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 June 30, 1999
---------------------------------
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 (IRS Employer
incorporation or organization) 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 June 30, 1999, was
25,290,664.
COLUMBIA SPORTSWEAR COMPANY
JUNE 30, 1999
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........12
PART II. OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders...............12
ITEM 6 - Exhibits and Reports on Form 8-K..................................12
SIGNATURES ................................................................13
1
ITEM 1 - Financial Statements
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
June 30,1999 December 31,1998
------------ ----------------
ASSETS
Current Assets:
Cash and cash equivalents $ 4,578 $ 6,777
Accounts receivable, net of allowance of
$3,309 and $3,395, respectively 77,640 105,967
Inventories (Note 2) 107,991 74,059
Deferred tax asset 8,719 8,895
Prepaid expenses and other current assets 5,242 2,485
------------ ------------
Total current assets 204,170 198,183
Property, plant, and equipment, net 70,442 68,692
Intangibles and other assets 2,336 2,603
------------ ------------
Total assets $ 276,948 $ 269,478
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 39,131 $ 34,727
Accounts payable 42,106 37,514
Accrued liabilities 14,167 16,236
Current portion of long-term debt 241 201
------------ ------------
Total current liabilities 95,645 88,678
Long-term debt 26,795 27,275
Deferred tax liability 4,105 4,111
------------ ------------
Total liabilities 126,545 120,064
Commitments and contingencies - -
Shareholders' Equity:
Preferred stock; 10,000 shares authorized;
none issued and outstanding - -
Common stock; 50,000 shares authorized;
25,291 and 25,267 issued and outstanding 125,219 124,990
Retained earnings 32,284 32,282
Accumulated other comprehensive income (3,204) (3,478)
Unearned portion of restricted stock issued
for future services (3,896) (4,380)
------------ ------------
Total shareholders' equity 150,403 149,414
------------ ------------
Total liabilities and shareholders' equity $ 276,948 $ 269,478
============ ============
See accompanying notes to condensed consolidated financial statements
2
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales $ 71,416 $ 67,177 $ 160,630 $ 142,115
Cost of sales 40,116 38,794 96,716 84,795
------------ ------------ ------------ ------------
Gross profit 31,300 28,383 63,914 57,320
Selling, general, and administrative 30,659 26,647 62,247 54,977
------------ ------------ ------------ ------------
Income from operations 641 1,736 1,667 2,343
Interest expense, net 1,037 784 1,663 1,222
------------ ------------ ------------ ------------
Income (loss) before income tax (396) 952 4 1,121
Income tax expense (benefit) (Note 3) (158) 388 2 (1,544)
------------ ------------ ------------ ------------
Net income (loss) (Note 6) $ (238) $ 564 $ 2 $ 2,665
============ ============ ============ ============
Net income (loss) per share (Note 4):
Basic $ (0.01) $ 0.02 $ 0.00 $ 0.12
Diluted $ (0.01) $ 0.02 $ 0.00 $ 0.12
Weighted average shares outstanding :
Basic 25,291 25,236 25,286 22,205
Diluted 25,515 25,622 25,515 22,590
See accompanying notes to condensed consolidated financial statements
3
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Six Months Ended June 30,
------------------------------
1999 1998
--------- ---------
Cash Flows From Operating Activities:
Net income $ 2 $ 2,665
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 5,700 3,668
Non-cash compensation 484 485
Loss on disposal of property, plant, and equipment 34 41
Deferred income tax provision 170 (4,500)
Changes in operating assets and liabilities:
Accounts receivable 27,238 4,226
Inventories (34,419) (60,370)
Prepaid expenses and other current assets (2,809) (553)
Intangibles and other assets 79 (908)
Accounts payable 5,096 35,446
Accrued liabilities (1,969) 179
--------- ---------
Net cash used in operating activities (394) (19,621)
--------- ---------
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (7,386) (22,529)
Proceeds from sale of property, plant, and equipment 12 98
--------- ---------
Net cash used in investing activities (7,374) (22,431)
--------- ---------
Cash Flows From Financing Activities:
Net borrowings on notes payable 5,908 30,290
Repayment on long-term debt (440) (76)
Proceeds from options exercised 229 102
Proceeds from initial public offering - 107,934
Distributions paid to shareholders - (95,128)
--------- ---------
Net cash provided by financing activities 5,697 43,122
--------- ---------
Net Effect of Exchange Rate Changes on Cash (128) 96
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (2,199) 1,166
Cash and Cash Equivalents, Beginning of Period 6,777 4,001
--------- ---------
Cash and Cash Equivalents, End of Period $ 4,578 $ 5,167
========= =========
See accompanying notes to condensed consolidated financial statements
4
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 June 30, 1999, and the results of operations for the three months
and six months ended June 30, 1999 and 1998 and of cash flows for the six months
ended June 30, 1999 and 1998. 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 and six months
ended June 30, 1999 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, 1998.
