Columbia Sportswear 2013 Annual Report Download

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2014
ANNUAL REPORT
TO SHAREHOLDERS

Table of contents

  • Page 1
    ANNUAL REPORT 2014 TO SHAREHOLDERS

  • Page 2
    ...2013. Columbia Sportswear is, first and foremost, a product- and marketing-driven company. Our first priority is to get the products right - solving consumers' problems with sensible innovations that are differentiated from competitors' and packaged in great design at affordable prices. The Columbia...

  • Page 3
    ... stores, outlet stores and ecommerce sites. Sales through our global direct-to-consumer platform grew 20 percent in 2013 and represented approximately 34 percent of consolidated net sales for the year. These results demonstrate that consumers embrace the innovation and enhanced design of our product...

  • 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
    ... about Market Risk ...Financial Statements and Supplementary Data ...Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ...Controls and Procedures...Other Information...PART III Directors, Executive Officers and Corporate Governance...Executive Compensation...

  • Page 6
    ... design, source, market and distribute active outdoor apparel, footwear, accessories and equipment under four primary brands: Columbia®, Mountain Hardwear®, Sorel® and Montrail®. As one of the largest outdoor apparel and footwear companies in the world, our products have earned an international...

  • Page 7
    ... 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 activities that...

  • Page 8
    ... of our 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. The following table presents net sales to unrelated...

  • Page 9
    ... located near Tokyo, Japan. We distribute our products to wholesale customers, our own retail stores and licensed stores in Korea from leased warehouse facilities near Seoul, Korea. The majority of sales to our LAAP distributors are shipped directly from the independent factories that manufacture...

  • Page 10
    ..., including online advertising and social media sites; television and print publications; experiential events; branded retail stores in selected high-profile locations; enhanced product displays in partnership with various wholesale customers and distributors; and consumer and trade public relations...

  • Page 11
    As a branded consumer products company, inventory represents one of the largest and riskiest capital commitments in our business model. We begin designing and developing our seasonal product lines approximately 12 months prior to soliciting advance orders from our wholesale customers and ...

  • Page 12
    ... also market competitive apparel, footwear, accessories and equipment under their own private labels. In addition, our direct-to-consumer channels expose us to branded competitors who operate retail stores in outlet malls and key metropolitan markets, as well as competitors who sell product online...

  • Page 13
    ... business strategies aim to achieve sustainable, profitable growth by creating innovative products at competitive prices, focusing on product design, utilizing innovations to differentiate our brand from competitors, working to ensure that our products are sold through strong distribution partners...

  • Page 14
    ... on Our Highly Customized Information Management Systems Our business is increasingly reliant on information technology. Information systems are used across our supply chain and retail operations, from design to distribution and sales, and are used as a method of communication among employees, with...

  • Page 15
    ... cessation of service and loss of existing or potential customers that may impede our sales, manufacturing, distribution or other critical functions. We Depend on Independent Factories Our products are manufactured by independent factories worldwide. Although we enter into purchase order commitments...

  • Page 16
    ...in labor markets and wage rates paid by our independent factory partners, which are often mandated by governments in the countries where our products are manufactured, particularly in China and Vietnam; Interest rates and currency exchange rates; Availability of skilled labor and production capacity...

  • Page 17
    ... to human error; Consumer acceptance of our products or changes in consumer demand for products of our competitors; Unanticipated changes in general market conditions or other factors, which may result in lower advance orders from wholesale customers and independent distributors, cancellations of...

  • Page 18
    ...are and have substantially greater financial, distribution, marketing and other resources, more stable manufacturing resources and greater brand strength are also concentrating on growing their businesses in China. In addition, the number of competitors in the marketplace has increased significantly...

  • Page 19
    ...by designing and marketing apparel, footwear, equipment and accessories under their own private labels. For example, in the United States and Europe, several of our largest customers have developed significant private label brands during the past decade that compete directly with our products. These...

