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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- --- SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
-------------------------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
COLUMBIA SPORTSWEAR COMPANY
(Exact name of registrant as specified in its charter)
Oregon 0-23939 93-0498284
- --------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification Number)
6600 North Baltimore Portland, Oregon 97203
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 286-3676
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 [ ].
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of February 28, 1999, was $76,634,000 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, 1999, was
25,282,208.
Part III is incorporated by reference from the Registrant's Proxy Statement for
its 1999 Annual Meeting of Shareholders to be filed with the Commission within
120 days of December 31, 1998.
COLUMBIA SPORTSWEAR COMPANY
DECEMBER 31, 1998
TABLE OF CONTENTS
Item Page
PART I
Item 1. Business............................................................ 2
Item 2. Properties.......................................................... 9
Item 3. Legal Proceedings...................................................10
Item 4. Submission of Matters to a Vote of Security Holders.................10
PART II
Item 5. Market for Registrant's Common Equity and Related Matters...........13
Item 6. Selected Financial Data.............................................14
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations...........................................15
Item 8. Financial Statements and Supplemental Data..........................20
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.................................39
PART III
Item 10. Executive Officers and Key Employees of the Company.................40
Item 11. Executive Compensation..............................................40
Item 12. Security Ownership of Certain Beneficial Owners and Management......40
Item 13. Certain Relationships and Related Transactions......................40
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.....41
PART I
ITEM 1. BUSINESS
General
Columbia Sportswear Company ("the Company") designs, manufactures, markets and
distributes active outdoor apparel, including outerwear, sportswear, rugged
footwear, and related accessories. As one of the largest outerwear manufacturers
in the world and the leading seller of skiwear in the United States, the Company
has developed an international reputation across an expanding product line for
quality, performance, functionality and value. The Company believes its
award-winning advertising campaigns effectively position the Columbia brand as
active, outdoor, authentic and distinctly American.
The Company completed an Initial Public Offering (IPO) of 6,440,000 shares
(including an over-allotment option of 840,000 shares) of its Common Stock on
April 1, 1998. Gross proceeds from the IPO (including exercise of the
over-allotment option) 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 which
represented the Company's subchapter "S" accumulated adjustments account as of
the termination date of the Company's "S" corporation election ("Termination
Date") to shareholders of record on March 23, 1998. The remaining proceeds were
used for working capital needs.
Established in 1938 and incorporated under Oregon law in 1961, the family-owned
Company grew from a small, regional hat distributor to a global leader in the
active outdoor apparel industry. The Company has its roots and developed its
initial expertise in the production of high quality, rugged outdoor fishing and
hunting gear for the serious sportsman. Known for durability and dependability
at a reasonable price, the Company leveraged its brand awareness in the 1990s by
expanding into related merchandise categories and developing its "head-to-toe"
outfitting concept. The Columbia brand appeals to a large, increasingly
international consumer base. Today, the Company distributes its products to
approximately 10,000 retailers in 30 countries.
Products
The Company groups its merchandise into four categories--outerwear, sportswear,
rugged footwear and related accessories. The durability, functionality and
affordability of Columbia's products make them ideal for use in a wide range of
outdoor activities, including skiing, snowboarding, hunting, fishing, hiking and
golf, as well as for casual wear. Across all of its product lines, Columbia
brings a commitment to innovative, functional product design and a reputation
for durable, high quality materials and construction. The Company believes its
broad range of competitively priced merchandise offers consumers one of the best
price-value equations in the outdoor apparel industry.
The Company believes its Columbia brand represents a differentiated active,
outdoor, authentic, value-oriented and distinctly American image and designs its
products to reinforce this image. In both the design and production phases, the
Company focuses its efforts on the development of popular, higher volume
products at moderate price points. The Company's 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 Columbia's entire
selection of merchandise.
The following table shows the approximate percentage of sales attributable to
each of the Company's major product categories during the last three fiscal
years.
Products 1998 1997 1996
- -------- ---- ---- ----
Outerwear 60% 62% 66%
Sportswear 28 26 25
Footwear 8 7 4
Accessories 4 5 5
---- ---- ----
Total 100% 100% 100%
==== ==== ====
2
Outerwear
Outerwear is the Company's 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 the Company's jackets incorporate Columbia's revolutionary Interchange
System, which was introduced in 1983 and features a 3- or 4-jackets-in-1 design.
Jackets incorporating the Interchange System typically combine a durable, nylon
outershell with a removable, zip-out liner. The outershell and the liner may be
worn separately or together. This layered ensemble provides the wearer with a
jacket for all seasons and weather conditions at a reasonable price.
The Company's skiwear line with products such as parkas, vests, ski pants, ski
suits, pullovers and sweaters is the best selling brand of skiwear in the United
States. Many of the Company's ski parkas feature the Interchange System. The
Bugaboo Parka, which was an early Columbia skiwear product incorporating this
System, has been the Company's best selling ski parka for over a decade.
Another important component of the outerwear category is Columbia's Convert
brand of snowboard apparel. Columbia was one of the first companies to identify
and react to the rapid emergence of snowboarding as a popular sport, and as a
result the Convert line is now one of the top selling brands of snowboard
apparel in the United States.
Hunting and fishing products constitute one of the Company's oldest product
lines and include apparel for the serious sportsman engaged in a variety of
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 Columbia's reputation as a
leader in this category of outerwear.
The Company's separate line of youth products benefits from the Company's
expertise in its adult lines and enables a Columbia customer to outfit the
entire family in dependable outerwear at a reasonable price.
The Company's growth strategy for outerwear primarily involves expanding the
category in international markets, improving the productivity of its existing
customers and increasing sales to more department store retailers over the
longer term.
Sportswear
Beginning in the latter part of 1993, the Company targeted sportswear as a
growth opportunity. Building on a foundation of authentic fishing and hunting
shirts, the Company rapidly expanded its sportswear product offering, resulting
in sportswear sales increasing to 27.9% of the Company's net sales for 1998.
Columbia's sportswear line is made up of outdoor sportswear, golf apparel, and
GRT. The outdoor sportswear product line, consisting primarily of jeans, chinos,
hiking shorts, water sport trunks, knit shirts, woven shirts, sweats, sweaters
and fleece and pile products, appeals both to the serious outdoorsman and the
more casual wearer who wants to project an outdoor image.
The Company's 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 customer interested in training, trekking and adventure travel, the
Company's GRT line of active outdoor performance apparel offers a line of
lightweight products, many of which incorporate the Company's Omni-Dry system of
moisture management.
Sportswear products are designed to be sold alongside the Company's outerwear
and rugged footwear products as part of a unified "head-to-toe" outfitting
concept. Although the majority of the Company's sportswear sales are to sporting
goods and specialty outdoor stores, department stores are becoming an
increasingly important part of the distribution chain.
3
Rugged Footwear
The Company's newest product category, rugged footwear, was introduced in 1993.
This category consists primarily of active all-weather and performance outdoor
footwear, 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 the Company's net sales has increased from 2.9% in 1994 to 7.5% in
1998. The Company believes the market for rugged footwear remains a substantial
growth opportunity. The Company expects sales growth of its rugged footwear will
be driven primarily by the design and development of new footwear and by
expanding the distribution of rugged footwear within existing U.S. and
international distribution channels.
Accessories
The Company also produces a line of accessories that includes hats, caps,
scarves, gloves, mittens and headbands to complement its outerwear and
sportswear lines.
Advertising, Marketing, and Promotion
The Company's creative and award-winning print and broadcast advertising
campaigns have built brand awareness and have helped to highlight the strengths
of Columbia's products among consumers. The humorous advertisements, which have
received 46 awards in the past eight years, feature Chairman Gertrude Boyle as
an overbearing taskmaster--`one tough mother'--who demands high quality
standards for Columbia products. The advertisements, which often include witty
dialogue between "Mother Boyle" and her son Tim, Columbia's President, remind
consumers of the Company's long history of providing authentic outdoor apparel
with exceptional value and help to create the image of a distinctly American
brand.
The Company plans to improve the productivity of its existing customers by
expanding its concept shops and installing brand enhancement systems. Concept
shops, which promote a consistent brand image, are located within the stores of
the Company's customers and are dedicated exclusively to selling Columbia
merchandise 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. As of December 31,
1998, the Company had installed 310 concept shops worldwide in addition to 2,350
in-store brand enhancement systems.
Inventory Management
From the time of purchasing through production, distribution and delivery, the
Company manages its inventory to reduce risk. A new enterprise management
information system has been implemented to improve business processes. Coupled
with a state-of-the-art warehouse and inventory management system, this system
is expected to further enhance the Company's ability to manage its inventory by
providing detailed inventory status from the time of initial factory order
through shipment to the retailer.
The Company encourages early purchases by its customers to promote inventory
management. Discounts are available for customers who place early orders. In
addition, the Company provides its customers with staggered delivery times
through the spring and fall seasons, which also permits the Company and its
customers to manage inventory effectively and thereby diminish the likelihood of
closeout sales. By matching purchases of inventory to the receipt of customer
orders, the Company believes it is able to reduce the risk of overcommitting to
inventory purchases, thus avoiding significant inventory build-ups. Because
customer orders can be canceled up to 45 days
4
prior to shipment, however, this strategy does not eliminate inventory risk in
the event of significant cancellations of customer orders.
Product Design
Experienced in-house merchandising and design teams, working closely with
internal sales and production teams as well as with retailers and consumers,
produce products that are designed for functionality and durability, instead of
being based primarily on fashion. In fact, many new products are based on
existing designs such as the Bugaboo Parka, a consistent best seller for more
than a decade. By pursuing this strategy, the Company believes it can attract a
wider, value-oriented consumer audience than its more technical or
fashion-oriented competitors.
