stock of the
corporation (disregarding shares owned by the Interested Shareholder) approve
the business combination after the Interested Shareholder acquires 15% or more
of the corporation's voting stock.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offerings, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market,
or the prospect of such sales, could adversely affect prevailing market prices.
Upon completion of the Offerings, 24,392,176 shares of Common Stock will be
outstanding. Of these shares, the 5,600,000 shares sold in the Offerings will be
freely tradeable without restriction under the Securities Act, unless purchased
by an "affiliate" of the Company, as that term is defined in Rule 144. The
remaining 18,792,176 shares outstanding after completion of the Offerings are
"restricted securities" as defined in Rule 144 and may be sold in the public
market only if registered under the Securities Act or if they qualify for an
exemption from registration, including an exemption pursuant to Rule 144.
The Company, its directors and officers and the holders of all of the
Company's outstanding Common Stock as of the date hereof have agreed that,
during the period beginning from the date of this Prospectus, and continuing to
and including the date 180 days after the date of this Prospectus (or earlier
with the consent of the representatives of the Underwriters), they will not
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
(other than (i) pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus, (ii) bona fide gifts to transferees who agree to be
bound by a like
50
restriction or (iii) private sales to persons who were shareholders prior to the
closing of the Offerings) or any securities of the Company that are
substantially similar to the shares of the Common Stock or which are convertible
into or exchangeable for securities that are substantially similar to the shares
of the Common Stock without the prior written consent of the representatives of
the Underwriters, except for the shares of Common Stock offered in connection
with the concurrent U.S. and international offerings. Upon expiration of these
agreements, 17,575,543 of these shares will be eligible for immediate resale in
the public market subject to the limitations of Rule 144.
In general under Rule 144, a person, including an "affiliate" of the
Company, who has beneficially owned restricted shares for at least one year is
entitled to sell within any three-month period a number of shares that does not
exceed the greater of 1% of the then outstanding shares of Common Stock
(approximately 244,000 shares immediately following the Offerings) or the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding such sale. Sales under Rule 144 are subject to certain manner of sale
limitations, notice requirements and the availability of current public
information about the Company. Rule 144(k) provides that a person who is not an
"affiliate" of the issuer at any time during the three months preceding a sale
and who has beneficially owned shares for at least two years is entitled to sell
those shares at any time without compliance with the public information, volume
limitation, manner of sale and notice provisions of Rule 144.
As of December 31, 1997, options to purchase 736,774 shares of Common Stock
were outstanding under the Stock Incentive Plan. The Company intends to file as
soon as practicable following completion of the Offerings a registration
statement on Form S-8 under the Securities Act covering shares of Common Stock
reserved for issuance under the Stock Incentive Plan. Based on the number of
options expected to be outstanding upon completion of the Offerings and shares
reserved for issuance under the Stock Incentive Plan, the registration statement
would cover 2,500,000 shares. See "Management-- Stock Incentive Plan." The
registration statement will become effective immediately upon filing, whereupon,
subject to the satisfaction of applicable exercisability periods, Rule 144
volume limitations applicable to affiliates and, in certain cases, the
agreements with the representatives of the Underwriters referred to above,
shares of Common Stock to be issued upon exercise of outstanding options granted
pursuant to the Stock Incentive Plan will be available for immediate resale in
the open market.
VALIDITY OF THE ISSUANCE OF THE COMMON STOCK
The validity of the issuance of the Common Stock offered in the Offerings
will be passed upon for the Company by Stoel Rives LLP, Portland, Oregon and for
the Underwriters by Sullivan & Cromwell, Los Angeles, California.
EXPERTS
The Consolidated Financial Statements included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
51
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the Common Stock offered in the
Offerings. This Prospectus omits certain information set forth in the
Registration Statement and the exhibits and schedules thereto. For further
information with respect to the Company and the Common Stock offered in the
Offerings, reference is made to such Registration Statement, exhibits and
schedules. Statements contained in this Prospectus as to the contents of any
contract or other document referred to are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. The Registration Statement, including the
exhibits and schedules filed therewith, may be inspected without charge at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the regional offices of the
Commission located at Seven World Trade Center, Suite 1300, New York, New York
10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such materials may be obtained from the Public
Reference Section of the Commission, Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates and from the Commission's Internet
Web site at http://www.sec.gov.
