Columbia Sportswear 2004 Annual Report Download

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Table of contents

  • Page 1

  • Page 2
    ... in our European product distribution facility demonstrate our commitment to the region and provide a competitive advantage in growing our European market share. We continued to execute our other growth strategies during 2004. Installations of in-store concept shops and brand enhancement systems...

  • Page 3
    ..., lunch packs, thermal mugs and bottles. Baby and diaper bags, designed for the active family, will also be featured. This new insulated product line will debut in spring 2005 throughout North America. OCTOBER฀26,฀2004 Columbia Sportswear Signs License Agreement for Outdoor Accessories Columbia...

  • Page 4
    ... shares. JULY฀21,฀2004 Columbia Sportswear Company Reports Record Second Quarter 2004 Results MAY฀13,฀2004 Columbia Sportswear Announces New Distribution Strategy for Norway and Iceland Capitalizing on increased business prospects and opportunities for brand expansion in Norway, Columbia...

  • Page 5
    ... (IRS Employer Identification Number) 14375 NW Science Park Drive Portland, Oregon (503) 985-4000 97229 (Zip Code) (Address of principal executive offices) (Registrant's telephone number, including area code) (Former name, former address and former fiscal year, if changed since last report...

  • Page 6
    COLUMBIA SPORTSWEAR COMPANY DECEMBER 31, 2004 TABLE OF CONTENTS Item Page PART I Item 1. Item 2. Item 3. Item 4. Item 4(a). Business ...Properties ...Legal Proceedings ...Submission of Matters to a Vote of Security Holders ...Executive Officers and Key Employees of the Registrant ...PART II Item 5....

  • Page 7
    PART I Item 1. General Founded in 1938 in Portland, Oregon, as a small, family-owned, regional hat distributor, Columbia Sportswear Company has grown to become a global leader in the design, sourcing, marketing and distribution of active outdoor apparel and footwear with operations in North America,...

  • Page 8
    ... PFG® (Performance Fishing Gear) line offers a variety of products, including jackets, vests, bibs, shorts, shirts, and pants with technical features such as UPF sun protection. Columbia brand sportswear products are designed to be sold alongside our outerwear and footwear products as part of our...

  • Page 9
    ...base layer thermal underwear, packs and adventure travel bags, belts and personal leather goods for men, leather outerwear, outdoor tools, camping gear, home furnishings, insulated coolers and containers, fishing and hunting waders, eyewear, watches and shoe and apparel care. Our United States socks...

  • Page 10
    ... design teams work closely with internal sales and production teams as well as with retailers, athletes and consumers to produce products that are designed primarily for functionality and durability. We also engineer technical garments with special performance features. Our Titanium®™ sub-branded...

  • Page 11
    ... compliance with Columbia's Standards of Manufacturing Practices. Our policies require every factory to comply with our code of conduct relating to factory working conditions and the treatment of workers involved in the production of our products. Our quality control program is designed to ensure...

  • Page 12
    ... enhancing the productivity of existing retailers; expanding distribution in international markets; further developing the existing merchandise categories; and increasing our penetration into the department store and specialty footwear channels. The following table presents net sales to unrelated...

  • Page 13
    ...warehouse in Strathroy, Ontario. In some instances, we arrange to have products shipped directly from our independent manufacturers to customer-designated facilities. Europe We have European sales offices in France, Germany, Italy and the United Kingdom, with our European headquarters office located...

  • Page 14
    ... products to independent distributors. These distributors service retail customers in locations such as Australia, New Zealand, South America, portions of Europe, Russia and China, among others. For 2004, shipments to Russia represented the largest segment of the international distributor business...

  • Page 15
    ... within the market. Mountain Hardwear equipment (tents and sleeping bags) compete directly with such companies as The North Face, Sierra Designs, Kelty (American Recreational Products), Marmot, Arctery'x (Salomon USA) and other smaller specialized brands worldwide. Credit and Collection We extend...

  • Page 16
    ... 2. PROPERTIES Following is a summary of principal properties owned or leased by us. Corporate Headquarters: Portland, Oregon (1 location) - owned Mountain Hardwear Operation (1): Richmond, California (1 location) - leased Canadian Operation (2): Strathroy, Ontario (1 location) - leased (1) Lease...

  • Page 17
    ... Prentice worked as a sales representative for Gerry Outdoor Products, a skiwear company based in Colorado. Mark J. Sandquist joined Columbia in March 1995 as Senior Merchandiser of Men's and Women's Sportswear and in August 2000 was named General Manager - Sportswear Merchandising. In July 2004, Mr...

