Columbia Sportswear 2011 Annual Report Download

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2011
ANNUAL REPORT
TO SHAREHOLDERS

Table of contents

  • Page 1
    2011 ANNUAL REPORT TO SHAREHOLDERS

  • Page 2
    ...-digit growth from the Columbia, Sorel and Mountain Hardwear brands, as well as from each of our international regions. More importantly, we improved the company's profitability, increasing operating margins to 8.1 percent, compared to 7.0 percent in 2010, and expanding net income by 34 percent...

  • Page 3
    ... to investing in innovation, enhanced design, an expanded direct-to-consumer platform and compelling marketing to elevate our brands and gain market share. • We are firmly committed to investing in information technology and process improvements to increase operational and resource efficiencies...

  • Page 4
    2011 Annual Report to Shareholders

  • Page 5
    ... 0-23939 COLUMBIA SPORTSWEAR COMPANY (Exact name of registrant as specified in its charter) Oregon (State or other jurisdiction of incorporation or organization) 93-0498284 (IRS Employer Identification Number) 14375 NW Science Park Drive Portland, Oregon (Address of principal executive offices...

  • Page 6
    ... and Disagreements with Accountants on Accounting and Financial Disclosure ...Item 9A. Controls and Procedures ...Item 9B. Other Information ...PART III Item 10. Item 11. Item 12. Item 13. Item 14. Directors, Executive Officers and Corporate Governance ...Executive Compensation ...Security Ownership...

  • Page 7
    ...Our brands are distributed through a mix of wholesale distribution channels, our own direct-to-consumer channels (retail stores and e-commerce), independent distributors and licensees. In 2011, our products were sold in approximately 100 countries. We employ creative marketing strategies designed to...

  • Page 8
    ... and adventure travel. Footwear We design, develop, market and distribute footwear products for men and women under our Columbia, Sorel and Montrail brands and for youth under our Columbia and Sorel brands. Our footwear products seek to address the needs of outdoor consumers who participate in...

  • Page 9
    ... national and international department store chains. We sell our products to independent distributors in various countries where we generally do not have direct sales operations. We sell our products directly to consumers through our own network of branded and outlet retail stores and online in each...

  • Page 10
    ... wholesale customers and through our own direct-to-consumer channels. As of December 31, 2011, we operated 43 outlet retail stores and 8 branded retail stores in various locations in the United States. We also sell Columbia, Mountain Hardwear, Sorel and Montrail products through e-commerce websites...

  • Page 11
    ... wholesale customers and our own retail stores from a distribution center that we own and operate in Cambrai, France. The majority of sales to our EMEA distributors are shipped directly from the independent factories that manufacture our products. Canada Sales in Canada accounted for 7.6% of our net...

  • Page 12
    ... discounted prices. Failure to achieve our demand planning goals could reduce our revenues and/or increase our costs, which would negatively affect our gross margins, profitability and brand strength. In order to manage inventory risk, we use incentive discounts to encourage our wholesale customers...

  • Page 13
    ... and risks associated with owning and operating large production facilities and managing large labor forces. We also believe that the use of independent factories greatly increases our production capacity, maximizes our flexibility and improves our product pricing. We manage our supply chain from...

  • Page 14
    ...who operate retail stores in outlet malls and key metropolitan markets, as well as competitors who sell product online. We believe that the primary competitive factors in the market for active outdoor apparel, footwear, accessories and equipment are brand strength, product innovation, product design...

  • Page 15
    ... on management, financial, product design, marketing, distribution, supply chain and other resources, and we may have operating difficulties as a result. For example, in support of our strategic initiatives, we are making significant investments in our business processes and information technology...

  • Page 16
    ... manufacturer or licensee violates labor or other laws, or engages in practices that are not generally accepted as ethical in our key markets, we may be subject to production disruptions or significant negative publicity that could result in long-term damage to our brands, and in some circumstances...

  • Page 17
    ...our supply chain and retail operations, from design to distribution and sales, and are used as a method of communication among employees, with our subsidiaries and liaison offices overseas and with our customers and retail stores. We also rely on our information systems to allocate resources, manage...

  • Page 18
    ... at discounted prices through discount direct-to-consumer channels, which could have a material adverse effect on our brand image, financial condition, results of operations or cash flows. Conversely, if we underestimate demand for our products or if our independent factories are unable to supply...