52
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
-----
Independent Auditors' Report......................................................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1997............................ F-3
Consolidated Statements of Operations for the years ended December 31, 1995, 1996
and 1997........................................................................... F-4
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1995, 1996 and 1997................................................................ F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1996
and 1997........................................................................... F-6
Notes to Consolidated Financial Statements........................................... F-7
F-1
INDEPENDENT AUDITORS' REPORT
The Shareholders of Columbia Sportswear Company:
We have audited the accompanying consolidated balance sheets of Columbia
Sportswear Company as of December 31, 1996 and 1997, and the related
consolidated statements of operations, shareholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Columbia Sportswear Company and
subsidiaries as of December 31, 1996 and 1997, and the consolidated results of
their operations and their consolidated cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 6, 1998
(March 24, 1998 as to Notes 1, 2, and 9)
F-2
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
DECEMBER 31,
--------------------
1996 1997
--------- ---------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 3,283 $ 4,001
Short-term investments.............................................. 848 --
Accounts receivable, net of allowance of $2,440 and 2,461,
respectively...................................................... 60,423 76,086
Inventories (Note 3)................................................ 34,638 48,300
Prepaid expenses and other.......................................... 1,673 2,430
--------- ---------
Total current assets............................................ 100,865 130,817
PROPERTY, PLANT AND EQUIPMENT (Note 4)................................ 28,197 35,277
INTANGIBLES AND OTHER ASSETS (Note 5)................................. 6,905 8,383
--------- ---------
TOTAL ASSETS.......................................................... $ 135,967 $ 174,477
--------- ---------
--------- ---------
DECEMBER 31, DECEMBER 31,
-------------------- 1997
1996 1997 PRO FORMA
--------- --------- --------------
(NOTE 1)
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to bank (Note 7)....................... $ 11,520 $ 20,427 $ 20,427
Accounts payable..................................... 18,090 21,765 21,765
Accrued expenses (Note 6)............................ 11,166 12,899 12,899
Current portion of long-term debt (Note 8)........... 160 154 154
Distribution payable to shareholders................. 132 5,866 100,866
--------- --------- --------------
Total current liabilities........................ 41,068 61,111 156,111
LONG-TERM DEBT (Note 8)................................ 2,963 2,831 2,831
COMMITMENTS AND CONTINGENCIES
(Notes 7, 14, and 15)................................ -- -- --
SHAREHOLDERS' EQUITY:
Preferred shares; 10,000 shares authorized; none
issued and outstanding............................. -- -- --
Common shares; 50,000 shares authorized; issued and
outstanding 18,792................................. 17,886 17,886 17,886
Retained earnings.................................... 81,034 101,805 6,805
Foreign currency adjustments......................... (664) (3,806) (3,806)
Unearned portion of restricted stock issued for
future services.................................... (6,320) (5,350) (5,350)
--------- --------- --------------
Total shareholders' equity....................... 91,936 110,535 15,535
--------- --------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............. $ 135,967 $ 174,477 $ 174,477
--------- --------- --------------
--------- --------- --------------
See notes to consolidated financial statements.
F-3
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
NET SALES................................................... $ 303,797 $ 298,988 $ 353,452
COST OF SALES............................................... 182,971 176,859 198,946
--------- --------- ---------
Gross profit.............................................. 120,826 122,129 154,506
SELLING, GENERAL, AND ADMINISTRATIVE (Note 13).............. 84,583 95,431 110,204
--------- --------- ---------
INCOME FROM OPERATIONS...................................... 36,243 26,698 44,302
OTHER EXPENSE--Interest expense, net........................ 5,767 4,220 3,593
--------- --------- ---------
INCOME BEFORE PROVISION FOR INCOME TAXES.................... 30,476 22,478 40,709
PROVISION FOR INCOME TAXES.................................. 1,750 1,468 1,413
--------- --------- ---------
NET INCOME.................................................. $ 28,726 $ 21,010 $ 39,296
--------- --------- ---------
--------- --------- ---------
EARNINGS PER SHARE:
Basic..................................................... $ 1.69 $ 1.24 $ 2.09
Diluted................................................... $ 1.69 $ 1.24 $ 2.06
WEIGHTED AVERAGE SHARES:
Basic..................................................... 16,986 16,997 18,792
Diluted................................................... 16,986 16,997 19,103
PRO FORMA NET INCOME DATA:
Income before provision for income taxes, as reported..... $ 30,476 $ 22,478 $ 40,709
Pro forma provision for income taxes (Note 1)............. 12,190 8,991 16,284
--------- --------- ---------
PRO FORMA NET INCOME........................................ $ 18,286 $ 13,487 $ 24,425
--------- --------- ---------
--------- --------- ---------
PRO FORMA NET INCOME PER SHARE (Note 1):
Basic..................................................... $ 1.00
Diluted................................................... $ 0.99
PRO FORMA WEIGHTED AVERAGE SHARES:
Basic..................................................... 24,392
Diluted................................................... 24,703
See notes to consolidated financial statements.
F-4
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
UNEARNED
PORTION OF
COMMON STOCK FOREIGN RESTRICTED
------------------------ CURRENCY STOCK ISSUED
SHARES RETAINED TRANSLATION FOR FUTURE
OUTSTANDING AMOUNT EARNINGS ADJUSTMENT SERVICES TOTAL
------------- --------- ----------- ----------- ------------- -----------
BALANCE, JANUARY 1, 1995................... 16,973 $ 2,082 $ 60,230 $ (320) $ -- $ 61,992
Stock bonus................................ 19 81 -- -- -- 81
Distribution to shareholders............... -- -- (20,389) -- -- (20,389)
Net income................................. -- -- 28,726 -- -- 28,726
Foreign currency translation adjustment.... -- -- -- 48 -- 48
------------- --------- ----------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 1995................. 16,992 2,163 68,567 (272) -- 70,458
Capital contribution....................... -- 30 -- -- -- 30
Issuance of common stock................... 1,800 15,693 -- -- (6,320) 9,373
Distribution to shareholders............... -- -- (8,543) -- -- (8,543)
Net income................................. -- -- 21,010 -- -- 21,010
Foreign currency translation adjustment.... -- -- -- (392) -- (392)
------------- --------- ----------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 1996................. 18,792 17,886 81,034 (664) (6,320) 91,936
Distribution to shareholders............... -- -- (18,525) -- -- (18,525)
Net income................................. -- -- 39,296 -- -- 39,296
Foreign currency translation adjustment.... -- -- -- (3,142) -- (3,142)
Amortization of unearned compensation...... -- -- -- -- 970 970
------------- --------- ----------- ----------- ------------- -----------
BALANCE, DECEMBER 31, 1997................. 18,792 $ 17,886 $ 101,805 $ (3,806) $ (5,350) $ 110,535
------------- --------- ----------- ----------- ------------- -----------
------------- --------- ----------- ----------- ------------- -----------
See notes to consolidated financial statements.
