UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
- ---- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
--------------------------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE EXCHANGE ACT
OF 1934
For the transition period from ______________ to ______________
COLUMBIA SPORTSWEAR COMPANY
(Exact name of registrant as specified in its charter)
Oregon 0-23939 93-0498284
- -------------------------------------------------------------------------------
(State or other jurisdiction of (Commission File (IRS Employer
incorporation or organization) Number) Identification Number)
6600 North Baltimore Portland, Oregon 97203
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(503) 286-3676
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES___X___ NO _______
The number of shares of Common Stock outstanding on November 12, 1998, was
25,247,343.
<PAGE>
COLUMBIA SPORTSWEAR COMPANY
SEPTEMBER 30, 1998
INDEX TO FORM 10-Q
PAGE NO.
PART I. FINANCIAL INFORMATION
ITEM 1 - Financial Statements - Columbia Sportswear Company (Unaudited)
Condensed Consolidated Balance Sheets .............................. 2
Condensed Consolidated Statements of Operations..................... 3
Condensed Consolidated Statements of Cash Flows..................... 4
Notes to Condensed Consolidated Financial Statements................ 5
ITEM 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations........................... 7
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk.... 10
PART II. OTHER INFORMATION
ITEM 5 - Other Information............................................. 11
ITEM 6 - Exhibits and Reports on Form 8-K.............................. 11
SIGNATURES ............................................................ 12
1
<PAGE>
ITEM 1 - Financial Statements
<TABLE>
<CAPTION>
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, 1998 December 31, 1997
------------------ -----------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 9,704 $ 4,001
Accounts receivable, net of allowance
of $3,798 and $2,461, respectively 169,312 76,086
Inventories (Note 2) 86,561 48,300
Deferred tax asset (Note 3) 13,500 -
Prepaid expenses and other current assets 1,457 2,430
----------------- ----------------
Total current assets 280,534 130,817
Property, plant, and equipment, net 63,634 35,277
Intangibles and other assets 3,317 8,383
----------------- ----------------
Total assets $ 347,485 $ 174,477
================= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 72,501 $ 20,427
Accounts payable 53,984 21,765
Accrued liabilities 21,650 13,128
Income taxes payable 17,202 (229)
Current portion of long-term debt 197 154
Distribution payable - 5,866
----------------- ----------------
Total current liabilities 165,534 61,111
Long-term debt 27,327 2,831
Deferred tax liability (Note 3) 5,500 -
----------------- ----------------
Total liabilities 198,361 63,942
Shareholders' Equity:
Preferred stock; 10,000 shares authorized;
none issued and outstanding - -
Common stock; 50,000 shares authorized;
25,247 and 18,792 issued and outstanding 124,883 17,886
Retained earnings 32,342 101,805
Accumulated foreign currency
translation adjustment (3,478) (3,806)
Unearned portion of restricted stock
issued for future services (4,623) (5,350)
----------------- ----------------
Total shareholders' equity 149,124 110,535
----------------- ----------------
Total liabilities and shareholders' equity $ 347,485 $ 174,477
================= ================
</TABLE>
See accompanying notes to condensed consolidated financial statements
2
<PAGE>
<TABLE>
<CAPTION>
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $ 173,956 $ 154,165 $ 316,071 $ 258,355
Cost of sales 94,311 82,756 179,106 144,571
--------- --------- --------- ---------
Gross profit 79,645 71,409 136,965 113,784
Selling, general, and administrative 39,497 33,399 94,474 77,757
--------- --------- --------- ---------
Income from operations 40,148 38,010 42,491 36,027
Interest expense, net 1,513 1,483 2,735 2,497
--------- --------- --------- ---------
Income before income tax 38,635 36,527 39,756 33,530
Income tax expense (Note 3) 15,763 2,002 14,219 1,730
--------- --------- --------- ---------
Net income (Note 5) $ 22,872 $ 34,525 $ 25,537 $ 31,800
========= ========= ========= =========
Net income per share (Note 4):
Basic $ 0.91 $ 1.84 $ 1.10 $ 1.69
Diluted $ 0.90 $ 1.84 $ 1.08 $ 1.69
Weighted average shares outstanding:
Basic 25,247 18,792 23,219 18,792
Diluted 25,503 18,792 23,561 18,792
</TABLE>
See accompanying notes to condensed consolidated financial statements
3
<PAGE>
<TABLE>
<CAPTION>
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------
1998 1997
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 25,537 $ 31,800
