Columbia Sportswear 2012 Annual Report Download

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2012
ANNUAL REPORT
TO SHAREHOLDERS

Table of contents

  • Page 1
    2012 ANNUAL REPORT TO SHAREHOLDERS

  • Page 2
    ..., along with significant updates to styling, fit, construction and marketing. Our products increasingly target young, active core outdoor consumers who shop in leading sporting goods, specialty outdoor, fish/hunt/camp, alpine and running shops, and corresponding online channels. At the same time,

  • Page 3
    ...cant resources in this effort in order to become more nimble in responding to market opportunities, improve delivery and customer service, and drive profitability through better inventory management and operating efficiencies. We currently expect 2013 net sales to be comparable to 2012, following...

  • Page 4
    ...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 Northwest Science Park Drive Portland, Oregon (Address of principal executive offices...

  • Page 5
    ... 14. Business ...Risk Factors ...Unresolved Staff Comments ...Properties ...Legal Proceedings ...Mine Safety Disclosures...Executive Officers and Key Employees of the Registrant ...PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities...

  • Page 6
    ...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 2012, our products were sold in approximately 100 countries. We employ creative marketing strategies designed to...

  • Page 7
    ... activities, such as skiing, snowboarding, hiking, climbing, mountaineering, camping, hunting, fishing, trail running, water sports 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...

  • Page 8
    ... wholesale customers and through our own direct-to-consumer channels. As of December 31, 2012, we operated 55 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 9
    ... distribution functions at our London facility in 2013. In some instances, we arrange to have products shipped directly from the independent factories that manufacture our products to customer-designated facilities in Canada. Marketing We believe our brand names and trademarks provide a competitive...

  • Page 10
    ... benefits, innovative technologies and styling of our products. We utilize a variety of means to deliver our messages, including online advertising and social media sites; television and print publications; experiential events; branded retail stores in selected high-profile locations; enhanced...

  • Page 11
    ... that having employees physically located in these regions enhances our ability to monitor factories for compliance with our policies, procedures and standards related to quality, delivery, pricing and labor practices. Our quality assurance process is designed to ensure that our products meet our...

  • Page 12
    ... are brand strength, product innovation, product design, functionality, durability and price. In addition to competing for end-consumer and wholesale market share, we also compete for manufacturing capacity of independent factory groups, primarily in Asia; for retail store locations in key markets...

  • Page 13
    ... by creating innovative products, focusing on product design, utilizing innovations to differentiate our brand from competitors, ensuring that our products are sold through brand enhancing distribution partners around the world, increasing the impact of consumer communications to drive demand for...

  • Page 14
    ...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 product data, develop demand and supply...

  • Page 15
    ... wholesale customers to cancel their orders, refuse to accept deliveries, or demand a reduction in purchase prices, any of which could have a material adverse effect on our financial condition, results of operations or cash flows. Reliance on independent factories also creates quality control risks...

  • Page 16
    ...the products we have ordered from independent factories or that we have in our inventory. Inventory levels in excess of customer demand may result in inventory write-downs and the sale of excess inventory at discounted prices through our owned outlet stores or third-party liquidation channels, which...

  • Page 17
    ... our ability to manage the employees of the joint venture, and to attract new employees as necessary to supplement and replace the skills, knowledge and expertise of the existing management team and other key personnel. We face intense competition for these individuals worldwide, including in China...

  • Page 18
    ... products. In each of our geographic markets, we face significant competition from global and regional branded apparel, footwear, accessories and equipment companies. Retailers who are our customers often pose our most significant competitive threat by designing and marketing apparel, footwear...

  • Page 19
    ... downturns and economic uncertainty generally affect global credit 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...

  • Page 20
    ...categories in more geographic areas, particularly with the Sorel brand, a product generally more sensitive to fashion trends. 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...

  • Page 21
    ..., including 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 have primarily relied on two distribution facilities in Strathroy, Ontario, one of...

  • Page 22
    ...and develop key managers, designers, sales and information technology professionals 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 our headquarters in Portland, Oregon. We...