F-5
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1996 1997
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................. $ 28,726 $ 21,010 $ 39,296
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................ 5,048 6,419 7,518
Noncash compensation..................................... 81 5,655 970
Loss on disposal of equipment............................ 36 155 4
Changes in operating assets and liabilities:
Accounts receivable.................................... (16,852) 26,340 (17,674)
Inventories............................................ (4,912) 13,749 (14,745)
Prepaid expenses and other............................. (1,007) (709) (963)
Other assets........................................... 215 (5,585) (2,577)
Accounts payable....................................... (1,458) (3,605) 5,199
Accrued expenses....................................... 1,970 3,385 1,875
--------- --------- ---------
Net cash provided by operating activities............ 11,847 66,814 18,903
--------- --------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment................ (13,074) (10,103) (14,816)
Proceeds from sale of property, plant, and equipment....... 87 33 49
Purchase of short-term certificates of deposit............. -- (855) --
Maturity of short-term investments......................... -- -- 813
--------- --------- ---------
Net cash used in investing activities................ (12,987) (10,925) (13,954)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings (repayments) on notes payable to bank....... 27,615 (39,876) 9,284
Repayments on long-term debt............................... (2,500) (1,250) (137)
Distributions to shareholders.............................. (24,527) (12,562) (12,791)
Capital contribution from shareholders..................... -- 30 --
--------- --------- ---------
Net cash provided by (used in) financing
activities......................................... 588 (53,658) (3,644)
--------- --------- ---------
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH.................. (40) (236) (587)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS......... (592) 1,995 718
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................. 1,880 1,288 3,283
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR....................... $ 1,288 $ 3,283 $ 4,001
--------- --------- ---------
--------- --------- ---------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest, net of capitalized
interest................................................. $ 5,725 $ 4,419 $ 4,055
State and foreign income taxes............................. 1,887 2,765 1,510
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Property, plant, and equipment acquired through assumption
of debt.................................................. $ -- $ 3,123 $ --
Note receivable from sale of fixed assets.................. -- -- 152
See notes to consolidated financial statements.
F-6
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND ORGANIZATION
NATURE OF THE BUSINESS--Columbia Sportswear Company (the "Company") is a
global leader in the design, manufacture, marketing and distribution of active
outdoor apparel. Pursuant to a plan of share exchange, on December 18, 1997 the
Company acquired all of the outstanding stock of GTS, Inc. ("GTS"), a holding
company with substantially the same shareholders as the Company. GTS held a 21%
interest in Columbia Sportswear Holdings Limited ("CSHL"), a Canadian holding
company with one subsidiary, Columbia Sportswear Canada Limited ("CSCL"), a
Canadian outerwear distributor. The Company held the remaining 79% interest in
CSHL. As a result of this acquisition, CSHL is now a wholly owned subsidiary of
the Company. The plan of share exchange has been accounted for in a manner
similar to a pooling-of-interest and, accordingly, the combined financial
statements contained herein are presented as if GTS had always been a wholly
owned subsidiary of the Company.
PRO FORMA ADJUSTMENTS--Upon completion of the contemplated initial public
offering of Common Stock, the Company will be subject to federal and state
income taxes from the date of termination of the Company's S corporation status
(the "Termination Date"). The pro forma consolidated statements of operations
data for each of the three years in the period ended December 31, 1997 reflect
adjustments for income taxes based upon income before provision for income taxes
as if the Company had been subject to additional federal and state income taxes
based upon a pro forma effective tax rate of 40%. In addition, the Company will
be required to provide a deferred tax asset for cumulative temporary differences
between financial statement and income tax bases of the Company's assets and
liabilities by recording a benefit for such deferred tax assets in its
consolidated statement of operations for the period following the effective date
of the offerings. Such deferred tax assets will be based on the cumulative
temporary difference upon the conversion from an S corporation to a C
corporation on the Termination Date. The net difference between the financial
statement and income tax bases of the Company's assets and liabilities was
approximately $7,400,000 at December 31, 1997.
The pro forma balances of liabilities and shareholders' equity at December
31, 1997 reflect the liability and reduction in shareholders' equity for the
dividend of $95,000,000 related to the termination of the S corporation status.
PRO FORMA NET INCOME PER SHARE--Pro forma net income per share is based on
the weighted average number of shares of Common Stock outstanding and dilutive
common equivalent shares from stock options (using the treasury stock method).
In addition, the average shares outstanding reflect the conversion of voting and
nonvoting shares into shares of voting Common Stock and the subsequent
conversion of each share of voting Common Stock into 0.59 shares of Common Stock
pursuant to a reverse stock split which occurred at consummation of the offering
of Common Stock by the Company (in thousands):
YEAR ENDED
DECEMBER 31,
1997
---------------
Weighted average shares..................................... 18,792
Shares issued to pay shareholder dividend................... 5,600
-------
Pro forma weighted average shares--basic.................... 24,392
Common Stock equivalent--stock options...................... 311
-------
Pro forma weighted average shares--diluted.................. 24,703
-------
-------
F-7
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. BASIS OF PRESENTATION AND ORGANIZATION (CONTINUED)
Common equivalent shares issued during the 12-month period prior to the
proposed offering have been included in the calculation of diluted earnings per
share using the treasury stock method as if they were outstanding for all
periods presented with an offering price equivalent to $18 per share.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION--The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All significant
intercompany accounts have been eliminated.
SHORT-TERM INVESTMENTS--Amounts consist of monies invested in certificates
of deposit with original maturities greater than three months.
INVENTORIES are carried at the lower of cost or market. Cost is determined
using the first-in, first-out method.
DERIVATIVES--The Company enters into foreign currency contracts to reduce
the impact of certain foreign currency fluctuations. Firmly committed
transactions and the related receivables and payables may be hedged with forward
exchange contracts or purchased options. Anticipated, but not yet firmly
committed, transactions may be hedged through the use of purchased options.
Premiums paid on purchased options are included in prepaid expenses and are
amortized over the life of the option. Gains and losses arising from foreign
currency forward and option contracts are recognized in income or expense as
offsets of gains and losses resulting from the underlying hedged transactions.