In addition, the Company's uses of special materials, such as Omni-Tech
(waterproof, breathable) and Bergundtal Cloth (water resistant, wind protection)
substantially enhance the value of the Company's products without adding
significant cost.
Sourcing and Manufacturing
Columbia's apparel is produced worldwide by independent manufacturers selected,
monitored and coordinated by regional Columbia employees to assure conformity to
strict quality standards. The Company believes the use of these independent
manufacturers, whether producing products from materials provided by the Company
or obtained directly by the manufacturer, increases the Company's production
capacity and flexibility and reduces its costs.
The Company maintains 12 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 not only direct sourcing activities, but also
perform other valuable functions including quality control and the monitoring
and coordination of overseas shipments. Final pricing for all orders, however,
is approved by personnel from the Company's U.S. headquarters. The Company
believes Columbia personnel who are focused narrowly on the Company's interests
are more responsive to the Company's needs than independent agents would be and
are more likely to build long-term relationships with key vendors. The
relationships enhance the Company's access to raw materials and factory capacity
at more favorable prices.
For 1998 product sales, approximately 88% (by dollar volume) of the Company's
products were produced outside the United States, principally in the Far East.
Other than its facility for the production of fleece products and headware in
Chaffee, Missouri, the Company does not operate any production facilities. The
Company attempts to monitor its selection of independent factories to ensure
that no one manufacturer or country is responsible for a disproportionate amount
of the Company's merchandise.
The Company believes the use of independent manufacturers, in conjunction with
the use of Columbia sourcing personnel rather than agents, increases its
production flexibility and capacity and allows it to maintain control over
critical aspects of the sourcing process, while at the same time substantially
reducing capital expenditures and avoiding the costs of managing a large
production work force. There are not formal arrangements between the Company and
most of its contractors or suppliers; however, the Company believes its
relationships with its contractors and suppliers are excellent and that its
long-term, reliable and cooperative relationships with many of its vendors
provide it a competitive advantage over other apparel distributors.
Having Columbia employees on-site provides the ability to monitor the factories
in their compliance with Columbia Standards of Manufacturing Practices which
require every factory to comply with a code of conduct relating to factory
working conditions and the treatment of workers used in the production of
Columbia brand products.
Columbia's quality control program is designed to ensure its products meet the
highest quality standards. The Company monitors the quality of its fabrics and
inspects prototypes of each product before production runs are commenced. In
addition, the Company also performs quality control checks throughout the
production process up
5
to and including final shipment to the retailer. The Company believes its
attention to the quality control program is an important and effective means of
maintaining the quality and reputation of its products.
Production of apparel by independent manufacturers is accomplished through one
of two principal arrangements. In the first, the supplier purchases the raw
materials needed to produce the garment from sources approved by Columbia
personnel, at prices and on terms negotiated by that independent supplier. Most
of the Company's merchandise is manufactured under this arrangement. In the
second, sometimes referred to as "cut, make, pack, and quota" and used
principally for production in China, Columbia directly purchases the raw
material, principally fabric, from suppliers, obtains or arranges for any
necessary U.S. import quotas, and ships the materials in a "kit," together with
patterns, samples, and most other necessary items, to the independent
manufacturer that has been selected by Columbia to produce the finished garment.
While this second arrangement advances the timing for inventory purchases and
exposes the Company to certain additional risks before a garment is
manufactured, the Company believes this arrangement further increases its
manufacturing flexibility and frequently provides it with a cost advantage over
other production methods.
Although the Company transacts business on an order-by-order basis without
exclusive commitments or arrangements to purchase from any vendor, it believes
that the good long term relationship with its vendors will 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 its products outside the United States, the Company is
subject to the usual risks of doing business abroad, such as foreign exchange
rate fluctuations, governmental restrictions and political or labor
disturbances. In particular, the Company must continually monitor import
requirements and restrictions and transfer production as necessary to lessen the
potential impact from increased tariffs or quota restrictions which may be
periodically imposed.
The Company has from time to time experienced difficulty in satisfying its raw
material and finished goods requirements, and any such future difficulties could
adversely affect the Company. Slightly over half of the woven synthetic fabric
which is used in the manufacture of many of Columbia's outerwear products is
produced by three major factory groups, one of which accounts for approximately
30% of the total. Another company provides all of the zippers used in Columbia
products. However, in both instances these factory groups have multiple factory
locations, many of which are in different countries.
Sales and Distribution
The Company's products are sold to approximately 10,000 specialty and department
store retailers in the United States, Canada, Asia, Europe, South America,
Australia and New Zealand. The Company believes continued growth will result
from its focus on enhancing the productivity of existing retailers, expanding
distribution in international markets and developing merchandise categories. To
improve the productivity of its existing customers, the Company plans to expand
its concept shop and brand enhancement programs. These programs help create an
environment that is consistent with the Company's image while enabling the
retailer to display and stock a greater volume of the Company's products per
square foot of retail space. By placing these concept shops and brand
enhancement systems in select retail outlets, the Company not only promotes
consumer brand awareness but also encourages longer term commitment by the
retailer to the Company's products.
The Company maintains its strong U.S. brand position, particularly in outerwear,
and intends to continue to capitalize on this image as it expands into high
opportunity markets worldwide. Having already achieved a significant share of
the North American outerwear market, Columbia's strategy for its existing and
new North American customer base is to develop further sales of its sportswear
and rugged footwear. In new markets such as Europe and Asia, Columbia's intent
is to follow the same strategy by establishing relationships with retailers
through its highly visible outerwear line and then introducing its sportswear
and rugged footwear lines into these new markets.
6
The Company believes that over the longer term significant opportunities exist
to increase sales of its products to department stores and footwear specialty
shops. The Company expects to expand its sales to these retailers in part by
attracting new customers and in part by expanding sales to existing retailers.
In 1998, approximately 78% of the Company's U.S. net sales were to specialty
store retailers and 22% were to department store retailers.
During the last three fiscal years, the Company had the following domestic and
international net sales percentages of Columbia product.
1998 1997 1996
----- ----- -----
Net sales to unrelated entities:
United States 78.6% 81.2% 82.1%
Canada 9.1 8.8 9.1
Other international 12.3 10.0 8.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
See Note 15 of Notes to the Consolidated Financial Statements for net sales,
income before income tax and identifiable assets by geographic segment.
North America
Approximately one-half of the worldwide retailers that offer Columbia brand
products are located in the United States and Canada. The sales in these two
countries amounted to 87.7% of the Company's total revenues for 1998. The
Company uses 25 independent sales agencies which employ a total of approximately
80 sales representatives. These sales representatives work with retail accounts
that vary in size from the single specialty store operation to the large chains
made up of many stores in several locations. Of these, J.C. Penney is the
Company's largest customer, representing just over 10 percent of the Company's
net sales in 1998.
Columbia's own 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 the Company with the
ability to test new marketing and merchandising techniques. The Company also
operates eight outlet stores in various locations in North America. These outlet
stores are designed to sell excess inventory without adversely affecting the
Company's retail accounts.
Columbia distributes most of its products to U.S. retailers from its newly
expanded 649,000 square foot Rivergate Distribution Center located in Portland,
Oregon. At this distribution facility, the Company's products are inspected,
sorted, packed and shipped. A small portion of its products are distributed in
the United States from a smaller facility adjacent to its Chaffee, Missouri
manufacturing facility. Canadian distribution is handled by a 66,000 square foot
warehouse in Strathroy, Ontario.
Other International
Managed by a European sales and marketing office in Strasbourg, France, the
Company sells its products to approximately 3,600 European retailers. With the
exception of the United Kingdom, Switzerland and Greece, where the Company sells
through independent distributors, sales in Europe are made directly to the
retailer and distributed from an independent logistics company based in The
Netherlands. Successful marketing and sales efforts, particularly in France,
Spain, The Netherlands and Germany, have resulted in net direct sales of the
Company's products in Europe, increasing from $10.7 million in 1996 to $27.2
million in 1998.
The Company has distributed its products in Japan since the mid-1970s and sells
its merchandise to approximately 500 Japanese retailers. In the fall of 1998,
the Company began distributing its products directly in Japan, which the Company
believes will create the opportunity for acceleration of sales there. In 1997
the Company also began selling its products in South Korea. Sales and marketing
efforts in Asia are directed by Company offices in Tokyo and Seoul. The Company
believes that these countries represent significant growth opportunities in the
future.
7
In several other countries throughout the world, Columbia sells its products to
independent exclusive distributors. These distributors service retail customers
in locations such as Australia, New Zealand, South America, Eastern Europe and
Russia. New distributors also offer Columbia products in Mexico, Norway and
Turkey.
Present plans call for the Company to work to improve these existing
international distributors. Over the longer term, the Company believes
international sales to some of its existing countries could be made directly and
possible additional countries could be added to the worldwide distribution
network.
Intellectual Property
The Company owns trademarks for many of its products, including "Columbia,"
"Columbia Sportswear Company," "Convert," "Bugaboo," "Bugabootoo," "Silent Rain"
and "Interchange." The 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. The Company believes that its trademarks are of
great value, providing the consumer with an assurance that the product being
purchased is high quality apparel at a good value. The Company also places
significant value on trade dress (the overall appearance and image of its
products) which, as much as trademarks, distinguishes Columbia's products in the
marketplace. Columbia is very protective of these proprietary rights and will
pursue action as necessary to prevent counterfeit reproductions or infringing
activity. In the past the Company has successfully resolved conflicts over
proprietary rights through legal action and negotiated settlements. As the
Company expands both in market share and geographic scope, trademark or trade
dress disputes are anticipated to increase as well, making it more difficult to
discover and prevent all possible infringements.
