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EX-31.1 - EXHIBIT 31.1 RULE 13A-14(A) CERTIFICATION OF TIMOTHY P. BOYLE, CEO - COLUMBIA SPORTSWEAR COcolm-2015630x10qxexhibit311.htm
EX-32.2 - EXHIBIT 32.2 EXHIBIT 32.2 SECTION 1350 CERTIFICATION OF THOMAS B. CUSICK, EVP AN - COLUMBIA SPORTSWEAR COcolm-2015630x10qxexhibit322.htm
EX-31.2 - EXHIBIT 31.2 RULE 13A-14(A) CERTIFICATION OF THOMAS B. CUSICK, EVP AND CFO - COLUMBIA SPORTSWEAR COcolm-2015630x10qxexhibit312.htm
EX-32.1 - EXHIBIT 32.1 SECTION 1350 CERTIFICATION OF TIMOTHY P. BOYLE, CEO - COLUMBIA SPORTSWEAR COcolm-2015630x10qxexhibit321.htm

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
____________________________
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2015
OR
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from_______to_______            
Commission file number 0-23939
 _____________________________
COLUMBIA SPORTSWEAR COMPANY
(Exact name of registrant as specified in its charter) 
Oregon
 
93-0498284
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
14375 Northwest Science Park Drive
Portland, Oregon
 
97229
(Address of principal executive offices)
 
(Zip Code)
(503) 985-4000
(Registrant’s telephone number, including area code)
_____________________________________
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  o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
o  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x
The number of shares of Common Stock outstanding on July 24, 2015 was 70,299,415.



COLUMBIA SPORTSWEAR COMPANY
JUNE 30, 2015
INDEX TO FORM 10-Q
 
 
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


PART I—FINANCIAL INFORMATION
Item 1.    FINANCIAL STATEMENTS
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
June 30,
2015
 
December 31,
2014
 
June 30,
2014
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
371,062

 
$
413,558

 
$
367,165

Short-term investments
 
46,428

 
27,267

 
27,238

Accounts receivable, net of allowance of $7,436, $8,943 and $6,977, respectively
 
198,296

 
344,390

 
204,527

Inventories
 
581,031

 
384,650

 
456,448

Deferred income taxes
 
55,519

 
57,001

 
52,202

Prepaid expenses and other current assets
 
45,513

 
39,175

 
42,551

Total current assets
 
1,297,849

 
1,266,041

 
1,150,131

Property, plant and equipment, at cost, net of accumulated depreciation of $356,035, $345,612 and $345,153, respectively
 
285,833

 
291,563

 
291,270

Intangible assets, net (Notes 3, 5)
 
141,158

 
143,731

 
149,221

Goodwill (Notes 3, 5)
 
68,594

 
68,594

 
69,257

Other non-current assets
 
25,222

 
22,280

 
25,412

Total assets
 
$
1,818,656

 
$
1,792,209

 
$
1,685,291

LIABILITIES AND EQUITY
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
Accounts payable
 
$
286,623

 
$
214,275

 
$
239,906

Accrued liabilities (Note 6)
 
110,528

 
144,288

 
104,332

Income taxes payable
 
3,436

 
14,388

 
3,315

Deferred income taxes
 
125

 
169

 
66

Total current liabilities
 
400,712

 
373,120

 
347,619

Note payable to related party (Note 14)
 
15,739

 
15,728

 
15,734

Other long-term liabilities
 
37,419

 
35,435

 
31,339

Income taxes payable
 
10,190

 
9,388

 
4,373

Deferred income taxes
 
3,104

 
3,304

 
8,261

Total liabilities
 
467,164

 
436,975

 
407,326

Commitments and contingencies (Note 12)
 

 

 

Columbia Sportswear Company Shareholders’ Equity:
 
 
 
 
 

Preferred stock; 10,000 shares authorized; none issued and outstanding
 

 

 

Common stock (no par value); 125,000 shares authorized; 70,263, 69,828, and 70,080 issued and outstanding, respectively (Note 9)
 
80,346

 
72,700

 
77,793

Retained earnings
 
1,253,883

 
1,255,070

 
1,154,103

Accumulated other comprehensive income (Note 8)
 
3,417

 
15,833

 
38,075

Total Columbia Sportswear Company shareholders’ equity
 
1,337,646

 
1,343,603

 
1,269,971

Non-controlling interest (Note 4)
 
13,846

 
11,631

 
7,994

Total equity
 
1,351,492

 
1,355,234

 
1,277,965

Total liabilities and equity
 
$
1,818,656

 
$
1,792,209

 
$
1,685,291

See accompanying notes to condensed consolidated financial statements.

2


COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 

 
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
2015
 
2014
 
2015
 
2014
Net sales
 
$
380,234

 
$
324,246

 
$
859,216

 
$
748,330

Cost of sales
 
208,916

 
180,221

 
459,124

 
407,219

Gross profit
 
171,318

 
144,025

 
400,092

 
341,111

Selling, general and administrative expenses
 
181,502

 
162,196

 
368,004

 
325,555

Net licensing income
 
1,222

 
1,182

 
3,072

 
2,906

Income (loss) from operations
 
(8,962
)
 
(16,989
)
 
35,160

 
18,462

Interest income, net
 
574

 
384

 
951

 
623

Interest expense on note payable to related party (Note 14)
 
(278
)
 
(277
)
 
(552
)
 
(487
)
Other non-operating income (expense)
 
467

 
(149
)
 
(1,729
)
 
(505
)
Income (loss) before income tax
 
(8,199
)
 
(17,031
)
 
33,830

 
18,093

Income tax benefit (expense)
 
2,395

 
10,293

 
(11,715
)
 
(1,155
)
Net income (loss)
 
(5,804
)
 
(6,738
)
 
22,115

 
16,938

Net income (loss) attributable to non-controlling interest
 
741

 
(409
)
 
2,189

 
1,012

Net income (loss) attributable to Columbia Sportswear Company
 
$
(6,545
)
 
$
(6,329
)
 
$
19,926

 
$
15,926

Earnings (loss) per share attributable to Columbia Sportswear Company (Note 9):
 
 
 

 
 
 
 
Basic
 
$
(0.09
)
 
$
(0.09
)
 
$
0.28

 
$
0.23

Diluted
 
(0.09
)
 
(0.09
)
 
0.28

 
0.23

Cash dividends per share
 
$
0.15

 
$
0.14

 
$
0.30

 
$
0.28

Weighted average shares outstanding (Note 9):
 
 
 
 
 


 
 
Basic
 
70,339

 
69,916

 
70,210

 
69,668

Diluted
 
70,339

 
69,916

 
71,152

 
70,602

See accompanying notes to condensed consolidated financial statements.