PROPERTY, PLANT AND EQUIPMENT are stated at cost. Depreciation of equipment
and amortization of leasehold improvements is provided using the straight-line
method over the estimated useful lives of the assets, ranging from 3 to 10
years. Buildings are depreciated using the straight-line method over 30 years.
The Company evaluates its long-lived assets for impairment using undiscounted
cash flows to estimate fair value.
INTANGIBLES--Goodwill is being amortized on a straight-line basis over eight
years.
COMMON STOCK--In 1996 the Company's Board of Directors declared a 400-for-1
stock split of its Common Stock. All per share information in the accompanying
consolidated financial statements has been retroactively adjusted to reflect
this stock split. In addition, the shares outstanding for all periods reflect
the conversion of voting and nonvoting shares of Common Stock into shares of
voting Common Stock of the Company and the subsequent conversion of each share
of voting Common Stock into 0.59 shares of Common Stock pursuant to a reverse
stock split which occurred at the consummation of the offering of Common Stock
by the Company.
ADVERTISING COSTS are expensed as incurred. Advertising expense was
$12,700,000, $12,006,000, and $16,649,000 for the years ended December 31, 1995,
1996 and 1997, respectively.
PRODUCT WARRANTY--Substantially all of the Company's products carry lifetime
warranty provisions for defects in quality and workmanship. The Company's
estimated liability for future warranty claims related to past sales at December
31, 1996 and 1997 is approximately $2,699,000 and $3,400,000, respectively, and
is recorded in accrued expenses. Warranty expense was approximately $2,738,000,
$2,800,000, and $2,848,000 for the years ended December 31, 1995, 1996 and 1997,
respectively.
TAXES ON INCOME--Shareholders of the Company have elected to have the
Company be treated as an S corporation under provisions of the Internal Revenue
Code of 1986. Accordingly, payment of federal and state taxes on income is the
responsibility of the shareholders rather than the Company. The
F-8
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company and its Board of Directors have declared distributions to shareholders
in amounts approximately equal to the shareholders' federal and state tax
liability on the earnings of the Company. In the states of California and New
York, the Company has elected C corporation status and is subject to those
states' income taxes. CSCL is subject to federal and provincial income tax in
Canada. The provision for income taxes differs from the amounts computed by
applying the statutory federal income tax rate to income before income taxes
since the Company's income is not subject to federal and certain state income
taxes.
FOREIGN CURRENCY TRANSLATION--The assets and liabilities of the Company's
foreign subsidiaries have been translated into U.S. dollars using the exchange
rates in effect at period end, and the net sales and expenses have been
translated into U.S. dollars using the average exchange rates in effect during
the period. Adjustments resulting from translation adjustments are included as a
separate component of shareholders' equity.
STATEMENT OF CASH FLOWS--For purposes of the statement of cash flows, cash
and cash equivalents includes cash on hand, amounts in demand deposit accounts
and pooled investment funds with original maturities of three months or less.
RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS--In February 1997, the Financial
Accounting Standards Board ("FASB") issued Statement of Financial Accounting
Standards ("SFAS") No. 128, EARNINGS PER SHARE, which was adopted by the Company
effective December 31, 1997. This statement establishes standards for computing
and presenting earnings per share ("EPS") and applies to entities with publicly
held Common Stock or potential Common Stock. It replaces the presentation of
primary EPS with a presentation of basic EPS and requires the dual presentation
of basic and diluted EPS on the face of the income statement. This statement
requires restatement of all prior period EPS data presented. The Company had a
simple capital structure in 1995 and 1996. Diluted EPS for 1997 includes the
incremental effect of stock options granted.
ADOPTION OF ACCOUNTING PRONOUNCEMENTS--In June 1997, the FASB issued SFAS
No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION,
which will be effective for the Company beginning January 1, 1998. SFAS No. 131
redefines how operating segments are determined and requires qualitative
disclosure of certain financial and descriptive information about a company's
operating segments. The Company believes the segment information required to be
disclosed under SFAS No. 131 will be more comprehensive than previously
provided, including expanded disclosure of income statement and balance sheet
items for each of its reportable operating segments. The Company has not yet
completed its analysis of which operating segments on which it may report.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-9
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. INVENTORIES
Inventories as of December 31, 1996 and 1997 consist of the following (in
thousands):
1996 1997
--------- ---------
Raw materials............................................ $ 4,020 $ 4,565
Work-in-process.......................................... 5,936 7,637
Finished goods........................................... 24,682 36,098
--------- ---------
Total.................................................. $ 34,638 $ 48,300
--------- ---------
--------- ---------
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of December 31, 1996 and 1997 consist of
the following (in thousands):
1996 1997
--------- ---------
Land..................................................... $ 1,359 $ 1,359
Buildings................................................ 12,330 12,337
Machinery and equipment.................................. 20,488 23,786
Furniture and fixtures................................... 4,432 5,326
Leasehold improvements................................... 5,062 6,428
Automobiles.............................................. 438 551
Construction in progress................................. -- 7,704
--------- ---------
Subtotal............................................... 44,109 57,491
Less accumulated depreciation............................ 15,912 22,214
--------- ---------
Total.................................................. $ 28,197 $ 35,277
--------- ---------
--------- ---------
5. INTANGIBLES AND OTHER ASSETS
Intangibles and other assets as of December 31, 1996 and 1997 consist of the
following (in thousands):
1996 1997
--------- ---------
Notes receivable from shareholder (see Note 13)............ $ 3,818 $ 5,723
Goodwill................................................... 1,099 767
Other...................................................... 1,988 1,893
--------- ---------
Total.................................................... $ 6,905 $ 8,383
--------- ---------
--------- ---------
The balance due from shareholder consists of a note receivable of $3,818,000
maturing on December 31, 2002 and a note receivable of $1,905,000 maturing on
April 15, 2002. These notes bear interest at 6.31% and 6.49%, respectively.