Management Information System
In order to achieve its overall growth strategy, the Company is replacing its
current management information system with an enterprise system that integrates
EDI and inventory management capabilities. This system, most aspects of which
are already operational, coupled with a state-of-the-art warehouse inventory
management system, is expected to be fully operational in the second quarter of
1999. The new system provides a stronger and more timely link between the
Company and its customers, enhancing the Company's ability to monitor its
performance against historical and budgetary benchmarks, to manage inventory and
labor costs as well as to make more informed purchasing decisions. The Company
believes this system, which is expected to serve the Company for at least the
next five years, will also help to improve customer service and operating
efficiency.
Backlog
The Company generally receives the bulk of the orders for each of the fall and
spring seasons a minimum of three months prior to the date the products are
shipped to customers. The orders are cancelable by the customer up to 45 days
prior to the date of shipment. At December 31, 1998, the Company's backlog was
$206.8 million, compared to $200.3 million at December 31, 1997. 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
Columbia's business is impacted by the general seasonal trends that are
characteristic of many companies in the outdoor apparel industry in which sales
and profits are highest in the third calendar quarter. The Company's 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 the Company's 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 and financial condition.
8
Competition
The active outerwear, sportswear and rugged footwear segments of the apparel
industry are highly competitive. The Company encounters substantial competition
in the active outerwear and sportswear business from, among others, The North
Face, Inc., Marmot Mountain Ltd., Woolrich Woolen Mills, Inc., The Timberland
Company ("Timberland"), Patagonia Corporation and Helly-Hansen A/S. In addition,
the Company competes 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. The Company's rugged footwear line competes with, among others,
Timberland, Kaufman Footwear (a division of William H. Kaufman, Inc.), Nike ACG,
Salomon S.A. and The Rockport Company. Many of these companies have global
operations and compete with the Company in Europe and Asia. In Europe the
Company also faces competition from such brands as Berghaus, Jack Wolfskin and
Craft of Sweden. In Asia the competition is from brands such as Mont-Bell and
Patagonia. Additional competition comes from the Company's own retail customers
that manufacture and market clothing and footwear under their own labels. Some
of the Company's competitors are substantially larger and have substantially
greater financial, distribution, marketing and other resources than the Company.
The Company believes the primary competitive factors in the market for
activewear are functionality, durability, style, price and brand name, and that
its product offerings are well positioned within the market.
Credit and Collection
The Company extends credit to its customers based on an assessment of a
customer's financial circumstances, generally without requiring collateral. To
assist in the scheduling of production and the shipping of seasonal products,
the Company offers customers discounts for placing pre-season orders and
extended payment terms for taking delivery before the peak shipping season.
These extended payment terms increase the Company's exposure to the risk of
uncollectible receivables. The Company's single largest customer, J.C. Penney,
accounted for slightly over ten percent of the Company's net sales for 1998.
Some significant customers of the Company have experienced financial
difficulties in the past, and future financial difficulties of customers could
have a material adverse effect on the Company.
Government Regulation
Many of the Company's 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 the Company is 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 the Company.
Employees
At December 31, 1998 the Company had 1,357 full-time employees. Of these
employees, 889 were based in the United States, 73 in Canada, 49 in Europe and
346 in Asia.
ITEM 2. PROPERTIES
Following is a summary of principal properties owned or leased by the Company.
The Company's leases expire at various dates through 2003.
U.S. Administrative Offices: U.S. Distribution Facilitiy:
Portland, Oregon Portland, Oregon
(2 locations) - leased (1 location) - owned
Canadian Operation: Manufacturing Facility:
Strathroy, Ontario Chaffee, Missouri
(1 location) - leased (1 location) - leased
9
ITEM 3. LEGAL PROCEEDINGS
The Company and its subsidiaries are from time to time involved in routine legal
matters incidental to their business. In the opinion of the Company's
management, the resolution of these matters will not have a material effect on
its financial position or its results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
10
ITEM 4(a). - Executive Officers and Key Employees of the Company
The following table sets forth the executive officers and certain key employees
of the Company.
NAME AGE POSITION
- -------------------------------------------
Gertrude Boyle 75 Chairman of the Board (1)
Timothy P. Boyle 49 President, Chief Executive Officer,
Treasurer, Secretary and Director (1)
Don Richard Santorufo 52 Executive Vice President and
Chief Operating Officer (1)
Patrick D. Anderson 41 Chief Financial Officer (1)
Carl K. Davis 50 Vice President and General Counsel (1)
Terry J. Brown 56 Executive Planner (1)
Robert G. Masin 50 General Merchandise Manager (1)
Grant D. Prentice 44 General Manager--Outerwear Merchandising
Michael R. Egeck 40 General Manager--Sportswear Merchandising
Rodney R. Gumringer 37 General Manager--Footwear Merchandising
(1) These positions are considered Executive Officers of the Company.
GERTRUDE BOYLE has served as Chairman of the Board of Directors since 1970. The
Company was founded by her parents in 1938 and managed by her husband, Neal
Boyle, from 1964 until his death in 1970. Ms. Boyle also served as the Company's
President from 1970 to 1988.
TIMOTHY P. BOYLE joined the Company in 1971 as General Manager and has served as
President and Chief Executive Officer since 1988. He has been a member of the
Board of Directors since 1978. Mr. Boyle is also a member of the board of
directors of Triad Machinery, a heavy equipment retailer. Mr. Boyle is Gertrude
Boyle's son.
DON RICHARD SANTORUFO joined the Company in 1979 as Purchasing and Production
Manager, and in 1984 he was promoted to Vice President, Manufacturing and
oversaw the development of the Company's Asian manufacturing operations. He has
served as Executive Vice President and Chief Operating Officer of the Company
since January 1995. From 1975 to 1977 Mr. Santorufo was Production and
Purchasing Manager for Alpine Designs, a skiwear manufacturer, and from 1977 to
1979 he was Production Manager for Jen-Cel-Lite Corporation, a sleeping bag and
insulation manufacturer.
PATRICK D. ANDERSON joined the Company in June 1992 as Manager of Financial
Reporting, became Corporate Controller in August 1993 and was appointed Chief
Financial Officer of the Company in December 1996. From 1985 to 1992, Mr.
Anderson was an accountant with Deloitte & Touche LLP.
CARL K. DAVIS joined the Company in October 1997 as Vice President and General
Counsel. He was employed by Nike from 1981 to October 1997 where he served in a
variety of capacities, most recently as Director of International Trade.
11
TERRY J. BROWN joined the Company in January 1983 as Planner and served as
Executive Planner since November 1995. Prior to joining the Company, Mr. Brown
was Vice President and Chief Financial Officer of Agoil, Inc., an oil and gas
exploration and development company, from 1978 to 1981, and Planner for Jantzen
Incorporated, an apparel company, from 1968 to 1978.
ROBERT G. MASIN joined the Company in May 1989 as National Sales Manager 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 the Company in May 1984 as General Manager of Outerwear
Merchandising. From 1977 to 1984, Mr. Prentice worked as a sales representative
for Gerry Outdoor Products, a skiwear company based in Colorado.
MICHAEL R. EGECK has been General Manager--Sportswear Merchandising for the
Company since August 1992. From 1983 to 1992, Mr. Egeck was with Seattle Pacific
Industries, a sportswear apparel company, where his most recent position was
Director of Merchandising, Design and Sales Operations.
RODNEY R. GUMRINGER joined the Company in December 1993 as General
Manager--Footwear. From 1988 to 1993, Mr. Gumringer was Product Development
Manager for the casual shoe division of Nike.
12
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED MATTERS
The Company's Common Stock is listed on the Nasdaq National Market and trades
under the symbol "COLM." At February 28, 1999, there were approximately 195
holders of record.
Following are the high and low closing prices for the Company's Common Stock for
the fiscal year ended December 31, 1998:
HIGH LOW
First Quarter (from March 26, 1998) $21.94 $21.13
Second Quarter $24.75 $18.63
Third Quarter $20.88 $ 9.88
Fourth Quarter $22.25 $14.38
The Company anticipates that all of its earnings in the foreseeable future will
be retained for the development and expansion of its business and, therefore,
has no current plans to pay cash dividends. Future dividend policy will depend
on the Company's earnings, capital requirements, financial condition,
restrictions imposed by the Company's credit agreement, availability of
dividends, receipt of funds in connection with repayment of loans to
subsidiaries or advances from operating subsidiaries and other factors
considered relevant by the Board of Directors of the Company. For certain
restrictions on the Company's ability to pay dividends, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources" in Item 7.