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation and amortization 5,508 5,238
Non-cash compensation 727 727
Loss on disposal of property, plant, and equipment 19 1
Deferred income tax provision (8,000) -
Changes in operating assets and liabilities:
Accounts receivable (91,655) (84,165)
Inventories (38,076) (34,709)
Prepaid expenses and other current assets (397) 248
Intangibles and other assets (852) (2,702)
Accounts payable 30,577 29,974
Accrued liabilities 8,564 8,459
Income taxes payable 17,419 840
--------- ---------
Net cash used in operating activities (50,629) (44,289)
--------- ---------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to property, plant, and equipment (33,474) (9,369)
Proceeds from sale of property, plant, and equipment 160 49
Maturity of short-term investments - 815
--------- ---------
Net cash used in investing activities (33,314) (8,505)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Net borrowings on notes payable 52,250 66,018
Issuance (repayment) on long-term debt 24,538 (100)
Proceeds from options exercised 147 -
Proceeds from initial public offering 107,934 -
Distributions paid to shareholders (95,128) (11,211)
--------- ---------
Net cash provided by financing activities 89,741 54,707
--------- ---------
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH (95) (138)
--------- ---------
NET INCREASE IN CASH AND CASH
EQUIVALENTS 5,703 1,775
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 4,001 3,283
========= =========
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 9,704 $ 5,058
========= =========
</TABLE>
See accompanying notes to condensed consolidated financial statements
4
<PAGE>
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying condensed consolidated financial statements have been prepared
by the management of Columbia Sportswear Company the ("Company") and in the
opinion of management contain all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's financial
position as of September 30, 1998, and the results of operations for the three
months ended and the nine months ended September 30, 1998 and 1997 and cash
flows for the nine months ended September 30, 1998 and 1997. It should be
understood that accounting measurements at interim dates inherently involve
greater reliance on estimates than at year end. The results of operations for
the three months and nine months ended September 30, 1998 are not necessarily
indicative of the results to be expected for the full year.
The accompanying financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's final
prospectus, which forms part of the registration statement on Form S-1 (file no.
333-43199) filed in connection with the Company's initial public offering of
6,440,000 shares (including an over-allotment option of 840,000 shares) of its
Common Stock (the "IPO").
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
<S> <C> <C>
Raw Materials $ 3,159 $ 4,565
Work In process 4,096 7,637
Finished goods 79,306 36,098
==================== ===================
$ 86,561 $ 48,300
==================== ===================
</TABLE>
NOTE 3. INCOME TAXES
The condensed consolidated statement of operations reflects adjustments for
income taxes as if the Company had been subject to federal and state income
taxes at an effective tax rate of 40%, 40.8% and 40.8% for the three month
period ended March 31, June 30 and September 30, 1998, respectively. Net income
tax expense for the three months ended September 30, 1998 was $15,763,000.
In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes", the Company recorded a net deferred tax asset of
$2,000,000 for cumulative temporary differences between financial statement and
income tax bases of the Company's assets and liabilities by recording a benefit
for such deferred tax assets in its condensed consolidated statement of
operations on March 26, 1998, the termination date of the S corporation (the
"Termination Date"). Such deferred tax assets are based on the cumulative
temporary difference upon the conversion from an S corporation to a C
corporation on the Termination Date.
Deferred income taxes arise from temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the
amounts used for income tax purposes. During the three months ended September
30, 1998 the Company recorded a net change in these temporary differences of
$3,500,000, resulting in a net deferred tax asset of $8,000,000. The net
deferred tax asset consists of a current asset of $13,500,000 and a non-current
liability of $5,500,000 at September 30, 1998.
5
<PAGE>
NOTE 4. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
requires dual presentation of basic and diluted earnings per share ("EPS").