  • Page 20
    ... retailers who are our customers, some of which primarily operate e-commerce operations and employ aggressive pricing strategies. We also compete with other companies for the production capacity of independent factories that manufacture our products and for import capacity. Many of our competitors...

  • Page 21
    ... the Sorel brand, a product line 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 consumer acceptance. Although we try to manage...

  • 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 facility in London, Ontario; in Europe, we rely primarily...

  • Page 23
    ... distribution center employees is governed by French law, including a formal representation of employees by a Works' Council and the application of a collective bargaining agreement. Labor disputes at independent factories where our goods are produced, shipping ports, transportation carriers, retail...

  • 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: London, Ontario (1 location)-owned ----- (1) Lease expires in June 2020. Europe...

  • Page 25
    ... Officer, Director (1) Vice President of Global Apparel Innovation and Design, Product Design Vice President of Retail Vice President of Apparel Merchandising Senior Vice President of Legal and Corporate Affairs, General Counsel and Secretary (1) Vice President of United States Apparel Sales Senior...

  • Page 26
    ... the corporate securities and finance group at Stoel Rives LLP. Mr. Bragdon served as Special Assistant Attorney General for the Oregon Department of Justice for seven months in 1996. Joseph R. Craig joined Columbia in 2009 as Men's Apparel Sales Manager, served in various sales management positions...

  • Page 27
    ... 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. In August 2013, Ms. Moser was named Vice President of Business Integration-Product...

  • Page 28
    ... 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 29
    ...Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol "COLM." At February 14, 2014, we had approximately 350 shareholders of record. Following are the quarterly high and low sale prices for our Common Stock for the years ended December 31, 2013 and 2012: HIGH LOW...

  • Page 30
    Columbia Sportswear Company Stock Price Performance December 31, 2008-December 31, 2013 Total Return Analysis 12/31/2008 12/31/2009 12/31/2010 12/31/2011 12/31/2012 12/31/2013 Columbia Sportswear Co...S&P 400 Mid-Cap Index ...Russell 3000 Textiles Apparel Mfrs...Issuer Purchases of Equity ...

  • Page 31
    ... 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, 2013 2012 2011 2010 2009 (In thousands, except per share amounts) Statement of Operations Data: Net sales ...$ 1,684,996 Net income attributable...

  • Page 32
    ..., 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, and our own direct-to-consumer...

  • Page 33
    ... our spring shipping window and prior to our larger fall wholesale and direct-to-consumer season. We remain focused on driving sustainable, profitable sales growth by providing innovative products at accessible prices, transforming our global supply chain, including information technology, managing...

  • Page 34
    ... of spring 2014 inventory for the China market, which began in the fourth quarter of 2013, were sold directly to the joint venture entity. The related sales, gross margin, and licensing income, which we would have recognized in the fourth quarter of 2013 under the historical distributor model, were...

  • Page 35
    ...million in 2013 from $946.7 million in 2012. The increase in net sales in the United States consisted of a net sales increase in our direct-to-consumer channel across all brands and both product categories, partially offset by a net sales decrease in our wholesale business across all brands and both...

  • Page 36
    ... Columbia brand and was led by the United States, followed by the EMEA region, partially offset by net sales decreases in the LAAP region and Canada. The net sales increase in apparel, accessories and equipment in the United States consisted of a net sales increase in our direct-to-consumer business...

  • Page 37
    ... associated with our design, merchandising, marketing, distribution and corporate functions, including related depreciation and amortization. SG&A expense increased $29.1 million, or 5%, to $625.7 million, or 37.1% of net sales, in 2013, from $596.6 million, or 35.7% of net sales, in 2012. The SG...

  • Page 38
    ...apparel, accessories and equipment, followed by footwear, and was led by the Columbia brand, followed by the Sorel and Mountain Hardwear brands. The Canada net sales decrease was primarily a result of a decline in fall 2012 advance orders for Columbia brand products due to the unseasonably warm 2011...