  • Page 23
    ... number of these shares may have an adverse effect on the market price of our common stock. Item 1B. UNRESOLVED STAFF COMMENTS None. Item 2. PROPERTIES Following is a summary of principal properties owned or leased by us: Corporate Headquarters: Europe Headquarters: Portland, Oregon (1 location...

  • Page 24
    ... are considered Executive Officers of Columbia. Chairman of the Board (1) President, Chief Executive Officer, Director (1) Vice President of Global Innovation Vice President of Retail Vice President of E-Commerce Senior Vice President of Legal and Corporate Affairs, General Counsel and Secretary...

  • Page 25
    ... positions at NIKE, Inc., including USA Apparel Marketplace Planning Director and Director of Regional Planning. Adrienne L. Moser 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...

  • Page 26
    ... Vice President of Europe. From 1991 to 1994, Mr. Tung worked for Prince Racquet Sports (a division of Benetton Sportsystems) as Sales and Marketing Manager of Asia-Pacific. Patrick J. Werner joined Columbia in April 2004 as the Director of Apparel Sportswear Sourcing and was named Vice President of...

  • Page 27
    ..., RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol "COLM." At February 15, 2013, we had approximately 375 shareholders of record. Following are the quarterly high and low sale prices for...

  • Page 28
    ... Sportswear Company Stock Price Performance December 31, 2007-December 31, 2012 Total Return Analysis 12/31/2007 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 Columbia Sportswear Co...S&P 400 Mid-Cap Index ...Russell 3000 Textiles Apparel Mfrs...Issuer Purchases of Equity Securities...

  • Page 29
    ... elsewhere in this annual report and Management's Discussion and Analysis of Financial Condition and Results of Operations set forth in Item 7. Year Ended December 31, 2012 2011 2010 2009 2008 (In thousands, except per share amounts) Statement of Operations Data: Net sales ...$ 1,669,563 $ 1,693...

  • Page 30
    ...and footwear companies in the world, 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...

  • Page 31
    ... consumer price increases in our key markets continue to pose significant challenges and risks. Our preliminary 2013 outlook assumes net sales comparable to 2012 net sales, including a decrease in sales in our North American wholesale channels resulting from cautious wholesale customer purchases...

  • Page 32
    ...longer; Focusing on product design and utilizing our innovations to differentiate our brands from competitors; Seeking to sell our products through brand enhancing distribution partners around the world; Increasing the impact of consumer communications to drive demand for our brands and sell-through...

  • Page 33
    ... 2012 than in 2011, partially offset by the negative effect of foreign currency exchange rates. Net sales to our LAAP distributors increased due to higher demand in key distributor markets, partially offset by a smaller percentage of spring 2013 advance orders shipping in the fourth quarter of 2012...

  • Page 34
    ... and 2012 resulting in lower advance orders as well as higher order cancellations and fewer reorders of cold weather footwear from wholesale customers. The Sorel brand net sales decrease was concentrated in the EMEA region, followed by the United States and Canada, partially offset by a net sales...

  • Page 35
    ... in 2011 from $1,483.5 million in 2010. Net sales increased across all geographic regions, in each product category and across all major brands. Changes in foreign currency exchange rates compared with 2010 contributed approximately three percentage points of benefit to the consolidated net sales...

  • Page 36
    ... currency exchange rates and increased wholesale net sales. Net sales to our LAAP distributors increased due to increased demand in key distributor markets coupled with a higher percentage of spring 2012 advance orders shipping in the fourth quarter compared to the spring 2011 season. Net sales in...

  • Page 37
    Columbia brand and was led by the LAAP region, followed by the United States, the EMEA region and Canada. The apparel, accessories and equipment net sales increase in the LAAP region was led by Korea, followed by our LAAP distributor business and Japan. The net sales increase in apparel, accessories...

  • Page 38
    ... the acquisition of a new distribution center and headquarters facility in Canada, partially offset by $65.7 million for net sales of short-term investments. Net cash used in financing activities was $15.7 million in 2012 compared to $39.2 million in 2011. For 2012, net cash used in financing...

  • Page 39
    ...associated covenants. Internationally, our subsidiaries have local currency operating lines of credit in place guaranteed by the parent company with a combined limit of approximately $105.9 million at December 31, 2012, of which $3.7 million is designated as a European customs guarantee. At December...

