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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ____________ TO ____________ .
COLUMBIA SPORTSWEAR COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
OREGON 0-23939 93-0498284
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) NUMBER) IDENTIFICATION NUMBER)
6600 NORTH BALTIMORE, PORTLAND, OREGON 97203
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
(503) 286-3676
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. [X]
The aggregate market value of the voting common stock held by
non-affiliates of the registrant as of February 28, 2001, was $411,665,000 based
upon the last reported sale price of the Company's Common Stock as reported by
the Nasdaq National Market System.
The number of shares of Common Stock outstanding on February 28, 2001, was
25,876,063.
Part III is incorporated by reference from the Registrant's Proxy Statement
for its 2001 Annual Meeting of Shareholders to be filed with the Commission
within 120 days of December 31, 2000.
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COLUMBIA SPORTSWEAR COMPANY
DECEMBER 31, 2000
TABLE OF CONTENTS
PAGE
----
PART I
Item 1. Business.................................................... 1
Item 2. Properties.................................................. 8
Item 3. Legal Proceedings........................................... 8
Item 4. Submission of Matters to a Vote of Security Holders......... 8
Item 4a. Executive Officers and Key Employees of the Registrant...... 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6. Selected Financial Data..................................... 12
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 13
Item 7a. Quantitative and Qualitative Disclosures about Market
Risk........................................................ 20
Item 8. Financial Statements and Supplementary Data................. 21
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure ................................... 39
PART III
Item 10. Directors and Executive Officers of the Company............. 39
Item 11. Executive Compensation...................................... 39
Item 12. Security Ownership of Certain Beneficial Owners and
Management.................................................. 39
Item 13. Certain Relationships and Related Transactions.............. 39
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K......................................................... 40
SIGNATURES............................................................ 42
i
PART I
ITEM 1. BUSINESS
GENERAL
Founded in 1938 in Portland, Oregon, Columbia Sportswear Company(R) is a
global leader in design, sourcing, marketing and distribution of active outdoor
apparel and footwear, with operations in North America, Europe and Asia. As one
of the largest outerwear companies in the world and the leading seller of
skiwear in the United States, we have developed an international reputation
across an expanding product line for quality, performance, functionality and
value. We believe our award-winning advertising campaign effectively positions
the Columbia(R) brand as active, outdoor, authentic and distinctly American.
Since 1938 we have grown from a small family-owned, regional hat
distributor to a global leader in the active outdoor apparel and footwear
industries. Known for durability and dependability at a reasonable price, we
leveraged Columbia's brand awareness in the 1990s by expanding into related
merchandise categories and developing our "head-to-toe" outfitting concept.
During 2000, we distributed our products to approximately 10,000 retailers in
over 40 countries.
In September 2000 we added another internationally known brand to our
business, acquiring the Sorel trademark and associated intellectual property
through a Canadian bankruptcy proceeding for approximately $8 million in cash.
We believe that Sorel(R), a brand associated with quality cold weather boots for
roughly four decades, complements our existing product offering, enhances our
growth opportunities in footwear, and opens the door to distribution channels
where we have not previously sold Columbia brand products.
We completed an Initial Public Offering (IPO) of 6,440,000 shares of Common
Stock on April 1, 1998. Gross proceeds from the IPO totaled $115.9 million and
proceeds net of underwriting discounts, commissions, and expenses, totaled
approximately $106.9 million. Dividends were declared and paid in the amount of
$102.3 million. The dividends represented our subchapter "S" accumulated
adjustments account as of the termination date of our subchapter "S" corporation
status, and were paid to shareholders of record on March 23, 1998. The remaining
proceeds were used for working capital needs.
Our business is subject to many risks and uncertainties that could
materially adversely affect our financial condition, results of operations and
stock price. For a description of some of these risks and uncertainties, we
encourage you to read "Factors That May Affect Our Business" in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
PRODUCTS
We group our merchandise into four principal categories -- (1) outerwear,
(2) sportswear, (3) rugged footwear and (4) related accessories. The durability,
functionality and affordability of our 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. Across all of our product
lines, we bring a commitment to innovative, functional product design and a
reputation for durable, high quality materials and construction. We believe our
broad range of competitively priced merchandise offers consumers one of the best
price-value equations in the outdoor apparel and footwear industries.
We believe the Columbia brand represents a differentiated active, outdoor,
authentic, value-oriented and distinctly American image. We design our products
to reinforce this image. In both the design and production phases, we focus our
efforts on the development of popular, higher volume products at moderate price
points. Our attention to technical details such as pockets that double as vents,
double storm flaps over zippers and "gutters" that facilitate water run-off, as
well as the use of special technical materials, contribute to the authenticity
and functionality of our entire selection of merchandise.
1
The following table shows the approximate percentage of sales attributable
to each of our principal product categories during the last three fiscal years.
2000 1999 1998
----- ----- -----
Outerwear........................................... 52.5% 54.9% 60.2%
Sportswear.......................................... 33.0 31.7 27.9
Footwear............................................ 11.2 9.4 7.5
Accessories......................................... 3.3 4.0 4.4
----- ----- -----
Total..................................... 100.0% 100.0% 100.0%
===== ===== =====
Outerwear
Outerwear is our most established product category. It 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 our jackets incorporate our revolutionary Columbia Interchange
System(R), 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 layering approach provides
the wearer with a jacket for all seasons and weather conditions at a reasonable
price.
Our skiwear line is the best selling brand of skiwear in the United States
and includes products such as parkas, vests, ski pants, ski suits and pullovers.
Our line of snowboard apparel, which carries the Convert(R) label, is
another important component of the outerwear category. We were one of the first
companies to identify and react to the rapid emergence of snowboarding as a
popular sport, and as a result, our Convert line is now one of the top selling
brands of snowboard apparel in the United States.
Hunting and fishing products constitute one of our longest running product
lines in the outerwear category. These merchandise offerings include apparel for
the serious sportsman engaged in a variety of hunting and fishing activities.
All of these products, including parkas, shells, vests, liners, bib pants and
rain suits incorporate a variety of specific-purpose, tailored features that
enhance our reputation as a leader in this category of outerwear.
We also produce a separate line of youth outerwear products. The market for
youth outerwear is significant and we are able to leverage our expertise in
outerwear design and sourcing to meet the needs of the youth market.
Sportswear
In 1993 we targeted sportswear as a growth opportunity. Building on a
foundation of authentic fishing and hunting shirts, we expanded our sportswear
product offering, which resulted in sportswear sales increasing to 33.0% of our
net sales for 2000.
Our sportswear line is made up of outdoor sportswear, golf apparel, and
GRT(R) (Gear for Rugged Trekking, Travel and Training).
The outdoor sportswear product line, consisting primarily of hiking shorts,
water sport trunks, fleece and pile products, sweaters, chinos, knit shirts,
woven shirts, sweats, and jeans, appeals both to the serious outdoorsman and the
more casual wearer who wants to project an outdoor image.
Our golf line includes a variety of products designed specifically for the
needs of golfers. It focuses on golf as an outdoor activity that requires
specific fabrics and features to enhance performance.
For the consumer interested in training, trekking and adventure travel, our
GRT line of active outdoor performance apparel offers a line of lightweight
products, many of which incorporate our Omni-Dry(R) system of moisture
management.
2
Sportswear products are designed to be sold alongside our outerwear and
rugged footwear products as part of our unified "head-to-toe" outfitting
concept. Although the majority of our sportswear sales are to sporting goods and
specialty outdoor stores, department stores are becoming an increasingly
important part of the distribution chain.
Rugged Footwear
We introduced rugged footwear in 1993. This category consists primarily of
active all-weather, performance outdoor footwear, rugged comfort and youth,
featuring innovative technical designs that incorporate waterproof/breathable
constructions, thermal insulation, advanced cushioning systems and high
abrasion, slip-resistant outsoles. Rugged footwear as a percentage of our
consolidated net sales has increased from 2.9% in 1994 to 11.2% in 2000. We
believe the market for rugged footwear represents a substantial growth
opportunity.
Our acquisition of the Sorel(R) trademark rights, associated brand names
and other related intellectual property rights in September 2000 opens up
potential opportunities for us in the footwear category. The prior owner of the
Sorel brand, William H. Kaufman, Inc., filed for bankruptcy in 2000 allowing us
the chance to acquire and rejuvenate an existing brand known for cold weather
footwear for over forty years. We will be offering classic Sorel styles for fall
2001 as well as a line of special make products for some larger retailers. Sorel
styles are being offered to current Columbia customers as well as to dealers who
do not presently sell the Columbia footwear line.
Accessories
We also produce a line of accessories that includes hats, caps, scarves,
gloves, mittens and headbands to complement our outerwear and sportswear lines.
LICENSING
In June of 1999 we developed a strategy to license our trademarks across a
range of categories that complement our current offerings and build brand
awareness. Since that time we have signed five licensing agreements that will
introduce Columbia brand casual and outdoor socks, packs and adventure travel
bags, small personal leather goods and thermal tops, bottoms and accessories to
North American markets and outdoor performance socks to the Eastern European,
Western European and Russian markets. Our United States sock licensee began
shipping during fall 2000 in the North American market, and the packs and
adventure travel bags and small personal leather goods are available in spring
2001, while the thermal tops, bottoms and accessories will start shipping in
spring 2002. In addition, in connection with the Sorel acquisition, we acquired
a number of Sorel brand licensing agreements, including a license for shoe care
products in North America and for outerwear, bags and other products in Japan.
ADVERTISING, MARKETING, AND PROMOTION
Our creative and award-winning print and broadcast advertising campaigns
have built brand awareness and have helped to highlight the strengths of our
product line among consumers. The humorous advertisements feature Chairman
Gertrude Boyle as an overbearing taskmaster -- 'one tough mother' -- who demands
high quality standards for our products. The advertisements, which often include
witty dialogue between "Mother Boyle" and her son Tim, Columbia's President and
Chief Executive Officer, remind consumers of our long history of providing
authentic outdoor apparel with exceptional value and help to create the image of
a distinctly American brand.
One of our growth strategies is to improve the productivity of our existing
customers by expanding the number of concept shops, focus areas and brand
enhancement systems at customer retail locations. Concept shops and focus areas,
which promote a consistent brand image, are located within the stores of our
customers and are dedicated exclusively to selling our merchandise on a
year-round basis. On a smaller scale, brand enhancement systems which include
signage and fixtures that prominently display consolidated groupings of Columbia
merchandise offer similar benefits.
3
INVENTORY MANAGEMENT
From the time of initial order through production, distribution and
delivery, we manage our inventory to reduce risk. Our inventory management
systems coupled with our enterprise-wide information system have enhanced our
ability to manage our inventories by providing detailed inventory status from
the time of initial factory order through shipment to our retail customers.
Additionally, through the use of incentive discounts we encourage early
purchases by our customers to promote effective inventory management. We provide
our customers with staggered delivery times through the spring and fall seasons,
which also permits us and our customers to manage inventories effectively and
thereby diminish the likelihood of closeout sales. Through our efforts to match
our purchases of inventory to the receipt of customer orders, we believe we are
able to reduce the risk of overcommitting to inventory purchases. This helps us
avoid significant inventory build-ups and minimizes working capital
requirements. This strategy, however, does not eliminate inventory risk entirely
because customer orders are subject to cancellation prior to shipment.
PRODUCT DESIGN
Our experienced in-house merchandising and design teams, working closely
with internal sales and production teams as well as with retailers and
consumers, produce products designed primarily for functionality and durability.
In addition to new designs, we are continually making innovative changes to
existing products such as the Bugaboo(R) Parka, a consistent best seller for
more than a decade. By pursuing this strategy we believe we can attract a wider,
value-oriented consumer audience than our more technical or fashion-oriented
competitors.
In addition, our use of specialized materials, such as
Omni-Tech(TM)(waterproof, breathable) and Bergundtal Cloth (water-resistant,
wind protection) substantially enhance the value of our products without adding
significant cost.
SOURCING AND MANUFACTURING
Our apparel and footwear products are produced by independent manufacturers
selected, monitored and coordinated by regional Columbia employees to assure
conformity to strict quality standards. We believe the use of these independent
manufacturers increases production capacity and flexibility and reduces our
costs.
Unlike many apparel companies, we use few independent agents in our
sourcing activities. We maintain 11 sourcing and quality control offices in the
Far East, each staffed by Columbia employees and managed by personnel native to
the region. Personnel in these offices direct sourcing activities, help to
ensure quality control and assist with the monitoring and coordination of
overseas shipments. Final pricing for all orders, however, is approved by
personnel from our U.S. headquarters. We believe Columbia personnel in the Far
East, who are focused narrowly on our interests, are more responsive to our
needs than independent agents would be and are more likely to build long-term
relationships with key vendors. We believe these relationships enhance our
access to raw materials and factory capacity at more favorable prices.