3


COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 

 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net income (loss)
$
(5,804
)
 
$
(6,738
)
 
$
22,115

 
$
16,938

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized holding gains (losses) on available-for-sale securities (net of tax benefit (expense) of $1, $1, $3 and ($1), respectively)
1

 
3

 
(2
)
 
4

Unrealized gains (losses) on derivative transactions (net of tax benefit of $1,004, $638, $289 and $741, respectively)
(2,010
)
 
(1,037
)
 
1,720

 
(809
)
Foreign currency translation adjustments (net of tax benefit of $241, $30, $1,070 and $23, respectively)
2,647

 
8,934

 
(14,108
)
 
3,056

Other comprehensive income (loss):
638

 
7,900

 
(12,390
)
 
2,251

Comprehensive income (loss)
(5,166
)
 
1,162

 
9,725

 
19,189

Comprehensive income (loss) attributable to non-controlling interest
740

 
(375
)
 
2,215

 
548

Comprehensive income (loss) attributable to Columbia Sportswear Company
$
(5,906
)
 
$
1,537

 
$
7,510

 
$
18,641

See accompanying notes to condensed consolidated financial statements.


4


COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2015
 
2014
Cash flows from operating activities:
 
 
 
Net income
$
22,115

 
$
16,938

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
27,778

 
23,234

Loss on disposal of property, plant, and equipment
507

 
229

Deferred income taxes
7,688

 
5,601

Stock-based compensation
5,939

 
5,208

Excess tax benefit from employee stock plans
(6,342
)
 
(3,951
)
Changes in operating assets and liabilities:
 
 
 
Accounts receivable
139,730

 
112,340

Inventories
(202,276
)
 
(114,716
)
Prepaid expenses and other current assets
(7,442
)
 
(7,357
)
Other assets
(3,018
)
 
297

Accounts payable
78,252

 
60,089

Accrued liabilities
(29,630
)
 
(23,095
)
Income taxes payable
(11,263
)
 
(13,596
)
Other liabilities
2,098

 
1,733

Net cash provided by operating activities
24,136

 
62,954

Cash flows from investing activities:
 
 
 
Acquisition of business, net of cash acquired

 
(188,467
)
Purchases of short-term investments
(38,208
)
 
(21,471
)
Sales of short-term investments
19,213

 
86,206

Capital expenditures
(28,365
)
 
(24,964
)
Proceeds from sale of property, plant, and equipment
104

 
16

Net cash used in investing activities
(47,256
)
 
(148,680
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facilities
260

 
1,045

Repayments on credit facilities
(260
)
 
(1,045
)
Proceeds from issuance of common stock under employee stock plans
14,371

 
19,017

Tax payments related to restricted stock unit issuances
(4,531
)
 
(2,881
)
Excess tax benefit from employee stock plans
6,342

 
3,951

Repurchase of common stock
(14,525
)
 

Proceeds from note payable to related party

 
16,072

Cash dividends paid
(21,113
)
 
(19,556
)
Net cash provided by (used in) financing activities
(19,456
)
 
16,603

Net effect of exchange rate changes on cash
80

 
(1,201
)
Net decrease in cash and cash equivalents
(42,496
)
 
(70,324
)
Cash and cash equivalents, beginning of period
413,558

 
437,489

Cash and cash equivalents, end of period
$
371,062

 
$
367,165

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
24,088

 
$
21,842

Supplemental disclosures of non-cash investing activities:
 
 
 
Capital expenditures incurred but not yet paid
$
4,044

 
$
8,145

See accompanying notes to condensed consolidated financial statements.

5


COLUMBIA SPORTSWEAR COMPANY


NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements have been prepared by the management of Columbia Sportswear Company (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, the “Company”) and in the opinion of management include all normal recurring material adjustments necessary to present fairly the Company’s financial position as of June 30, 2015 and 2014, the results of operations for the three and six months ended June 30, 2015 and 2014, and cash flows for the six months ended June 30, 2015 and 2014. The December 31, 2014 financial information was derived from the Company’s audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2014. A significant part of the Company’s business is of a seasonal nature; therefore, results of operations for the three and six months ended June 30, 2015 are not necessarily indicative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company, however, believes that the disclosures contained in this report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934 for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
On September 26, 2014, the Company completed a two-for-one stock split paid in the form of a 100% stock dividend. All references made to share or per share amounts in the accompanying condensed consolidated financial statements and notes thereto have been adjusted to reflect the stock split.
Principles of consolidation
The condensed consolidated financial statements include the accounts of Columbia Sportswear Company, its wholly owned subsidiaries and entities in which it maintains a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Estimates and assumptions
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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions. Some of these more significant estimates relate to revenue recognition, including sales returns and miscellaneous claims from customers, allowance for doubtful accounts, excess, slow-moving and closeout inventories, product warranty, long-lived and intangible assets, goodwill, income taxes and stock-based compensation.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.
Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. In July 2015, the FASB announced a one-year deferral of the effective date of the new revenue recognition standard. The new standard will become effective beginning with the first quarter of 2018 and can be adopted either retrospectively to each prior reporting period presented or as a cumulative effect adjustment as of the date of adoption. The Company is currently evaluating the impact this ASU will have on the Company's financial position, results of operations and cash flows.