  • Page 40
    ... accounting policies affect working capital account balances, including the policy for revenue recognition, the allowance for doubtful accounts, the provision for potential excess, closeout and slow moving inventory, product warranty, income taxes and stock-based compensation. Management regularly...

  • Page 41
    ... costs. When we evaluate our reserve for warranty costs, we consider our product warranty policies, historical claim rates by season, product category and mix, current economic trends, and the historical cost to repair, replace, or refund the original sale. If we determine that a smaller or larger...

  • Page 42
    ... 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 43
    .... 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...

  • Page 44
    ...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, 2012 and 2011, and the...

  • Page 45
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED BALANCE SHEETS (In thousands) December 31, 2012 2011 ASSETS Current Assets: Cash and cash equivalents ...$ 290,781 Short-term investments...44,661 Accounts receivable, net (Note 4) ...334,324 Inventories, net (Note 5) ...363,325 Deferred income taxes (Note ...

  • Page 46
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2011 2010 2012 Net sales ...$1,669,563 $1,693,985 $1,483,524 Cost of sales ...953,169 958,677 854,120 Gross profit ...716,394 735,308 629,404 Selling, general and ...

  • Page 47
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2012 2011 2010 Net income ...Other comprehensive income (loss): ...Unrealized holding losses on available-for-sale securities (net of tax benefit of $4, $23 and $16, respectively) ......

  • Page 48
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2012 2011 2010 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 49
    ..., DECEMBER 31, 2011 ...Net income ...Other comprehensive loss ...Cash dividends ($0.88 per share) ...Issuance of common stock under employee stock plans, net ...Tax adjustment from stock plans...Stock-based compensation expense ...Repurchase of common stock ... BALANCE, DECEMBER 31, 2012 ... $ 1,166...

  • Page 50
    ...more significant estimates relate to revenue recognition, including sales returns and claims from customers, allowance for doubtful accounts, excess, slow-moving and close-out inventories, product warranty, longlived and intangible assets, income taxes and stock-based compensation. NOTE 2-SUMMARY OF...

  • Page 51
    ... estimated 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...

  • Page 52
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) trademarks. If the carrying amount of trademarks exceeds the estimated fair value, the Company calculates impairment as the excess of carrying amount over the estimate of fair value. If events or circumstances ...

  • Page 53
    ... income taxes when they relate to indefinite net investments in non-U.S. operations. Revenue recognition: The Company records wholesale, distributor, e-commerce and licensed product revenues when title passes and the risks and rewards of ownership have passed to the customer. Title generally passes...

  • Page 54
    ... years ended December 31, 2012, 2011 and 2010, respectively. Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs of advertising the Company's products based on various criteria, including the value of purchases from the Company and various...

  • Page 55
    ... concentrations The Company's products are produced by independent factories located outside the United States, principally in Southeast Asia. Apparel is manufactured in approximately 20 countries, with Vietnam and China accounting for approximately 67% of 2012 global apparel production. Footwear is...

  • Page 56
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2012 2011 Trade accounts receivable...$ Allowance for doubtful accounts ...Accounts receivable, net...$ NOTE 5-INVENTORIES, NET Inventories, net, consisted of the following (in thousands): 341,701 $ (7,...

  • Page 57
    ...LIBOR plus 100 to 175 basis points. This line of credit requires the Company to comply with certain financial covenants covering net income, tangible net worth and borrowing basis. If the Company is in default, it is prohibited from paying dividends or repurchasing common stock. At December 31, 2012...

  • Page 58
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) A reconciliation of product warranties is as follows (in thousands): 2012 Year Ended December 31, 2011 2010 Balance at beginning of period...$ Provision for warranty claims ...Warranty claims ...Other...Balance at ...

  • Page 59
    ...future reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of recent operations. The Company had net operating loss carryforwards at December 31, 2012 and 2011 in certain international tax jurisdictions of $56,749,000 and $58,272...