Basic EPS is based on the weighted average number of common shares outstanding.
Diluted EPS reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock.
There were no adjustments to net income in computing diluted earnings per share
for the three months ended September 30, 1998 and 1997. A reconciliation of the
common shares used in the denominator for computing basic and diluted earnings
per share is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding,
used in computing basic earnings per share 25,247 18,792 23,219 18,792
Effect of dilutive stock options 256 - 342 -
-------- --------- -------- --------
Weighted-average common shares outstanding,
used in computing diluted earnings per share 25,503 18,792 23,561 18,792
======== ======== ======== ========
Earnings per share of common stock:
Basic $ 0.91 $ 1.84 $ 1.10 $ 1.69
Diluted $ 0.90 $ 1.84 $ 1.08 $ 1.69
</TABLE>
NOTE 5. COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income". The schedule detailing the
components of comprehensive income is as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net income $ 22,872 $ 34,525 $ 25,537 $ 31,800
Foreign currency translation adjustments (140) (94) 328 (1,053)
-------- -------- -------- --------
Comprehensive income $ 22,732 $ 34,431 $ 25,865 $ 30,747
======== ======== ======== ========
</TABLE>
NOTE 6. NEW ACCOUNTING PRONOUNCEMENTS
During 1997, the FASB issued Statement of Financial Accounting Standards No.
131, "Disclosures about Segments of an Enterprise and Related Information".
Adoption of this statement will not impact the Company's consolidated financial
position, results of operations or cash flows, and will be limited to the form
and content of its disclosures. This statement is effective for fiscal years
beginning after December 15, 1997. Management has not yet determined which
operating segments it will disclose.
During 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities ". This
statement is effective for all fiscal quarters of fiscal years beginning after
June 15, 1999. The Company has not yet determined the impact of SFAS No. 133 on
its financial statements.
6
<PAGE>
ITEM 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
The statements in this report concerning certain expected future expenses as a
percentage of net sales, future financing and working capital requirements, and
the Year 2000 issue constitute forward - looking statements that are subject to
risks and uncertainties. Factors that could adversely affect selling, general
and administrative expense as a percentage of net sales include, but are not
limited to, increased competitive factors (including increased competition, new
product offerings by competitors and price pressures), unfavorable seasonal
differences in sales volume, changes in consumer preferences, as well as an
inability to increase sales to department stores or to open and operate new
concept shops on favorable terms. Other factors could include a failure to
manage growth effectively (including timely implementation of the Company's
enterprise system and expansion of its distribution center) and unavailability
of independent manufacturing, labor or supplies at reasonable prices. In
addition, unfavorable business conditions, disruptions in the outerwear,
sportswear and rugged footwear industries or changes in the general economy
could have adverse effects. Factors that could materially affect future
financing requirements include, but are not limited to, the ability to obtain
additional financing on acceptable terms. Factors that could materially affect
future working capital requirements include, but are not limited to, the
industry factors and general business conditions noted above. Factors that could
materially affect the Year 2000 issue include, but are not limited to,
unanticipated costs associated with any required modifications to the Company's
computer systems and associated software.
Results of Operations
Three Months Ended September 30,1998 Compared to Three Months Ended September
30, 1997
Net sales: Net sales increased 12.8% to $174.0 million for the three month
period ended September 30, 1998 from $154.2 million for the comparable period in
1997. Domestic sales increased 11.4% to $139.6 million for the three month
period ended September 30, 1998 from $125.3 million for the comparable period in
1997. Net international sales, excluding Canada, increased 15.0% to $14.6
million for the three month period ended September 30, 1998 from $12.7 million
for the comparable period in 1997. Canadian sales increased 22.2% to $19.8
million for the three month period ended September 30, 1998 from $16.2 million
compared to the same period in 1997. These increases were attributable to
increased sales of fall units primarily in Europe, Canada, and the United
States.