6


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



In February 2015, the FASB issued ASU No. 2015-02, Amendments to the Consolidation Analysis: Topic 810. This ASU changes the analysis that a reporting entity must perform to determine whether it should consolidate certain types of legal entities. It is effective for annual reporting periods, and interim periods within those years, beginning after December 31, 2015. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating this ASU and does not expect the adoption of this standard to have a material effect on the Company's financial position, results of operations or cash flows.
NOTE 3—BUSINESS ACQUISITION
On May 30, 2014, the Company purchased 100% of the equity interest in prAna Living LLC (“prAna”) for $188,467,000, net of acquired cash of $4,946,000.
Purchase price allocation
Acquired assets and liabilities were recorded at estimated fair value as of the acquisition date. The excess of the purchase price over the estimated fair value of identifiable net assets resulted in the recognition of goodwill of $54,156,000, all of which was assigned to the United States segment, and is attributable to future growth opportunities and any intangible assets that did not qualify for separate recognition. The goodwill is expected to be deductible for tax purposes.
The following table summarizes the fair value of the net assets acquired and liabilities assumed as of the acquisition date of May 30, 2014, including measurement period adjustments (in thousands):
 
 
 
Cash
 
$
4,946

Accounts receivable
 
10,021

Inventories
 
9,641

Other current assets
 
2,531

Property, plant and equipment
 
5,192

Acquired intangible assets
 
114,500

Other non-current assets
 
258

     Total assets acquired
 
147,089

 
 
 
Accounts payable
 
2,803

Other current liabilities
 
5,029

     Total liabilities assumed
 
7,832

 
 
 
Net identifiable assets acquired
 
139,257

Goodwill
 
54,156

Net assets acquired
 
$
193,413

NOTE 4—NON-CONTROLLING INTEREST
The Company owns a 60% controlling interest in a joint venture formed with Swire Resources, Limited (“Swire”) to support the development and operation of the Company's business in China. The joint venture began operations on January 1, 2014. The accounts of the joint venture are included in the Condensed Consolidated Balance Sheets as of June 30, 2015 and 2014, and December 31, 2014. Swire's share of net income from the joint venture is included in net income attributable to non-controlling interest in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014. The 40% non-controlling equity interest in this entity is included in total equity as non-controlling interest in the Condensed Consolidated Balance Sheets as of June 30, 2015 and 2014, and December 31, 2014.
The following table presents the changes in Columbia Sportswear Company shareholders' equity and non-controlling interest for the six months ended June 30, 2015 (in thousands, except per share amounts):

7


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



 
 
Columbia Sportswear Company
 
Non-Controlling Interest
 
Total
Balance at December 31, 2014
 
$
1,343,603

 
$
11,631

 
$
1,355,234

Net income
 
19,926

 
2,189

 
22,115

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Unrealized holding losses on available-for-sale securities
 
(2
)
 

 
(2
)
Derivative holding gains
 
1,720

 

 
1,720

Foreign currency translation adjustments
 
(14,134
)
 
26

 
(14,108
)
Cash dividends ($0.30 per share)
 
(21,113
)
 

 
(21,113
)
Issuance of common stock under employee stock plans, net
 
9,840

 

 
9,840

Tax adjustment from stock plans
 
6,392

 

 
6,392

Stock-based compensation expense
 
5,939

 

 
5,939

Repurchase of common stock
 
(14,525
)
 

 
(14,525
)
Balance at June 30, 2015
 
$
1,337,646

 
$
13,846

 
$
1,351,492

The following table presents the changes in Columbia Sportswear Company shareholders' equity and non-controlling interest for the six months ended June 30, 2014 (in thousands, except per share amounts):
 
 
Columbia Sportswear Company
 
Non-Controlling Interest
 
Total
Balance at December 31, 2013
 
$
1,245,418

 
$
7,446

 
$
1,252,864

Net income
 
15,926

 
1,012

 
16,938

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Unrealized holding gains on available-for-sale securities
 
4

 

 
4

Derivative holding losses
 
(809
)
 

 
(809
)
Foreign currency translation adjustments
 
3,520

 
(464
)
 
3,056

Cash dividends ($0.28 per share)
 
(19,556
)
 

 
(19,556
)
Issuance of common stock under employee stock plans, net
 
16,136

 

 
16,136

Tax adjustment from stock plans
 
4,124

 

 
4,124

Stock-based compensation expense
 
5,208

 

 
5,208

Balance at June 30, 2014
 
$
1,269,971

 
$
7,994

 
$
1,277,965


NOTE 5—INTANGIBLE ASSETS, NET AND GOODWILL
Intangible assets that are determined to have finite lives include patents, purchased technology, customer relationships and order backlog and are amortized over their estimated useful lives, which range from less than one year to approximately 10 years, and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. Goodwill and intangible assets with indefinite useful lives, including trademarks and trade names, are not amortized but are periodically evaluated for impairment.
Intangible assets
The following table summarizes the Company’s identifiable intangible assets balance (in thousands):

8


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



 
June 30,
2015
 
December 31,
2014
 
June 30,
2014
Intangible assets subject to amortization:
 
 
 
 
 
Patents and purchased technology
$
14,198

 
$
14,198

 
$
14,198

Customer relationships
23,000

 
23,000

 
23,000

Order backlog

 

 
3,500

Gross carrying amount
37,198

 
37,198

 
40,698

Accumulated amortization:
 
 
 
 
 
Patents and purchased technology
(7,326
)
 
(6,661
)
 
(5,997
)
Customer relationships
(4,135
)
 
(2,227
)
 
(318
)
Order backlog

 

 
(583
)
Total accumulated amortization
(11,461
)
 
(8,888
)
 
(6,898
)
Net carrying amount
25,737

 
28,310

 
33,800

Intangible assets not subject to amortization
115,421

 
115,421

 
115,421

Intangible assets, net
$
141,158

 
$
143,731

 
$
149,221

Amortization expense for intangible assets subject to amortization was $1,287,000 and $1,234,000 for the three months ended June 30, 2015 and 2014, respectively, and was $2,573,000 and $1,567,000 for the six months ended June 30, 2015 and 2014, respectively.
Annual amortization expense is estimated to be as follows for the years 2015-2019 (in thousands):
2015
$
5,147

2016
5,147

2017
3,883

2018
2,980

2019
2,980

Goodwill
Goodwill was $68,594,000 at June 30, 2015 and December 31, 2014, and $69,257,000 at June 30, 2014. During the year ended December 31, 2014, goodwill increased $54,156,000, net of a remeasurement period adjustment of $663,000, related to the prAna acquisition (see Note 3).
NOTE 6—PRODUCT WARRANTY
Some of the Company’s products carry limited warranty provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements and is recorded in cost of sales. The warranty reserve is included in Accrued liabilities in the Condensed Consolidated Balance Sheets.
A reconciliation of product warranties is as follows (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Balance at beginning of period
$
10,873