F-10
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED EXPENSES
Accrued expenses as of December 31, 1996 and 1997 consist of the following
(in thousands):
1996 1997
--------- ---------
Accrued bonuses.......................................... $ 4,460 $ 4,703
Accrued warranty reserve................................. 2,698 3,400
Other.................................................... 4,008 4,796
--------- ---------
Total.................................................. $ 11,166 $ 12,899
--------- ---------
--------- ---------
7. NOTES PAYABLE TO BANK
The Company has available an unsecured operating line of credit providing
for borrowings to a maximum of $70,000,000 during the period from August 1 to
December 15 and $50,000,000 at all other times. The maturity date is June 30,
1998 at which time either party can elect to extend the financing agreements.
Interest payable monthly is computed at the bank's prime rate minus up to 2.1%
per annum, which was 6.35% and 6.50% at December 31, 1996 and 1997,
respectively. If the Company defaults on its payments, it is prohibited, subject
to certain exceptions, from making dividend payments or other distributions. The
balance outstanding was $6,250,000 and $13,992,000 at December 31, 1996 and
1997, respectively. The agreement also includes a fixed rate option based on the
Eurodollar rate plus up to 75 basis points.
The Company also has available an unsecured revolving line of credit of
$25,000,000 with a $45,000,000 import line of credit to issue documentary
letters of credit on a sight basis. The combined limit under this agreement is
$60,000,000. The revolving line accrues interest at the bank's prime rate minus
2% per annum. The revolving line also has a fixed rate option based on the
bank's cost of funds plus 35 basis points. There was no balance outstanding on
this line as of December 31, 1996 and 1997.
The Company is party to a Buying Agency Agreement with Nissho Iwai American
Corporation and its Canadian affiliate ("Nissho") pursuant to which Nissho
provides the Company an unsecured line of credit. This line of credit is used to
finance the purchase of goods outside the U.S. which are produced by the
Company's independent manufacturers worldwide. The available funds are limited
to $120,000,000 with a sublimit of $70,000,000 on the import line of credit.
Borrowings bear interest at a rate of .5% above the three month LIBOR rate. In
addition, the Company is obligated to pay Nissho a commission of 1.5% of the FOB
price of the goods purchased by Nissho in its capacity as buying agent. The
agreement expires September 30, 1998 but will automatically renew for a five
year term unless either party elects otherwise. The balance outstanding on the
import line of credit was $11,664,000 and $13,397,000 at December 31, 1996 and
1997, respectively, and is included in accounts payable. At December 31, 1997,
the Company had $34,307,000 of firm purchase orders placed under these financing
arrangements.
CSCL has available a line of credit providing for borrowing to a maximum of
C$18,000,000 (US$13,138,000 at December 31, 1997). Borrowings against this line
of credit bear interest at either the B/A option rate, which is the bank's prime
acceptance fee minus 50 basis points or at the prime rate. B/A's are issued in
multiples of C$100,000 with a maturity of not less than 30 days and not more
than 360 days. The facility is guaranteed by the Company. At December 31, 1996,
the balance outstanding was C$720,000 and C$6,500,000 (US$525,000 and
US$4,745,000) under the prime and B/A options, respectively, and the B/A's
average rate of interest was 3.06%. At December 31, 1997, the entire balance
outstanding of C$7,000,000 (US$4,894,000) was borrowed under the B/A option
rate, at an average
F-11
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. NOTES PAYABLE TO BANK (CONTINUED)
interest rate of 4.06%. The Canadian prime lending rate was 4.75% and 6.0% at
December 31, 1996 and 1997, respectively.
At December 31, 1997, the Company's Japanese subsidiary had bank borrowings
outstanding of $1,541,000 at an interest rate of 1.625%.
8. LONG-TERM DEBT
Long-term debt as of December 31, 1996 and 1997 consists of the following
(in thousands):
1996 1997
--------- ---------
Mortgage note payable...................................... $ 3,123 $ 2,985
Less current portion....................................... 160 154
--------- ---------
Total long-term debt..................................... $ 2,963 $ 2,831
--------- ---------
--------- ---------
The Company assumed a mortgage in connection with the acquisition of a
distribution center (see Note 14). The loan matures in June 2009 and bears
interest at 8.76%. Principal payments due on the mortgage note payable as of
December 31, 1997 were as follows: $154,000 in 1998; $169,000 in 1999; $183,000
in 2000; $201,000 in 2001; $219,000 in 2002; and $2,059,000 thereafter.
9. SHAREHOLDERS' EQUITY
The Company is authorized to issue 50,000,000 shares of Common Stock. At
December 31, 1996 and 1997, 18,792,176 shares of Common Stock were issued and
outstanding. Shares for all periods are restated to reflect a 400-for-1 split in
1996. Additionally, all shares and per share amounts for all periods are
restated to reflect the conversion of voting and nonvoting shares into voting
shares of Common Stock and the subsequent conversion of each share of voting
Common Stock into 0.59 shares of Common Stock pursuant to a reverse stock split
which occurred at consummation of the offering of Common Stock by the Company.
10. STOCK INCENTIVE PLAN
On March 12, 1997, the Board of Directors of the Company approved the 1997
Stock Incentive Plan (the "Plan"). The Company reserved 2,000,000 shares of
Common Stock for issuance pursuant to the Plan. At that date, 595,900 incentive
stock options and 13,275 nonqualified options were granted under the Plan, each
at an exercise price of $9.68 per share, the estimated fair value at the date of
grant.
