Columbia Sportswear 2004 Annual Report Download - page 26

outerwear products carry higher gross profits followed by our accessories, sportswear and footwear products. In
2002, outerwear sales represented 51.8% of net sales compared to 46.6% of 2003 net sales. Conversely,
sportswear and footwear sales represented 30.0% and 13.5% of net sales in 2002 compared to 32.7% and 15.6%
of net sales in 2003, respectively. In the future, we anticipate the shift in product sales mix will continue to exert
pressure on our gross profits.
In 2002, our improved gross profits were largely attributable to favorable sourcing costs. Although we
continue to benefit from our sourcing efforts, in relative terms, sourcing costs did not materially impact our gross
profits in 2003.
The results of recording the Mountain Hardwear inventory at fair value in purchase accounting had an
unfavorable impact on our gross profits of approximately 0.1 percentage point. Most of the inventory that
Mountain Hardwear had on hand as of the acquisition date, March 31, 2003, was sold during 2003. Accordingly,
the remaining mark to market adjustments will not have a material impact on our consolidated gross profit in the
future.
Our gross profits may not be comparable to those of other entities, because some entities include all of the
costs related to their distribution network in cost of sales. Some companies such as ours, however, have chosen to
include these expenses as a component of selling, general and administrative expense.
Selling, General and Administrative Expense: SG&A increased $36.2 million, or 16.8%, to $252.3
million in 2003 from $216.1 million in 2002. Excluding changes in currency exchange rates, SG&A increased
$26.0 million, or 12.0%. The 16.8% increase in SG&A expense was primarily the result of an increase in variable
selling expenses, including commissions and advertising expense, and operating expenses to support the higher
level of sales.
The increase in advertising expense was primarily the result of our key growth initiatives to enhance
channel productivity through the expansion of in-store concept shops and brand enhancement systems. During
2003, we made significant investments installing these point-of-purchase displays at many of our retailers
globally.
The increase in selling expenses was also partially attributable to a promotional agreement we entered into
with Jeep for the introduction of new limited-production “Columbia Edition” Jeep vehicles, to provide broad
brand exposure for Columbia in the United States and Canada. Through the program, we received national media
exposure expanding Columbia brand awareness.
The increase in general and administrative expenses was primarily due to increases in personnel related
costs and depreciation expense. The increase in personnel costs was due to an expansion of our product offerings
and to support the higher level of sales and anticipated sales growth. Depreciation and amortization totaled $23.1
million for 2003 compared to $18.7 million for 2002. The increase was primarily 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 arrangements have produced highly profitable income for the company.
Although net licensing income is not a significant income driver as mentioned above, beginning in 2003 net
licensing income was presented as a separate line item in our consolidated statement of operations for all years
presented, whereas it historically had been presented as an offset to SG&A expense.
Net licensing income is derived from income that we earn through licensing our trademark across a range of
categories that complement our current product offerings. At December 31, 2003, we had signed thirteen
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