  • Page 18
    ... to Consolidated Financial Statements. Issuer Purchases of Equity Securities The following table provides information regarding repurchases by the Company of its common stock during the quarter ended December 31, 2004: Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs...

  • Page 19
    ... annual report and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7. 2004 Year ended December 31, 2003 2002 2001 (In thousands, except per share amounts) 2000 Statement of Operations Data: Net sales ...Cost of sales ...Gross profit ...Selling...

  • Page 20
    ... statements related to our expectations regarding future performance or conditions, including any statements regarding anticipated sales growth across markets, distribution channels, and product categories, access to raw materials and factory capacity, and financing and working capital requirements...

  • Page 21
    ...distribution capital investments in service. Net income increased 15.4% to $138.6 million compared to 2003, and diluted earnings per share increased to $3.40. In April 2004, our Board of Directors authorized a stock repurchase plan of up to $100 million of our common stock. During 2004, we purchased...

  • Page 22
    ... markets in 2004, led by strong gains in the United States followed by Europe, Other International and Canada. The increase in sales of sportswear in the United States was attributable to increased sales across all major distribution channels and product classes, including pants, shorts, sweaters...

  • Page 23
    ...direct business in Japan and Korea and our international distributor markets worldwide, increased $28.3 million, or 25.0%, to $141.4 million in 2004 from $113.1 million in 2003. Excluding changes in currency exchange rates, Other International sales increased 21.7%. Net sales grew across all product...

  • Page 24
    ... Products distributed by the licensees included socks, bags, packs, leather, eyewear, watches, camping gear, home furnishings and other accessories. Net licensing income increased $2.2 million, or 122.2%, to $4.0 million in 2004 from $1.8 million in 2003. Licensing income in 2004 was led by Columbia...

  • Page 25
    ... accessory shipments during 2003. Net sales from equipment, a new product category resulting from our acquisition of Mountain Hardwear, represented $4.7 million of our total net sales during 2003. The equipment product category consists primarily of tents and sleeping bags. Net sales in the United...

  • Page 26
    ... related to our European distribution center, which was placed in service in January 2003. As a percentage of net sales, SG&A was 26.5% in each of 2003 and 2002. Net Licensing Income: As our licensees have gained momentum in the market place with the sale of our branded products, our licensing...

  • Page 27
    ... used for capital expenditures, including approximately $30.3 related to the construction of our distribution center in Kentucky. In 2003, our investing activities included $31.9 million related to net purchases of short-term investments, $29.9 million for the acquisition of Mountain Hardwear, net...

  • Page 28
    ...generally accepted in the United States. Quantitative and Qualitative Disclosures About Market Risk We are exposed to market risks from fluctuations of foreign currency exchange rates and interest rates as a result of our international sales, production and funding requirements. Our policy is to use...

  • Page 29
    ... generally passes upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. In some countries outside of the United States, predominantly where we sell directly in Western Europe...

  • Page 30
    ...is planned, and evaluate our purchase commitments, sales forecasts, and historical experience and make provisions as necessary to properly reflect inventory value. When evaluating our reserve for warranty costs, we consider our historical returns rates by season, product mix, current economic trends...

  • Page 31
    ... statements related to our expectations regarding future performance or conditions, including any statements regarding anticipated sales growth across markets, distribution channels, and product categories, access to raw materials and factory capacity, and financing and working capital requirements...

  • Page 32
    ... opportunities in recent years, and a slower economy in the United States in 2002 and 2003 created additional uncertainties for our customers and our business. In addition, continued volatility in the global oil markets has resulted in rising fuel prices, which many shipping companies are passing...

  • Page 33
    ..., rugged footwear, tents and sleeping bags are highly competitive, as are the markets for our licensed products. In each of our geographic markets, we face significant competition from global and regional branded apparel and footwear companies. In many instances, retailers who are our customers pose...

  • Page 34
    .... Increasing sales to department stores, and improving the sales productivity of our customers, will each depend on various factors, including strength of our brand name, competitive conditions, our ability to manage increased sales and future expansion, the availability of desirable locations and...

  • Page 35
    ..., product design, marketing, distribution and other resources, and we could experience operating difficulties. For example, in recent years, we have undertaken a number of new initiatives that require significant management attention and corporate resources, including the development or expansion of...