  • Page 19
    ... apparel, footwear, accessories and equipment companies. Retailers who are our customers often pose our most significant competitive threat by marketing apparel, footwear and equipment under their own private labels. For example, in the United States, several of our largest customers have developed...

  • Page 20
    ... markets. Our vendors, customers and other participants in our supply chain may require access to credit markets in order to do business. Credit market conditions may slow our collection efforts as customers find it more difficult to obtain necessary financing, leading to higher than normal accounts...

  • Page 21
    ... Sorel brand. We also face risks because our business requires us and our customers to anticipate consumer preferences. Our decisions about product designs often are made far in advance of consumer acceptance. Although we try to manage our inventory risk through early order commitments by retailers...

  • Page 22
    ... those involved in shipping product to and from our distribution facilities. In the United States, we rely primarily on our distribution centers in Portland, Oregon and Robards, Kentucky; in Canada, we rely primarily on our distribution facilities in Strathroy, Ontario; in Europe, we rely primarily...

  • Page 23
    ... more equally distributed throughout the year. As a result, the majority, and sometimes all, of our operating profits are generated in the second half of the year. The expansion of our direct-to-consumer operations and sales growth in our winter footwear business (both Sorel and Columbia brands) has...

  • Page 24
    ...by us. Corporate Headquarters: Portland, Oregon (1 location)-owned U.S. Distribution Facilities: Portland, Oregon (1 location)-owned Robards, Kentucky (1 location)-owned Canadian Operation and Distribution Facilities: Strathroy, Ontario (2 locations)-1 owned, 1 leased (1) London, Ontario (1 location...

  • Page 25
    ... President of Apparel and Design Vice President of Global Footwear Merchandising Vice President, Chief Information Officer Vice President of Global Human Resources Executive Vice President and Chief Operating Officer (1) Vice President of Latin America/Asia Pacific, Direct and Distributor Sales Vice...

  • Page 26
    ... as Special Assistant Attorney General for the Oregon Department of Justice for seven months in 1996. Thomas B. Cusick joined Columbia in September 2002 as Corporate Controller, was named Vice President and Corporate Controller in March 2006, was named Vice President and Chief Accounting Officer in...

  • Page 27
    ... joined Columbia in October 2009 as General Manager of Apparel Merchandising and was named Vice President of Apparel and Design in January 2012. From 2005 to 2008, Ms. Moser was a founding member of Nau, Inc., in Portland, Oregon, where she served as Chief Operating Officer and General Manager. From...

  • Page 28
    ... joined Columbia in June 2008 as Senior Director, E-commerce and was named Vice President E-commerce in August 2010. Prior to joining Columbia, Mr. Zaengle served as Vice President, Interactive Technology at Polo Ralph Lauren where he led the strategy, technology, production and design efforts...

  • Page 29
    ...Select Market and trades under the symbol "COLM." At February 17, 2012, we had approximately 409 shareholders of record. Following are the quarterly high and low closing prices for our Common Stock for the years ended December 31, 2011 and 2010: HIGH LOW DIVIDENDS DECLARED 2011 First Quarter ...$64...

  • Page 30
    .... Columbia Sportswear Company Stock Price Performance December 31, 2006-December 31, 2011 $140 $120 $100 $80 $60 $40 $20 $0 12/31/2006 12/31/2007 Columbia Sportswear Co. 12/31/2008 12/31/2009 12/31/2010 12/31/2011 S&P 400 Mid-Cap Index Russell 3000 Textiles Apparel Mfrs. Total Return Analysis 12...

  • Page 31
    ...Number of Shares Purchased Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs Period Average Price Paid per Share October 1, 2011 through October 31, 2011 ...November 1, 2011...

  • Page 32
    ... annual report and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7. 2011 Year Ended December 31, 2010 2009 2008 (In thousands, except per share amounts) 2007 Statement of Operations Data: Net sales ...Net income ...Per Share of Common Stock...

  • Page 33
    ...we design, source, market and distribute active outdoor apparel, footwear, accessories and equipment under the Columbia, Mountain Hardwear, Sorel and Montrail brands. Our products are sold through a mix of wholesale distribution channels, independent distributors, our own direct-to-consumer channels...