13
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, 1998 have been derived from
the audited financial statements of the Company. The financial data should be
read in conjunction with Consolidated Financial Statements and related Notes
thereto 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,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(in thousands, except per share amounts)
Statement of Operations Data:
Net sales $427,278 $353,452 $298,988 $303,797 $256,426
Cost of sales 240,457 198,946 176,859 182,971 148,940
-------- -------- -------- -------- --------
Gross profit 186,821 154,506 122,129 120,826 107,486
Selling, general and administrative expense 131,023 110,204 95,431 84,583 64,049
-------- -------- -------- -------- --------
Income from operations 55,798 44,302 26,698 36,243 43,437
Interest expense, net 4,075 3,593 4,220 5,767 3,220
Provision for income taxes 18,979 1,413 1,468 1,750 1,893
-------- -------- -------- -------- --------
Net income $ 32,744 $ 39,296 $ 21,010 $ 28,726 $ 38,324
======== ======== ======== ======== ========
Earnings per share:
Basic $ 1.38 $ 2.09 $ 1.24 $ 1.69 $ 2.26
Diluted $ 1.36 $ 2.06 $ 1.24 $ 1.69 $ 2.26
Weighted average shares outstanding
Basic 23,731 18,792 16,997 16,986 16,973
Diluted 24,058 19,103 16,997 16,986 16,973
Year ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
Balance Sheet Data:
Working capital $109,505 $ 69,706 $ 59,797 $ 47,726 $ 48,971
Inventories 74,059 48,300 34,638 48,404 43,442
Total assets 269,478 174,477 135,967 162,301 133,349
Long-term debt 27,275 2,831 2,963 --- 1,250
Shareholders' equity 149,414 110,535 91,936 70,458 61,992
14
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 the Company's consolidated
statements of operations:
1998 1997 1996
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of sales 56.3 56.3 59.2
----- ----- -----
Gross profit 43.7 43.7 40.8
Selling, general and administrative
expense 30.7 31.2 31.9
----- ----- -----
Income from operations 13.0 12.5 8.9
Interest expense, net 0.9 1.0 1.4
Income before income tax 12.1 11.5 7.5
Provision for income taxes 4.4 0.4 0.5
----- ----- -----
Net income 7.7% 11.1% 7.0%
===== ===== =====
Year Ended December 31,1998 Compared to Year Ended December 31,1997
Net sales: Net sales increased 20.9% to $427.3 million in 1998 from $353.5
million in 1997. Domestic sales increased 17.1% to $335.9 million in 1998 from
$287 million in 1997. The domestic sales increase was due to strong wholesale
sales volume growth for spring sportswear and fall outerwear and footwear. Net
international sales, excluding Canada, increased 48.5% to $52.6 million in 1998
from $35.4 million in 1997. This increase was due primarily to a $11.2 million
or 69.8% increase in European direct sales. Canadian sales increased 24.6% to
$38.8 million in 1998 from $31.1 million in 1997. This increase was due to sales
volume growth of fall outerwear to existing customers and increased sales volume
of rugged footwear through both existing and new customers.
Gross Profit: Gross profit as a percentage of net sales was 43.7% for both 1998
and 1997. For 1998, there was downward pressure on gross margins due to the
growth in footwear and sportswear as a percentage of total sales. Footwear and
sportswear generally have lower gross margins than outerwear products. This
downward pressure was offset by an increase in relatively higher margin
international sales which increased to 12.3% of total sales in 1998 versus 10%
in 1997. The stability in the gross margin was also attributable to the
continued emphasis on inventory management which corresponds to fewer markdowns
and closeouts as well as manufacturing efficiencies.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 18.9% to $131.0 million in 1998 from $110.2
million for the comparable period in 1997, primarily as a result of an increase
in selling and operating expenses to support both the higher level of sales and
continued investment in operational infrastructure. As a percentage of sales,
selling, general, and administrative expenses decreased to 30.7% in 1998 from
31.2% for the comparable period in 1997. The improved selling, general and
administration expenses as a percentage of sales is due primarily to expense
leverage achieved in the European and Canadian operations where the brand
continued to show strong growth. The Company believes that in the short term
selling, general, and administrative expense as a percentage of sales will
increase as major capital expenditures including the new distribution center and
enterprise information system, which are now capitalized, increase depreciation
expense. The Company believes that in the longer term it will be able to
leverage selling, general, and administrative expense as a percentage of sales
as its international operations become more established and its sportswear and
footwear sales continue to expand.
15
Interest Expense: Interest expense increased by 13.4% in 1998 from the
comparable period in 1997. The increase was attributable to additional borrowing
requirements for working capital needed to fund the growth in sales activity for
year ended December 31, 1998.
Provision For Income Taxes: Prior to the initial public offering, the Company
operated as an "S" corporation and, as a result was not subject to federal or
most state income taxes. In connection with the initial public offering, the
Company terminated its "S" corporation status. As a result, the Company is now
subject to federal and state income taxes. The Company recognized a
non-recurring, non-cash benefit of approximately $2 million to earnings in the
first quarter of 1998 to record deferred income taxes for the tax effect of
cumulative temporary differences between financial and tax reporting. See Notes
1 and 9 to the consolidated financial statements.
Year Ended December 31,1997 Compared to Year Ended December 31,1996
Net sales: Net sales increased 18.2% to $353.5 million in 1997 from $299.0
million in 1996. Domestic sales increased 16.8% to $287 million in 1997 from
$245.5 million in 1996. The domestic sales increase was due to strong growth in
volume for outerwear and sportswear categories, including the youth and fleece
products. Rugged footwear increased 87.1% or $10.0 million in 1997. The growth
in the sportswear and outerwear categories was primarily due to larger existing
customers who had experienced strong sell through on the 1996 product, while the
increase in rugged footwear was attributable to several new customers in
addition to the existing customer base. International sales, excluding Canada,
increased 34.9% to $35.4 million in 1997 from $26.3 million in 1996. The
increase was due primarily to a $5.3 million or 49.6% increase in European
direct sales. The increase is also attributable to volume growth in the
international markets where the Company's brand is gaining recognition.
Canadian sales grew 14.7% to $31.1 million in 1997 from $27.2 million in 1996.
Gross Profit: Gross profit as a percentage of net sales was 43.7% in 1997
compared to 40.9% in 1996. The increase in gross margin was due to improved
inventory management resulting in fewer mark downs and close-outs as well as
efficiencies in the manufacturing process and continued strength of the brand in
the market.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 15.5% to $110.2 million in 1997 from $95.4
million in 1996. As a percentage of sales, selling, general, and administrative
expense decreased from 31.9% to 31.2%. Net of the $7.5 million nonrecurring
portion of the compensation expense recognized in 1996 for the conversion of
participation shares described in Note 12 to the consolidated financial
statements, selling, general and administrative expense actually increased $22.3
million, or 25.3%. This increase was primarily attributable to the Company's
investment in personnel and operational infrastructure to support the product
line expansion, additional advertising and promotional expenditures to support
the brand and international expansion into Europe, South Korea and Japan.
Because these markets are in the start-up phase, personnel expenses and
advertising and promotional expenditures are disproportionately high as the
Company establishes the Columbia brand.
Interest Expense: Interest expense decreased 14.9% in 1997 from 1996. The
decrease was attributable to lower borrowing requirements for working capital in
1997.
Liquidity and Capital Resources
The Company financed its operations in the year ended December 31, 1998
primarily through net borrowings on notes payable and net proceeds from the
Company's initial public offering after distributions to shareholders. At
December 31, 1998, the Company had total cash equivalents of $6.8 million
compared to $4.0 million at December 31, 1997. Cash provided by operating
activities was $0.4 million for year ended December 31, 1998 as compared to
$18.9 million in 1997. This increase in cash used was the result of increased
accounts receivable and inventories to support increased sales volumes.
The Company's primary capital requirements are for working capital, investing
activities associated with expansion of its distribution center, systems
development and general corporate needs. Net cash used in investing activities
was $40.2 million for the year ended December 31, 1998 and $14.0 million for the
comparable period in 1997.
16
Cash provided by financing activities was $42.6 million for the year ended
December 31, 1998 compared to cash used of $3.6 million in 1997. The increase in
net cash provided from financing activities was primarily due to proceeds from
the issuance of senior promissory notes, the Company's initial public offering,
net of distributions to shareholders, and additional short term borrowings.
To fund its working capital requirements, the Company has available unsecured
revolving lines of credit with aggregate seasonal limits ranging from $75
million to $115 million. As of December 31, 1998, $16.4 million was outstanding
under these lines of credit bearing interest at a rate of 5.75% per annum.
Additionally, the Company maintains credit agreements in order to provide the
Company unsecured lines of credit with a combined limit of $115 million
available as an import line of credit for issuing documentary letters of credit.
In connection with current 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 are being used to finance the expansion of the Company's distribution
center in Portland, Oregon. Up to an additional $15 million in senior promissory
notes may be issued under the note purchase agreement.
Proceeds from the IPO, net of underwriting discounts, commissions and expenses
totaled $106.9 million, of which an amount equal to the greater of $95 million
or the amount of the Company's Subchapter "S" accumulated adjustments account as
of the Termination Date was declared as a dividend to shareholders of record on
March 23, 1998. As of December 31, 1998, $102.3 million had been distributed to
such shareholders, representing the final balance of the accumulated adjustments
account. The Company believes that its liquidity requirements for at least the
next 12 months will be adequately covered by cash provided by operations and
short term borrowing arrangements.
Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risks from fluctuations of foreign currency
exchange rates and interest rates due to its international sales, production and
funding requirements. It is the Company's 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 the Company's
objectives and the Company does not enter into foreign currency or interest rate
transactions for speculative purposes.
The Company's foreign currency risk management objective is to protect cash
flows resulting from sales, purchases and other costs from the adverse impact of
exchange rate movements. Foreign exchange risk is managed by using forward
exchange contracts and purchased options to hedge certain firm commitments and
the related receivables and payables, including third party or intercompany
transactions. Purchased currency options are used to hedge certain anticipated
but not yet firmly committed transactions 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 European currencies, Japanese yen and Canadian dollar.
The market risk related to these contracts was not material to the Company's
consolidated financial statements at December 31, 1998.
Year 2000 Compliance
The Company has made extensive efforts over the past several years to upgrade or
replace all enterprise level software and hardware platforms. A part of the
selection criteria for new software and hardware systems were global software
support and Year 2000 compliance. The Company is replacing its current
management information system with an enterprise system that integrates
Electronic Data Interchange (EDI) and inventory management capabilities. This
system, most aspects of which are already operational, coupled with a
state-of-the-art warehouse inventory management system, will be fully
operational in the second quarter of 1999 and will address the Year 2000 issue
on all core Company business systems. These include, but are not limited to,
financial, manufacturing and inventory management, distribution, and sales order
processing applications. The Company has other ancillary systems such as sales
reporting, product development, retail, merchandising and
17
design that are scheduled to be modified as required to address Year 2000 issues
in a timely fashion. Desktop productivity systems, networking and communications
are also integral to the Company's operations and have been surveyed for Year
2000 compliance. Non-compliant components and software have been identified and
are scheduled for replacement or upgrade where necessary by mid-1999.