Certain reclassifications of amounts reported in the prior period financial
statements have been made to conform to classifications used in the current
period financial statements.
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
June 30, 1999 December 31, 1998
------------- -----------------
Raw materials $ 5,351 $ 4,071
Work in process 16,417 5,576
Finished goods 86,223 64,412
------------- -------------
$ 107,991 $ 74,059
============= =============
NOTE 3. INCOME TAXES
Prior to the Company's initial public offering completed on April 1, 1998, 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 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 statement and income tax
bases of the Company's assets and liabilities.
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.
There were no adjustments to net income in computing diluted net income per
share for the three months and six months ended June 30, 1999 and 1998. A
reconciliation of the common
5
shares used in the denominator for computing basic and diluted net income per
share is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Weighted average common shares outstanding,
used in computing basic net income (loss)
per share 25,291 25,236 25,286 22,205
Effect of dilutive stock options 224 386 229 385
------------ ------------ ------------ ------------
Weighted-average common shares outstanding,
used in computing diluted net income (loss)
per share 25,515 25,622 25,515 22,590
============ ============ ============ ============
Net income (loss) per share of common stock:
Basic and diluted $ (0.01) $ 0.02 $ 0.00 $ 0.12
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 (loss) 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 Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net sales to unrelated entities:
United States $ 53,157 $ 55,679 $ 116,478 $ 115,640
Canada 6,565 4,238 13,757 8,791
Other International 11,694 7,260 30,395 17,684
------------ ------------ ------------ ------------
$ 71,416 $ 67,177 $ 160,630 $ 142,115
============ ============ ============ ============
Income (loss) before income tax:
United States $ 957 $ 3,939 $ 1,031 $ 4,915
Canada 1,055 258 2,331 332
Other International (1,583) (1,781) (1,458) (2,224)
Less interest and other income
(expense) and eliminations (825) (1,464) (1,900) (1,902)
------------ ------------ ------------ ------------
$ (396) $ 952 $ 4 $ 1,121
============ ============ ============ ============
June 30, December 31,
1999 1998
------------ -----------
Assets:
United States $ 269,238 $ 247,125
Canada 15,714 16,696
Other international 26,223 33,571
------------ -----------
311,175 297,392
Eliminations (34,227) (27,914)
------------ -----------
$ 276,948 $ 269,478
============ ===========
6
NOTE 6. COMPREHENSIVE INCOME
The schedule detailing the components of comprehensive income is as follows:
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------- ---------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
Net income (loss) $ (238) $ 564 $ 2 $ 2,665
Foreign currency translation adjustments 380 (25) 326 468
Accumulated derivative loss (52) - (52) -
------------ ------------ ------------ ------------
Comprehensive income $ 90 $ 539 $ 276 $ 3,133
============ ============ ============ ============
NOTE 7. 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". SFAS No. 133 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). The adoption of
SFAS No. 133 did not have a material effect on the Company's primary financial
statements, but did decrease comprehensive income by $0.1 million for the
quarter ended June 30, 1999.
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 other comprehensive income 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 June 30, 1999.
At June 30, 1999, the Company had foreign currency option and forward exchange
contracts outstanding with an aggregate notional amount of approximately $10.0
million and $21.3 million, respectively. The fair value of these instruments is
negligible as of June 30, 1999 and has been recorded in accounts receivable with
the offset to other comprehensive income and earnings. The fair value of these
instruments will be recognized in earnings within the next twelve months.
7
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
availability, and the Year 2000 issue constitute forward - looking statements
that are subject to risks and uncertainties. These risks could cause actual
results or activities to differ materially from those expected. 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 factors
listed above and the industry factors and general business conditions noted
above. Factors that could materially affect the Year 2000 issue include, but are
not limited to, unanticipated costs associated with any required modifications
to the Company's computer systems and associated software, failures of external
systems of suppliers, business partners or governmental agencies.
Results of Operations
The following table sets forth, for the periods indicated, selected Company
income statement data expressed as a percentage of net sales.
Quarter Ended June 30, Six Months Ended June 30,
------------------------ ------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 56.2 57.7 60.2 59.7
Gross profit 43.8 42.3 39.8 40.3
Selling, general and administrative
expense 42.9 39.7 38.8 38.7
Income from operations 0.9 2.6 1.0 1.6
Interest expense, net 1.5 1.2 1.0 0.9
Income (loss) before income tax (0.6) 1.4 0.0 0.8
Income tax expense (benefit) (0.2) 0.6 0.0 (1.1)
Net income (loss) (0.3)% 0.8% 0.0% 1.9%
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Net sales: Net sales increased 6.3% to $71.4 million for the three month period
ended June 30, 1999 from $67.2 million for the comparable period in 1998.