 
$
10,652

 
$
11,148

 
$
10,768

Provision for warranty claims
860

 
673

 
2,325

 
2,154

Warranty claims
(847
)
 
(736
)
 
(2,233
)
 
(2,265
)
Other
80

 
91

 
(274
)
 
23

Balance at end of period
$
10,966

 
$
10,680

 
$
10,966

 
$
10,680


9


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



NOTE 7—STOCK-BASED COMPENSATION
The Company’s Stock Incentive Plan (the “Plan”) allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units and other stock-based or cash-based awards. The majority of all stock options and restricted stock unit grants outstanding under the Plan were granted in the first quarter of each fiscal year.
Stock-based compensation expense consisted of the following (in thousands):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Stock options
$
913

 
$
862

 
$
1,829

 
$
1,743

Restricted stock units
2,080

 
1,769

 
4,110

 
3,465

Total
$
2,993

 
$
2,631

 
$
5,939

 
$
5,208

Stock Options
The Company estimates the fair value of stock options using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected stock price volatility of the Company’s stock over the option’s expected term, the risk-free interest rate over the option’s expected term, and the Company’s expected annual dividend yield.
The following table presents the weighted average assumptions for stock options granted in the periods:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Expected option term
7.46 years
 
7.82 years
 
4.60 years
 
4.71 years
Expected stock price volatility
29.54%
 
28.63%
 
26.53%
 
27.67%
Risk-free interest rate
1.95%
 
2.29%
 
1.20%
 
1.21%
Expected annual dividend yield
1.04%
 
1.33%
 
1.26%
 
1.33%
Weighted average grant date fair value
$17.81
 
$12.77
 
$10.31
 
$8.76
During the six months ended June 30, 2015 and 2014, the Company granted a total of 495,145 and 472,576 stock options, respectively. At June 30, 2015, unrecognized costs related to outstanding stock options totaled approximately $8,018,000, before any related tax benefit. The unrecognized costs related to stock options are amortized over the related vesting period using the straight-line attribution method. Unrecognized costs related to stock options at June 30, 2015 are expected to be recognized over a weighted average period of 2.53 years.
Restricted Stock Units
The Company estimates the fair value of service-based and performance-based restricted stock units using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of restricted stock units include the vesting period, expected annual dividend yield and closing price of the Company’s common stock on the date of grant.
 The following table presents the weighted average assumptions for restricted stock units granted in the periods:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Vesting period
2.65 years
 
3.56 years
 
3.82 years
 
3.83 years
Expected annual dividend yield
1.05%
 
1.34%
 
1.14%
 
1.33%
Estimated average grant date fair value per restricted stock unit
$55.80
 
$39.91
 
$51.01
 
$39.08
During the six months ended June 30, 2015 and 2014, the Company granted 194,591 and 263,842 restricted stock units, respectively. At June 30, 2015, unrecognized costs related to outstanding restricted stock units totaled approximately $17,386,000, before any related tax benefit. The unrecognized costs related to restricted stock units are being amortized over the related vesting

10


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



period using the straight-line attribution method. These unrecognized costs at June 30, 2015 are expected to be recognized over a weighted average period of 2.39 years.
NOTE 8—ACCUMULATED OTHER COMPREHENSIVE INCOME
Accumulated other comprehensive income, net of applicable taxes, reported on the Company’s Condensed Consolidated Balance Sheets consists of unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses on certain derivative transactions and foreign currency translation adjustments.
The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the three months ended June 30, 2015 (in thousands):
 
 
Unrealized gains on available-for-sale securities
 
Unrealized holding gains (losses) on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at March 31, 2015
 
$
1

 
$
12,725

 
$
(9,948
)
 
$
2,778

Other comprehensive income (loss) before reclassifications
 
1

 
(742
)
 
2,648

 
1,907

Amounts reclassified from other comprehensive income
 

 
(1,268
)
 

 
(1,268
)
Net other comprehensive income (loss) during the period
 
1

 
(2,010
)
 
2,648

 
639

Balance at June 30, 2015
 
$
2

 
$
10,715

 
$
(7,300
)
 
$
3,417

The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the three months ended June 30, 2014 (in thousands):
 
 
Unrealized gains (losses) on available-for-sale securities
 
Unrealized holding gains (losses) on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at March 31, 2014
 
$
(5
)
 
$
1,472

 
$
28,742

 
$
30,209

Other comprehensive income (loss) before reclassifications
 
3

 
(634
)
 
8,900

 
8,269

Amounts reclassified from other comprehensive income
 

 
(403
)
 

 
(403
)
Net other comprehensive income (loss) during the period
 
3

 
(1,037
)
 
8,900

 
7,866

Balance at June 30, 2014
 
$
(2
)
 
$
435

 
$
37,642

 
$
38,075

The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the six months ended June 30, 2015 (in thousands):
 
 
Unrealized gains (losses) on available-for-sale securities
 
Unrealized holding gains (losses) on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at December 31, 2014
 
$
4

 
$
8,995

 
$
6,834

 
$
15,833

Other comprehensive income (loss) before reclassifications
 
(2
)
 
4,840

 
(14,134
)
 
(9,296
)
Amounts reclassified from other comprehensive income
 

 
(3,120
)
 

 
(3,120
)
Net other comprehensive income (loss) during the period
 
(2
)
 
1,720

 
(14,134
)
 
(12,416
)
Balance at June 30, 2015
 
$
2

 
$
10,715

 
$
(7,300
)
 
$
3,417

The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the six months ended June 30, 2014 (in thousands):

11


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



 
 
Unrealized gains (losses) on available-for-sale securities
 
Unrealized holding gains (losses) on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at December 31, 2013
 
$
(6
)
 
$
1,244

 
$
34,122

 
$
35,360

Other comprehensive income before reclassifications
 
4

 
70

 
3,520

 
3,594

Amounts reclassified from other comprehensive income
 

 
(879
)
 

 
(879
)
Net other comprehensive income (loss) during the period
 
4

 
(809
)
 