Non-Information Technology systems such as Company-owned manufacturing
equipment, office equipment and local office telephone systems are being
assessed for related Year 2000 risks. The Company conducts business with several
customers via EDI and will implement and test Year 2000 compliant standards and
software to help ensure uninterrupted service. The majority of the Company's
product sourcing is performed through independent manufacturers primarily in
Southeast Asia. Although analyses are underway, an initial review of these
facilities indicates that most operations and business processes are manual in
nature and, consequently, the Company does not expect the Year 2000 issue will
impact its ability to effectively source its products.
The Company's enterprise management information systems were implemented
primarily to improve its business processes rather than solely to address Year
2000 compliance issues. The costs associated with bringing the Company's
ancillary, desktop productivity, networking, communication and non-Information
Technology systems into Year 2000 compliance have been assessed and estimated
that expenditures for the project will be approximately $900,000 for the year
ended December 31, 1999, with costs being paid out of working capital. This
estimate, based on currently available information, will be updated as the
Company continues its assessment and proceeds with implementation and testing,
and may require further revision.
The Company has undergone what it believes is a reasonable and thorough review
of Year 2000 issues on its operations, liquidity and financial condition and
identified the related issues and risks. As a result of this review, the Company
believes no identified issues or reasonably foreseeable circumstances should
have a material affect on the company.
The most reasonable likely issue facing the Company regarding Year 2000
compliance is the inability of compliant software or systems to perform as
intended. Although the Company does not have a comprehensive contingency plan,
it expects to apply its own resources and the resources of system providers to
solve these issues as they are identified. The Company will continue to take
appropriate measures to assure that its operating systems are prepared for Year
2000 related issues. It should be understood that the Company is reliant on many
external parties and their related systems which could affect the Company's
ability to meet possible eventualities. Such external entities include, but are
not limited to, certain United States and foreign governmental agencies,
material suppliers, and product manufacturers as well as service providers such
as freight forwarders, transportation, and utilities companies. In addition, the
Company as well as these external entities are expecting that the software and
hardware put into place will perform all functions as expected.
Euro Currency Conversion
European Union ("EU") finance members have approved 11 of the 15 EU member
states for participation in economic and monetary union. On January 1, 1999, the
Euro was adopted as the national currency of the participating countries -
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
Netherlands, Portugal and Spain. Initially, the Euro will be used for non-cash
transactions. Currencies of the participating member states ("legacy
currencies") 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 the Company's existing operations within countries participating in the
European Monetary Union. As such, the Company has committed resources to conduct
risk assessments and to take corrective actions, where required, to ensure that
it is prepared for the introduction of the Euro. The Company is undertaking a
review of the Euro implementation both in participating and non-participating
European Union countries where it has operations. Progress regarding Euro
implementation is reported periodically to management.
The Company has not experienced any significant operational disruptions to date
and do not currently expect the continued implementation of the Euro to cause
any significant operational disruptions. In addition, the Company
18
has not incurred and does not expect to incur any significant costs from the
continued implementation of the Euro, including any currency risk, which could
materially affect the Company's liquidity or capital resources.
Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999 and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company is evaluating the
effect of this statement on its financial position and results of operations.
Forward Looking Statements
Information in this Annual Report 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, access to raw materials and factory capacity, Year 2000
compliance and readiness, Euro currency conversion, financing and working
capital requirements and resources, and expected expenses as a percentage of
net sales constitute forward-looking statements that are subject to risks and
uncertainties. Many factors could have an adverse impact on the Company and
cause actual results to differ materially from information included in such
forward-looking statements. Factors that could cause actual results to differ
from those projected in forward-looking statements include, but are not limited
to, competitive factors (including increased competition, new product offerings
by competitors and price pressure); seasonality, fluctuations in operating
results and economic cyclicality; effects of weather on consumer purchases;
changes in consumer preferences; the Company's ability to implement its growth
strategy, including the effectiveness of sales and marketing efforts and the
management of growth; dependence on and performance by key personnel,
independent manufacturers and key suppliers; advance purchases of products and
associated inventory risks; the financial condition and prospects of the
Company's customers, risks associated with international operations, such as
currency exchange rate fluctuations or political unrest; dependence on and the
ability to establish and protect proprietary rights; government regulations,
including tariffs and import restrictions; disruptions in the supply of labor or
raw materials or increases in labor and material costs; computer disruptions or
unexpected expenses required to make modifications to computer systems,
including but not limited to Year 2000 compliance; the ability to obtain
financing on favorable terms; and general economic conditions. Any
forward-looking statements should be considered in light of these and other
factors.
ITEM 7(a). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Management's Discussion and
Anaylsis of Financial Condition and Results of Operations and is incorporated
herein by this reference.
19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Management of Columbia Sportswear Company is responsible for the information and
representations contained in this report. The financial statements have been
prepared in conformity with the generally accepted accounting principles 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.
The Company's 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 generally
accepted accounting principles. 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
the financial affairs of the Company as they deem appropriate.
20
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 as of December 31, 1998 and 1997, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended December 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the consolidated financial position of Columbia Sportswear Company and
subsidiaries as of December 31, 1998 and 1997, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Portland, Oregon
February 8, 1999
21
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
----------------------------------
1998 1997
--------------- ---------------
ASSETS
Current Assets:
Cash and cash equivalents $ 6,777 $ 4,001
Accounts receivable, net of allowance of $3,395 and
$2,461, respectively 105,967 76,086
Inventories (Note 3) 74,059 48,300
Deferred tax asset (Note 9) 8,895 -
Prepaid expenses and other current assets 2,485 2,430
--------------- ---------------
Total current assets 198,183 130,817
Property, plant, and equipment, net (Note 4) 68,692 35,277
Intangibles and other assets 2,603 8,383
--------------- ---------------
Total assets $ 269,478 $ 174,477
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable (Note 5) $ 34,727 $ 20,427
Accounts payable 37,514 21,765
Accrued liabilities (Note 6) 15,469 13,128
Income taxes payable (Note 9) 767 (229)
Current portion of long-term debt 201 154
Distribution payable - 5,866
--------------- ---------------
Total current liabilities 88,678 61,111
Long-term debt (Note 7) 27,275 2,831
Deferred tax liability (Note 9) 4,111 -
--------------- ---------------
Total liabilities 120,064 63,942
Commitments and contingencies (Note 13) - -
Shareholders' Equity:
Preferred stock; 10,000 shares authorized; none
issued and outstanding - -
Common stock; 50,000 shares authorized; 25,267 and
18,792 issued and outstanding 124,990 17,886
Retained earnings 32,282 101,805
Accumulated other comprehensive income (3,478) (3,806)
Unearned portion of restricted stock issued for future
Services (4,380) (5,350)
--------------- ---------------
Total shareholders' equity 149,414 110,535
--------------- ---------------
Total liabilities and shareholders' equity $ 269,478 $ 174,477
=============== ===============
See accompanying notes to consolidated financial statements.
22
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENT OF OPERATIONS
(In thousands, except per share amounts)
Year Ended December 31,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
Net sales $ 427,278 $ 353,452 $ 298,988
Cost of sales 240,457 198,946 176,859
------------- ------------- -------------
Gross profit 186,821 154,506 122,129
Selling, general, and administrative 131,023 110,204 95,431
------------- ------------- -------------
Income from operations 55,798 44,302 26,698
Interest expense, net 4,075 3,593 4,220
------------- ------------- -------------
Income before income tax 51,723 40,709 22,478
Income tax expense (Note 9) 18,979 1,413 1,468
------------- ------------- -------------
Net income $ 32,744 $ 39,296 $ 21,010
============= ============= =============
Net income per share (Note 16):
Basic $ 1.38 $ 2.09 $ 1.24
Diluted $ 1.36 $ 2.06 $ 1.24
Weighted average shares outstanding:
Basic 23,731 18,792 16,997
Diluted 24,058 19,103 16,997
Pro forma net income data (unaudited):
Income before income taxes, as reported $ 40,709 $ 22,478
Pro forma provision for income taxes (Note 1) 16,284 8,991
------------- -------------
Pro forma net income $ 24,425 $ 13,487
============= =============
Proforma net income per share (Note 1):
Basic $ 1.30 $ 0.79
Diluted $ 1.28 $ 0.79
See accompanying notes to consolidated financial statements.
23
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year Ended December 31,
---------------------------------------
1998 1997 1996
----------- ----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 32,744 $ 39,296 $ 21,010
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,641 7,518 6,419
Non-cash compensation 970 970 5,655
Loss on disposal of property, plant, and equipment 102 4 155
Deferred income tax provision (4,784) - -
Tax adjustment related to options (112) - -
Changes in operating assets and liabilities:
Accounts receivable (27,426) (17,674) 26,340
Inventories (24,373) (14,745) 13,749
Prepaid expenses and other current assets (272) (963) (709)
Intangibles and other assets (152) (2,577) (5,585)
Accounts payable 12,884 5,199 (3,605)
Accrued liabilities 2,221 1,875 3,385
Income taxes payable 982 - -
----------- ----------- -----------
Net cash provided by operating activities 425 18,903 66,814
----------- ----------- -----------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (40,408) (14,816) (10,103)
Proceeds from sale of property, plant, and equipment 161 49 33
Purchase of short-term certificates of deposit - - (855)
Maturity of short-term investments - 813 -
----------- ----------- -----------
Net cash used in investing activities (40,247) (13,954) (10,925)
----------- ----------- -----------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowing (repayment) on notes payable 13,289 9,284 (39,876)
Issuance (repayment) on long-term debt 24,490 (137) (1,250)
Proceeds from options exercised 366 - -
Proceeds from initial public offering 106,850 - -
Capital contributions from shareholders - - 30
Distributions paid to shareholders (102,395) (12,791) (12,562)
----------- ----------- -----------
Net cash provided by (used in) financing activities 42,600 (3,644) (53,658)
----------- ----------- -----------
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH (2) (587) (236)
----------- ----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,776 718 1,995
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,001 3,283 1,288
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,777 $ 4,001 $ 3,283
=========== =========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest, net of capitalized interest $ 3,874 $ 4,055 $ 4,419
Income taxes 17,983 1,510 2,765
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Property, plant, and equipment acquired through assumption of debt $ - $ - $ 3,123
Note receivable from sale of fixed assets - 152 -
Application of deposit in land purchase 331 - -
Repayment of related party note receivable 5,813 - -
See accompanying notes to consolidated financial statements.