For 2000 we sourced approximately 92% (by dollar volume) of our products
outside the United States, principally in the Far East. We monitor the selection
of independent factories to ensure that no single manufacturer or country is
responsible for manufacturing a disproportionate amount of our merchandise.
On September 30, 1999 we announced the closure of our only manufacturing
facility in Chaffee, Missouri, a strategic move designed to reduce costs and
enhance operating efficiencies. The closure was completed during the first
quarter of 2000. By relocating the sourcing of this product to our sourcing
office in Los Angeles, California, we will be able to more efficiently and
effectively manage product procurement.
We believe the use of independent manufacturers, in conjunction with the
use of Columbia sourcing personnel rather than agents, increases our production
flexibility and capacity and allows us to maintain control over critical aspects
of the sourcing process. Our approach also enables us to substantially limit our
capital expenditures and avoid costs associated with managing a large production
work force. We do not have
4
formal arrangements with most of our contractors or suppliers other than
purchase orders. However, we believe our relationships with our contractors and
suppliers are excellent and that the long-term, reliable and cooperative
relationships that we have with many of our vendors provide us a competitive
advantage over other apparel distributors.
By having Columbia employees in regions where we source our products, we
enhance our ability to monitor factories to ensure their compliance with
Columbia's Standards of Manufacturing Practices. Our policies require every
factory to comply with a code of conduct relating to factory working conditions
and the treatment of workers involved in the production of Columbia brand
products.
Our quality control program is designed to ensure our products meet the
highest quality standards. Our employees monitor the quality of fabrics and
other components and inspect prototypes of each product before starting
production runs. In addition, our employees also perform quality control checks
throughout the production process up to and including final shipment to our
customers. We believe our attention to the quality control program is an
important and effective means of maintaining the quality and reputation of our
products.
Independent manufacturers generally produce our apparel using one of two
principal methods. In the first method, the manufacturer purchases the raw
materials needed to produce the garment from suppliers we approve, at prices and
on terms negotiated by either that manufacturer or ourselves. A substantial
portion of our 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, we directly purchase the raw materials from
suppliers, assure that the independent manufacturers have the necessary
availability of import quotas, and ship the materials in a "kit," together with
patterns, samples, and most other necessary items, to the independent
manufacturer to produce the finished garment. While this second arrangement
advances the timing for inventory purchases and exposes us to additional risks
before a garment is manufactured, we believe it further increases our
manufacturing flexibility and frequently provides us with a cost advantage over
other production methods.
We transact business on an order-by-order basis without exclusive
commitments or arrangements to purchase from any single vendor. We believe,
however, that the long term relationships with our vendors will help to assure
adequate sources to produce a sufficient supply of goods in a timely manner and
on satisfactory economic terms in the future.
By sourcing the bulk of our products outside the United States, we are
subject to risks of doing business abroad. These risks include, but are not
limited to, foreign exchange rate fluctuations, governmental restrictions and
political or labor disturbances. In particular, we must continually monitor
import requirements and transfer production as necessary to lessen the potential
impact from increased tariffs or quota restrictions which may be periodically
imposed.
We have from time to time experienced difficulty satisfying our raw
material and finished goods requirements, and any such future difficulties could
adversely affect our business operations. Three major factory groups accounted
for approximately 18% of our total global production for 2000. Another company
produces all of the zippers used in our products. However, in both instances
these factory groups have multiple factory locations, many of which are in
different countries.
SALES AND DISTRIBUTION
Our products are sold to approximately 10,000 specialty and department
store retailers throughout the world. Our strategy for continued growth is to
focus on:
- Enhancing the productivity of existing retailers
- Expanding distribution in international markets
- Further developing the existing merchandise categories
- Increasing our penetration into the department store and specialty
footwear channels.
5
During the last three fiscal years, we recorded the following geographic
net sales percentages of our products.
2000 1999 1998
----- ----- -----
Net sales to unrelated entities:
United States............................................. 71.4% 72.6% 78.6%
Canada.................................................... 10.3 10.7 9.1
Other international....................................... 18.3 16.7 12.3
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
See Note 14 of Notes to Consolidated Financial Statements for net sales,
income before income tax, identifiable assets, interest expense, and
depreciation and amortization by geographic segment.
North America
Approximately 47.6% of the worldwide retailers that offer our products are
located in the United States and Canada. The sales in these two countries
amounted to 81.7% of our total revenues for 2000. We work with 25 independent
sales agencies that work with retail accounts that vary in size from single
specialty store operations to the large chains made up of many stores in several
locations.
Our flagship store in Portland, Oregon is designed to create a distinctive
"Columbia" environment, reinforcing the active and outdoor image of the Columbia
brand. In addition, this store provides us with the ability to test new
marketing and merchandising techniques. We also operate nine outlet stores in
various locations throughout North America. These outlet stores are designed to
sell excess inventory without adversely affecting our retail accounts.
We inspect, sort, pack and ship substantially all of our products to United
States retailers from our Rivergate Distribution Center located in Portland,
Oregon, consisting of approximately 649,000 square feet. Beginning in the first
quarter of 2001, construction began on a new addition to the existing automated
distribution center. The expansion will adjoin an additional 203,000 square-feet
to the existing 649,000 square-feet enabling us to accommodate our growth. The
addition will be fully integrated into the existing distribution center in 2002.
We handle Canadian distribution from an approximately 103,000 square foot
warehouse in Strathroy, Ontario. In some instances, we arrange to have the
product shipped directly from the independent manufacturers to a
customer-designated facility.
Other International
We have a European sales and marketing office in Strasbourg, France. We
currently sell our products directly to approximately 3,500 Western European
retailers. Successful marketing and sales efforts, particularly in France,
Spain, The Netherlands and Germany, resulted in net direct sales of our products
in Europe of $59.0 million in 2000. We distribute products in Europe from an
independent logistics company based in The Netherlands. In February 2001 we
entered into terms of understanding to acquire land in Cambrai, France for
construction of a new distribution facility with approximately 269,000 square
feet. We anticipate that the new facility, which is intended to replace the
facility in The Netherlands, will be operational in the summer of 2002. This
timetable, however, is subject to a number of factors, including our ability to
finalize appropriate agreements to complete the land acquisition and
construction of the new facility on acceptable terms, our ability to integrate a
new facility with existing operations, the availability of labor, raw materials
and other inputs on anticipated terms, our ability to obtain any necessary
governmental approvals in a timely fashion, and uncertainties associated with
doing business abroad.
We have distributed our products through independent distributors in Japan
since the mid-1970s. In the fall of 1998, we began distributing our products
directly in Japan, and during 2000 we sold our products to approximately 760
Japanese retailers. We believe that our direct sales approach in Japan creates
an opportunity for accelerated sales growth in this region as economic
conditions improve. In 1997 we began selling our products in South Korea. Our
offices in Tokyo and Seoul direct sales and marketing efforts in Asia.
6
In several other countries throughout the world, we sell our products to
independent exclusive distributors. These distributors service retail customers
in locations such as Australia, New Zealand, South America, Eastern Europe and
Russia. Distributors also offer Columbia products in Mexico, Norway, Turkey,
Switzerland and Greece. In late 1999, we established a subsidiary in the United
Kingdom for direct sales in that market beginning with spring 2001.
INTELLECTUAL PROPERTY
We own many trademarks including "Columbia(R)," "Columbia Sportswear
Company(R)," "Convert(R)," "Sorel(R)," "Bugaboo(R)," "Bugabootoo(R)," "Silent
Rain(R)," "Columbia Interchange System(R)," "Tough Mother(R)," the Columbia
diamond shaped logo and the Sorel polar bear. Our trademarks, many of which are
registered or subject to pending applications in the United States and other
nations, are used on a variety of items of apparel, footwear, and other
products. We believe that our trademarks are of great value, providing the
consumer with an assurance that the product being purchased is high quality and
provides a good value. We also place significant value on trade dress (the
overall appearance and image of our products) which, as much as trademarks,
distinguishes our products in the marketplace. In addition, in connection with
the acquisition of the Sorel trademarks we acquired industrial designs and
patents protecting some Sorel styles. We are very protective of these
proprietary rights and frequently take action to prevent counterfeit
reproductions or other infringing activity. In the past we have successfully
resolved conflicts over proprietary rights through legal action and negotiated
settlements. As we expand in market share, geographic scope and product
categories, intellectual property disputes are anticipated to increase as well,
making it more difficult to establish and protect our proprietary rights.
BACKLOG
We typically receive the bulk of our orders for each of the fall and spring
seasons a minimum of three months prior to the date the products are shipped to
customers. Generally, the orders are subject to cancellation prior to the date
of shipment. At December 31, 2000, our backlog was $321.8 million, compared to
$272.8 million at December 31, 1999. 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.
SEASONALITY
Our business is affected by the general seasonal trends common to the
outdoor apparel industry, with sales and profits highest in the third calendar
quarter. Our products are marketed on a seasonal basis, with a product mix
weighted substantially toward the fall season. Results of operations in any
period should not be considered indicative of the results to be expected for any
future period. The sale of our products is subject to substantial cyclical
fluctuation or impact from unseasonal weather conditions. Sales tend to decline
in periods of recession or uncertainty regarding future economic prospects that
affect consumer spending, particularly on discretionary items. This cyclicality
and any related fluctuation in consumer demand could have a material adverse
effect on the Company's results of operations, cash flows and financial
position.
COMPETITION
The active outerwear, sportswear and rugged footwear segments of the
apparel industry are highly competitive. We encounter 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 and Helly-Hansen A/S. In addition, we
compete with major sport companies, such as Nike, Inc., Adidas AG and Reebok
International Ltd., and with fashion-oriented competitors, such as Polo Ralph
Lauren Corporation, Nautica Enterprises, Inc. and Tommy Hilfiger Corporation.
Our rugged footwear line competes with, among others, Timberland, Nike ACG, and
Salomon S.A. Many of these companies have global operations and compete with us
in Europe and Asia. In Europe we also face competition from such brands as
Berghaus, Jack Wolfskin and Craft of Sweden and many other lesser-known regional
brands. In Asia our competition is from brands such as Mont-Bell and Patagonia
7
among others. In addition, we face significant competition from our own retail
customers that manufacture and market clothing and footwear under their own
labels. Some of our competitors are substantially larger and have substantially
greater financial, distribution, marketing and other resources than we do. We
believe the primary competitive factors in the market for activewear are
functionality, durability, style, price and brand name, and that our product
offerings are well positioned within the market.
CREDIT AND COLLECTION
We extend credit to our 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, we offer
customers discounts for placing pre-season orders and extended payment terms for
taking delivery before the peak shipping season. These extended payment terms
increase our exposure to the risk of uncollectible receivables. Some of our
significant customers have experienced financial difficulties in the past, and
future financial difficulties of customers could have a material adverse effect
on our business.
GOVERNMENT REGULATION
Many of our imports are subject to existing or potential governmental
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. In addition,
these duties often comprise a material portion of the cost of the merchandise.
Although we are diligent in the monitoring of these trade restrictions, the
United States or other countries could impose new or adjusted quotas, duties,
tariffs or other restrictions, any of which could have a material adverse effect
on our business.
EMPLOYEES
At December 31, 2000 we had 1,445 full-time employees. Of these employees,
828 were based in the United States, 85 in Canada, 73 in Europe and 459 in Asia.
ITEM 2. PROPERTIES
Following is a summary of principal properties owned or leased by us. Our
leases expire at various dates through 2003.
U.S. Administrative Offices: Portland, U.S. Distribution Facility: Portland,
Oregon (2 locations) -- leased Oregon (1 location) -- owned
Canadian Operation: Strathroy, Ontario Corporate Headquarters(1): Portland,
(1 location) -- leased Oregon (1 location) -- owned
- ---------------
(1) In October of 2000, we purchased an existing building and the associated
land to be used as a corporate headquarters. We are currently in the process
of remodeling the facility and plan to occupy it by the fourth quarter of
fiscal year 2001. Our current U.S. administrative office lease agreements
expire in 2002 and will not be renewed.
ITEM 3. LEGAL PROCEEDINGS
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
8
ITEM 4A. EXECUTIVE OFFICERS AND KEY EMPLOYEES OF THE REGISTRANT
The following table sets forth our executive officers and certain key
employees.