3,520

 
2,715

Balance at June 30, 2014
 
$
(2
)
 
$
435

 
$
37,642

 
$
38,075

All reclassification adjustments related to derivative transactions are recorded in cost of sales in the Condensed Consolidated Statements of Operations. See Note 11 for further information regarding derivative instrument reclassification adjustments.
NOTE 9—EARNINGS PER SHARE
Earnings per share (“EPS”) is presented on both a basic and diluted basis. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted EPS, the basic weighted average number of shares is increased by the dilutive effect of stock options and restricted stock units determined using the treasury stock method.
A reconciliation of common shares used in the denominator for computing basic and diluted EPS is as follows (in thousands, except per share amounts):
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Weighted average shares of common stock outstanding, used in computing basic earnings per share
70,339

 
69,916

 
70,210

 
69,668

Effect of dilutive stock options and restricted stock units

 

 
942

 
934

Weighted average shares of common stock outstanding, used in computing diluted earnings per share
70,339

 
69,916

 
71,152

 
70,602

Earnings per share of common stock attributable to Columbia Sportswear Company:
 
 
 
 
 
 
 
Basic
$
(0.09
)
 
$
(0.09
)
 
$
0.28

 
$
0.23

Diluted
(0.09
)
 
(0.09
)
 
0.28

 
0.23

 
Stock options and service-based restricted stock units representing 3,058,634 and 3,508,752 shares of common stock for the three months ended June 30, 2015 and 2014, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive due to a net loss in the period. Stock options and service-based restricted units representing 116,558 and 336,712 shares of common stock for the six months ended June 30, 2015 and 2014, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive as a result of applying the treasury stock method. In addition, performance-based restricted stock units representing 138,005 and 95,384 shares of common stock for the three months ended June 30, 2015 and 2014, respectively, and 129,954 and 78,746 shares of common stock for the six months ended June 30, 2015 and 2014, respectively, were outstanding but were excluded from the computation of diluted EPS because these shares were subject to performance conditions that had not been met.

Common stock repurchase plan
Since the inception of the Company’s stock repurchase plan in 2004 through June 30, 2015, the Company’s Board of Directors has authorized the repurchase of $700,000,000 of the Company’s common stock. Shares of the Company’s common stock may be purchased in the open market or through privately negotiated transactions, subject to market conditions. The repurchase program does not obligate the Company to acquire any specific number of shares or to acquire shares over any specified period of time. As of June 30, 2015, the Company had repurchased 19,865,932 shares under this program at an aggregate purchase price of

12


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



approximately $470,968,000. During the six months ended June 30, 2015, the Company repurchased 258,874 shares of the Company's common stock at an aggregate purchase price of $14,525,000. During the six months ended June 30, 2014, the Company did not repurchase any shares of the Company's common stock.
NOTE 10—SEGMENT INFORMATION
The Company has aggregated its operating segments into four geographic segments: (1) United States, (2) Latin America and Asia Pacific (“LAAP”), (3) Europe, Middle East and Africa (“EMEA”) and (4) Canada, which are reflective of the Company’s internal organization, management, and oversight structure. Each geographic segment operates predominantly in one industry: the design, development, marketing and distribution of outdoor and active lifestyle apparel, footwear, accessories and equipment. Intersegment net sales and intersegment profits, which are recorded at a negotiated mark-up and eliminated in consolidation, are not material. Unallocated corporate expenses consist of expenses incurred by centrally-managed departments, including global information systems, finance and legal, executive compensation, unallocated benefit program expense and other miscellaneous costs.
The geographic distribution of the Company’s net sales and income from operations are summarized in the following table (in thousands) for the three and six months ended June 30, 2015 and 2014.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net sales to unrelated entities:
 
 
 
 
 
 
 
United States
$
212,032

 
$
146,368

 
$
495,792

 
$
387,557

LAAP
97,068

 
96,100

 
210,130

 
212,913

EMEA
59,905

 
72,949

 
107,730

 
112,089

Canada
11,229

 
8,829

 
45,564

 
35,771

 
$
380,234

 
$
324,246

 
$
859,216

 
$
748,330

Segment income (loss) from operations:
 
 
 
 
 
 
 
United States
$
22,708

 
$
2,365

 
$
75,520

 
$
46,536

LAAP
8,575

 
9,253

 
23,928

 
26,487

EMEA
2,115

 
5,797

 
3,481

 
2,271

Canada
(3,511
)
 
(3,784
)
 
2,791

 
(385
)
Total segment income from operations
29,887

 
13,631

 
105,720

 
74,909

Unallocated corporate expenses
(38,849
)
 
(30,620
)
 
(70,560
)
 
(56,447
)
Interest income, net
574

 
384

 
951

 
623

Interest expense on note payable to related party
(278
)
 
(277
)
 
(552
)
 
(487
)
Other non-operating income (expense)
467

 
(149
)
 
(1,729
)
 
(505
)
Income (loss) before income taxes
$
(8,199
)
 
$
(17,031
)
 
$
33,830

 
$
18,093


Concentrations
The Company had one customer in its EMEA segment that accounted for approximately 12.2% and 16.7% of consolidated accounts receivable at June 30, 2015 and 2014, respectively. No single customer accounted for 10% or more of consolidated accounts receivable at December 31, 2014. No single customer accounted for 10% or more of consolidated revenues for the three months ended June 30, 2015. The Company had one customer in its EMEA segment that accounted for approximately 12.1% of consolidated revenues for the three months ended June 30, 2014. No customer accounted for 10% or more of consolidated revenues for the six months ended June 30, 2015 or 2014.

13


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



NOTE 11—FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In the normal course of business, the Company’s financial position, results of operations and cash flows are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk, and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market.
The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. Subsidiaries that use European euros, Canadian dollars, Japanese yen or Korean won as their functional currency are primarily exposed to changes in functional currency equivalent cash flows from anticipated U.S. dollar inventory purchases. Subsidiaries that use U.S. dollars as their functional currency are primarily exposed to anticipated Canadian dollar denominated sales. The Company manages these risks by using currency forward and option contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument’s cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, the change in fair value attributable to changes in forward points is excluded from the determination of hedge effectiveness and included in current period cost of sales for hedges of anticipated U.S. dollar inventory purchases and in net sales for hedges of anticipated Canadian dollar sales. For option contracts, the change in fair value attributable to changes in time value are excluded from the assessment of hedge effectiveness and included in current period cost of sales. Hedge ineffectiveness was not material during the three and six months ended June 30, 2015 and 2014.
 