24
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
Unearned
Portion
of
Restricted
Stock
Common Stock Accumulated Issued
---------------------- Other For
Shares Retained Comprehensive Future Comprehensive
Outstanding Amount Earnings Income Services Income Total
----------- -------- ---------- ------------- --------- ------------- ----------
BALANCE, JANUARY 1,1996 16,992 $ 2,163 $ 68,567 $ (272) $ - $ 70,458
Comprehensive income
Net income 21,010 $ 21,010 21,010
-------------
Other comprehensive income, net of
tax
Foreign currency translation
adjustment (392) (392) (392)
-------------
Comprehensive income $ 20,618
=============
Capital contribution - 30 - - - 30
Issuance of common stock 1,800 15,693 - - (6,320) 9,373
Distribution to shareholders - - (8,543) - - (8,543)
--------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996 18,792 17,886 81,034 (664) (6,320) 91,936
Comprehensive income
Net income 39,296 $ 39,296 39,296
-------------
Other comprehensive income, net of
tax
Foreign currency translation
adjustment (3,142) (3,142) (3,142)
-------------
Comprehensive income $ 36,154
=============
Distribution to shareholders - - (18,525) - - (18,525)
Amortization of unearned
compensation - - - - 970 970
--------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1997 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, net of
tax
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 exercise of stock
options (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
============================================================================================
See accompanying notes to consolidated financial statements
25
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.
Pro forma adjustments:
With completion of the initial public offering of Common Stock in the first
quarter of 1998, the Company is subject to federal and state income taxes from
the Termination Date. The pro forma consolidated statements of operations data
for each of the two years in the period ended December 31, 1997 reflect
adjustments for income taxes based upon income before provision for income taxes
as if the Company had been subject to additional federal and state income taxes
based upon a pro forma effective tax rate of 40%.
Pro forma net income per share:
Pro forma net income per share is based on the weighted average number of shares
of Common Stock outstanding and dilutive common equivalent shares from stock
options (using the treasury stock method). In addition, the average shares
outstanding reflect the conversion of voting and nonvoting shares into shares of
voting Common Stock and the subsequent conversion of each share of voting Common
Stock into 0.59 shares of Common Stock pursuant to a reverse stock split which
occurred at consummation of the offering of Common Stock by the Company.
Common equivalent shares issued during 1997 have been included in the
calculation of diluted net income per share using the treasury stock method as
if they were outstanding in 1997 with a price equivalent to $18 per share.
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"),
and Columbia Sportswear Korea ("CSC Korea") (collectively, the "Company").
Basis of consolidation:
All significant intercompany balances and transactions have been eliminated.
Pursuant to a plan of share exchange on December 18, 1997, CSC acquired all of
the outstanding stock of GTS. As a result of this acquisition, CSCL and CSHL
became wholly owned subsidiaries of CSC. The plan of share exchange has been
accounted for in a manner similar to a pooling-of-interest and, accordingly, the
combined financial statements contained herein are presented as if GTS had
always been a wholly owned subsidiary of CSC.
26
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from these estimates.
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 $3,395,000, $2,461,000 and $2,440,000 in 1998, 1997 and 1996,
respectively. The net charges to this reserve were $2,643,000, $2,636,000 and
$2,338,000 in 1998, 1997 and 1996, respectively.
Inventory valuation:
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 equipment and
amortization of leasehold improvements is provided using the straight-line
method over the estimated useful lives of the assets, ranging from 3 to 10
years. Buildings are depreciated using the straight-line method over 30 years.
Long-lived assets held and used by the Company are reviewed for impairment when
events and circumstances indicate costs may not be recoverable.
Intangibles and other assets:
Goodwill is being amortized on a straight-line basis over eight years.
Income taxes:
In accordance with Statement of Financial Accounting Standards ("SFAS") No. 109
"Accounting for 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, 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 was the
responsibility of the shareholders rather than the Company. In the states of
California and New York, the Company elected C corporation status and was
subject to those states income taxes. CSCL is subject to federal and provincial
income taxes in Canada.
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 has recorded
deferred income taxes of approximately $2,000,000 for the income tax effect of
cumulative temporary differences in accordance with SFAS 109.
27
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. Adjustments resulting from
translation adjustments are included as a separate component of shareholders'
equity.
Other comprehensive income:
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income", and has presented all periods on a comparative basis.
Other comprehensive income consists of the current increase or decrease in
foreign currency translation adjustments.
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.
Advertising costs:
Advertising costs are expensed as incurred. Advertising expense was $18,666,000,
$16,649,000 and $12,006,000 for the years ended December 31, 1998, 1997 and
1996, respectively.
Product warranty:
Substantially all of the Company's products carry lifetime warranty provisions
for defects in quality and workmanship. The Company's estimated liability for
future warranty claims related to past sales at December 31, 1998, 1997 and 1996
is approximately $3,700,000, $3,400,000 and $2,699,000, respectively, and is
recorded in accrued expenses. Warranty expense was approximately $2,852,000,
$2,848,000 and $2,800,000 for the years ended December 31, 1998, 1997 and 1996,
respectively.
Recent accounting pronouncements:
In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
statement is effective for all fiscal quarters of all fiscal years beginning
after June 15, 1999 and establishes accounting
28
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. The Company
is evaluating the effect of this statement on its financial position and results
of operations.
NOTE 3 - INVENTORIES
Inventories consist of the following (in thousands):
December 31,
-------------------------
1998 1997
--------- ---------
Raw Materials $ 4,071 $ 4,565
Work In process 5,576 7,637
Finished goods 64,412 36,098
--------- ---------
$ 74,059 $ 48,300
========= =========
NOTE 4 - PROPERTY, PLANT, AND EQUIPMENT, NET
Property, plant, and equipment consist of the following (in thousands):
December 31,
-------------------------
1998 1997
--------- ---------
Land $ 4,740 $ 1,359
Buildings 25,249 12,337
Machinery and equipment 37,617 24,337
Furniture and fixtures 6,469 5,326
Leasehold improvements 6,420 6,428
Construction in progress 15,836 7,704
--------- ---------
96,331 57,491
--------- ---------
Less accumulated depreciation 27,639 22,214
--------- ---------
$ 68,692 $ 35,277
========= =========
NOTE 5 - SHORT TERM BORROWINGS AND CREDIT LINES
The Company has available an unsecured operating line of credit providing for
borrowings to a maximum of $90,000,000 during the period from August 1 to
December 15, 1998 and $50,000,000 at all other times. The maturity date of this
agreement is June 30, 1999. Interest, payable monthly, is computed at the bank's
prime rate minus up to 2.1% per annum, representing an effective interest rate
of 5.75% and 6.50% at December 31, 1998 and 1997, respectively. The agreement
also includes a fixed rate option based on the Eurodollar rate plus up to 75
basis points. The balance outstanding was $16,370,000 and $13,992,000 at
December 31, 1998 and 1997, 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 $45,000,000 import line of credit to issue documentary
letters of credit on a sight basis. The
29
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 5 - SHORT TERM BORROWINGS AND CREDIT LINES (Continued)
combined limit under this agreement is $70,000,000. The revolving line accrues
interest at the bank's prime rate minus 2% per annum. The revolving line also
has a fixed rate option based on the bank's cost of funds plus 35 basis points.
There was no balance outstanding on this line as of December 31, 1998 and 1997.
The Company is party to a Buying Agency Agreement with Nissho Iwai American
Corporation and its Canadian affiliate ("Nissho") pursuant to which Nissho
provides the Company an unsecured line of credit. This line of credit is used to
finance the purchase of goods outside the U.S. which are produced by the
Company's independent manufacturers worldwide. The available funds are limited
to $120,000,000 with a sublimit of $70,000,000 on the import line of credit.
Borrowings bear interest at a rate of .35% above the three month LIBOR rate. In
addition, the Company is obligated to pay Nissho a commission of 1.5% of the FOB
price of the goods purchased by Nissho in its capacity as buying agent. The
agreement expires September 30, 2001 but will automatically renew for a three
year term unless either party elects otherwise. The balance outstanding on the
import line of credit was $18,494,000 and $13,397,000 at December 31, 1998 and
1997, respectively, and is included in accounts payable. At December 31, 1998,
the Company had $46,204,000 of firm purchase orders placed under these financing
arrangements.
CSCL has available a line of credit providing for borrowing to a maximum of
C$18,000,000 (US$13,138,000 at December 31, 1998). Borrowings against this line
of credit bear interest at either the B/A option rate, which is the bank's prime
acceptance fee minus 50 basis points or at the prime rate. B/A's are issued in
multiples of C$100,000 with a maturity of not less than 30 days and not more
than 360 days. The facility is guaranteed by the Company. At December 31, 1998,
there was no balance outstanding on this line. At December 31, 1997, the entire
balance outstanding of C$7,000,000 (US$4,894,000) was borrowed under the B/A
option rate, at an average interest rate of 4.06%. The Canadian prime lending
rate was 6.75% and 6.0% at December 31, 1998 and 1997, respectively.