Domestic sales decreased 4.3% to $53.2 million for the three month period ended
June 30, 1999 from $55.6 million for the comparable period in 1998. Net
international sales, excluding Canada, increased 60.3% to $11.7 million for the
three month period ended June 30, 1999 from $7.3 million for the comparable
period in 1998. Canadian net sales increased 57.1% to $6.6 million for the three
month period ended June 30, 1999 from $4.2 million for the comparable period in
1998. These increases were primarily attributable to increased sales of spring
sportswear and footwear units predominately in Europe and Canada.
8
Gross Profit: Gross profit as a percentage of net sales was 43.8% for the three
months ended June 30, 1999 compared to 42.3% for the comparable period in 1998.
The increase in gross margin was due to increased European sales of spring
product, which generally have a higher gross profit margin than domestic spring
margin, and strong reorders of domestic spring product resulting in minimal
close-outs during the three months ended June 30, 1999.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 15.4% to $30.7 million for the three months
ended June 30, 1999 from $26.6 million for the comparable period in 1998,
primarily as a result of an increase in variable selling and operating expenses
to support the higher level of sales and the additional depreciation expense
attributable to the continuing investment in global infrastructure. As a
percentage of sales, selling, general, and administrative expenses increased to
42.9% for the three months ended June 30, 1999 from 39.7% for the comparable
period in 1998, reflecting the additional depreciation associated with the
recent capitalization of the distribution center expansion and enterprise
information system. 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 expand.
Interest Expense: Interest expense increased by 32.3% for the three months ended
June 30, 1999 from the comparable period in 1998. The increase was attributable
to the issuance of long-term senior promissory notes in the third quarter of
1998 to finance the expansion of the domestic distribution center coupled with
less interest being capitalized due to the completion of the distribution center
and enterprise information system installations.
Six Months Ended June 30,1999 Compared to Six Months Ended June 30,1998
Net sales: Net sales increased 13.0% to $160.6 million for the six month period
ended June 30, 1999 from $142.1 million for the comparable period in 1998.
Domestic sales increased 0.8% to $116.5 million for the six month period ended
June 30, 1999 from $115.6 million for the comparable period in 1998. Net
international sales, excluding Canada, increased 71.8% to $30.4 million for the
six month period ended June 30, 1999 from $17.7 million for the comparable
period in 1998. Canadian net sales increased 56.8% to $13.8 million for the six
month period ended June 30, 1999 from $8.8 million for the comparable period in
1998. These increases were primarily attributable to increased sales of spring
sportswear and footwear units predominately in Europe and Canada.
Gross Profit: Gross profit as a percentage of net sales was 39.8% for the six
months ended June 30, 1999 compared to 40.3% for the comparable period in 1998.
The decrease in gross margin was due to increased domestic sales of fall
carryover close-out products, reduced domestic sales of current fall products
and a higher portion of lower margin sportswear and footwear sales during the
six months ended June 30, 1999 when compared to the prior year.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 13.1% to $62.2 million for the six months ended
June 30, 1999 from $55.0 million for the comparable period in 1998, primarily as
a result of an increase in variable selling and operating expenses to support
the higher level of sales and additional depreciation expense related to the
continuing investment in global infrastructure. As a percentage of sales,
selling, general, and administrative expenses increased slightly to 38.8% for
the six months ended June 30, 1999 from 38.7% for the comparable period in 1998,
reflecting the additional depreciation from the remaining components of the
distribution center expansion and enterprise information system being
capitalized in the first six months of 1999. 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 expand.
Interest Expense: Interest expense increased by 36.1% for the six months ended
June 30, 1999 from the comparable period in 1998. The increase was attributable
to the issuance of long-term senior promissory notes in the third quarter of
1998 to finance the expansion of the
9
domestic distribution center and the reduction in capitalized interest following
completion of the distribution center and enterprise information system.
Seasonality of Business
The Company'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.
Liquidity and Capital Resources
The Company's primary ongoing funding requirements are to finance working
capital and continued growth of the business. At June 30, 1999, the Company had
total cash equivalents of $4.6 million compared to $5.2 million at June 30,
1998. Cash used in operating activities was $0.4 million for the six months
ended June 30, 1999 and $19.6 million for the comparable period in 1998. This
decrease was primarily due to a decrease in accounts receivable which provided
additional cash to fund the Company's first six months of operations in 1999.