  • Page 39
    ... by mild winter weather in both 2011 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...

  • Page 40
    ... requirements are for working capital, investing activities associated with our ongoing ERP implementation, expansion of our direct-to-consumer business, and the expansion of our global operations, including our joint venture in China, and general corporate needs. At December 31, 2013, we had total...

  • Page 41
    ... 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 42
    ...regularly assess these risks and have established policies and business practices designed to mitigate their effects. We do not engage in speculative trading in any financial or capital market. Our primary currency exchange rate risk management objective is to mitigate the uncertainty of anticipated...

  • Page 43
    ... 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 upon shipment to or upon receipt by the customer depending on the terms of sale with the customer. Retail store revenues...

  • Page 44
    ... estimated fair value of the reporting unit with the carrying amount of that reporting unit. We estimate the fair value of our 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 45
    ... 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, including volatility and expected...

  • Page 46
    ...for the preparation of financial statements in conformity with accounting principles generally accepted in the United States of America. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation...

  • Page 47
    ...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, 2013 and 2012, and the related consolidated statements of operations...

  • Page 48
    ...; none issued and outstanding...Common stock (no par value); 125,000 shares authorized; 34,595 and 34,075 issued and outstanding (Note 15)...Retained earnings ...Accumulated other comprehensive income (Note 18) ...Total Columbia Sportswear Company shareholders' equity...Non-controlling interest...

  • Page 49
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year Ended December 31, 2012 2011 2013 Net sales ...$1,684,996 $1,669,563 $1,693,985 Cost of sales ...941,341 953,169 958,677 Gross profit ...743,655 716,394 735,308 Selling, general and ...

  • Page 50
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In thousands) Year Ended December 31, 2013 2012 2011 Net income ...Other comprehensive income (loss): Unrealized holding gains (losses) on available-for-sale securities (net of tax (expense) benefit of ($2), $4, and $23, ...

  • Page 51
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2013 2012 2011 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
    COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF EQUITY (In thousands) Columbia Sportswear Company Shareholders' Equity Common Stock Shares Outstanding Amount Retained Earnings Accumulated Other Comprehensive Income NonControlling Interest Total BALANCE, JANUARY 1, 2011 ...Net income ......

  • Page 53
    ...the business: Columbia Sportswear Company is a global leader in the design, sourcing, 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, its...

  • Page 54
    ... 31, 2013, 2012 and 2011, respectively. The charge during the year ended December 31, 2013 was recorded in the EMEA region for its European distribution center. Charges during the years ended December 31, 2012 and 2011 were recorded in the United States and EMEA regions for retail stores. Intangible...

  • Page 55
    ...in economic conditions, changes in the Company's ability to meet sales and profitability objectives or changes in the Company's business operations or strategic direction. Income taxes: Income taxes are provided on financial statement earnings for financial reporting purposes. Income taxes are based...

  • Page 56
    ... of personnel-related costs, advertising, depreciation and other selling 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: 52

  • Page 57
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Shipping and handling fees billed to customers and consumers are recorded as revenue. The direct costs associated with shipping goods to customers and consumers are recorded as cost of sales. Inventory planning, ...

  • Page 58
    ...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 2013 global apparel production. Footwear is manufactured in...

  • Page 59
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Accounts receivable, net, is as follows (in thousands): December 31, 2013 2012 Trade accounts receivable...$ Allowance for doubtful accounts ...Accounts receivable, net...$ NOTE 6-INVENTORIES, NET Inventories, net, ...

  • Page 60
    ...is designated as a European customs guarantee. These lines accrue interest based on the European Central Bank refinancing rate plus 50 basis points and the Euro Overnight Index Average plus 75 basis points, respectively. There was no balance outstanding under either line at December 31, 2013 or 2012...

  • Page 61
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) December 31, 2013 2012 Accrued salaries, bonus, vacation and other benefits ...$ Accrued import duties ...Product warranties...Other ...$ A reconciliation of product warranties is as follows (in thousands): 2013 68,...