At December 31, 1998, the Company's European branch had bank borrowings
outstanding of $9,175,000 at an interest rate of 3.7%
At December 31, 1998 and 1997, the Company's Japanese subsidiary had bank
borrowings outstanding of $9,182,000 and $1,541,000 at an interest rate of
1.625%.
NOTE 6 - ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
December 31,
-------------------------
1998 1997
--------- ---------
Accrued salaries, bonus, vacation and other benefits $ 8,395 $ 7,707
Accrued warranty reserve 3,700 3,400
Other 3,374 2,021
--------- ---------
$ 15,469 $ 13,128
========= =========
30
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 7 - LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
December 31,
-------------------------
1998 1997
--------- ---------
Mortgage note payable $ 2,476 $ 2,985
Senior promissory notes payable 25,000 -
Less current portion (201) (154)
--------- ---------
$ 27,275 $ 2,831
========= =========
The Company assumed a mortgage in connection with the acquisition of a
distribution center. The loan matures in June 2009 and bears interest at 8.76%.
In connection with current 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 are being 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, 1998 were as follows
(in thousands):
Senior
Mortgage note promissory note
------------- ---------------
1999 $ 201 $ -
2000 219 -
2001 240 -
2002 261 3,571
2003 285 3,571
Thereafter 1,270 17,858
------------- ---------------
$ 2,476 $ 25,000
============= ===============
NOTE 8 - SHAREHOLDERS' EQUITY
The Company is authorized to issue 50,000,000 shares of Common Stock. At
December 31, 1998 and 1997, 25,267,214 and 18,792,176 shares of Common Stock
were issued and outstanding. Shares for all periods are restated to reflect a
400-for-1 split in 1996. Additionally, all shares and per share amounts for all
periods are restated to reflect the conversion of voting and nonvoting shares
into voting shares of Common Stock and the subsequent conversion of each share
of voting Common Stock into 0.59 shares of Common Stock pursuant to a reverse
stock split which occurred at consummation of the offering of Common Stock by
the Company.
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
31
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - INCOME TAXES (Continued)
purposes and valuation allowances are recorded against net deferred tax assets
when appropriate. No U.S. income tax provisions have been provided on the
cumulative undistributed earnings of foreign operations as it is the Company's
intention to utilize those earnings in those foreign operations for an
indefinite period of time.
Deferred income taxes arise from temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. In addition to the initial recording of
the net deferred tax asset of $2 million at March 26, 1998, the Company also
recorded a net increase in temporary differences of $2,784,000, resulting in a
net deferred tax asset of $4,784,000 at December 31, 1998. The net deferred tax
asset consists of a current asset of $8,895,000 and a non-current liability of
$4,111,000 at December 31, 1998.
Undistributed earnings of the Company's Canadian subsidiary amounted to
approximately $6,750,000 on December 31, 1998. Those earnings are considered to
be indefinitely reinvested. 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, less an adjustment for applicable foreign tax
credits. Determination of this amount is not practicable because of the
complexities associated with its hypothetical calculation.
The components of the provision for income taxes consists of the following (in
thousands):
Year ended December 31,
(in thousands) 1998
-----------
Current:
Federal $ 17,594
State and Local 3,066
Non-U.S. 3,103
-----------
23,763
Deferred:
Federal (4,262)
State and Local (522)
Non-U.S. -
-----------
(4,784)
-----------
Provision for income taxes $ 18,979
===========
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,
(percent of income) 1998
-----------
Provision for federal income taxes at the statutory rate 35.0%
State and local income taxes, net of Federal benefit 3.7
Non-U.S. income taxed at different rates 1.5
Initial recording of deferred tax asset (4.1)
Other 0.6
-----------
Actual provision for income taxes 36.7%
===========
The provision for income taxes differs from the amounts computed by applying the
statutory federal income tax rate to income before income taxes for 1997 and
1996 because the Company's income was not subject to federal and certain state
income taxes.
32
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 9 - INCOME TAXES (Continued)
Significant components of the Company's deferred taxes are as follows:
Year ended December 31,
(in thousands) 1998
-----------
Deferred tax assets:
Nondeductible accruals and allowances $ 5,981
Capitalized Inventory Costs 2,914
-----------
8,895
Deferred tax liabilities:
Depreciation and amortization (2,531)
Deferred compensation (1,721)
Other, net 141
-----------
(4,111)
-----------
Total $ 4,784
===========
NOTE 10 - ACQUISITION OF COLUMBIA OUTFITTERS
On March 4, 1998 the Company acquired Columbia Outfitters, Inc., an operator of
retail stores in Bend, Oregon, from a related party for a purchase price of
approximately $1,389,000. Goodwill of $911,000, net of amortization of $94,000,
associated with this purchase is included in intangibles and other assets. The
effect of this acquisition did not have a material effect on the Company's
consolidated financial statements.
NOTE 11 - 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 $1,666,000, $1,681,000, and $1,465,000 for the years ended
December 31, 1998, 1997 and 1996, respectively.
NOTE 12 - PARTICIPATION SHARE AGREEMENT
Effective December 1990, the Company adopted a Participation Share Agreement
(the "Participation Plan") with a key employee. The Participation Plan provided
for the grant of participation shares equivalent to 10% of the Company, which
were to be awarded at various dates through January 2000. Shares awarded were
subjected to vesting at a rate of 20% per year. The original Participation Plan
granted the employee deferred compensation in the appreciation of a defined
per-share book value of the Company since January 1987 and contained an
anti-dilutive provision.
Effective December 31, 1996, the original Participation Plan was terminated and
a Deferred Compensation Conversion Agreement (the "Agreement") was entered into.
Under the Agreement, the participation shares, whether or not vested or awarded
under the Participation Plan, were converted to 1,800,435 shares of Common
Stock. Of the converted shares, 725,114 shares of Common Stock awarded are
subject to vesting through December 2004.
33
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 12 - PARTICIPATION SHARE AGREEMENT (Continued)
The total value of the share conversion is $15,693,000 ($8.72 per share of
Common Stock), of which $6,320,000 was unvested as of December 31, 1996. The
unvested portion is recorded as a reduction in shareholders' equity and will be
amortized to compensation expense through December 2004 as shares are earned.
Compensation expense related to the Participation Plan and the 1996 conversion
totaled $970,000, $970,000, and $5,742,000 for the years ended December 31,
1998, 1997 and 1996, respectively. The agreement also provided for a cash bonus
of $2,750,000 which was paid in 1996 in consideration of past services.
Additionally, the agreement provided for bonuses to be paid in amounts equal to
the accrued interest due and owing on the notes receivable from the shareholder.
These bonuses were $90,000 and $330,000 in 1998 and 1997, respectively. The
notes receivable from shareholder consisted of notes receivable in the amounts
of $3,818,000 and $1,905,000 which bore interest at 6.31% and 6.49%,
respectively. These notes were included in other assets in 1997 and repaid by
the shareholder in full during 1998.
NOTE 13 - COMMITMENTS AND CONTINGENCIES
The Company leases certain operating facilities from shareholders/directors of
the Company. Total rent expense, including month-to-month rentals, for these
leases amounted to $271,000, $198,000, and $277,000 for the years ended December
31, 1998, 1997 and 1996, respectively.
In March 1996 the Company acquired the distribution center for approximately
$4.5 million from a shareholder and an officer of the Company from whom the
Company had previously leased the facility on a long-term basis.
Rent expense was $2,179,000, and $2,941,000, and $2,408,000 for non-related
party leases during the years ended December 31, 1998, 1997 and 1996,
respectively.
Future minimum payments on all lease obligations greater than one year are as
follows (amounts in thousands):
Non-related Related
Year ending December 31, Parties Parties Total
- ------------------------ ----------- ----------- -----------
1999 $ 3,441 $ 294 $ 3,735
2000 2,259 305 2,564
2001 1,129 317 1,446
2002 745 266 1,011
2003 543 - 543
Thereafter 1,658 - 1,658
----------- ----------- -----------
$ 9,775 $ 1,182 $ 10,957
=========== =========== ===========
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.
34
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 - STOCK INCENTIVE PLAN
On March 12, 1997, the Board of Directors of the Company approved the 1997 Stock
Incentive Plan (the "Plan"). In January 1998, the Board of Directors increased
the number of shares authorized for issuance under the Plan from 2,000,000 to
2,500,000 shares. The options become exercisable ratably over a five-year period
beginning from the date of grant and expire ten years from the date of grant.
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, 1997 -
Granted 736,774 $ 10.400
-----------
Options outstanding at December 31, 1997 736,774 10.400
Granted 465,500 19.625
Canceled (17,283) 9.680
Exercised (35,038) 10.452
-----------
Options outstanding at December 31, 1998 1,149,953 $ 14.146
===========
In October 1995 the FASB issued SFAS No. 123, Accounting for Stock-Based
Compensation, which defines a fair value based method of accounting for employee
stock options and similar equity instruments and encourages all entities to
adopt that method of accounting for all of their employee stock compensation
plans. However, it also allows an entity to continue to measure compensation
cost for those plans using the method of accounting prescribed by Accounting
Principles Board Opinion No. 25 ("APB 25"). Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and, if
presented, earnings per share, as if the fair value based method of accounting
defined in SFAS No. 123 had been adopted.