  • Page 36
    ... to attract and retain key managers, designers, sales people and others. We face intense competition for these individuals worldwide, and there is a significant concentration of well-funded apparel and footwear competitors in and around Portland, Oregon (including NIKE and adidas-Salomon). We may...

  • Page 37
    ... shareholders. Shares held by these three insiders are available for resale, subject to the requirements of, and the rules under, the Securities Act of 1933. The sale or prospect of the sale of a substantial number of these shares could have an adverse effect on the market price of our common stock...

  • Page 38
    ...the Company's management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require...

  • Page 39
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED BALANCE SHEETS (In thousands) December 31, 2004 2003 ASSETS Current Assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net (Note 2) ...Inventories, net (Note 4) ...Deferred income taxes (Note 10) ...Prepaid expenses and other...

  • Page 40
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2004 2003 2002 Net sales ...Cost of sales ...Gross profit ...Selling, general, and administrative expense ...Net licensing income ...Income from operations ...Interest ...

  • Page 41
    ...121,099 168,551 Cash provided by (used in) investing activities: Mountain Hardwear net assets acquired, net of cash ...- (29,865) - Purchases of short-term investments ...(679,195) (672,415) (421,300) Sales of short-term investments ...679,440 640,465 341,600 Capital expenditures ...(44,490) (17,118...

  • Page 42
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (In thousands) Unearned Portion of Accumulated Restricted Common Stock Other Stock Issued Shares Retained Comprehensive For Future Comprehensive Outstanding Amount Earnings Income (Loss) Services Income BALANCE, JANUARY 1, ...

  • Page 43
    ...PRESENTATION AND ORGANIZATION Nature of the business: Columbia Sportswear Company is a global leader in the design, manufacture, marketing and distribution of active outdoor apparel, including outerwear, sportswear, footwear, equipment and related accessories. Basis of presentation: The consolidated...

  • Page 44
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) their highly liquid nature and because such marketable securities represent the investment of cash that is available for current operations. All cash and short-term investments are classified as available-for-sale ...

  • Page 45
    ...-lived assets at December 31, 2004 and 2003 were not impaired. Deferred income taxes: United States income taxes are provided currently on financial statement earnings of non-U.S. subsidiaries expected to be repatriated. The Company determines annually the amount of undistributed non-U.S. earnings...

  • Page 46
    ...Title generally passes upon shipment or upon receipt by the customer depending on the country of the sale and the agreement with the customer. Retail store revenues are recorded at the time of sale. In some countries outside of the U.S., predominantly where the Company sells direct in Western Europe...

  • Page 47
    ...sheet classifications. Stock-based compensation: The Company has elected to follow the accounting provisions of Accounting Principles Board Opinion No. 25 ("APB 25"), "Accounting for Stock Issued to Employees", for stock-based compensation and to furnish the pro forma disclosures required under SFAS...

  • Page 48
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The effects of applying SFAS No. 123 in this pro forma disclosure are not necessarily indicative of future amounts. Advertising costs: Advertising costs are expensed as incurred and are included in selling, general ...

  • Page 49
    ... in Richmond, California, designs, develops and markets technically advanced equipment and apparel for outdoor enthusiasts and professionals. The acquisition was accounted for under the purchase method of accounting and the results of operations of Mountain Hardwear have been recorded in the Company...

  • Page 50
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Intangible assets acquired consisted of $15.0 million for the trademark and trade names of Mountain Hardwear, $12.2 million for goodwill and $1.2 million related to patents. The $16.2 million of purchase price ...

  • Page 51
    ...of $71,513,000 for firm purchase orders placed under the import line of credit facility. The Company also has available an unsecured and uncommitted $150,000,000 import letter of credit line subject to annual renewal. At December 31, 2004, the Company had outstanding letters of credit of $18,554,000...

  • Page 52
    ... were used to finance the expansion of the Company's distribution center in Portland, Oregon. The senior promissory notes require the Company to comply with certain ratios related to indebtedness to earnings before interest, taxes, depreciation and amortization ("EBITDA") and tangible net worth. At...

  • Page 53
    ... guidance has been issued. In November 2004, the Internal Revenue Service commenced an examination of the Company's 2002 and 2003 U.S. federal income tax returns. The Company receives a U.S. income tax benefit upon the exercise of the majority of its employee stock options. The benefit is equal to...

  • Page 54
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The components of the provision for income taxes consist of the following (in thousands): Year ended December 31 2004 2003 2002 Current: Federal ...State and local ...Non-U.S... $53,164 5,746 19,971 78,881 $51,521 ...