  • Page 34
    ... product innovation; Built a multi-channel and multi-country direct-to-consumer platform, including expanded retail store and e-commerce operations; Refocused our marketing efforts behind new brand campaigns and media strategies for each of our major brands; and Restructured our sales organizations...

  • Page 35
    ...sportswear and accessories and equipment product categories. The footwear product categorical reporting remained unchanged. Previously reported product category net sales information for fiscal years 2010 and 2009 has been recast to reflect this change. Highlights of the Year Ended December 31, 2011...

  • Page 36
    ... footwear. The LAAP net sales increase was concentrated in the Columbia brand and was led by Korea, followed by Japan and our LAAP distributor business. The increase in Korea net sales was primarily due to increased sales from existing stores, a greater number of retail stores operating during 2011...

  • Page 37
    ... footwear net sales increase was led by Japan, followed by Korea and our LAAP distributor business. Sales by Brand Net sales by brand are summarized in the following table: Year Ended December 31, 2011 2010 % Change (In millions, except for percentage changes) Columbia ...Mountain Hardwear ...Sorel...

  • Page 38
    ... in the LAAP region, where a third party distributor is licensed to locally manufacture Columbia brand apparel and footwear for sale in local markets. Interest Income, Net: Net interest income was $1.3 million in 2011, compared to $1.6 million in 2010. The decrease in interest income was primarily...

  • Page 39
    ... fourth quarter of 2009, respectively, incremental sales from our Mountain Hardwear brand e-commerce site which was launched in the third quarter of 2010, and an increase in the number of retail stores, with 4 more retail stores operating at December 31, 2010 than at December 31, 2009. Net sales in...

  • Page 40
    ...The net sales increase by brand in 2010 compared to 2009 was primarily concentrated in the Columbia brand, followed by the Sorel and Mountain Hardwear brands. The Columbia brand net sales increased across all product categories, led by sportswear, followed by outerwear, footwear and accessories and...

  • Page 41
    ... earnings per share was $2.26 in 2010, compared to $1.97 in 2009. Liquidity and Capital Resources Our primary ongoing funding requirements are for working capital, investing activities associated with the expansion of our global operations and general corporate needs. At December 31, 2011, we had...

  • Page 42
    ... 2010 compared to a net decrease in accounts payable and accrued liabilities in 2009. The increase in inventory was due to a larger volume of excess fall 2010 inventory designated for sale primarily through our own outlet retail stores compared to fall 2009 inventory, earlier receipt of spring 2011...

  • Page 43
    ... outdoor apparel industry, and have historically resulted in higher sales and profits in the third and fourth calendar quarters. This pattern has resulted primarily from the timing of shipments of fall season products to wholesale customers and proportionally higher sales from our direct-to-consumer...

  • Page 44
    ... We record wholesale, e-commerce and licensed product revenues when title passes and the risks and rewards of ownership have passed to the customer. Title generally passes upon shipment to or upon receipt by the customer depending on the terms of sale with the customer. Retail store revenues are...

  • Page 45
    ...of cost or estimated market value. If we determine that a smaller or larger reserve is appropriate, we will record a credit or a charge to cost of sales in the period in which we make such a determination. Product Warranty We make ongoing estimates of potential future product warranty costs. When we...

  • Page 46
    ... based on the award's fair value and is recognized as expense over the requisite service period using the straight-line attribution method. We estimate stock-based compensation for stock awards granted using the Black-Scholes option pricing model, which requires various highly subjective assumptions...

  • Page 47
    .... Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our management is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which we...

  • Page 48
    ...Independent Registered Public Accounting Firm To the Board of Directors and Shareholders Columbia Sportswear Company Portland, Oregon We have audited the accompanying consolidated balance sheets of Columbia Sportswear Company and subsidiaries (the "Company") as of December 31, 2011 and 2010, and the...

  • Page 49
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED BALANCE SHEETS (In thousands) December 31, 2011 2010 ASSETS Current Assets: Cash and cash equivalents ...Short-term investments ...Accounts receivable, net (Note 4) ...Inventories, net...$1,294,754 See accompanying notes to consolidated financial statements 44

  • Page 50
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2010 2009 2011 Net sales ...Cost of sales ...Gross profit ...Selling, general, and administrative expenses ...Net licensing income ...Income from operations ......