  • Page 62
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2013 Year Ended December 31, 2012 (percent of income) 2011 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 ...

  • Page 63
    ... as Canada, China, France, Germany, Hong Kong, Italy, Japan, South Korea, Switzerland, the United Kingdom and the United States. Internationally, the Company has effectively settled Canadian and Korean tax examinations of all years through 2008, French tax examinations of all years through 2009 and...

  • Page 64
    ... December 31, 2013, 2012 and 2011, 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 65
    ...apparel, footwear, accessories and equipment, and raw material commitments not included in open production purchase orders. At December 31, 2013, inventory purchase obligations were $216,752,000. To support certain inventory purchase obligations, the Company maintains unsecured and uncommitted lines...

  • Page 66
    ... 31, 2013, 2012 and 2011, 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 67
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following table presents the weighted average assumptions for the years ended December 31: 2013 2012 2011 (1) Expected term ...4.70 years 4.78 years 5.12 years Expected stock price volatility ...30.53% 32.20% 30....

  • Page 68
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Restricted Stock Units Service-based restricted stock units are granted at no cost to key employees, and shares granted prior to 2009 generally vest over three years from the date of grant. Service-based restricted ...

  • Page 69
    ... stock units vested during the year ended December 31, 2013, 2012 and 2011 was $5,362,000, $3,874,000 and $5,586,000, respectively. NOTE 17-EARNINGS PER SHARE Earnings per share ("EPS") is presented on both a basic and diluted basis. Basic EPS is based on the weighted average number of common shares...

  • Page 70
    ...'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. The geographic distribution of the Company's net sales...

  • Page 71
    ... 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 speculative trading in any financial market. The Company actively manages the risk of...

  • Page 72
    ... in current cost of sales. Hedge ineffectiveness was not material during the years ended December 31, 2013, 2012 and 2011. The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement...

  • Page 73
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Balance Sheet Classification December 31, 2013 2012 Derivative instruments designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts ...Currency forward contracts ......

  • Page 74
    COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Level 2 - inputs, other than the quoted market prices in active markets, that are observable, either directly or indirectly; or observable market prices in markets with insufficient volume and/or infrequent ...

  • Page 75
    ... in the marketplace and quoted prices in markets with limited volume or infrequent transactions. Non-recurring fair value measurements: During the fourth quarter of 2013, the Company recorded an impairment in its EMEA segment of $8,995,000 for its European distribution center in Cambrai, France...

  • Page 76
    ...) per share attributable to Columbia Sportswear Company ...Basic ...$ 0.30 Diluted ...0.29 First Quarter $ 280,495 120,284 (7,077) $ 523,084 232,349 54,586 $ 533,110 237,718 36,730 $ (0.21) $ (0.21) Second Quarter 1.58 1.57 Third Quarter $ 1.06 1.05 Fourth Quarter 2012 Net sales ...$ 333...

  • Page 77
    ...Canadian subsidiary in April 2012 and is scheduled to go live in the United States in the second quarter of 2014. The implementation of a worldwide ERP system and associated systems affects the processes that constitute our internal control over financial reporting and will require continued testing...

  • Page 78
    ... 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, 2013, based on...

  • Page 79
    ...See Item 4A of this Annual Report on Form 10-K for information regarding our executive officers. Item 11. EXECUTIVE COMPENSATION The sections of our 2014 Proxy Statement entitled "Executive Compensation," "Director Compensation," "Corporate Governance - Compensation Committee Interlocks and Insider...

  • Page 80
    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 42 to 74 of this Annual Report. (b) See Exhibit Index beginning on page 80 for...

  • Page 81
    ... 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 27, 2014 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below...

  • Page 82
    ... 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 83
    ... Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011) (File No. 000-23939) + 10.2(i) Columbia Sportswear Company 401(k) Excess Plan (incorporated by reference to exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009...

  • Page 84
    ...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 files are...