The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use European euros, Canadian dollars, Japanese yen, Korean won or Chinese renminbi as their functional currency. Non-functional currency denominated monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, receivables, payables and intercompany loans. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in other non-operating income (expense), net by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities.
The following table presents the gross notional amount of outstanding derivative instruments (in thousands): 
 
June 30,
2015
 
December 31,
2014
 
June 30,
2014
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
Currency forward contracts
$
95,000

 
$
103,000

 
$
127,000

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
Currency forward contracts
117,000

 
128,000

 
63,500

At June 30, 2015, approximately $12,911,000 of deferred net gains on both outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on U.S. dollar exchange rates in effect against the European euro, Canadian dollar, Japanese yen and Korean won when outstanding derivative contracts mature.
At June 30, 2015, the Company’s derivative contracts had a remaining maturity of less than two years . The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was less than $3,000,000 at June 30, 2015. All of the Company's derivative counterparties have investment grade credit ratings. The Company is a party to master netting arrangements that contain features that allow counterparties to net settle amounts arising from multiple separate derivative transactions or net settle in the case of certain triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. Finally, the Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.
The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):

14


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



 
 
Balance Sheet Classification
 
June 30,
2015
 
December 31,
2014
 
June 30,
2014
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
 
 
 
Derivative instruments in asset positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Prepaid expenses and other current assets
 
$
4,485

 
$
9,993

 
$
986

Currency forward contracts
 
Other non-current assets
 
320

 

 
155

Derivative instruments in liability positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Accrued liabilities
 
28

 

 
1,081

Currency forward contracts
 
Other long-term liabilities
 

 

 
12

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Derivative instruments in asset positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Prepaid expenses and other current assets
 
4,458

 
2,754

 
302

Derivative instruments in liability positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Accrued liabilities
 
738

 
924

 
650


The following table presents the statement of operations effect and classification of derivative instruments (in thousands):
 
 
Statement of
Operations
Classification
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
 
 
2015
 
2014
 
2015
 
2014
Currency Forward and Option Contracts:
 
 
 
 
 
 
 
 
 
 
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
 
 
 
Gain (loss) recognized in other comprehensive income or loss
 
 
$
(742
)
 
$
(634
)
 
$
4,840

 
$
70

Gain reclassified from accumulated other comprehensive income or loss to income for the effective portion
 
Cost of sales
 
1,690

 
690

 
3,947

 
1,499

Loss recognized in income for amount excluded from effectiveness testing and for the ineffective portion
 
Net sales
 
(2
)
 

 
(17
)
 

Loss recognized in income for amount excluded from effectiveness testing and for the ineffective portion
 
Cost of sales
 
(88
)
 
(186
)
 
(210
)
 
(208
)
Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Gain (loss) recognized in income
 
Other non-operating expense
 
(356
)
 
(506
)
 
2,580

 
(1,971
)
NOTE 12—COMMITMENTS AND CONTINGENCIES
Inventory Purchase Obligations
Inventory purchase obligations consist of open production purchase orders and other commitments for raw materials and sourced apparel, footwear, accessories and equipment. At June 30, 2015, inventory purchase obligations were $364,435,000.

15


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



Litigation
The Company is a party to various legal claims, actions and complaints from time to time. Although the ultimate resolution of legal proceedings cannot be predicted with certainty, management believes that disposition of these matters will not have a material adverse effect on the Company’s consolidated financial statements.
NOTE 13—FAIR VALUE MEASURES
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 –
observable inputs such as quoted prices for identical assets or liabilities in active liquid markets;
Level 2 –
inputs, other than the quoted market prices in active markets, that are observable, either directly or indirectly; or observable market prices in markets with insufficient volume and/or infrequent transactions; and
Level 3 –
unobservable inputs for which there is little or no market data available, that require the reporting entity to
develop its own assumptions.
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2015 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
116,316

 
$

 
$

 
$
116,316

Time deposits
102,756

 

 

 
102,756

Reverse repurchase agreements

 
20,000

 

 
20,000

U.S. Government-backed municipal bonds

 
6,775

 

 
6,775

Available-for-sale short-term investments (1)
 
 
 
 
 
 
 
Certificates of deposit

 
10,291

 

 
10,291

U.S. Government-backed municipal bonds

 
35,481

 

 
35,481

Other short-term investments
 
 
 
 
 
 
 
Mutual fund shares
656

 

 

 
656

Other current assets
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)

 
8,943

 

 
8,943

Other non-current assets
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)

 
320

 

 
320

Mutual fund shares
6,874

 

 

 
6,874

Total assets measured at fair value
$
226,602

 
$
81,810

 
$

 
$
308,412

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
$

 
$
766

 
$

 
$
766

Total liabilities measured at fair value
$

 
$
766

 
$

 
$
766


16


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



Assets and liabilities measured at fair value on a recurring basis as of December 31, 2014 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
94,112

 
$

 
$

 
$
94,112

Time deposits
45,187

 

 

 
45,187

Certificates of deposit

 
1,470

 

 
1,470

Reverse repurchase agreements

 
40,000

 

 
40,000

U.S. Government-backed municipal bonds

 
5,812

 

 
5,812

Available-for-sale short-term investments (1)
 
 
 
 
 
 
 
Certificates of deposit

 
3,184

 

 
3,184

U.S. Government-backed municipal bonds

 
23,598

 

 
23,598

Other short-term investments
 
 
 
 
 
 
 
Mutual fund shares
485

 

 

 
485

Other current assets
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)

 
12,747

 

 
12,747

Other non-current assets
 
 
 
 
 
 
 
Mutual fund shares
6,039

 

 

 
6,039

Total assets measured at fair value
$
145,823

 
$
86,811

 
$

 
$
232,634

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
$

 
$
924

 
$

 
$
924

Total liabilities measured at fair value
$

 
$
924

 
$

 
$
924


17


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



Assets and liabilities measured at fair value on a recurring basis as of June 30, 2014 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents
 