NAME AGE POSITION
---- --- --------
Gertrude Boyle....... 77 Chairman of the Board(1)
Timothy P. Boyle..... 51 President, Chief Executive Officer, Treasurer, Secretary and
Director(1)
Don R. Santorufo..... 54 Executive Vice President and Chief Operating Officer(1)
Patrick D. 43 Chief Financial Officer, Assistant Secretary(1)
Anderson...........
Carl K. Davis........ 52 Vice President and General Counsel, Assistant Secretary(1)
Terry J. Brown....... 58 Vice President of Planning and Chief Information Officer(1)
Robert G. Masin...... 52 General Merchandise Manager(1)
Grant D. Prentice.... 46 General Manager -- Outerwear Merchandising
Mark J. Sandquist.... 41 General Manager -- Sportswear Merchandising
Rodney R. 40 General Manager -- Footwear Merchandising
Gumringer..........
David W. Robinson.... 49 General Manager -- Hunting, Fishing and Accessories
Merchandising
- ---------------
(1) These individuals are considered Executive Officers of Columbia.
Gertrude Boyle has served as Chairman of the Board of Directors since 1983.
Columbia was founded by her parents in 1938 and managed by her husband, Neal
Boyle, from 1964 until his death in 1970. Mrs. Boyle also served as our
President from 1970 to 1988. Mrs. Boyle is Timothy P. Boyle's mother.
Timothy P. Boyle joined Columbia 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, and Widmer Brothers
Brewing Company. Mr. Boyle is Gertrude Boyle's son.
Don R. Santorufo joined Columbia in 1979 as Purchasing and Production
Manager, and in 1984 he was promoted to Vice President, Manufacturing and
oversaw the development of our Asian manufacturing operations. He has served as
Executive Vice President and Chief Operating Officer since January 1995. From
1977 to 1979 Mr. Santorufo was Production Manager for Jen-Cel-Lite Corporation,
a sleeping bag and insulation manufacturer, and from 1975 to 1977 he was
Production and Purchasing Manager for Alpine Designs, a skiwear manufacturer.
Patrick D. Anderson joined Columbia in June 1992 as Manager of Financial
Reporting, became Corporate Controller in August 1993 and was appointed Chief
Financial Officer in December 1996. From 1985 to 1992, Mr. Anderson was an
accountant with Deloitte & Touche LLP.
Carl K. Davis joined Columbia in October 1997 as Vice President and General
Counsel. He was employed by Nike, Inc. from 1981 to October 1997 where he served
in a variety of capacities, most recently as Director of International Trade.
Terry J. Brown joined Columbia in January 1983 as Planner, served as
Executive Planner starting in November 1995 and in January 2000 was named Vice
President of Planning/Chief Information Officer. Prior to joining Columbia, 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 Columbia in May 1989 as National Sales Manager and
became General Merchandise Manager in July 1998. 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 Columbia in May 1984 as General
Manager -- Outerwear Merchandising. From 1977 to 1984, Mr. Prentice worked as a
sales representative for Gerry Outdoor Products, a skiwear company based in
Colorado.
9
Mark J. Sandquist joined Columbia in March 1995 as Senior Merchandiser of
Men's and Women's Sportswear and in August 2000 was named General
Manager -- Sportswear Merchandising. Prior to joining Columbia, Mr. Sandquist
worked in various managerial positions for Union Bay from 1985 to 1995.
Rodney R. Gumringer joined Columbia in December 1993 as General
Manager -- Footwear Merchandising. From 1988 to 1993, Mr. Gumringer was Product
Development Manager for the casual shoe division of Nike, Inc.
David W. Robinson joined Columbia in March 1995 as Senior Merchandiser of
Hunting, Fishing and Accessories within Outerwear Merchandising and in December
1999 was named General Manager -- Hunting, Fishing, and Accessories
Merchandising. Prior to joining Columbia, Mr. Robinson was Director of
Operations for Video Lottery Technologies from 1992 to 1995, and prior to that
he was a Vice President of Life Link International.
10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our Common Stock is listed on the Nasdaq National Market and trades under
the symbol "COLM." At February 28, 2001, there were approximately 169 holders of
record and approximately 6,190 beneficial shareholders.
Following are the high and low closing prices for our Common Stock for the
fiscal years ended December 31, 2000 and 1999:
HIGH LOW
------ ------
2000
First Quarter.............................................. $24.50 $17.75
Second Quarter............................................. $31.00 $21.75
Third Quarter.............................................. $47.75 $26.75
Fourth Quarter............................................. $54.00 $34.06
1999
First Quarter.............................................. $19.63 $11.75
Second Quarter............................................. $16.88 $13.38
Third Quarter.............................................. $19.13 $14.25
Fourth Quarter............................................. $21.50 $15.13
Since our public offering in March of 1998, we have not declared any
dividends for shareholders. We anticipate that all of our earnings in the
foreseeable future will be retained for the development and expansion of our
business and, therefore, we have no current plans to pay cash dividends. Future
dividend policy will depend on our earnings, capital requirements, financial
condition, restrictions imposed by our credit agreement, and other factors
considered relevant by our Board of Directors. For certain restrictions on our
ability to pay dividends, see Note 5 of Notes to Consolidated Financial
Statements.
11
ITEM 6. SELECTED FINANCIAL DATA
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, 2000 have been derived
from our audited financial statements. The financial data should be read in
conjunction with Consolidated Financial Statements and related Notes that appear
elsewhere in this Annual Report and Management's Discussion and Analysis of
Financial Condition and Results of Operations set forth in Item 7.
YEAR ENDED DECEMBER 31,
----------------------------------------------------
2000 1999 1998 1997 1996
-------- -------- -------- -------- --------
STATEMENT OF OPERATIONS DATA:
Net sales............................... $614,825 $470,503 $427,278 $353,452 $298,988
Cost of sales........................... 334,689 259,609 240,457 198,946 176,859
-------- -------- -------- -------- --------
Gross profit............................ 280,136 210,894 186,821 154,506 122,129
Selling, general and administrative..... 183,743 150,829 131,023 110,204 95,431
-------- -------- -------- -------- --------
Income from operations.................. 96,393 60,065 55,798 44,302 26,698
Interest expense, net................... 4,238 4,822 4,075 3,593 4,220
Income tax expense(1)................... 33,544 22,235 18,979 1,413 1,468
-------- -------- -------- -------- --------
Net income.............................. $ 58,611 $ 33,008 $ 32,744 $ 39,296 $ 21,010
======== ======== ======== ======== ========
Net income per share(2):
Basic................................. $ 2.28 $ 1.30 $ 1.38 $ 2.09 $ 1.24
Diluted............................... $ 2.22 $ 1.29 $ 1.36 $ 2.06 $ 1.24
Weighted average shares outstanding(2):
Basic................................. 25,694 25,331 23,731 18,792 16,997
Diluted............................... 26,405 25,608 24,058 19,103 16,997
2000 1999 1998 1997 1996
-------- -------- -------- ------- -------
BALANCE SHEET DATA:
Working capital........................... $191,612 $144,105 $109,505 $69,706 $59,797
Inventories............................... 105,288 86,465 74,059 48,300 34,638
Total assets.............................. 375,086 304,990 269,478 174,477 135,967
Long-term debt, net of current
maturities.............................. 26,000 26,665 27,275 2,831 2,963
Shareholders' equity...................... 248,989 184,375 149,414 110,535 91,936
- ---------------
(1) For the years ended December 31, 1997 and 1996, the Company was an "S"
corporation and accordingly not subject to federal and state income taxes
during the periods then ended.
(2) The Company completed an Initial Public Offering (IPO) of 6,440,000 shares
of Common Stock on April 1, 1998.
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
All references to years relate to the fiscal year ended December 31 of such
year.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
relationship to net sales of certain items in our consolidated statements of
operations:
2000 1999 1998
----- ----- -----
Net sales................................................... 100.0% 100.0% 100.0%
Cost of sales............................................... 54.4 55.2 56.3
----- ----- -----
Gross profit................................................ 45.6 44.8 43.7
Selling, general and administrative......................... 29.9 32.1(1) 30.7
----- ----- -----
Income from operations...................................... 15.7 12.7 13.0
Interest expense, net....................................... 0.7 1.0 0.9
----- ----- -----
Income before income tax.................................... 15.0 11.7 12.1
Income tax expense.......................................... 5.5 4.7 4.4(2)
----- ----- -----
Net income.................................................. 9.5% 7.0% 7.7%
===== ===== =====
- ---------------
(1) Includes a one-time charge of $1.5 million related to the closure of the
Company's manufacturing facility in Chaffee, Missouri.
(2) Includes a non-recurring, non-cash benefit of approximately $2.0 million
related to the termination of the Company's "S" corporation status.
YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31,1999
Net sales: Net sales increased 30.7% to $614.8 million in 2000 from $470.5
million in 1999. Domestic sales increased 28.5% to $438.9 million in 2000 from
$341.6 million in 1999. Net international sales, excluding Canada, increased
43.7% to $112.8 million in 2000 from $78.5 million in 1999. The increase in net
international sales was due primarily to increases in European and Japanese
direct sales which increased $17.6 million or 42.6% and $8.3 million or 46.0%,
respectively. Canadian sales increased 25.2% to $63.1 million in 2000 from $50.4
million in 1999. These increases were primarily attributable to increased sales
of outerwear units, predominantly in the United States, Canada and Europe, and
increased sales of sportswear and footwear units across all regions.
Gross Profit: Gross profit as a percentage of net sales was 45.6% and 44.8%
for 2000 and 1999, respectively. This increase of 80 basis points in gross
margin was due to a combination of factors that may not be replicated. These
factors include: (1) decreased sales of carry-over fall close-out products
during the three months ended March 31, 2000 when compared to the three months
ended March 31, 1999, (2) increased margin on sales of spring sportswear
close-out products for the three months ended June 30, 2000 when compared to the
three months ended June 30, 1999, and (3) strong domestic and Canadian margins
resulting from minimal off price selling during the six months ended December
31, 2000, partially offset by the weakness in the Euro currency.
Selling, General and Administrative Expense: Selling, general, and
administrative expense (SG&A) increased 21.8% to $183.7 million in 2000 from
$150.8 million in 1999, primarily as a result of an increase in variable selling
and operating expenses to support the higher level of sales. As a percentage of
sales, SG&A decreased to 29.9% for the year ended December 31, 2000 from 32.1%
for the comparable period in 1999. This change was primarily due to strong sales
growth in 2000, coupled with minimal additional investment in infrastructure. In
addition, the third quarter 1999 results included a $1.5 million charge for the
closing of our Chaffee, Missouri manufacturing plant. Although we anticipate
continued leverage of SG&A as a percentage of sales for 2001, foreseeable
international and current domestic infrastructure expansions will place upward
pressure on SG&A in 2002 as these projects are capitalized and begin to
depreciate.
13
Interest Expense: Interest expense decreased by 12.1% in 2000 from the
comparable period in 1999. The decrease was primarily attributable to our
increased cash position during the first, second and fourth quarters of 2000 as
compared to the same periods in 1999 and our decreased borrowings during the
third quarter of 2000 compared to third quarter of 1999.
Income Tax Expense: The provision for income taxes was $33.5 million and
$22.2 million for 2000 and 1999, respectively. The provision for income taxes,
as a percentage of pre-tax income was 36.4% and 40.2% for 2000 and 1999,
respectively. The decrease in tax rates, which may not be replicated in future
periods, was due primarily to the utilization of foreign tax credits.
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31,1998
Net sales: Net sales increased 10.1% to $470.5 million in 1999 from $427.3
million in 1998. The increase in net sales was due primarily to growth in our
international business. Domestic sales increased 1.7% to $341.6 million in 1999
from $335.9 million in 1998. Net international sales, excluding Canada,
increased 49.2% to $78.5 million in 1999 from $52.6 million in 1998. The
increase in net international sales was due primarily to increases in European
and Japanese direct sales, which increased $14.2 million or 52.1% and $10.4
million or 133.8%, respectively. Unit sales generated these increases for both
Europe and Japan across all product lines. Canadian sales increased 30.0% to
$50.4 million in 1999 from $38.8 million in 1998. This Canadian sales growth was
due to increased sales unit volume across outerwear, sportswear and footwear
product categories.