  • Page 55
    ...-BASED COMPENSATION The Company's 1997 Stock Incentive Plan (the "Plan") provides for issuance of up to 7,400,000 shares of the Company's Common Stock of which 2,063,242 shares were available for future stock option grants under the Plan at December 31, 2004. Options granted prior to 2001 generally...

  • Page 56
    ... The Company has computed, for pro forma disclosure purposes, the value of all stock options granted during 2004, 2003 and 2002 using the Black-Scholes option pricing model as prescribed by SFAS No. 123 using the following weighted average assumptions: 2004 2003 2002 Risk-free interest rate ...2.44...

  • Page 57
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table summarizes information about stock options outstanding at December 31, 2004: Options Outstanding Weighted Average Remaining Contractual Life Number of Shares (yrs) Options Exercisable Range of ...

  • Page 58
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 15-COMPREHENSIVE INCOME Accumulated other comprehensive income (loss) reported on the Company's consolidated balance sheets consists of foreign currency translation adjustments and the unrealized gains and losses...

  • Page 59
    ...operates predominantly in one industry segment: the design, production, marketing and selling of active outdoor apparel, including outerwear, sportswear, footwear, related accessories and equipment. The geographic distribution of the Company's net sales, income before income tax, identifiable assets...

  • Page 60
    ... from production purchases, intercompany transactions and other costs from the impact of exchange rate movements. The Company manages a portion of these exposures with short-term strategies after giving consideration to market conditions, contractual agreements, anticipated sale and purchase...

  • Page 61
    ... and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Design and Evaluation of Internal Control Over Financial Reporting Report of Management Our management is responsible...

  • Page 62
    ... because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, management's assessment that the Company maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material...

  • Page 63
    ... 2004 of the Company and our report dated March 9, 2005 expressed an unqualified opinion on those financial statements. DELOITTE & TOUCHE LLP Portland, Oregon March 9, 2005 Item 9(b). OTHER INFORMATION On January 20, 2005, the Compensation Committee of the Board of Directors determined compensation...

  • Page 64
    ... shareholders (the "2005 Proxy Statement") to be filed with the Securities and Exchange no later than 120 days after the end of our fiscal year ended December 31, 2004. See Item 4(a) of this Annual Report on Form 10-K for information regarding our executive officers. Item 11. EXECUTIVE COMPENSATION...

  • Page 65
    ... the undersigned, thereunto duly authorized, as of March 9, 2005. COLUMBIA SPORTSWEAR COMPANY By: /s/ BRYAN L. TIMM Bryan L. Timm Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on...

  • Page 66
    ...Other Accounts Deductions (a) Balance at End of Period Description Year Ended December 31, 2004: Allowance for doubtful accounts ...Product warranty ...Year Ended December 31, 2003: Allowance for doubtful accounts ...Product warranty ...Year Ended December 31, 2002: Allowance for doubtful accounts...

  • Page 67
    ... Agreement Form of Executive Stock Option Agreement (incorporated by reference to exhibit 10.3 (a) to the Company's Annual Report on Form 10-K for the year ended December 31, 2000) Credit Agreement between the Hong Kong and Shanghai Banking Corporation Limited and the Company dated September 17...

  • Page 68
    ... the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 1998) 1999 Employee Stock Purchase Plan, as amended (incorporated by reference to exhibit 10.21 to the Company's Annual Report on Form 10-K for the year ended December 31, 2001) Executive Incentive Compensation Plan...

  • Page 69
    ...Section 1350 Certification of Timothy P. Boyle, President and Chief Executive Officer Section 1350 Certification of Bryan L. Timm, Chief Financial Officer Management Contract or Compensatory Plan Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 333-43199). 64

  • Page 70
    ...Corporate฀Headquarters 14375 NW Science Park Drive Portland, OR 97229 Auditors Deloitte & Touche LLP, Portland, Oregon NASDAQ฀Listing The common stock of Columbia Sportswear Company is traded on the NASDAQ stock exchange under the symbol COLM. legal฀counsel Stoel Rives LLP, Portland, Oregon...

  • Page 71
    Forward-Looking฀ Statements Timothy Boyle's Letter to Shareholders, and Item 1 of Part 1 and Items 7 and 7(a) of Part II of the enclosed Annual Report on Form 10-K (as well as other statements made from time to time by Columbia Sportswear's management) contain forward-looking statements that are ...