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