On July 21, 1997, the Board of Directors of the Company granted an
additional 26,550 incentive stock options and 4,425 nonqualified options under
the Plan, each at an exercise price of $9.68 per share, the estimated fair value
at the date of grant.
On November 14, 1997, the Board of Directors of the Company granted an
additional 28,773 incentive stock options and 67,851 nonqualified options under
the Plan, each at an exercise price of $15.20 a share, the estimated fair value
at the date of grant.
In January 1998, the Board of Directors increased the number of shares
authorized for issuance under the Plan from 2,000,000 to 2,500,000 shares.
F-12
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK INCENTIVE PLAN (CONTINUED)
The options become exercisable ratably over a five-year period beginning
from the date of grant if the Company completes a final underwritten public
offering of Common Stock registered with the Securities and Exchange Commission,
and expire ten years from the date of grant. If an offering is not completed,
the options become fully exercisable nine years from the date of the grant.
In October 1995 the FASB issued SFAS No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS No. 123 had been adopted.
The Company has elected to account for the Plan under APB 25; however, the
Company has computed, for pro forma disclosure purposes, the value of all stock
options granted during 1997 using the Black-Scholes option pricing model as
prescribed by SFAS No. 123 using the following weighted average assumptions:
Risk-free interest rate..................................... 6.69 - 5.77%
Expected dividend yield..................................... 0%
Expected lives.............................................. 4 to 8 years
Expected volatility......................................... Minimum value
Using the Black-Scholes methodology, the total value of stock options
granted during 1997 was $2,431,000 which would be amortized on a pro forma basis
over the vesting period of the options. The weighted average fair value of
options granted during 1997 was $3.30 per share.
If the Company had accounted for the Plan in accordance with SFAS No. 123,
the Company's net income and earnings per share would approximate the pro forma
disclosures below:
YEAR ENDED
DECEMBER 31, 1997
--------------------------
AS REPORTED PRO FORMA
------------- -----------
Net income...................................... $ 39,296 $ 38,970
Earnings per share--basic....................... $ 2.09 $ 2.07
Earnings per share--diluted..................... $ 2.06 $ 2.04
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
F-13
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. STOCK INCENTIVE PLAN (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- ----------------------
WEIGHTED AVG. WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE NUMBER AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE OF SHARES EXERCISE
PRICES OUTSTANDING LIFE (YRS) PRICE EXERCISABLE PRICE
- ------------- ----------- ------------- -------- ----------- --------
$9.68 640,150 8.23 $ 9.68 -- $ 9.68
$15.20 96,624 8.88 15.20 -- 15.20
----------- --- -------- ----------- --------
$9.68 - 15.20 736,774 8.31 10.40 -- 10.40
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
FASB Statement No. 107, DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS, requires disclosure of fair value information about financial
instruments when it is practicable to estimate that value. The carrying value of
cash and cash equivalents, short-term investments, accounts receivable, notes
payable, and long-term debt reflect their approximate fair value at December 31,
1996 and 1997 based on their stated terms and conditions.
12. PROFIT-SHARING PLAN
The Company has a 401(k) profit-sharing plan, which covers substantially all
employees with more than one year of service.
The Company may elect to make discretionary matching and/or non-matching
contributions. All contributions to the plan are determined by the Board of
Directors and totaled $1,269,000, $1,465,000, and $1,681,000 for the years ended
December 31, 1995, 1996 and 1997, respectively.
13. PARTICIPATION SHARE AGREEMENT
Effective December 1990, the Company adopted a Participation Share Agreement
(the "Participation Plan") with a key employee. The Participation Plan provided
for the grant of participation shares equivalent to 10% of the Company, which
were to be awarded at various dates through January 2000. Shares awarded were
subjected to vesting at a rate of 20% per year. The original Participation Plan
granted the employee deferred compensation in the appreciation of a defined
per-share book value of the Company since January 1987 and contained an
anti-dilutive provision.
Effective December 31, 1996, the original Participation Plan was terminated
and a Deferred Compensation Conversion Agreement (the "Agreement") was entered
into. Under the Agreement, the participation shares, whether or not vested or
awarded under the Participation Plan, were converted to 1,800,435 shares of
Common Stock. Of the converted shares, 725,114 shares of Common Stock awarded
are subject to vesting through December 2004.
The total value of the share conversion is $15,693,000 ($8.72 per share of
Common Stock), of which $6,320,000 was unvested. The unvested portion is
recorded as a reduction in shareholders' equity and will be amortized to
compensation expense through December 2004 as shares are earned. Compensation
expense related to the Participation Plan and the 1996 conversion totaled
$922,000, $5,742,000, and $970,000 for the years ended December 31, 1995, 1996
and 1997, respectively. Additionally, the
F-14
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. PARTICIPATION SHARE AGREEMENT (CONTINUED)
Agreement also provided for a cash bonus of $2,750,000 in consideration for past
services and for future bonuses to be paid in amounts equal to the accrued
interest due and owing on the note receivable from shareholder (see Note 5).
14. LEASE OBLIGATIONS
The Company has a long-term lease agreement for a manufacturing facility
constructed to the Company's specifications. The initial lease term is for ten
years with three five-year renewal options. The lease also contains purchase
options at the end of five and ten years.
In December 1995, the Company acquired a long-term operating lease on a
commercial building to operate a retail outlet. The remaining lease term is 33
years. The agreement contains a payment escalation clause which increases the
payment amount every four years with the minimum increase the greater of the
Consumer Price Index or 4% per annum. Rent expense is recognized on a
straight-line basis over the life of the lease. The minimum lease payments are
included in the schedule below.
Additionally, the Company leases certain operating facilities from
shareholders/directors of the Company. Total rent expense, including
month-to-month rentals, for these leases amounted to $626,000, $277,000, and
$198,000 for the years ended December 31, 1995, 1996 and 1997, respectively.