The Company's primary capital requirements are for working capital, investing
activities associated with expansion of its distribution center, information
systems development and general corporate needs. Net cash used in investing
activities was $7.4 million for the six months ended June 30, 1999 and $22.4
million for the comparable period in 1998 as a result of decreasing capital
investment and completion of the enterprise information system installation and
distribution center expansion.
Cash provided by financing activities was $5.7 million for the six months ended
June 30, 1999 compared to $43.1 million for the comparable period in 1998. The
decrease in net cash provided by financing activities was primarily due to
repayments of short-term borrowings.
To fund its working capital requirements, the Company has available unsecured
revolving lines of credit with aggregate seasonal limits ranging from
approximately $113 to $133 million. As of June 30, 1999, $14.1 million was
outstanding under these lines of credit. Additionally, the Company maintains
credit agreements in order to provide the Company unsecured lines of credit with
a combined limit of approximately $105 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 on August 11, 1998. 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 have been 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.
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 is global software
support and Year 2000 compliance. The Company has replaced its management
information system with an enterprise system that integrates Electronic Data
Interchange (EDI) and inventory management capabilities and will address the
Year 2000 issue on all core Company business systems. These include, but are not
limited to, purchasing, manufacturing, inventory management, distribution, sales
order processing, and financial
10
applications. The Company has other ancillary systems such as sales reporting,
product development, retail, merchandising and design that are in the process of
being modified or scheduled to be modified as required to address Year 2000
issues by the end of the third quarter. 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 upgraded or replaced in approximately ninety percent (90%) of the Company's
worldwide desktop computer inventory. The remaining non-compliant hardware and
software is on schedule to be upgraded or replaced by the end of the third
quarter. Non-information technology systems such as Company-owned manufacturing
equipment, office equipment and local office telephone systems have been
assessed for related Year 2000 risks and are currently being updated and/or
replaced. The Company has passed the National Retail Federation (NRF) survival
2000 project test and is listed on the NRF website. The majority of the
Company's product sourcing is performed through independent manufacturers
primarily in Southeast Asia. The Company has surveyed its key suppliers and the
preliminary results indicate that the Year 2000 issue will not impact the
Company's 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 the Company
estimates that expenditures for the project will be approximately $0.9 million
for the year ended December 31, 1999, of which $0.2 million has been incurred as
of June 30, 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 effect on the Company.
The most reasonable likely worst case scenario facing the Company regarding Year
2000 compliance is the inability of purportedly compliant software or systems to
perform as intended. A corporate Year 2000 steering committee developed a
contingency plan strategy which identifies critical business processes and
systems and their associated risks to and impact on the Company. A comprehensive
contingency plan drafted from this strategy will be in place by the end of the
third quarter. 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.
Euro Currency Conversion
On January 1, 1999, the euro was adopted as the national currency of these
participating European Union ("EU") countries - Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
The Company has committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure that the enterprise information
system is not adversely affected by the implementation of the euro. The Company
is undertaking a review of the euro implementation both in participating and
non-participating EU 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 does not expect the continued implementation of the euro to cause any
significant operational disruptions. In addition, the Company has not incurred
and does not expect to incur any significant costs
11
from the continued implementation of the euro which could materially affect the
Company's liquidity or capital resources.
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
PART II. OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on June 9, 1999 where the
following matters were submitted to a vote of the shareholders, with the results
set forth below:
1. Election of six directors to serve until the 2000 Annual Meeting of
Shareholders or until their respective successors are duly qualified and
elected:
Withheld or
In Favor Abstained
-------- -----------
Gertrude Boyle 23,976,196 29,634
Timothy P. Boyle 23,977,761 28,069
Sarah Bany 23,976,036 29,794
John Stanton 23,981,751 24,079
Edward S. George 23,981,971 23,859
Murrey R. Albers 23,976,961 28,869
2. Approval of the Company's Employee Stock Purchase Plan:
Abstained and
In Favor Opposed Broker Nonvotes
-------- ------- ---------------
23,869,850 55,395 80,585
3. Approval of the Company's Executive Incentive Compensation Plan:
Abstained and
In Favor Opposed Broker Nonvotes
-------- ------- ---------------
23,814,287 165,610 25,933
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 Third Amendment to Credit Agreement dated June 30, 1999 between
Wells Fargo Bank National Association and Columbia Sportswear
Company.
10.2 The 1999 Employee Stock Purchase Plan, as amended.
10.3 Executive Incentive Compensation Plan.
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: August 10, 1999 PATRICK D. ANDERSON
-----------------------------------------
Patrick D. Anderson
Chief Financial Officer and
Authorized Officer
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