Gross Profit: Gross profit as a percentage of net sales was 44.8% and 43.7%
for 1999 and 1998 respectively. This increase of 110 basis point in gross margin
was due to a combination of factors. These include an increase in higher margin
international sales, which increased to 16.7% of net sales in 1999 from 12.3% in
1998 as a percent of net sales, minimal off-price sales for the year with strong
margins on those products which were discounted, and favorable pricing on fall
1999 production. The increase in the gross margin was also attributable to the
continued emphasis on inventory management, which resulted to fewer markdowns
and closeouts as well as manufacturing efficiencies.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 15.1% to $150.8 million in 1999 from $131.0
million for 1998. As a percentage of sales, selling, general, and administrative
expenses increased to 32.1% in 1999 from 30.7% in 1998. The increase was
primarily due to an additional $5.0 million in depreciation expense as capital
projects including the new distribution center and enterprise wide information
system were capitalized in 1998 and an entire year of depreciation was recorded
in 1999. Additionally, we incurred $1.5 million in expenses relating to the
announced closure of our only manufacturing facility in the third quarter of
1999. Additional drivers of selling, general, and administrative expenses
included variable expenses relating to the higher sales for the year and the
continued expansion of our other international operations.
Interest Expense: Interest expense increased by 18.3% in 1999 from the
comparable period in 1998. The increase was attributable to financing for
capital projects and working capital needed to fund the growth in sales activity
for year ended December 31, 1999.
Income Tax Expense: The provision for income taxes increased due to growth
in income before income tax and the increase of our effective tax rate from
36.8% in 1998 to 40.2% in 1999. The increase in our effective tax rate was due
to the recognition of a non-recurring, non-cash benefit of approximately $2
million in the first quarter of 1998. This benefit was a result of the
termination of our "S" corporation status and was recognized in order to record
deferred income taxes for the tax effect of cumulative temporary differences
between financial and tax reporting. See Notes 2 and 9 to the Consolidated
Financial Statements.
LIQUIDITY AND CAPITAL RESOURCES
We financed our operations in the year ended December 31, 2000 primarily
through cash provided by operating activities. At December 31, 2000, we had
total cash equivalents of $35.5 million compared to
14
$14.6 million at December 31, 1999. Cash provided by operating activities was
$52.2 million for the year ended December 31, 2000 compared to $23.5 million in
1999.
Our primary capital requirements are for working capital and general
corporate needs. Net cash used in investing activities was $28.8 million for the
year ended December 31, 2000 and $12.6 million for the comparable period in
1999. During the year ended December 31, 2000, we purchased the Sorel trademark
for approximately $8.0 million (see Note 2 to the Consolidated Financial
Statements) and a corporate headquarters facility for approximately $13.0
million.
Cash used in financing activities was $1.7 million for the year ended
December 31, 2000 and $2.8 million for 1999. In 2000, net cash used in financing
activities was primarily due to repayment of our short-term notes payable offset
by proceeds from the exercise of employee stock options. Repayment of short-term
notes payable was $6.0 million in 2000 compared to $3.1 million in 1999.
To fund our domestic working capital requirements, we have available
unsecured revolving lines of credit with aggregate seasonal limits ranging from
$35 million to $75 million, of which $10 million to $50 million is committed.
Additionally, we maintain unsecured lines of credit with a combined limit of
$135 million available for issuing letters of credit. Internationally, our
subsidiaries have local currency operating lines in place guaranteed by our
domestic operations.
We have recently announced capital expenditures to support our continued
growth, including the expansion of our United States distribution center,
remodeling of our recently purchased corporate headquarters and construction of
a European distribution facility. We anticipate the capital expenditures
associated with these projects as well as our maintenance capital will be
approximately $40 million and will be funded by existing cash and cash provided
by operations. However, if the need for additional financing arises, our ability
to obtain additional credit facilities will depend on prevailing market
conditions, our financial condition, and our ability to negotiate favorable
terms and conditions.
Our operations are affected by seasonal trends typical in the outdoor
apparel industry, which have historically resulted in higher sales and profits
in the third calendar quarter. This pattern has resulted primarily from the
timing of shipments to wholesale customers for the fall outerwear season. As our
sportswear and footwear product lines mature, they will have future impact on
seasonal shipments and corresponding working capital requirements. We believe
that our liquidity requirements for at least the next 12 months will be
adequately covered by existing cash, cash provided by operations and existing
short term borrowing arrangements.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to market risks from fluctuations of foreign currency
exchange rates and interest rates due to our international sales, production and
funding requirements. It is our policy to utilize financial instruments to
reduce market risk where internal netting and other strategies cannot be
effectively employed. Foreign currency and interest rate transactions are used
only to the extent considered necessary to meet our objectives. We do not enter
into foreign currency or interest rate transactions for speculative purposes.
Our foreign currency risk management objective is to protect cash flows
resulting from sales, purchases and other costs from the impact of exchange rate
movements. This risk is managed by using forward exchange contracts and
purchased options to hedge certain firm as well as anticipated commitments and
the related receivables and payables, including third party or intercompany
transactions. Anticipated, but not yet firmly committed, transactions that we
hedge carry a high level of certainty and are expected to be recognized within
one year. Cross-currency swaps are used to hedge foreign currency denominated
payments related to intercompany loan agreements. Hedged transactions are
denominated primarily in the Euro, Japanese yen and Canadian dollars.
The fair value of our hedges was unfavorable by $1.6 million and $0.1
million as of December 31, 2000 and 1999, respectively. A 10% change in the
Euro, Japanese yen and Canadian dollar exchange rates would have resulted in the
fair value fluctuating approximately $5.1 million at December 31, 2000 and $3.2
million at
15
December 31, 1999. Changes in fair value, resulting from foreign exchange rate
fluctuations, would be substantially offset by the change in value of the
underlying hedged transactions.
The Company's exposure to market risk for changes in interest rates relate
primarily to the company's debt obligations. The Company has no cash flow
exposure due to rate changes on its $26.0 million and $26.7 million of long-term
debt as of December 31, 2000 and 1999, respectively. However, the company does
have cash flow exposure on its committed and uncommitted bank lines of credit as
interest is based on LIBOR and other interest rate indices.
EURO CURRENCY CONVERSION
On January 1, 1999, the Euro was adopted as the national currency of the
participating countries -- Austria, Belgium, Finland, France, Germany, Ireland,
Italy, Luxembourg, Netherlands, Portugal and Spain. Greece adopted the Euro on
January 1, 2001. Initially, the Euro will be used for non-cash transactions.
Legacy currencies of the participating member states will remain legal tender
until January 1, 2002. On this date, Euro-denominated bills and coins will be
issued for use in cash transactions.
The introduction of the Euro is a significant event with potential
implications for our existing operations within the participating countries. As
such, we have committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure that we are prepared for the
introduction of the Euro. Progress regarding Euro implementation is reported
periodically to management.
We have not experienced any significant operational disruptions to date and
do not expect the continued implementation of the Euro to cause any significant
operational disruptions. In addition, we have not incurred and do not expect to
incur any significant costs from the continued implementation of the Euro,
including any additional currency risk, which could materially affect our
liquidity or capital resources.
RECENT ACCOUNTING PRONOUNCEMENTS
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The effective date of the bulletin was delayed by the issuance of
SAB No. 101A and SAB No. 101B and was effective for the Company's fourth quarter
of fiscal year 2000. The adoption of this bulletin did not have a material
effect on the Company's consolidated financial statements.
FORWARD-LOOKING STATEMENTS
Item 1 of Part 1 and Items 7 and 7(a) of Part II of this Annual Report (as
well as statements made from time to time by management) contain forward-looking
statements that are subject to many risks and uncertainties. Forward-looking
statements include any related to our expectations regarding future performance
or conditions, including but not limited to potential growth in domestic and
international markets, growth in merchandise categories, increased sales to
department stores and footwear specialty shops, implementation and performance
of new management information systems and distribution facilities, access to raw
materials and factory capacity, Euro currency conversion, financing and working
capital requirements and resources, and expected expenses as a percentage of net
sales. Many factors could have an adverse impact on our business and may cause
actual results to differ materially from information included in such
forward-looking statements. Some of the risk factors that could cause actual
results to differ from those projected in forward-looking statements are
described below, under the heading "Factors That May Affect Our Business". We do
not undertake any duty to update any forward-looking statements after the date
they are made, to conform them to actual results or to changes in our
expectations.
FACTORS THAT MAY AFFECT OUR BUSINESS
OUR SALES MAY BE ADVERSELY AFFECTED BY AN ECONOMIC DOWNTURN OR ECONOMIC
UNCERTAINTY
Sales of our products, particularly skiwear, are subject to substantial
cyclical fluctuation. Consumer demand for our apparel and footwear, or our
licensed products, may not reach our growth targets, or may
16
decline, when there is an economic downturn or economic uncertainty in our key
markets, particularly markets in North America and Europe. Continuing weakness
in the Japanese economy, for example, has limited growth opportunities in recent
years, and a slowing economy in the United States in 2001 has created additional
uncertainties for our business. Our sensitivity to economic cyclicality and any
related fluctuation in consumer demand could have a material adverse affect on
our results of operations and financial condition.
WE ARE AFFECTED BY THE FINANCIAL HEALTH OF RETAILERS
We extend credit to our 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, we offer
customers discounts for placing pre-season orders and extended payment terms for
taking delivery before the peak shipping season. These extended payment terms
increase our exposure to the risk of uncollectible receivables. In addition, we
face increased risk of order reduction or cancellation when dealing with
financially ailing retailers. Some of our significant customers have experienced
financial difficulties in the past, which in turn have had an adverse affect on
our business. A slowing economy in our key markets could have an adverse affect
on the financial health of our customers, and therefore create additional risks
for our business.
WE OPERATE IN VERY COMPETITIVE MARKETS
The markets for outerwear, sportswear and rugged footwear are highly
competitive. In each of our geographic markets, we face significant competition
from global and regional branded apparel and footwear companies. In many
instances, retailers who are our customers pose a significant competitive threat
by marketing apparel and footwear under their own labels. We also compete with
other apparel and footwear companies for the production capacity of independent
manufacturers that produce our apparel and for import quota capacity. Many of
our competitors are significantly larger and have substantially greater
financial, distribution, marketing and other resources and have achieved greater
recognition for their products than we have. Increased competition could result
in reductions in display areas in retail locations, reductions in sales or
reductions in prices of our products, any of which could have a material adverse
affect on our business.
WE FACE RISKS ASSOCIATED WITH CONSUMER PREFERENCES AND FASHION TRENDS
We believe we have benefited from changing consumer preferences, including
increased consumer interest in outdoor activities and lifestyle changes that
emphasize apparel designed for these activities. Changes in consumer preferences
or consumer interest in outdoor activities could have a material adverse affect
on our business. In addition, although we believe our products have not been
significantly affected by past fashion trends, changes in fashion trends could
have a greater impact as we expand our offerings to include more product
categories. Also, we face risks because our business requires us to anticipate
consumer preferences. Our decisions about product designs often are made in
advance of consumer acceptance. Although we try to manage our inventory risk
through early order commitments by retailers, we must generally place production
orders with manufacturers before we have received all of a season's orders. If
we fail to anticipate accurately and respond to consumer preferences, this could
lead to, among other things, lower sales, excess inventories and lower margins.
OUR BUSINESS IS AFFECTED BY WEATHER CONDITIONS
Sales of our outerwear are dependent in part on the weather and may decline
in years in which weather conditions do not favor the use of our outerwear. For
example, we believe unseasonably warm weather in the United States in 1998 and
1999 caused customers to delay, and in some cases reduce or cancel, orders for
our outerwear, which had an adverse effect on the our net sales and
profitability. Periods of unseasonably warm weather could have a material
adverse effect on our business.
17
WE MAY NOT BE ABLE TO IMPLEMENT OUR GROWTH STRATEGY OR MANAGE GROWTH
SUCCESSFULLY
We face many challenges in implementing our growth strategies. For example,
our expansion into international markets involves countries where we have little
sales or distribution experience and where our brand is not yet widely known.
Expanding our product categories involves, among other things, gaining
experience with new products and winning consumer acceptance. Increasing sales
to department stores, and the number of concept shops opened and their success,
will each depend on various factors, including strength of our brand name,
competitive conditions, our ability to manage increased sales and concept shop
expansion, the availability of desirable locations and the negotiation of terms
with retailers. Future terms with customers may be less favorable to us than
those we now operate under. To implement our business strategy, we need to
manage growth effectively. We need to continue to change certain aspects of our
business, to maintain and enhance our information systems and operations to
respond to increased demand and to attract, retain and manage qualified
personnel. Growth could place an increasing strain on management, financial,
product design, marketing, distribution and other resources, and we could
experience operating difficulties. For example, in 2000 and 2001, we have
undertaken a number of new initiatives that require significant management
attention and corporate resources, including the development or expansion of
distribution facilities on two continents, the acquisition and rejuvenation of
the Sorel(R) brand, and the development and integration of the new Sorel
business into our existing operations. Such growth involves many risks and
uncertainties, and if we are unable to manage it effectively we may not achieve
our objectives and there could be a material adverse affect on our business.