In March 1996 the Company acquired the distribution center for approximately
$4.5 million from a shareholder and an officer of the Company from whom the
Company had previously leased the facility on a long-term basis.
Rent expense was $1,998,000, $2,408,000 and $2,941,000 for non-related party
leases during the years ended December 31, 1995, 1996 and 1997, respectively.
Future minimum payments on all lease obligations greater than one year are
as follows (amounts in thousands):
YEAR ENDING NON-RELATED RELATED
DECEMBER 31, PARTIES PARTIES TOTAL
- ------------------------------------------- ------------- ----------- ---------
1998....................................... $ 3,068 $ 209 $ 3,277
1999....................................... 2,578 219 2,797
2000....................................... 1,412 230 1,642
2001....................................... 644 242 886
2002....................................... 490 254 744
Thereafter................................. 7,964 -- 7,964
------------- ----------- ---------
$ 16,156 $ 1,154 $ 17,310
------------- ----------- ---------
------------- ----------- ---------
15. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES--The Company is a party to various legal claims, actions and
complaints. Although the ultimate resolution of legal proceedings cannot be
predicted with certainty, management believes that disposition of these matters
will not have a material adverse effect on the Company's consolidated financial
statements.
F-15
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. HEDGING AND DERIVATIVES
The Company utilizes options and forward contracts related to certain of its
business activities. Gains and losses on these contracts are recognized or
accrued as a component of the related transactions. The Company is exposed to
certain losses in the event of nonperformance by the other parties to these
agreements, but the Company does not anticipate nonperformance by the other
parties, which are major financial institutions.
The Company manages a portion of its exposure to fluctuations in currencies
related to foreign sales and accounts receivable with short-term strategies
after giving consideration to market conditions, contractual agreements,
anticipated sale and purchase transactions, and other factors affecting the
Company's risk profile. At December 31, 1997, the Company had approximately
$7,050,000 (notional) in foreign currency option contracts and approximately
$2,000,000 (notional) in forward exchange contracts. The carrying value and
unrealized gains and losses related to these contracts were not material at
December 31, 1997. No derivative financial instruments were held at December 31,
1996.
17. GEOGRAPHIC INFORMATION
The majority of the Company's net sales are derived from its North American
operations. These net sales amounted to 95%, 91% and 90% of net sales for the
years ended December 31, 1995, 1996 and 1997, respectively. The remaining net
sales are derived from throughout the world, with the majority occurring in
Europe for each of the past three years.
* * * * * *
F-16
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Company has agreed to sell to each of the U.S. Underwriters named below, and
each of such U.S. Underwriters, for whom Goldman, Sachs & Co, NationsBanc
Montgomery Securities LLC and PaineWebber Incorporated are acting as
representatives, has severally agreed to purchase from the Company, the
respective number of shares of Common Stock set forth opposite its name below:
NUMBER OF SHARES
U.S. UNDERWRITER OF COMMON STOCK
- -------------------------------------------------------- ------------------
Goldman, Sachs & Co..................................... 1,120,000
NationsBanc Montgomery Securities LLC................... 1,120,000
PaineWebber Incorporated................................ 1,120,000
BancAmerica Robertson Stephens.......................... 100,000
Black & Company, Inc.................................... 60,000
Dain Rauscher Incorporated.............................. 60,000
D.A. Davidson & Co...................................... 60,000
Gruntal & Co., Incorporated............................. 60,000
HSBC Securities, Inc.................................... 60,000
Hambrecht & Quist LLC................................... 100,000
Edward D. Jones & Co., L.P.............................. 60,000
J.P. Morgan Securities Inc.............................. 100,000
Pacific Crest Securities................................ 60,000
Piper Jaffray Inc....................................... 60,000
Ragen MacKenzie Incorporated............................ 60,000
Scott & Stringfellow, Inc............................... 60,000
Smith Barney Inc........................................ 100,000
Stephens Inc............................................ 60,000
Sutro & Co. Incorporated................................ 60,000
----------
Total................................................. 4,480,000
----------
----------
Under the terms and conditions of the Underwriting Agreement, the U.S.
Underwriters are committed to take and pay for all of the shares offered hereby,
if any are taken.
The U.S. Underwriters propose to offer the shares of Common Stock in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus and in part to certain securities dealers at such
price less a concession of $0.74 per share. The U.S. Underwriters may allow, and
such dealers may reallow, a concession not in excess of $0.10 per share to
certain brokers and dealers. After the shares of Common Stock are released for
sale to the public, the offering price and other selling terms may from time to
time be varied by the representatives.
The Company has entered into an underwriting agreement (the "International
Underwriting Agreement") with the underwriters of the International Offering
(the "International Underwriters") providing for the concurrent offer and sale
of 1,120,000 shares of Common Stock in an international offering outside the
United States. The offering price and aggregate underwriting discounts and
commissions per share for the two Offerings are identical. The closing of the
offering made hereby is a condition to the closing of the International
Offering, and VICE VERSA. The representatives of the International Underwriters
are Goldman Sachs International, NationsBanc Montgomery Securities LLC and
PaineWebber International (U.K.) Ltd.