 
 
 
 
 
 
Money market funds
$
147,953

 
$

 
$

 
$
147,953

Time deposits
25,148

 
14,824

 

 
39,972

U.S. Government-backed repurchase agreements

 
40,000

 

 
40,000

Available-for-sale short-term investments (1)
 
 
 
 
 
 
 
Certificates of deposit

 
3,429

 

 
3,429

Variable-rate demand notes

 
18,675

 

 
18,675

U.S. Government-backed municipal bonds

 
4,584

 

 
4,584

Other short-term investments
 
 
 
 
 
 
 
Mutual funds shares
550

 

 

 
550

Other current assets
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)


 
1,288

 


 
1,288

Other non-current assets
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)

 
155

 

 
155

Mutual fund shares
5,749

 

 

 
5,749

Total assets measured at fair value
$
179,400

 
$
82,955

 
$

 
$
262,355

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
$

 
$
1,731

 
$

 
$
1,731

Other long-term liabilities
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)

 
12

 

 
12

Total liabilities measured at fair value
$

 
$
1,743

 
$

 
$
1,743

 
(1) 
Investments have remaining maturities of less than one year.
 
Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from inputs, other than quoted market prices in active markets, which are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions.
Non-recurring fair value measurements
There were no material assets and liabilities measured at fair value on a nonrecurring basis as of June 30, 2015, December 31, 2014 or June 30, 2014.
NOTE 14—RELATED PARTY TRANSACTIONS
On January 1, 2014, the Company commenced operations of a majority-owned joint venture in mainland China. Upon commencement, the joint venture entered into Transition Services Agreements (“TSAs”) with Swire, the non-controlling shareholder in the joint venture, under which Swire renders administrative and information technology services on behalf of the joint venture. The joint venture incurred service fees, valued under the TSAs at Swire's cost, of $2,120,000 and $2,173,000 during the three months ended June 30, 2015 and 2014, respectively, and $3,875,000 and $4,880,000 during the six months ended June 30, 2015 and 2014, respectively. These fees are included in selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. In addition, the joint venture pays Swire sourcing fees related to the purchase of certain inventory. These sourcing fees are capitalized into inventories and charged to cost of sales as the inventories are sold. The joint venture did not incur sourcing fees for the three months ended June 30, 2015. For the three months ended June 30, 2014, the joint venture incurred sourcing fees of $8,000. For the six months ended June 30, 2015 and 2014, the joint venture incurred sourcing fees of $289,000 and $293,000, respectively.

18


COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)



During the six months ended June 30, 2015 and 2014, both the Company and Swire funded long-term loans to the joint venture. The Company's loan has been eliminated in consolidation, while the Swire loan is reflected as note payable to related party in the Condensed Consolidated Balance Sheet as of June 30, 2015 and 2014 and December 31, 2014. The note with Swire, in the principal amount of 97,600,000 RMB (US$15,739,000 at June 30, 2015), matures on December 31, 2018 and bears interest at a fixed annual rate of 7%. Interest expense related to this note was $278,000 and $277,000 for the three months ended June 30, 2015 and 2014, respectively and $552,000 and $487,000 for the six months ended June 30, 2015 and 2014, respectively.
As of June 30, 2015 and 2014 and December 31, 2014, net payables to Swire for service fees, interest expense and miscellaneous expenses totaled $6,769,000, $5,044,000 and $3,651,000, respectively, and were included in accounts payable in the Condensed Consolidated Balance Sheets.
In addition to the transactions described above, Swire is also a third-party distributor of the Company's brands in certain regions outside of mainland China and purchases products from the Company under the Company's normal third-party distributor terms and pricing.

19


Item 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains forward-looking statements. Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding anticipated sales, gross margins and operating margins across markets, including from the operations of our China joint venture and prAna subsidiary, profitability and the effect of specified factors on profitability for 2015, expenses, input costs, effects of unseasonable weather on our results of operations, inventory levels, investments in our business, investments in and implementation of our information technology systems, our direct-to-consumer channels and other capital expenditures, access to raw materials and factory capacity, financing and working capital requirements and resources, tax rates and pre-tax income, and our exposure to market risk associated with interest rates and foreign currency exchange rates.
These forward-looking statements, and others we make from time to time, are subject to a number of risks and uncertainties. Many factors may cause actual results to differ materially from those projected in forward-looking statements, including the risks described below in Part II, Item 1A, Risk Factors. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.
Our Business
As one of the largest outdoor and active lifestyle apparel and footwear companies in the world, we design, source, market and distribute active outdoor and lifestyle apparel, footwear, accessories and equipment under the Columbia, Mountain Hardwear, Sorel, prAna and Montrail brands. Our products are sold through a mix of wholesale distribution channels, our own direct-to-consumer channels, and independent distributors. In addition, we license some of our trademarks across a range of apparel, footwear, accessories and equipment.
The popularity of outdoor activities, changing design trends, consumer adoption of innovative performance technologies, variations in seasonal weather, and the availability and desirability of competitor alternatives affect consumer desire for our products. Therefore, we seek to drive, anticipate and respond to trends and shifts in consumer preferences by adjusting our product offerings, developing new products with innovative performance features and designs, and creating persuasive and memorable marketing communications to generate consumer awareness, demand and retention. Failure to anticipate or respond to consumer needs and preferences in a timely and adequate manner could have a material adverse effect on our sales and profitability.
Seasonality and Variability of Business
Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. The expansion of our direct-to-consumer operations has increased the proportion of sales, profits and cash flows that we generate in the fourth calendar quarter. As a result, our sales and profits tend to be highest in the third and fourth calendar quarters. In 2014, approximately 60% of our net sales and approximately 90% of our profitability were realized in the second half of the year, illustrating our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs.
We generally solicit orders from wholesale customers and independent distributors for the fall and spring seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance fall season orders to customers beginning in July and continuing through December. Similarly, we typically ship the majority of our advance spring season orders to customers beginning in January and continuing through June. Generally, orders are subject to cancellation prior to the date of shipment.
Results of operations in any period should not be considered indicative of the results to be expected for any future period, particularly in light of persistent volatility of global economic and geopolitical conditions which, when combined with seasonal weather patterns and inflationary or volatile input costs, reduce the predictability of our business.
Business Developments
On January 1, 2014 we commenced operations of a majority-owned joint venture in mainland China with Swire Resources, Limited (“Swire”). As a 60% majority-owned entity, the joint venture's operations are included in our consolidated financial results.
On May 30, 2014, we purchased 100% of the equity interest in prAna Living LLC (“prAna”) for $188.5 million, net of acquired cash. PrAna is a lifestyle apparel brand sold through select specialty and online retailers across North America, as well as through five company-owned retail stores, an e-commerce site and direct-mail catalogs. The acquisition of prAna strengthens