  • Page 51
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2011 2010 2009 Cash flows from operating activities: Net income ...Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization ...Loss on ...

  • Page 52
    ...under employee stock plans, net ...Tax adjustment from stock plans ...Stock-based compensation expense ...Repurchase of common stock ...BALANCE, DECEMBER 31, 2010 ...Components of comprehensive income: Net income ...Cash dividends ($0.86 per share) ...Unrealized holding losses on available-for-sales...

  • Page 53
    ... the business: Columbia Sportswear Company is a global leader in the design, development, marketing and distribution of active outdoor apparel, footwear, accessories and equipment. Principles of consolidation: The consolidated financial statements include the accounts of Columbia Sportswear Company...

  • Page 54
    ... are capitalized. Repair and maintenance costs are expensed as incurred. Internal and external costs directly related to the development of internal-use software during the application development stage, including costs incurred for third party contractors and employee compensation, are capitalized...

  • Page 55
    ... fair value of the reporting unit with the carrying amount of that reporting unit. The Company estimates the fair value of its reporting units using a combination of discounted cash flow analysis, comparisons with the market values of similar publicly traded companies and other operating performance...

  • Page 56
    ... Company records wholesale, e-commerce and licensed product revenues when title passes and the risks and rewards of ownership have passed to the customer. Title generally passes upon shipment to, or upon receipt by, the customer depending on the terms of sale with the customer. Retail store revenues...

  • Page 57
    ... and general operating expenses related to the Company's business functions, including planning, receiving finished goods, warehousing, distribution, retail operations and information technology. Shipping and handling costs: Shipping and handling fees billed to customers are recorded as revenue. The...

  • Page 58
    ... of consolidated accounts receivable. No single customer accounted for 10% or more of consolidated revenues for any of the years ended December 31, 2011, 2010 or 2009. Derivatives The Company uses derivative instruments primarily to hedge the currency exchange rate risk of anticipated transactions...

  • Page 59
    ... concentrations The Company's products are produced by independent factories located outside the United States, principally in Southeast Asia. Apparel is manufactured in more than 15 countries, with Vietnam and China accounting for approximately 73% of 2011 global apparel production. Footwear is...

  • Page 60
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 6-PROPERTY, PLANT, AND EQUIPMENT, NET Property, plant, and equipment consisted of the following (in thousands): December 31, 2011 2010 Land and improvements ...Building and improvements ...Machinery and ...

  • Page 61
    ...029,000 for purchase orders for inventory under this arrangement. NOTE 9-ACCRUED LIABILITIES Accrued liabilities consisted of the following (in thousands): December 31, 2011 2010 Accrued salaries, bonus, vacation and other benefits ...Accrued import duties ...Product warranties ...Other ... $ 55...

  • Page 62
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A reconciliation of product warranties is as follows (in thousands): Year Ended December 31, 2011 2010 2009 Balance at beginning of period ...Provision for warranty claims ...Warranty claims ...Other ...Balance at ...

  • Page 63
    ... tax rate to the effective rate reported in the financial statements: Year Ended December 31, 2011 2010 2009 (percent of income) Provision for federal income taxes at the statutory rate ...State and local income taxes, net of federal benefit ...Non-U.S. income taxed at different rates ...Foreign...

  • Page 64
    ... such major jurisdictions as Canada, China, France, Germany, Hong Kong, Italy, Japan, South Korea, Switzerland, the United Kingdom and the United States. The Company has effectively settled U.S. tax examinations of all years through 2007. Internationally, the Company has effectively settled Canadian...

  • Page 65
    ... December 31, 2011, 2010 and 2009, respectively. Deferred Compensation Plan The Company sponsors a nonqualified retirement savings plan for certain senior management employees whose contributions to the tax qualified 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan...

  • Page 66
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) NOTE 13-COMMITMENTS AND CONTINGENCIES Operating Leases The Company leases, among other things, retail space, office space, warehouse facilities, storage space, vehicles and equipment. Generally, the base lease terms ...

  • Page 67
    ...restricted stock units and other stock-based awards. The Company uses original issuance shares to satisfy share-based payments. Stock-based compensation expense consisted of the following (in thousands): Year Ended December 31, 2011 2010 2009 Cost of sales ...$ 282 $ 286 $ 335 Selling, general, and...