OUR SUCCESS DEPENDS ON OUR DISTRIBUTION FACILITIES
Our ability to meet customer expectations, manage inventory, complete sales
and achieve objectives for operating efficiencies depends on the proper
operation of our existing distribution facilities and on the development or
expansion of additional distribution capabilities. In the United States, we rely
primarily on our distribution center in Portland, Oregon, and in Europe we have
relied on an independently operated facility in The Netherlands, which is
expected to be replaced by a company-built distribution center in Cambrai,
France in 2002. Our distribution facilities are highly automated, which means
their operations are complicated and may be subject to a number of risks related
to computer viruses, the proper operation of software and hardware, electronic
or power interruptions, or other system failures. Our operations could also be
interrupted by disasters, such as earthquakes (which are known to occur in the
Northwestern United States) or fires. Uncertainty about power supplies in Oregon
in 2001 creates some additional risks for our business. Although we maintain
generators to operate our distribution facility, power interruptions could
restrict our distribution capacity and negatively affect our business,
particularly if this occurs during critical shipping periods. We maintain
business interruption insurance, but it may not adequately protect our business
from the impact of significant disruptions in our distribution facilities. In
Cambrai, France, our ability to complete a new facility is subject to a number
of risks and uncertainties, including our ability to finalize agreements to
complete the land acquisition and construction of the new facility on acceptable
terms, our ability to integrate a new facility with existing operations, the
availability of labor, raw materials and other inputs on anticipated terms and
our ability to obtain any necessary governmental approvals in a timely fashion.
OUR INTERNATIONAL OPERATIONS INVOLVE MANY RISKS
We are subject to many 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 we manufacture or sell products. These factors,
among others, could influence our ability to sell products in international
markets, as well as our ability to manufacture products or procure materials. If
any of these or other factors make the conduct of business in a particular
country undesirable or impractical, there could be a material adverse affect on
our business. In addition, many of our imports are subject to duties, tariffs or
quotas that affect the cost and quantity of certain types of goods imported into
the United States or into our other sales markets. The countries in which our
products are produced or sold may adjust or impose new quotas, duties, tariffs
or other restrictions, any of which could have a material adverse effect on us.
We produce a significant portion of our products in China,
18
and therefore our business could be materially adversely affected by adverse
conditions in China or adverse changes in China's trading status with the U.S.
or with other sales markets.
CURRENCY EXCHANGE RATE FLUCTUATIONS MAY AFFECT OUR BUSINESS
We generally purchase products in U.S. dollars. However, the cost of these
products sourced overseas may be affected by changes in the value of the
relevant currencies. Price increases caused by currency exchange rate
fluctuations could make our products less competitive or have an adverse affect
on our margins. Our international revenue and expense generally is derived from
sales and operations in foreign currencies, and this revenue and expense could
be materially affected by currency fluctuations, including amounts recorded in
foreign currencies and translated into U.S. dollars for consolidated financial
reporting. Currency exchange rate fluctuations could also disrupt the business
of the independent manufacturers that produce our products by making their
purchases of raw materials more expensive and more difficult to finance. We
conduct a program to hedge against our exposure to currency exchange rate
fluctuations. We may not, however, be successful and foreign currency
fluctuations could have a material adverse affect on us.
WE DEPEND ON INDEPENDENT MANUFACTURERS TO MAKE OUR PRODUCTS AND MEET CUSTOMER
EXPECTATIONS
Our products are produced by independent manufacturers worldwide. Although
we enter into a number of purchase order commitments each season, we do not have
long-term contracts with any manufacturer. We do not operate any production
facilities. We therefore face risks that manufacturing operations will fail to
perform as expected, or that our competitors will gain production or quota
capacities that we need for our business. If a manufacturer fails to ship orders
in a timely manner or to meet our standards, it could cause us to miss delivery
requirements, 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 affect on our business. If a manufacturer violates labor or other laws,
or engages in practices that are not generally accepted as ethical in our key
markets, this could result in adverse publicity for us and have a material
adverse affect on our business. In an effort to ensure that our independent
manufacturers operate with safe, ethical and humane working conditions, we
monitor factories and we require that each agree to comply with our Standards of
Manufacturing Practices and applicable laws and regulations, but we do not
control these vendors or their labor practices.
WE DEPEND ON KEY SUPPLIERS FOR SOME SPECIALTY FABRICS
Some of the materials that we use may be available, in the short-term, from
only one or a very limited number of sources. For example, some specialty
fabrics are manufactured to our specification by one or a few sources, and three
major factory groups accounted for approximately 18% of our 2000 global
production. From time to time, we have experienced difficulty satisfying our raw
material and finished goods requirements. Although we believe we could identify
and qualify additional factories to produce these materials, the unavailability
of some existing manufacturers for supply of these materials could have a
material adverse affect on our business.
OUR ADVANCE PURCHASES OF PRODUCTS MAY RESULT IN EXCESS INVENTORIES
To minimize our purchasing costs, the time necessary to fill customer
orders and the risk of non-delivery, we place orders for our products with
manufacturers prior to receiving all of our customers' orders and maintain an
inventory of certain products that we anticipate will be in greater demand. We
may not be able to sell the products we have ordered from manufacturers or that
we have in our inventory. Customer orders, moreover, are generally cancelable by
the customer prior to the date of the shipment. 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
our business.
19
OUR SUCCESS DEPENDS ON OUR PROPRIETARY RIGHTS
We believe our registered and common law trademarks have significant value
and are important to our ability to create and sustain demand for our products.
We also place significant value on our trade dress, the overall appearance and
image of our products. In markets outside the United States, it may be more
difficult for us to establish our proprietary rights and to challenge
successfully use of those rights by other parties. We will also face additional
challenges as we extend our brand into new product categories, in part through
our licensing program. Although we have not been materially inhibited from
selling products in connection with trademark or trade dress disputes, we could
encounter more obstacles as we expand our product line and the geographic scope
of our marketing. From time to time, we discover products that are counterfeit
reproductions of our products or trade dress "knock offs." If we are
unsuccessful in challenging a party's products on the basis of trademark or
trade dress infringement, continued sales of these products could adversely
impact our sales and our brand and result in the shift of consumer preference
away from our products. The actions we take to establish and protect trademarks
and other proprietary rights may not be adequate to prevent imitation of our
products by others or to prevent others from seeking to block sales of our
products as violations of proprietary rights. In addition, we could incur
substantial costs in legal actions relating to our use of intellectual property
or the use of our intellectual property rights by others.
OUR BUSINESS IS AFFECTED BY SEASONALITY AND FLUCTUATIONS IN OPERATING RESULTS
Our results of operations have fluctuated and are likely to fluctuate
significantly from period to period. Our products are marketed on a seasonal
basis, with a product mix now weighted substantially toward the fall season. Our
results of operations for the quarter ending September 30 in the past have been
much stronger than the results for the other quarters. This seasonality, along
with other factors that are beyond our control, including general economic
conditions, changes in consumer behavior, weather conditions, availability of
import quotas and currency exchange rate fluctuations, could adversely affect
our business and cause our 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.
WE FACE RISKS OF PRODUCT LIABILITY AND WARRANTY CLAIMS
Our products are used in outdoor activities, sometimes in severe
conditions. Although we have not experienced any significant expense as the
result of product recalls or product liability claims, this could occur in the
future and have a material adverse affect on our business. Substantially all of
our products are backed by a lifetime limited warranty for defects in quality
and workmanship. We maintain a warranty reserve for future warranty claims, but
the actual costs of servicing future warranty claims could exceed the reserve
and have a material adverse affect on us.
OUR COMMON STOCK PRICE MAY BE VOLATILE
The price of our common stock has fluctuated substantially since our
initial public offering. Our common stock is traded on the Nasdaq National
Market, which has experienced and is likely to experience significant price and
volume fluctuations that could adversely affect the market price of our common
stock without regard to our operating performance. We also believe factors such
as fluctuations in financial results, variances from financial market
expectations, changes in earnings estimates by analysts, or announcements by us
or competitors may cause the market price of the common stock to fluctuate,
perhaps substantially.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Management's
Discussion and Analysis of Financial Condition and Results of Operations and is
incorporated herein by this reference.
20
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Our management is responsible for the information and representations
contained in this report. The financial statements have been prepared in
conformity with accounting principles generally accepted in the United States of
America, which we considered appropriate in the circumstances and include some
amounts based on our best estimates and judgements. Other financial information
in this report is consistent with these financial statements.
Our accounting systems include controls designed to reasonably assure that
assets are safeguarded from unauthorized use or disposition and which provide
for the preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America. These systems are
supplemented by the selection and training of qualified financial personnel and
an organizational structure providing for appropriate segregation of duties.
The Audit Committee is responsible for recommending to the Board of
Directors the appointment of the independent accountants and reviews with the
independent accountants and management the scope and the results of the annual
examination, the effectiveness of the accounting control system and other
matters relating to our financial affairs as they deem appropriate.
21
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of Columbia Sportswear Company:
We have audited the accompanying consolidated balance sheets of Columbia
Sportswear Company and subsidiaries as of December 31, 2000 and 1999, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally
accepted in the United States of America. 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 consolidated financial statements present fairly, in
all material respects, the consolidated financial position of Columbia
Sportswear Company and subsidiaries as of December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States of America.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 1, 2001
22
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
DECEMBER 31,
--------------------
2000 1999
-------- --------
Current Assets:
Cash and cash equivalents................................. $ 35,464 $ 14,622
Accounts receivable, net of allowance of $5,826 and
$4,535, respectively................................... 129,539 118,709
Inventories, net (Note 3)................................. 105,288 86,465
Deferred tax asset (Note 9)............................... 13,347 11,822
Prepaid expenses and other current assets................. 5,610 2,425
-------- --------
Total current assets.............................. 289,248 234,043
Property, plant, and equipment, net (Note 4)................ 76,662 68,960
Intangibles and other assets (Note 2)....................... 9,176 1,987
-------- --------
Total assets...................................... $375,086 $304,990
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable (Note 5).................................... $ 23,987 $ 31,676
Accounts payable.......................................... 45,047 36,779
Accrued liabilities (Note 6).............................. 28,294 21,231
Current portion of long-term debt......................... 308 252
-------- --------
Total current liabilities......................... 97,636 89,938
Long-term debt (Note 7)..................................... 26,000 26,665
Deferred tax liability (Note 9)............................. 2,461 4,012
-------- --------
Total liabilities................................. 126,097 120,615
Commitments and contingencies (Note 12)..................... -- --
Shareholders' Equity:
Preferred stock; 10,000 shares authorized; none issued and
outstanding............................................ -- --
Common stock; 50,000 shares authorized; 25,709 and 25,350
issued and outstanding (Note 8)........................ 133,736 126,265
Retained earnings......................................... 123,901 65,290
Accumulated other comprehensive loss...................... (5,920) (3,770)
Unearned portion of restricted stock issued for future
Services (Note 11)..................................... (2,728) (3,410)
-------- --------
Total shareholders' equity........................ 248,989 184,375
-------- --------
Total liabilities and shareholders' equity........ $375,086 $304,990
======== ========
See accompanying notes to consolidated financial statements.
23
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
YEAR ENDED DECEMBER 31,
--------------------------------
2000 1999 1998
-------- -------- --------
Net sales.................................................. $614,825 $470,503 $427,278
Cost of sales.............................................. 334,689 259,609 240,457
-------- -------- --------
Gross profit............................................... 280,136 210,894 186,821
Selling, general, and administrative....................... 183,743 150,829 131,023
-------- -------- --------
Income from operations..................................... 96,393 60,065 55,798
Interest expense, net...................................... 4,238 4,822 4,075
-------- -------- --------
Income before income tax................................... 92,155 55,243 51,723
Income tax expense (Note 9)................................ 33,544 22,235 18,979
-------- -------- --------
Net income................................................. $ 58,611 $ 33,008 $ 32,744
======== ======== ========
Net income per share:
Basic.................................................... $ 2.28 $ 1.30 $ 1.38
Diluted.................................................. $ 2.22 $ 1.29 $ 1.36
Weighted average shares outstanding (Note 15):
Basic.................................................... 25,694 25,331 23,731
Diluted.................................................. 26,405 25,608 24,058
See accompanying notes to consolidated financial statements.