The Company has elected to account for the Plan under APB 25; however, the
Company has computed, for pro forma disclosure purposes, the value of all stock
options granted during 1998 and 1997 using the Black-Scholes option pricing
model as prescribed by SFAS No. 123 using the following weighted average
assumptions:
1998 1997
---- ----
Risk-free interest rate 5.77 - 5.71% 6.69 - 5.77%
Expected dividend yield 0% 0%
Expected lives 4 to 8 years 4 to 8 years
Expected volatility 51.36% Minimum value
Using the Black-Scholes methodology, the total value of stock options granted
during 1998 and 1997 was $5,040,000 and $2,431,000, 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 1998 and 1997 was $10.83
and $3.30 per share, respectively.
35
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 14 - STOCK INCENTIVE PLAN (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):
1998 1997
---- ----
As reported Proforma As reported Proforma
----------- -------- ----------- --------
Net income $ 32,744 $ 31,616 $ 39,296 $ 38,970
Net income per share-basic $ 1.38 $ 1.33 $ 2.09 $ 2.07
Net income per share-diluted $ 1.36 $ 1.31 $ 2.06 $ 2.05
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, 1998:
Options
Outstanding Options Exercisable
------------ --------------------------
Weighted Avg. Weighted Weighted
Range of Remaining Average Number of Average
Exercise Number Contractual Exercise Shares Exercise
Prices Outstanding Life (yrs) Price Exercisable Price
-------------- ----------- ------------ ----------- ----------- -----------
$ 9.68 592,729 8.22 $ 9.680 188,630 $ 9.680
$ 15.20 91,724 8.88 15.200 21,440 15.200
$19.625 465,500 9.36 19.625 56,965 19.625
--------- ---- ------- ------- -------
$9.68 - 19.625 1,149,953 8.73 $14.146 267,035 $12.245
NOTE 15 - 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. During 1998,
net sales to one major customer amounted to approximately 10.6% of total net
sales.
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, 1998, 1997 and 1996. Inter-geographic net sales, which are recorded
at a negotiated mark-up and eliminated in consolidation, are not material.
1998 1997 1996
Net sales to unrelated entities:
United States $ 335,897 $ 286,896 $ 245,469
Canada 38,782 31,135 27,208
Other International 52,599 35,421 26,311
------------ ------------- -------------
$ 427,278 $ 353,452 $ 298,988
============ ============= =============
Income (loss) before income tax:
United States $ 50,132 $ 42,970 $ 22,401
Canada 7,370 2,325 2,810
Other International (189) (993) 1,487
Less interest and other income (expense)
and eliminations (5,590) (3,593) (4,220)
------------ ------------- -------------
$ 51,723 $ 40,709 $ 22,478
============ ============= =============
36
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 15 - SEGMENT INFORMATION (Continued)
Assets:
United States $ 247,125 $ 171,545 $ 129,332
Canada 16,696 15,416 15,568
Other international 33,571 15,041 10,198
----------- ----------- -----------
Total identifiable assets 297,392 202,002 155,098
Eliminations (27,914) (27,525) (19,131)
----------- ----------- -----------
Total assets $ 269,478 $ 174,477 $ 135,967
=========== =========== ===========
Interest expense (income), net:
United States $ 3,340 $ 3,048 $ 3,435
Canada 753 665 826
Other International (18) (120) (41)
----------- ----------- -----------
$ 4,075 $ 3,593 $ 4,220
=========== =========== ===========
Depreciation and amortization expense:
United States $ 6,934 $ 6,775 $ 5,885
Canada 392 443 456
Other International 315 300 78
----------- ----------- -----------
$ 7,641 $ 7,518 $ 6,419
=========== =========== ===========
NOTE 16 - 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, 1998, 1997 and 1996. 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,
1998 1997 1996
------ ------ ------
Weighted average common shares outstanding, used in
computing basic net income per share 23,731 18,792 16,997
Effect of dilutive stock options 327 311 -
------ ------ ------
Weighted-average common shares outstanding, used in
computing diluted net income per share 24,058 19,103 16,997
====== ====== ======
Net income per share of common stock:
Basic $ 1.38 $ 2.09 $ 1.24
Diluted $ 1.36 $ 2.06 $ 1.24
37
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
NOTE 17 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES
The Company enters into foreign currency contracts in order to reduce the impact
of certain foreign currency fluctuations. Firmly committed transactions and the
related receivables and payables may be hedged with forward exchange contracts
or purchased options. Anticipated, but not yet firmly committed, transactions
may be hedged through the use of purchased options. Premiums paid on purchased
options and any gains are included in prepaid expenses or accrued liabilities
and are recognized in earnings ratably over the life of the option. Gains and
losses arising from foreign currency forward and option contracts, and
cross-currency swap transactions are recognized in income or expense 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.
Cash flows from risk management activities are classified in the same category
as the cash flows from the related investment, borrowing or foreign exchange
activity. The Company is exposed to certain losses in the event of
nonperformance by the other parties to these agreements, but the Company does
not anticipate nonperformance by the other parties.
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, 1998 and 1997. 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.
The Company manages a portion of its exposure to fluctuations in currencies
related to foreign sales and accounts receivable with short-term strategies
after giving consideration to market conditions, contractual agreements,
anticipated sale and purchase transactions, and other factors affecting the
Company's risk profile. At December 31, 1998 and 1997, the Company had
approximately $0 and $7,050,000 (notional) in foreign currency option contracts
and approximately $9,700,000 and $2,000,000 (notional) in forward exchange
contracts. The carrying value and unrealized gains and losses related to these
contracts were not material at December 31, 1998 and 1997.
38
SUPPLEMENTAL INFORMATION - QUARTERLY FINANCIAL DATE (Unaudited)
The following table summarizes the Company's quarterly financial data for the
past two years ending December 31, 1998 (in thousands, except per share
amounts):
1998 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- ------------- -------------- ------------- --------------
Net sales $ 74,938 $ 67,177 $ 173,956 $ 111,207
Gross profit 28,937 28,383 79,645 49,856
Net income 2,101 564 22,872 7,207
Net income per
share - basic (1) 0.11 0.02 0.91 0.29
- diluted (1) 0.11 0.02 0.90 0.28
1997 First Quarter Second Quarter Third Quarter Fourth Quarter
- ---- ------------- -------------- ------------- --------------
Net sales $ 54,495 $ 49,695 $ 154,165 $ 95,097
Gross profit 20,752 21,623 71,409 40,722
Net income (1,420) (1,305) 34,525 7,496
Net income (loss) per
share
- basic (0.08) (0.07) 1.84 0.40
- diluted (2) (0.08) (0.07) 1.84 0.39
(1) In 1998, the sum of the four quarters net income per share does not equal
the annual amount due to the timing of issuance of shares in the first
quarter.
(2) In 1997, the sum of the four quarters net income (loss) per share does not
equal the annual amounts due to the dilutive effect of stock options
granted in the first, third and fourth quarters.
ITEM 9 - Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
39
PART III
ITEM 10 - Executive Officers and Key Employees of the Company
Information with respect to directors of the Company is hereby incorporated by
reference from the Company's proxy statement, under the caption "Election of
Directors," for its 1999 annual meeting of shareholders (the "1999 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 the
Company's fiscal year ended December 31, 1998. Information with respect to
executive officers of the Company 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 Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders 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, 1998.
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 Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders 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, 1998.
ITEM 13 - Certain Relationships and Related Transactions
There is incorporated herein by reference the information required by this Item
included in the Company's Proxy Statement for the 1999 Annual Meeting of
Shareholders 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, 1998.
40
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 20 to 39 of this Annual Report.
(a)(3) Exhibits
*3.1 Second Amended and Restated Articles of Incorporation
*3.2 1998 Restated Bylaws
*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
*10.4 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
41
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).
*10.7 Assumption Agreement by and between the Company, Timothy P.
Boyle and Don Sanforufo and First Interstate Bank of Oregon,
N.A., dated March 8, 1996; and form of First Amendment
thereto dated March 23, 1998
*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 Form of Stock Purchase Agreement between Columbia Sportswear
Holdings Limited, Columbia Sportswear Canada Limited and
Douglas Hamilton and Doug Hamilton in trust for Elizabeth K.
Hamilton, dated August 24, 1992
+*10.14 Deferred Compensation Conversion Agreement between the
Company and Don Santorufo, dated December 31, 1996
*10.15 Form of Tax Indemnification Agreement for existing
shareholders
+*10.16 Employment Agreement between Carl K. Davis and the Company
dated as of September 5, 1997
*10.17 Form of Indemnity Agreement for Directors
42
*10.18 Form of Agreement Regarding Plan of Recapitalization Among
the Company and Shareholders
+*10.19 Amendment and Waiver, Deferred Compensation Conversion
Agreement, between the Company and Don Santorufo
*10.20 Asset Purchase Agreement between the Company and Columbia
Outfitters, Inc., dated March 4, 1998
10.21 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)
21.1 Subsidiaries of the Company
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule
- --------------
+ Management Contract or Compensatory Plan
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Reg. No. 333-43199).
(c) Reports on Form 8-K. No reports on Form 8-K were filed during the
last quarter of the period covered by this Annual Report.
43
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 30, 1999.
Columbia Sportswear Company
By: 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 30, 1999.
Signatures Title
---------- -----
TIMOTHY P. BOYLE President and Chief Executive
- ---------------------------------- Officer and Director
Timothy P. Boyle (Principal Executive Officer)
PATRICK D. ANDERSON Chief Financial Officer (Principal
- ---------------------------------- Financial and Accounting Officer)
Patrick D. Anderson
GERTRUDE BOYLE Chairman of the Board of Directors
- ----------------------------------
Gertrude Boyle
SARAH BANY Director
- ----------------------------------
Sarah Bany
EDWARD S. GEORGE Director
- ----------------------------------
Edward S. George
MURRAY R. ALBERS Director
- ----------------------------------
Murrey R. Albers
JOHN STANTON Director
- ----------------------------------
John Stanton
44