  • Page 68
    ... 31, 2011, 2010 and 2009, respectively. Stock Options Options to purchase the Company's common stock are granted at exercise prices equal to or greater than the fair market value of the Company's common stock on the date of grant. Options granted after 2000 and before 2009 generally vest and become...

  • Page 69
    ...of the Company's senior executive team, excluding the Chairman and the President and Chief Executive Officer. Performance-based restricted stock units granted prior to 2010 generally vest over a performance period of between two and one-half and three years with an additional required service period...

  • Page 70
    ... stock units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory withholding requirements that the Company pays in cash to the appropriate taxing authorities on behalf of its employees. For the years ended December 31, 2011, 2010 and 2009...

  • Page 71
    ...092 2.28 2.26 $ 33,846 135 33,981 1.98 1.97 Stock options and service-based restricted stock units representing 452,907, 480,707 and 1,562,064 shares of common stock for the years ended December 31, 2011, 2010 and 2009, respectively, were outstanding but were excluded in the computation of diluted...

  • Page 72
    ...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 active outdoor apparel, footwear, accessories and equipment...

  • Page 73
    .... 2011 2010 2009 Net sales to unrelated entities: United States ...LAAP ...EMEA ...Canada ...Income before income taxes: United States ...LAAP ...EMEA ...Canada ...Interest ...Interest income (expense), net: United States ...LAAP ...EMEA ...Canada ...Income tax (expense) benefit: United States...

  • Page 74
    ... 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 U.S. dollar denominated inventory purchases...

  • Page 75
    ... (in thousands): For the Year Ended December 31, 2011 2010 2009 Statement Of Operations Classification Currency Forward Contracts: Derivative instruments designated as cash flow hedges: Gain (Loss) recognized in other comprehensive income, net of tax ...Gain (Loss) reclassified from accumulated...

  • Page 76
    ... fair value as follows: Level 1 - Level 2 - observable inputs such as quoted prices in active liquid markets; inputs, other than the quoted market prices in active markets, which are observable, either directly or indirectly; or observable market prices in markets with insufficient volume and...

  • Page 77
    ...quoted market prices in active markets, that are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions. There were no material assets and liabilities measured at fair value on a nonrecurring basis at December 31, 2011 or 2010...

  • Page 78
    ... 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 for establishing...

  • Page 79
    ... that, as of December 31, 2011, the Company's internal control over financial reporting is effective based on those criteria. There has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2011 that has materially affected, or is...

  • Page 80
    ... of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders Columbia Sportswear Company Portland, Oregon We have audited the internal control over financial reporting of Columbia Sportswear Company and subsidiaries (the "Company") as of December 31, 2011, based on...

  • Page 81
    ... 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The sections of our 2012 Proxy Statement entitled "Election of Directors," "Corporate Governance-Code of Business Conduct and Ethics," "Corporate Governance-Board Committees," "Corporate Governance- Director Nomination Policy," and "Section...

  • Page 82
    ... 31, 2011: Allowance for doubtful accounts ...Allowance for sales returns and miscellaneous claims ...Year Ended December 31, 2010: Allowance for doubtful accounts ...Allowance for sales returns and miscellaneous claims ...Year Ended December 31, 2009: Allowance for doubtful accounts ...Allowance...

  • Page 83
    ... by the undersigned, thereunto duly authorized. COLUMBIA SPORTSWEAR COMPANY By: /s/ THOMAS B. CUSICK Thomas B. Cusick Senior Vice President, Chief Financial Officer Date: February 28, 2012 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the...

  • Page 84
    ... developments. • • Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about Columbia may be found elsewhere in this Annual Report on Form 10-K and Columbia's other public...

  • Page 85
    ..., 2011) (File No. 0-23939) Form of Indemnity Agreement for Directors 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) (File No. 000-23939) Executive Incentive Compensation Plan...

  • Page 86
    Exhibit No. Exhibit Name 31.2 32.1 32.2 101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE + * ** Rule 13a-14(a) Certification of Thomas B. Cusick, Senior Vice President and Chief Financial Officer Section 1350 Certification of Timothy P. Boyle, President and Chief Executive Officer Section 1350 ...