20


and diversifies our brand portfolio and generally offsets some of the more seasonal sales effects found within our other brands. The acquisition was funded with cash on hand.
Business Outlook
We expect 2015 profitability to be affected by the following major factors:
Net sales growth in the Columbia and Sorel brands across our United States, Canadian and European wholesale channels;
Continued growth of our brick-and-mortar and e-commerce direct-to-consumer sales in the United States and Canada, including the planned addition of 14 new stores in the United States and one in Canada;
Financial results of the prAna business, which was acquired on May 30, 2014;
Difficult economic and/or competitive environments in certain key international markets, particularly Russia, Korea and China; and
The effects of changes in foreign currency exchange rates on sales, gross margin and operating income.
Consistent with the historical seasonality of the business, we anticipate 2015 profitability to be heavily concentrated in the second half of the year.
We implemented our new enterprise resource planning (“ERP”) system in our international distributor businesses in May 2015, which joins our North American wholesale businesses and the majority of our global supply chain operations on our new ERP platform. The next planned phase of our global ERP system initiative is to transition our Japan business to our new ERP system in 2016.

The global business climate continues to present us with a great deal of uncertainty, making it difficult to predict future results. Factors that could significantly affect our full year 2015 outlook include:
Unseasonable weather conditions or other unforeseen factors affecting consumer demand and the resulting effect on order cancellations, sales returns, customer accommodations, reorders, direct-to-consumer sales, promotional activities, and suppressed demand in subsequent seasons;
Macroeconomic trends affecting consumer traffic and spending in brick and mortar retail channels;
The rate of new store expansion and productivity of our existing stores and e-commerce sites in our global direct-to-consumer operations;
Changes in mix and volume of full price sales in relation to closeout product sales and promotional sales activity;
Production capacity constraints and associated risks, including timely delivery, quality and non-compliance;
Costs and business interruption risks related to our supply chain;
Risks associated with information technology infrastructure investments and projects, including our multi-year global ERP system implementation;
Our ability to effectively manage operating costs;
Continued political and economic uncertainty, which is creating headwinds in key global markets; and
Fluctuating currency exchange rates.
These factors and others may have a material effect on our financial condition, results of operations or cash flows, particularly with respect to quarterly comparisons.
We remain focused on driving sustainable, profitable sales growth by providing innovative, stylish products at accessible prices, nurturing stronger emotional connections with consumers through compelling marketing communications, transforming our global supply chain and information technology platforms, and effectively managing inventory.
Results of Operations
The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying Notes that appear elsewhere in this quarterly report. The following discussion includes references to constant-dollar net sales percentage changes, which exclude the effect of changes in foreign currency exchange rates between comparable reporting periods when translating net sales recognized in foreign currencies into U.S. dollars. All references to quarters relate to the quarter ended June 30 of the particular year.

21


Highlights of the Second Quarter of 2015

Net sales for the second quarter of 2015 increased $56.0 million, or 17% (21% constant-dollar), to $380.2 million from $324.2 million for the second quarter of 2014.
Net loss attributable to Columbia Sportswear Company for the second quarter of 2015 was $6.5 million, or $(0.09) per diluted share, compared to a net loss of $6.3 million, or $(0.09) per diluted share, for the second quarter of 2014, which included a non-recurring tax benefit of $5.6 million, or $0.08 per diluted share, reflecting the resolution of specific uncertain tax positions, and acquisition costs totaling approximately $2.1 million net of tax, or $(0.03) per diluted share, related to the purchase of prAna Living, LLC.
We paid a quarterly cash dividend of $0.15 per share, or $10.6 million, in the second quarter of 2015.
The following table sets forth, for the periods indicated, the percentage relationship to net sales of specified items in our Condensed Consolidated Statements of Operations:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2015
 
2014
 
2015
 
2014
Net sales
100.0
 %
 
100.0
 %
 
100.0
 %
 
100.0
 %
Cost of sales
54.9

 
55.6

 
53.4

 
54.4

Gross profit
45.1

 
44.4

 
46.6

 
45.6

Selling, general and administrative expenses
47.7

 
50.0

 
42.8

 
43.5

Net licensing income
0.2

 
0.4

 
0.3

 
0.4

Income (loss) from operations
(2.4
)
 
(5.2
)
 
4.1

 
2.5

Interest income, net
0.2

 
0.1

 
0.1

 
0.1

Interest expense on note payable to related party
(0.1
)
 
(0.1
)
 
(0.1
)
 
(0.1
)
Other non-operating income (expense)
0.1

 
(0.1
)
 
(0.2
)
 
(0.1
)
Income (loss) before income tax
(2.2
)
 
(5.3
)
 
3.9

 
2.4

Income tax benefit (expense)
0.7

 
3.2

 
(1.3
)
 
(0.2
)
Net income (loss)
(1.5
)
 
(2.1
)
 
2.6

 
2.2

Net income (loss) attributable to non-controlling interest
0.2

 
(0.1
)
 
0.3

 
0.1

Net income (loss) attributable to Columbia Sportswear Company
(1.7
)%
 
(2.0
)%
 
2.3
 %
 
2.1
 %
Quarter Ended June 30, 2015 Compared to Quarter Ended June 30, 2014
Net Sales: Consolidated net sales increased $56.0 million, or 17% (21% constant-dollar), to $380.2 million for the second quarter of 2015 from $324.2 million for the comparable period in 2014.
Sales by Geographic Region
Net sales by geographic region are summarized in the following table:
 
Three Months Ended June 30,
 
 
 
 
 
 
 
Constant Dollar % Change (1)