24
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
---------------------------------
2000 1999 1998
-------- -------- ---------
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net Income.............................................. $ 58,611 $ 33,008 $ 32,744
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 13,648 12,604 7,641
Non-cash compensation................................ 682 970 970
(Gain) loss on disposal of property, plant, and
equipment.......................................... (227) 132 102
Deferred income tax provision........................ (3,076) (3,026) (4,784)
Changes in operating assets and liabilities:
Accounts receivable................................ (13,375) (12,767) (27,426)
Inventories........................................ (20,520) (11,788) (24,373)
Prepaid expenses and other current assets.......... (3,231) 61 (272)
Intangibles and other assets....................... 171 300 (152)
Accounts payable................................... 8,848 (1,441) 12,884
Accrued liabilities................................ 10,666 5,400 3,091
-------- -------- ---------
Net cash provided by operating activities....... 52,197 23,453 425
-------- -------- ---------
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Additions to property, plant, and equipment............. (21,233) (12,591) (40,408)
Proceeds from sale of property, plant, and equipment.... 436 15 161
Purchase of trademarks.................................. (7,967) -- --
-------- -------- ---------
Net cash used in investing activities........... (28,764) (12,576) (40,247)
-------- -------- ---------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Net borrowing (repayment) on notes payable.............. (5,953) (3,139) 13,289
Issuance (repayment) on long-term debt.................. (609) (558) 24,490
Proceeds from issuance of common stock.................. 4,885 876 366
Proceeds from initial public offering................... -- -- 106,850
Distributions paid to shareholders...................... -- -- (102,395)
-------- -------- ---------
Net cash provided by (used in) financing
activities.................................... (1,677) (2,821) 42,600
-------- -------- ---------
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH............... (914) (211) (2)
-------- -------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS................. 20,842 7,845 2,776
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............. 14,622 6,777 4,001
-------- -------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR.................... $ 35,464 $ 14,622 $ 6,777
======== ======== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest, net of
capitalized interest................................. $ 4,595 $ 5,067 $ 3,874
Cash paid during the year for income taxes.............. 37,079 22,795 23,217
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Application of deposit in land purchase................. $ -- $ -- $ 331
Repayment of related party note receivable.............. -- -- 5,813
See accompanying notes to consolidated financial statements.
25
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
UNEARNED
PORTION OF
RESTRICTED
ACCUMULATED STOCK
COMMON STOCK OTHER ISSUED
---------------------- COMPREHENSIVE FOR
SHARES RETAINED INCOME FUTURE COMPREHENSIVE
OUTSTANDING AMOUNT EARNINGS (LOSS) SERVICES INCOME TOTAL
----------- -------- --------- ------------- ---------- ------------- ---------
BALANCE, JANUARY 1, 1998............ 18,792 $ 17,886 $ 101,805 $(3,806) $(5,350) $ 110,535
Comprehensive income
Net income........................ 32,744 $32,744 32,744
Other comprehensive income
Foreign currency translation
adjustment.................... 328 328 328
-------
Comprehensive income................ $33,072
=======
Initial public offering, net of
expenses.......................... 6,440 106,850 106,850
Exercise of employee stock
options........................... 35 366 366
Tax benefit from stock plans........ (112) (112)
Distribution to shareholders........ (102,267) (102,267)
Amortization of unearned
compensation...................... 970 970
------ -------- --------- ------- ------- ---------
BALANCE, DECEMBER 31, 1998.......... 25,267 124,990 32,282 (3,478) (4,380) 149,414
Comprehensive income
Net income........................ 33,008 $33,008 33,008
Other comprehensive income
Foreign currency translation
adjustment.................... (365) (365) (365)
Unrealized gain on derivative
transactions.................. 73 73 73
-------
Comprehensive income................ $32,716
=======
Exercise of employee stock
options........................... 61 596 596
Tax benefit from stock plans........ 399 399
Employee stock purchase program..... 22 280 280
Amortization of unearned
compensation...................... 970 970
------ -------- --------- ------- ------- ---------
BALANCE, DECEMBER 31, 1999.......... 25,350 126,265 65,290 (3,770) (3,410) 184,375
Comprehensive income
Net income........................ 58,611 $58,611 58,611
Other comprehensive income
Foreign currency translation
adjustment.................... (1,127) (1,127) (1,127)
Unrealized loss on derivative
transactions (net of tax
benefit, $592)................ (1,023) (1,023) (1,023)
-------
Comprehensive income................ $56,461
=======
Exercise of employee stock
options........................... 333 4,240 4,240
Tax benefit from stock plans........ 2,586 2,586
Employee stock purchase program..... 26 645 645
Amortization of unearned
compensation...................... 682 682
------ -------- --------- ------- ------- ---------
BALANCE, DECEMBER 31, 2000.......... 25,709 $133,736 $ 123,901 $(5,920) $(2,728) $ 248,989
====== ======== ========= ======= ======= =========
See accompanying notes to consolidated financial statements.
26
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 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,
including outerwear, sportswear, footwear, and related accessories.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation:
The consolidated financial statements include the accounts of Columbia
Sportswear Co. ("CSC") and all wholly-owned subsidiaries, including GTS Inc.
("GTS"), Columbia Sportswear Canada Ltd. ("CSCL"), Columbia Sportswear Holdings,
Ltd. ("CSHL"), Columbia Sportswear Japan Ltd. ("CSC Japan"), Columbia Sportswear
Germany GmbH ("CSC Germany"), Columbia Sportswear France SNC. ("CSC France"),
Columbia Sportswear Company Ltd. ("CSC United Kingdom"), Columbia Sportswear
Korea ("CSC Korea") and Sorel Corporation ("Sorel") (collectively, the
"Company"). All significant intercompany balances and transactions have been
eliminated.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America 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 these
estimates and assumptions.
Certain reclassifications of amounts reported in the prior period financial
statements have been made to conform to classifications used in the current
period financial statements.
Revenue Recognition:
Revenue for wholesale operations and licensing is recognized at the time
the merchandise is shipped to customers. Retail store revenue is recognized at
the time of sale. Allowances for estimated returns are provided when sales are
recorded.
Cash and cash equivalents:
Cash and cash equivalents represent cash and short-term, highly liquid
investments with maturities of three months or less at date of acquisition.
Accounts receivable:
Accounts receivable have been reduced by an allowance for doubtful
accounts, which was $5,826,000 and $4,535,000 in 2000 and 1999, respectively.
The net charges to this reserve was $3,563,000, $3,177,000, $2,643,000 in 2000,
1999, and 1998, respectively.
Inventories:
Inventories are carried at the lower of cost or market. Cost is determined
using the first-in, first-out method.
Property, plant, and equipment:
Property, plant, and equipment are stated at cost. Depreciation of
machinery and equipment, furniture and fixtures and amortization of leasehold
improvements is provided using the straight-line method over the
27
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
estimated useful lives of the assets, ranging from 3 to 10 years. Buildings are
depreciated using the straight-line method over 30 years.
Intangibles and other assets:
In September 2000, the Company acquired the Sorel trademark rights,
associated brand names and other related intellectual property rights for
$7,967,000 in cash. The acquired intangible assets are being amortized over
their estimated useful lives on a straight-line basis over ten years. The
related accumulated amortization was $199,000 at December 31, 2000.
Goodwill is being amortized on a straight-line basis over eight years.
Goodwill of $660,000 and $979,000, net of accumulated amortization of $345,000
and $1,917,000, is included in intangibles and other assets for 2000 and 1999,
respectively.
Impairment of long-lived and intangible assets:
The Company evaluates the carrying value of long-lived assets for possible
impairment as events or changes arise indicating that such assets should be
reviewed. If an asset is determined to be impaired, the loss is measured as the
amount by which the carrying value of the asset exceeds its fair value. Fair
value is based on the best information available, including prices for similar
assets or the results of valuation techniques. The Company has determined that
its long-lived assets as of December 31, 2000 and 1999 are not impaired.
Income taxes:
Deferred income taxes are provided to recognize the effect of temporary
differences between tax and financial statement reporting.
Prior to its initial public offering of common stock on April 1, 1998, the
Company elected to be treated as an "S" corporation under provisions of the
Internal Revenue Code of 1986. Accordingly, payment of federal and most state
taxes on income earned in the United States was the responsibility of the
shareholders rather than the Company.
Just prior to the initial public offering, the Company terminated its "S"
corporation status. The Company retained the tax basis of the assets and
liabilities of the "S" corporation as of the termination date and recorded
deferred income taxes of approximately $2,000,000 for the income tax effect of
cumulative temporary differences.
In connection with the offerings and the termination of the Company's "S"
corporation status, the Company entered into a tax indemnification agreement
with each of its shareholders, including Gertrude Boyle, Timothy P. Boyle, Sarah
Bany, Don 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 the determination.
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. The foreign currency
translation
28
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
adjustments are included as a separate component of shareholders' equity and are
not currently adjusted for income taxes as they relate to indefinite net
investments in non-U.S. operations.
Fair value of financial instruments:
Based on borrowing rates currently available to the Company for bank loans
with similar terms and maturities, the fair value of the Company's long-term
debt approximates the carrying value. Furthermore, the carrying value of all
other financial instruments potentially subject to valuation risk (principally
consisting of cash and cash equivalents, accounts receivable and accounts
payable) also approximate fair value because of their short-term maturities.
Advertising costs:
Advertising costs are expensed as incurred. Advertising expense was
$27,343,000, $20,725,000, and $18,666,000 for the years ended December 31, 2000,
1999, and 1998, respectively.
Product warranty:
Substantially all of the Company's products carry lifetime warranty
provisions for defects in quality and workmanship. Warranty expense was
approximately $3,325,000, $3,127,000, and $2,852,000 for the years ended
December 31, 2000, 1999 and 1998, respectively.
Recent Accounting Pronouncements
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin (SAB) No. 101, "Revenue Recognition in Financial
Statements." The effective date of the bulletin was delayed by the issuance of
SAB No. 101A and SAB No. 101B and was effective for the Company's fourth quarter
of fiscal year 2000. The adoption of this bulletin did not have a material
effect on the Company's consolidated financial statements.
NOTE 3 -- INVENTORIES, NET
Inventories consist of the following (in thousands):
DECEMBER 31,
-------------------
2000 1999
-------- -------
Raw materials............................................... $ 4,298 $ 3,459
Work in process............................................. 9,217 9,197
Finished goods.............................................. 94,828 76,406
-------- -------
108,343 89,062
Less inventory valuation allowance.......................... (3,055) (2,597)
-------- -------
$105,288 $86,465
======== =======
29
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment consist of the following (in thousands):
DECEMBER 31,
--------------------
2000 1999
-------- --------
Land........................................................ $ 5,766 $ 4,740
Buildings................................................... 30,589 25,432
Machinery and equipment..................................... 61,642 59,078
Furniture and fixtures...................................... 6,624 6,751
Leasehold improvements...................................... 11,329 10,720
Construction in progress.................................... 9,034 444
-------- --------
124,984 107,165
Less accumulated depreciation............................... 48,322 38,205
-------- --------
$ 76,662 $ 68,960
======== ========
NOTE 5 -- SHORT TERM BORROWINGS AND CREDIT LINES
The Company has available an unsecured operating line of credit providing
for borrowings in an aggregate amount not to exceed at any time outstanding (1)
$50,000,000 during the period of July 15 through December 15 of the calendar
year, (2) $25,000,000 during the period of December 16 through February 15 of
the calendar year and (3) $10,000,000 at all other times. The maturity date of
this agreement is June 30, 2002. Interest, payable monthly, is computed at the
bank's prime rate minus up to 2.05% per annum, representing an effective
interest rate of 7.50% at December 31, 2000 and 6.50% at December 31, 1999. The
agreement also includes a fixed rate option based on the LIBOR rate plus up to
65 basis points. The balance outstanding was $0 and $9,145,000 at December 31,
2000 and 1999, respectively. The unsecured operating line of credit requires the
Company to comply with certain covenants including a Capital Ratio, which limits
indebtedness to tangible net worth. If the Company defaults on its payments, it
is prohibited, subject to certain exceptions, from making dividend payments or
other distributions.
The Company also has available an unsecured revolving line of credit of
$25,000,000 with a $75,000,000 import line of credit to issue documentary
letters of credit on a sight basis. The combined limit under this agreement is
$100,000,000. 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 45 basis points. There was no balance outstanding on
this line as of December 31, 2000 and 1999.