Pursuant to an Agreement between the U.S. and International Underwriting
Syndicates (the "Agreement Between") relating to the two Offerings, each of the
U.S. Underwriters named herein has agreed that, as a part of the distribution of
the shares offered hereby and subject to certain exceptions, it will offer, sell
or deliver the shares of Common Stock, directly or indirectly, only in the
United States of
U-1
America (including the States and the District of Columbia), its territories,
its possessions and other areas subject to its jurisdiction (the "United
States") and to U.S. persons, which term shall mean, for purposes of this
paragraph: (a) any individual who is a resident of the United States or (b) any
corporation, partnership or other entity organized in or under the laws of the
United States or any political subdivision thereof and whose office most
directly involved with the purchase is located in the United States. Each of the
International Underwriters has agreed pursuant to the Agreement Between that, as
a part of the distribution of the shares offered as a part of the International
Offering, and subject to certain exceptions, it will (i) not, directly or
indirectly, offer, sell or deliver shares of Common Stock (a) in the United
States or to any U.S. persons or (b) to any person who it believes intends to
reoffer, resell or deliver the shares in the United States or to any U.S.
persons, and (ii) cause any dealer to whom it may sell such shares at any
concession to agree to observe a similar restriction.
Pursuant to the Agreement Between, sales may be made between the U.S.
Underwriters and the International Underwriters of such number of shares of
Common Stock as may be mutually agreed. The price of any shares so sold shall be
the initial public offering price, less an amount not greater than the selling
concession.
The Company has granted the U.S. Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 672,000
additional shares of Common Stock solely to cover over-allotments, if any. If
the U.S. Underwriters exercise their over-allotment option, the U.S.
Underwriters have severally agreed, subject to certain conditions, to purchase
approximately the same percentage thereof that the number of shares to be
purchased by each of them, as shown in the foregoing table, bears to the
4,480,000 shares of Common Stock offered. The Company has granted the
International Underwriters a similar option to purchase up to an aggregate of
168,000 additional shares of Common Stock.
The Company, its directors and officers and the holders of all of the
Company's outstanding Common Stock as of the date hereof have agreed that,
during the period beginning from the date of this Prospectus and continuing to
and including the date 180 days after the date of the Prospectus, they will not
offer, sell, contract to sell or otherwise dispose of any shares of Common Stock
(other than (i) pursuant to employee stock option plans existing, or on the
conversion or exchange of convertible or exchangeable securities outstanding, on
the date of this Prospectus, (ii) bona fide gifts to transferees who agree to be
bound by a like restriction or (iii) private sales to persons who were
shareholders prior to the closing of the Offerings) or any securities of the
Company that are substantially similar to the shares of the Common Stock or
which are convertible into or exchangeable for securities that are substantially
similar to the shares of the Common Stock without the prior written consent of
the representatives, except for the shares of Common Stock offered in connection
with the concurrent U.S. and international offerings.
The representatives of the Underwriters have informed the Company that they
do not expect sales to accounts over which the Underwriters exercise
discretionary authority to exceed five percent of the total number of shares of
Common Stock offered by them.
Prior to the Offerings, there has been no public market for the shares. The
initial public offering price was negotiated among the Company and the
representatives of the U.S. Underwriters and the International Underwriters.
Among the factors considered in determining the initial public offering price of
the Common Stock, in addition to prevailing market conditions, were the
Company's historical performance, estimates of the business potential and
earnings prospects of the Company, an assessment of the Company's management and
the consideration of the above factors in relation to market valuation of
companies in related businesses.
The Common Stock will be quoted on the Nasdaq National Market under the
symbol "COLM."
In connection with the Offerings, the Underwriters may purchase and sell the
Common Stock in the open market. These transactions may include over-allotment
and stabilizing transactions and purchases to cover syndicate short positions
created in connection with the Offerings. Stabilizing transactions
U-2
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the Common Stock; and syndicate short positions
involve the sale by the Underwriters of a greater number of shares of Common
Stock than they are required to purchase from the Company in the Offerings. The
Underwriters also may impose a penalty bid, whereby selling concessions allowed
to syndicate members or other broker-dealers in respect of the Common Stock sold
in the Offerings for their account may be reclaimed by the syndicate if such
securities are repurchased by the syndicate in stabilizing or covering
transactions. These activities may stabilize, maintain or otherwise affect the
market price of the Common Stock, which may be higher than the price that might
otherwise prevail in the open market; and these activities, if commenced, may be
discontinued at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters may reserve, for sale at the initial public offering price,
up to 425,000 shares of Common Stock which may be sold to directors, employees
and persons having business relationships with the Company. The number of shares
of Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares of Common
Stock not so purchased will be offered by the Underwriters on the same basis as
the other shares of Common Stock offered in the Offerings.
The Company has agreed to indemnify the several Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933.
This Prospectus may be used by underwriters and dealers in connection with
offers and sales of the Common Stock, including shares initially sold in the
International Offering, to persons located in the United States.
[Pictures of (i) model cycling in Company sportswear, (ii) model in Company
sportswear with bonefish, (iii) model in downpour in Company jacket, (iv) model
crossing river in Company sportswear, (v) model snowboarding in Company Convert
jacket and (vi) child model in Company youth jacket and accessories in snow.]
U-3
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO
WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH
SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
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TABLE OF CONTENTS
PAGE
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Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 14
Dividend Policy and S Corporation
Status............................. 14
Dilution............................. 15
Capitalization....................... 16
Selected Consolidated Financial
Data............................... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 26
Management........................... 40
Certain Transactions................. 45
Principal Shareholders............... 47
Description of Capital Stock......... 49
Shares Eligible for Future Sale...... 50
Validity of the Issuance of the
Common Stock....................... 51
Experts.............................. 51
Additional Information............... 52
Index to Consolidated Financial
Statements......................... F-1
Underwriting......................... U-1
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THROUGH AND INCLUDING APRIL 20, 1998 (THE 25TH DAY AFTER THE DATE OF THIS
PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
5,600,000 SHARES
COLUMBIA SPORTSWEAR COMPANY
COMMON STOCK
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[LOGO]
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GOLDMAN, SACHS & CO.
NATIONSBANC MONTGOMERY
SECURITIES LLC
PAINEWEBBER INCORPORATED
REPRESENTATIVES OF THE UNDERWRITERS
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