  • Page 60
    ... of a 2008 income tax refund claim filed in 2012. The Company received a notification from the Internal Revenue Service ("IRS") dated February 15, 2013 indicating that its 2011 United States federal income tax return and its 2008-2010 amended federal income tax returns filed during 2012 have been...

  • Page 61
    ... December 31, 2012, 2011 and 2010, 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 62
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2012 Year Ended December 31, 2011 2010 Rent expense included in SG&A ...$ Rent expense included in cost of sales ...$ 51,853 1,528 53,381 $ $ 46,869 1,429 48,298 $ $ 39,898 1,351 41,249 Approximate future ...

  • Page 63
    ... consisted of the following (in thousands): 2012 Year Ended December 31, 2011 2010 Cost of sales ...$ Selling, general and administrative expense ...Pre-tax stock-based compensation expense ...Income tax benefits ...Total stock-based compensation expense, net of tax ...$ 287 $ 7,546 7,833 (2,724...

  • Page 64
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2012 2011 (1) 2010 Expected term ...4.78 years 5.12 years 4.53 years Expected stock price volatility ...32.20% 30.76% 28.79% Risk-free interest rate ...0.88% 1.84% 1.91% Expected dividend yield ...1.80% 1.31% 1.64% ...

  • Page 65
    ... 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, 2012, 2011 and 2010...

  • Page 66
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) restricted stock units vested during the year ended December 31, 2012, 2011 and 2010 was $3,874,000, $5,586,000 and $2,681,000, respectively. NOTE 16-EARNINGS PER SHARE Earnings per share ("EPS"), is presented on both...

  • Page 67
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 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 ...

  • Page 68
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2012 2011 2010 Net sales to unrelated entities: United States ...$ LAAP...EMEA ...Canada ...$ Income before income taxes: United States ...$ LAAP...EMEA ...Canada ...Interest ...$ Interest income (expense), net: ...

  • Page 69
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in ...

  • Page 70
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Balance Sheet Classification December 31, 2012 2011 Derivative instruments designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts ...Currency forward contracts ......

  • Page 71
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Level 2 - 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/or infrequent ...

  • Page 72
    ...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, 2012 or 2011...

  • Page 73
    ...following table summarizes the Company's quarterly financial data for the past two years ended December 31, 2012 (in thousands, except per share amounts): 2012 First Quarter Second Quarter Third Quarter Fourth Quarter Net sales ...$ 333,141 Gross profit...147,936 Net income (loss) ...3,898 Earnings...

  • Page 74
    ... that constitute our internal control over financial reporting and will require continued testing for effectiveness as the implementation progresses. There has been no change in our internal control over financial reporting that occurred during our fiscal quarter ended December 31, 2012 that has...

  • Page 75
    ... 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, 2012, based on...

  • Page 76
    ... 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The sections of our 2013 Proxy Statement entitled "Election of Directors," "Corporate Governance - Code of Business Conduct and Ethics," "Corporate Governance - Board Committees," "Corporate Governance - Director Nomination Policy," and...

  • Page 77
    PART IV Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE (a)(1) and (a)(2) Financial Statements. The Financial Statements of Columbia and Supplementary Data filed as part of this Annual Report on Form 10-K are on pages 39 to 69 of this Annual Report. (b) See Exhibit Index beginning on page 74 for...

  • Page 78
    ... undersigned, thereunto duly authorized. COLUMBIA SPORTSWEAR COMPANY By: /s/ THOMAS B. CUSICK Thomas B. Cusick Senior Vice President of Finance and Chief Financial Officer Date: February 28, 2013 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 79
    ... CSMM Hong Kong Limited, SCCH Limited, Columbia Sportswear Company and Swire Resources Limited (incorporated by reference to exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2012) (File No. 000-23939) Form of Nonstatutory Stock Option Agreement...

  • Page 80
    ... Stock Unit Award Agreement for performance-based restricted stock units granted on or after March 29, 2010 (incorporated by reference to exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011) (File No. 000-23939) Columbia Sportswear Company...

  • Page 81
    ... of 1934, as amended. Confidential portions of this exhibit have been separately filed with the Securities and Exchange Commission. * Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 333-43199). ** Pursuant to Rule 406T of Regulation S-T, these interactive data...