The Company is party to certain Buying Agency Agreements pursuant to which
the Company is provided unsecured lines of credit. These lines of credit are
used to finance the purchase of goods outside the U.S. which are produced by the
Company's independent manufacturers. The available funds are limited to
$156,680,000 with a sublimit of $72,677,000 on the import line of credit.
Borrowings bear interest at a range of .35% to .75% above the LIBOR rate (LIBOR
rate: 6.4% and 6.0% as of December 31, 2000 and 1999, respectively). These
agreements expire in 2001 will automatically renew for three-year terms unless
either party elects otherwise. The balance outstanding on the import line of
credit was $20,525,000 and $15,383,000 at December 31, 2000 and 1999,
respectively, and is included in accounts payable. At December 31, 2000, the
Company had $72,105,000 of firm purchase orders placed under these financing
arrangements.
CSCL has available a line of credit providing for borrowing to a maximum of
C$19,650,000 (US$13,110,000 at December 31, 2000). As of December 31, 2000 and
1999, there was no balance outstanding on this line.
30
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company's European branch has a line of credit providing for borrowing
to a maximum of 90,000,000 FRF (US$12,930,000 at December 31, 2000). The balance
outstanding was $11,463,000 and $8,039,000, at an interest rate of 5.7% and 3.3%
at December 31, 2000 and 1999, respectively.
The Company's Japanese subsidiary also has a line of credit providing for
borrowing to a maximum of 1,650,000,000 JPY (US$14,429,000 at December 31,
2000). The balance outstanding was $12,524,000 and $14,492,000, at an interest
rate of 2.3% and 1.9%, at December 31, 2000 and 1999, respectively.
NOTE 6 -- ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
DECEMBER 31,
------------------
2000 1999
------- -------
Accrued salaries, bonus, vacation and other benefits........ $14,910 $ 9,960
Accrued warranty reserve.................................... 5,780 4,200
Other....................................................... 7,604 7,071
------- -------
$28,294 $21,231
======= =======
NOTE 7 -- LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
DECEMBER 31,
------------------
2000 1999
------- -------
Mortgage note payable....................................... $ 1,308 $ 1,917
Senior promissory notes payable............................. 25,000 25,000
Less current portion........................................ (308) (252)
------- -------
$26,000 $26,665
======= =======
The Company assumed a mortgage in connection with the acquisition of a
domestic distribution center. The loan matures in October 2004 and bears
interest at 8.76%.
In connection with capital projects, the Company entered into a note
purchase agreement. Pursuant to the note purchase agreement, the Company issued
senior promissory notes in the aggregate principal amount of $25 million,
bearing an interest rate of 6.68% and maturing August 11, 2008. Proceeds from
the notes were used to finance the expansion of the Company's distribution
center in Portland, Oregon. Up to an additional $15 million in shelf notes may
be issued under the note purchase agreement. The Senior Promissory Notes require
the Company to comply with certain ratios related to indebtedness to earnings
before interest, taxes, depreciation and amortization ("EBITDA") and tangible
net worth.
Principal payments due on these notes as of December 31, 2000 were as
follows (in thousands):
YEAR ENDING DECEMBER 31,
------------------------
2001................................... $ 308
2002................................... 3,907
2003................................... 3,937
2004................................... 3,869
2005................................... 3,571
Thereafter............................. 10,716
-------
$26,308
=======
31
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8 -- SHAREHOLDERS' EQUITY
The Company is authorized to issue 50,000,000 shares of common stock. At
December 31, 2000 and 1999, 25,709,447 and 25,350,307 shares of common stock
were issued and outstanding.
On June 9, 1999, the shareholders of the Company approved the 1999 Employee
Stock Purchase Plan ("ESPP"). 500,000 shares of common stock are authorized for
issuance under the ESPP, which allows qualified employees of the Company to
purchase shares on a quarterly basis up to fifteen percent of their respective
compensation. The purchase price of the shares is equal to eighty five percent
of the lesser of the closing price of the Company's common stock on the first or
last trading day of the respective quarter. As of December 31, 2000 and 1999,
48,083 and 21,582 shares of common stock had been issued under the ESPP.
NOTE 9 -- INCOME TAXES
The Company applies an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in the Company's financial
statements or tax returns. In estimating future tax consequences, the Company
generally considers all expected future events other than enactment of changes
in the tax laws or rates. Deferred taxes are provided for temporary differences
between assets and liabilities for financial reporting purposes and for income
tax purposes. Valuation allowances are recorded against net deferred tax assets
when it is more likely than not the asset will not be realized. Certain foreign
tax benefits have been offset by valuation allowances related to net operating
losses.
Undistributed earnings of the Company's Canadian subsidiary amounted to
approximately $7,300,000 on December 31, 2000. Upon distribution of those
earnings in the form of dividends or otherwise, a portion would be subject to
both U.S. income taxes and foreign withholding taxes. It is anticipated that the
U.S. income taxes and foreign withholding taxes would be substantially offset by
the corresponding foreign tax credits resulting from such a distribution.
The Company's income taxes payable for federal and state purposes have been
reduced and the current tax expense increased, by the tax benefits associated
with dispositions of employee stock options. The Company receives an income tax
benefit calculated as the difference between the fair market value of the stock
issued at the time of exercise and the option price, tax effected. These
benefits were credited directly to shareholders' equity.
The components of the provision for income taxes consists of the following
(in thousands):
YEAR ENDED DECEMBER 31
-----------------------------
2000 1999 1998
------- ------- -------
Current:
Federal............................................. $25,809 $17,764 $17,594
State and local..................................... 4,038 3,308 3,066
Non-U.S............................................. 6,773 4,189 3,103
------- ------- -------
36,620 25,261 23,763
Deferred:
Federal............................................. (2,172) (1,745) (4,262)
State and local..................................... (158) (599) (522)
Non-U.S............................................. (746) (682) --
------- ------- -------
(3,076) (3,026) (4,784)
------- ------- -------
Income tax expense.................................... $33,544 $22,235 $18,979
======= ======= =======
32
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following is a reconciliation of the normal expected statutory federal
income tax rate to the effective rate reported in the financial statements:
YEAR ENDED DECEMBER 31
-----------------------
2000 1999 1998
----- ----- -----
(PERCENT OF INCOME)
Provision for federal income taxes at the statutory rate.... 35.0% 35.0% 35.0%
State and local income taxes, net of federal benefit........ 3.0 3.4 3.7
Non-U.S. income taxed at different rates.................... 1.5 1.7 1.5
Foreign tax credits......................................... (2.8) -- (4.1)
Other....................................................... (0.3) 0.1 0.6
---- ---- ----
Actual provision for income taxes........................... 36.4% 40.2% 36.7%
==== ==== ====
Significant components of the Company's deferred taxes are as follows (in
thousands):
YEAR ENDED
DECEMBER 31
-----------------
2000 1999
------- ------
Deferred tax assets:
Nondeductible accruals and allowances..................... $ 9,445 $8,624
Capitalized inventory costs............................... 3,902 3,198
------- ------
13,347 11,822
Deferred tax liabilities:
Depreciation and amortization............................. (1,654) (2,682)
Deferred compensation..................................... (1,047) (1,330)
Other, net................................................ 240 --
------- ------
(2,461) (4,012)
------- ------
Total....................................................... $10,886 $7,810
======= ======
NOTE 10 -- PROFIT SHARING PLAN
The Company has a 401(k) profit-sharing plan, which covers substantially
all employees with more than ninety days 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 $2,106,000,
$1,860,000, and $1,666,000 for the years ended December 31, 2000, 1999, and
1998, respectively.
NOTE 11 -- 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. As of December 31, 2000, of the converted shares, 313,111 shares
of common stock awarded were subject to vesting through December 2004.
33
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The total value of the share conversion was $15,693,000, of which
$6,320,000 was unvested as of December 31, 1996. The unvested portion was
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
$682,000, $970,000, and $970,000 for the years ended December 31, 2000, 1999,
and 1998, respectively.
NOTE 12 -- COMMITMENTS AND CONTINGENCIES
The Company leases certain operating facilities from related parties of the
Company. Total rent expense, including month-to-month rentals, for these leases
amounted to $408,000, $339,000 and $327,000 for the years ended December 31,
2000, 1999 and 1998, respectively.
Rent expense was $2,464,000, $2,303,000 and $2,123,000 for non-related
party leases during the years ended December 31, 2000, 1999 and 1998,
respectively.
The approximate future minimum payments on all lease obligations at
December 31, 2000 are as follows (amounts in thousands):
NON-RELATED RELATED
PARTIES PARTIES TOTAL
----------- ------- -------
2001.................................................. $ 3,718 $ 476 $ 4,194
2002.................................................. 3,059 485 3,544
2003.................................................. 1,497 239 1,736
2004.................................................. 1,340 -- 1,340
2005.................................................. 1,016 -- 1,016
Thereafter............................................ 1,650 -- 1,650
------- ------ -------
$12,280 $1,200 $13,480
======= ====== =======
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.
NOTE 13 -- STOCK INCENTIVE PLAN
The Company's 1997 Stock Incentive Plan (the "Plan") provides for issuance
of up to 2,500,000 shares of the Company's Common Stock of which 487,530 shares
were available for future stock option grants under the Plan at December 31,
2000. The options generally become exercisable ratably over a five-year period
beginning from the date of grant and expire ten years from the date of grant.
34
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes the stock option activity under the
Company's option plan:
WEIGHTED
AVERAGE
NUMBER EXERCISE
OF SHARES PRICE
--------- --------
Options outstanding at January 1, 1998...................... 736,774 $10.40
Granted................................................... 465,500 19.63
Cancelled................................................. (17,283) 9.68
Exercised................................................. (35,038) 10.45
---------
Options outstanding at December 31, 1998.................... 1,149,953 14.15
Granted................................................... 302,933 12.44
Cancelled................................................. (69,866) 13.46
Exercised................................................. (61,511) 9.70
---------
Options outstanding at December 31, 1999.................... 1,321,509 14.00
Granted................................................... 685,616 22.55
Cancelled................................................. (91,204) 16.21
Exercised................................................. (332,639) 12.75
---------
Options outstanding at December 31, 2000.................... 1,583,282 $17.84
=========
The Company continues to measure compensation cost for the Plan 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 the Statement of Financial
Accounting Standards ("SFAS") No. 123 "Accounting for Stock-based Compensation",
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 2000, 1999 and 1998 using the Black-Scholes option
pricing model as prescribed by SFAS No. 123 using the following weighted average
assumptions:
2000 1999 1998
------------ ------------ ------------
Risk-free interest rate..................... 5.66 - 6.72% 5.04 - 6.20% 5.71 - 5.77%
Expected dividend yield..................... 0% 0% 0%
Expected lives.............................. 4 to 8 years 4 to 8 years 4 to 8 years
Expected volatility......................... 67.15% 66.80% 51.36%
Using the Black-Scholes methodology, the total value of stock options
granted during 2000, 1999 and 1998 was $10,163,000, $2,417,000 and $5,040,000,
respectively, 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
2000, 1999 and 1998 was $14.82, $7.98 and $10.83 per share, respectively.
35
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 (in thousands, except per share amounts):
2000 1999 1998
---------------------- ---------------------- ----------------------
AS REPORTED PROFORMA AS REPORTED PROFORMA AS REPORTED PROFORMA
----------- -------- ----------- -------- ----------- --------
Net income......................... $58,611 $56,435 $33,008 $31,878 $32,744 $32,030
Net income per share -- basic...... $ 2.28 $ 2.20 $ 1.30 $ 1.26 $ 1.38 $ 1.35
Net income per share -- diluted.... $ 2.22 $ 2.14 $ 1.29 $ 1.24 $ 1.36 $ 1.33
The effects of applying SFAS No. 123 in this pro forma disclosure are not
indicative of future amounts.
The following table summarizes information about stock options outstanding
at December 31, 2000:
OPTIONS OUTSTANDING
------------------------------------------------- OPTIONS EXERCISABLE
WEIGHTED AVERAGE ------------------------------
REMAINING NUMBER OF
RANGE OF NUMBER CONTRACTUAL WEIGHTED AVERAGE SHARES WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING LIFE (YRS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
- --------------- ----------- ---------------- ---------------- ----------- ----------------
$9.68 - 14.50.. 516,838 7.12 $10.93 212,441 $10.53
$15.20 - 19.63.. 712,680 8.02 18.64 230,175 18.77
$23.56 - 27.19.. 343,014 9.40 26.07 32,119 25.79
$34.06 - 43.31.. 10,750 9.87 34.71 24 43.31
- -------------- --------- ---- ------ ------- ------
$9.68 - 43.31.. 1,583,282 8.04 $17.84 474,759 $15.56
NOTE 14 -- SEGMENT INFORMATION
The Company operates predominantly in one industry segment: the design,
production, marketing and selling of active outdoor apparel, including
outerwear, sportswear, rugged footwear and related accessories.
The geographic distribution of the Company's net sales, income before
income tax, identifiable assets, interest expense, and depreciation and
amortization expense are summarized in the following table (in thousands) for
the years ended December 31, 2000, 1999 and 1998. Inter-geographic net sales,
which are recorded at a negotiated mark-up and eliminated in consolidation, are
not material.
2000 1999 1998
-------- -------- --------
Net sales to unrelated entities:
United States............................................ $438,854 $341,583 $335,897
Canada................................................... 63,117 50,428 38,782
Other International...................................... 112,854 78,492 52,599
-------- -------- --------
$614,825 $470,503 $427,278
======== ======== ========
Income (loss) before income tax:
United States............................................ $ 77,296 $ 50,014 $ 50,132
Canada................................................... 11,977 8,074 7,370
Other International...................................... 5,371 3,887 (189)
Less interest and other income (expense) and
eliminations.......................................... (2,489) (6,732) (5,590)
-------- -------- --------
$ 92,155 $ 55,243 $ 51,723
======== ======== ========
36
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2000 1999 1998
-------- -------- --------
Assets:
United States............................................ $351,270 $274,222 $247,125
Canada................................................... 31,645 24,905 16,696
Other international...................................... 56,059 45,254 33,571
-------- -------- --------
Total identifiable assets................................ 438,974 344,381 297,392
Eliminations............................................. (63,888) (39,391) (27,914)
-------- -------- --------
Total assets..................................... $375,086 $304,990 $269,478
======== ======== ========
Interest expense (income), net:
United States............................................ $ 3,311 $ 4,098 $ 3,340
Canada................................................... 565 305 753
Other International...................................... 362 419 (18)
-------- -------- --------
$ 4,238 $ 4,822 $ 4,075
======== ======== ========
Depreciation and amortization expense:
United States............................................ $ 12,384 $ 11,709 $ 6,934
Canada................................................... 376 400 392
Other International...................................... 888 495 315
-------- -------- --------
$ 13,648 $ 12,604 $ 7,641
======== ======== ========
NOTE 15 -- NET INCOME PER SHARE
SFAS No. 128, "Earnings Per Share" requires dual presentation of basic and
diluted earnings per share ("EPS"). Basic EPS is based on the weighted average
number of common shares outstanding. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock.
There were no adjustments to net income in computing diluted earnings per
share for the year ended December 31, 2000, 1999 and 1998. A reconciliation of
the common shares used in the denominator for computing basic and diluted net
income per share is as follows (in thousands, except per share amounts):
YEAR ENDED DECEMBER 31,
-----------------------------
2000 1999 1998
------- ------- -------
Weighted average common shares outstanding, used in
computing basic net income per share...................... 25,694 25,331 23,731
Effect of dilutive stock options............................ 711 277 327
------- ------- -------
Weighted-average common shares outstanding, used in
computing diluted net income per share.................... 26,405 25,608 24,058
======= ======= =======
Net income per share of common stock:
Basic..................................................... $ 2.28 $ 1.30 $ 1.38
Diluted................................................... $ 2.22 $ 1.29 $ 1.36
NOTE 16 -- FINANCIAL RISK MANAGEMENT AND DERIVATIVES
Our foreign currency risk management objective is to protect cash flows
resulting from sales, purchases and other costs from the impact of exchange rate
movements. The Company manages a portion of these exposures with short-term
strategies after giving consideration to market conditions, contractual
agreements, anticipated sale and purchase transactions, and other factors.
Firmly committed and anticipated transactions and the related receivables and
payables may be hedged with forward exchange contracts or purchased options.
Premiums paid on purchased options are included in prepaid expenses and are
recognized in earnings
37
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
ratably over the life of the option. Gains and losses arising from foreign
currency forward and purchased option contracts, and cross-currency swap
transactions are recognized in cost of goods sold or selling, general and
administrative expenses as offsets of gains and losses resulting from the
underlying hedged transactions. Hedge effectiveness is determined by evaluating
whether gains and losses on hedges will offset gains and losses on the
underlying exposures. This evaluation is performed at inception of the hedge and
periodically over the life of the hedge.
At December 31, 2000 and 1999, the Company had approximately $47,201,000
and $29,500,000 (notional) in forward exchange contracts. The net derivative
losses included in the company's liabilities and deferred in other comprehensive
income was $1,615,000 and $73,000 at December 31, 2000 and 1999, respectively.
The counterparties to derivative transactions are major financial
institutions with high investment grade credit ratings. However, this does not
eliminate the Company's exposure to credit risk with these institutions. This
credit risk is generally limited to the unrealized gains in such contracts
should any of these counterparties fail to perform as contracted and is
immaterial to any one institution at December 31, 2000 and 1999. To manage this
risk, the Company has established strict counterparty credit guidelines, which
are continually monitored and reported to Senior Management according to
prescribed guidelines. As a result, the Company considers the risk of
counterparty default to be minimal.
SUPPLEMENTAL INFORMATION -- QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table summarizes the Company's quarterly financial data for
the past two years ending December 31, 2000 (in thousands, except per share
amounts):
FIRST QUARTER SECOND QUARTER THIRD QUARTER FOURTH QUARTER
------------- -------------- ------------- --------------
2000
Net sales................................... $108,437 $97,155 $247,346 $161,887
Gross profit................................ 46,538 43,729 116,167 73,702
Net income.................................. 3,272 3,618 38,218 13,503
Net income per share -- basic............... 0.13 0.14 1.49 0.53
-- diluted............. 0.13 0.14 1.44 0.51
1999
Net sales................................... $ 89,214 $71,416 $187,568 $122,305
Gross profit................................ 32,614 31,300 89,471 57,509
Net income (loss)........................... 240 (238) 23,891 9,115
Net income (loss) per share -- basic........ 0.01 (0.01) 0.94 0.36
-- diluted...... 0.01 (0.01) 0.93 0.35
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information with respect to our directors is hereby incorporated by
reference from our proxy statement, under the caption "Election of Directors,"
for our 2001 annual meeting of shareholders (the "2001 Proxy Statement") to be
filed pursuant to Regulation 14A promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, which proxy statement is
anticipated to be filed no later than 120 days after the end of our fiscal year
ended December 31, 2000. Information with respect to executive officers is
included under Item 4(a) of Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
There is incorporated herein by reference the information required by this
Item included in the 2001 Proxy Statement under the caption "Executive
Compensation" which will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year ended December 31, 2000.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is incorporated herein by reference the information required by this
Item included in the 2001 Proxy Statement under the caption "Voting Securities
and Principal Shareholders" which will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the fiscal year ended
December 31, 2000.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
There is incorporated herein by reference the information required by this
Item included in the 2001 Proxy Statement under the caption "Certain
Relationships and Related Transactions" which will be filed with the Securities
and Exchange Commission no later than 120 days after the close of the fiscal
year ended December 31, 2000.
39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (a)(2) Financial Statements. The Financial Statements of the Company
filed as part of this Annual Report on Form 10-K are on pages 22 to 38 of this
Annual Report.
(a)(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
------- -----------
3.1 Third Amended and Restated Articles of Incorporation
(incorporated by reference to exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000)
3.2 2000 Restated Bylaws (incorporated by reference to exhibit
3.2 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 2000)
4.1 See Article II of Exhibit 3.1 and Article I of Exhibit 3.2
+10.1 1997 Stock Incentive Plan, as amended (incorporated by
reference to exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended March 31, 1998)
+*10.2 Form of Incentive Stock Option Agreement
+*10.3 Form of Nonstatutory Stock Option Agreement
+10.3(a) Form of Executive Stock Option Agreement
*10.4 Credit Agreement between the Hong Kong and Shanghai Banking
Corporation Limited and the Company dated September 17,
1991, as amended
*10.5 Buying Agency Agreement between Nissho Iwai American
Corporation and the Company dated January 1, 1992, as
amended
*10.5(a) Amendment No. 2 to the Buying Agency Agreement Between
Nissho Iwai American Corporation and the Company dated
February 19, 1998
*10.5(b) Buying Agency Agreement between the Company and Nissho Iwai
American Corporation dated October 1, 1998 (incorporated by
reference in exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30,
1998).
*10.6 Credit Agreement between the Company and Wells Fargo Bank,
N.A. dated July 31, 1997
*10.6(a) Form of First Amendment to Credit Agreement between the
Company and Wells Fargo Bank, N.A. dated March 23, 1998
10.6(b) Credit Agreement Extension between the Company and Wells
Fargo Bank National Association dated June 30, 1998
(incorporated by reference to exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998).
10.6(c) Second Amendment to Credit Agreement between the Company and
Wells Fargo Bank National Association dated July 31, 1998
(incorporated by reference to exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998).
10.6(d) Third Amendment to Credit Agreement between the Company and
Wells Fargo Bank National Association dated June 30, 1999
(incorporated by reference to exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1999).
10.6(e) Fourth Amendment to Credit Agreement dated July 31, 2000
between the Company and Wells Fargo Bank, National
Association (incorporated by reference to exhibit 10.1 to
the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2000).
*10.7 Assumption Agreement by and between the Company, Timothy P.
Boyle and Don Santorufo and First Interstate Bank of Oregon,
N.A., dated March 8, 1996; and form of First Amendment
thereto dated March 23, 1998
40
EXHIBIT
NUMBER DESCRIPTION
------- -----------
*10.8 Lease between Penzel & Company and the Company dated
February 23, 1988, as amended
*10.9 Form of lease between Timothy P. Boyle and Gertrude Boyle
and the Registrant
*10.10 Form of Lease between Gertrude Boyle and the Company
*10.11 Lease between BB&S Development Company and the Company,
dated February 12, 1996
*10.12 Lease between B.A.R.K. Holdings, Inc. and Columbia
Sportswear Canada Limited, dated January 3, 1994
+*10.13 Deferred Compensation Conversion Agreement between the
Company and Don Santorufo, dated December 31, 1996
*10.14 Form of Tax Indemnification Agreement for existing
shareholders
+*10.15 Employment Agreement between Carl K. Davis and the Company
dated as of September 5, 1997
*10.16 Form of Indemnity Agreement for Directors
*10.17 Form of Agreement Regarding Plan of Recapitalization Among
the Company and Shareholders
+*10.18 Amendment and Waiver, Deferred Compensation Conversion
Agreement, between the Company and Don Santorufo
*10.19 Asset Purchase Agreement between the Company and Columbia
Outfitters, Inc., dated March 4, 1998
10.20 Note Purchase and Private Shelf Agreement between the
Company and The Prudential Insurance Company of America and
Pruco Life Insurance Company dated August 11, 1998
(incorporated by reference to exhibit 10.3 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 1998)
+10.21 1999 Employee Stock Purchase Plan (incorporated by reference
to exhibit 10.2 to the Company's Quarterly Report on Form
10-Q for the quarterly period ended June 30, 1999)
+10.22 Executive Incentive Compensation Plan, as amended
(incorporated by reference to exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2000)
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
24.1 Powers of Attorney
- ---------------
+ Management Contract or Compensatory Plan
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 333-43199).
(b) No reports on Form 8-K were held during the last quarter of the period
covered by this report.
41
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of March 28, 2001.
COLUMBIA SPORTSWEAR COMPANY
By: /s/ PATRICK D. ANDERSON
------------------------------------
Patrick D. Anderson
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities indicated as of March 28, 2001.
SIGNATURES TITLE
---------- -----
/s/ *TIMOTHY P. BOYLE President and Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Timothy P. Boyle
/s/ PATRICK D. ANDERSON Chief Financial Officer (Principal Financial
- ----------------------------------------------------- and Accounting Officer)
Patrick D. Anderson
/s/ *GERTRUDE BOYLE Chairman of the Board of Directors
- -----------------------------------------------------
Gertrude Boyle
/s/ *SARAH BANY Director
- -----------------------------------------------------
Sarah Bany
/s/ *EDWARD S. GEORGE Director
- -----------------------------------------------------
Edward S. George
/s/ *MURREY R. ALBERS Director
- -----------------------------------------------------
Murrey R. Albers
/s/ *JOHN STANTON Director
- -----------------------------------------------------
John Stanton
/s/ *WALTER KLENZ Director
- -----------------------------------------------------
Walter Klenz
*By: /s/ PATRICK D. ANDERSON
------------------------------------------------
Patrick D. Anderson
as Attorney-in-Fact
42