Gross Profit: Gross profit as a percentage of net sales was 45.8% for the three
months ended September 30, 1998 compared to 46.3% for the comparable period in
1997. The change in gross margin primarily was due to increased domestic sales
of spring close-out products and a higher portion of lower margin Canadian sales
during the three months ended September 30, 1998.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 18.3% to $39.5 million for the three months
ended September 30, 1998 from $33.4 million for the comparable period in 1997,
primarily as a result of an increase in variable selling and operating expenses
to support both the higher level of sales and continued investment in
operational infrastructure. As a percentage of sales, selling, general, and
administrative expenses increased to 22.7% for the three months ended September
30, 1998 from 21.7% for the comparable period in 1997, reflecting the Company's
emphasis in ensuring adequate infrastructure to support its planned growth. The
Company believes that in the short term selling, general, and administrative
expense as a percentage of sales will increase as the new distribution center
and enterprise information system are capitalized and begin depreciating
beginning in the fourth quarter of 1998. The Company believes that in the longer
term it will be able to leverage selling, general, and administrative expense as
a percentage of sales as its international operations become more established
and its sportswear and footwear sales expand.
7
<PAGE>
Interest Expense: Interest expense increased by 2.0% for the three months ended
September 30, 1998 from the comparable period in 1997. The increase was
attributable to additional borrowing requirements for working capital needed to
fund the growth in sales activity for the three months ended September 30, 1998.
Nine Months Ended September 30,1998 Compared to Nine Months Ended September 30,
1997
Net sales: Net sales increased 22.3% to $316.1 million for the nine month period
ended September 30, 1998 from $258.4 million for the comparable period in 1997.
Domestic sales increased 22.3% to $255.2 million for the nine month period ended
September 30, 1998 from $208.6 million for the comparable period in 1997. Net
international sales, excluding Canada, increased 23.8% to $32.2 million for the
nine month period ended September 30, 1998 from $26.0 million for the comparable
period in 1997. Canadian sales increased 20.7% to $28.6 million for the nine
month period ended September 30, 1998 from $23.7 million compared to the same
period in 1997. These increases were attributable to strong domestic sales of
spring sportswear units in the first and second quarters, coupled with timely
shipments of fall product in Europe, Canada, and the United States.
Gross Profit: Gross profit as a percentage of net sales was 43.3% for the nine
months ended September 30, 1998 compared to 44.0% for the comparable period in
1997. The decrease in gross margin was due to increased domestic sales of
carryover fall 1997 products and current year spring 1998 close-out products and
a higher portion of lower margin sportswear during the nine months ended
September 30, 1998.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 21.5% to $94.5 million for the nine months
ended September 30, 1998 from $77.8 million for the comparable period in 1997,
primarily as a result of an increase in variable selling and operating expenses
to support both the higher level of sales and continued investment in
operational infrastructure. As a percentage of sales, selling, general, and
administrative expenses decreased to 29.9% for the nine months ended September
30, 1998 from 30.1% for the comparable period in 1997, reflecting the Company's
operating expense leverage during the nine months ended September 30, 1998. The
Company believes that in the short term selling, general, and administrative
expense as a percentage of sales will increase as the new distribution center
and enterprise information system are capitalized and begin depreciating
beginning in the fourth quarter of 1998. The Company believes that in the longer
term it will be able to resume leveraging selling, general, and administrative
as a percentage of sales as its international operations become more established
and its sportswear and footwear sales expand.
Interest Expense: Interest expense increased by 9.5% for the nine months ended
September 30, 1998 from the comparable period in 1997. The increase was
attributable to additional borrowing requirements for working capital needed to
fund the growth in sales activity for the nine months ended September 30, 1998.
Provision For Income Taxes: Income tax expense for the nine months ended
September 30, 1998 includes a deferred income tax benefit of $2.0 million as a
result of the conversion to C corporate status in connection with the initial
public offering.
Liquidity and Capital Resources
The Company financed its operations in the nine months ended September 30, 1998
primarily through net borrowings on notes payable and net proceeds from the
Company's initial public offering after distributions to shareholders. At
September 30, 1998, the Company had total cash equivalents of $9.7 million
compared to $5.0 million at September 30, 1997. Cash used in operating
activities was $50.6 million for the nine months ended September 30, 1998 and
$44.3
8
<PAGE>
million for the comparable period in 1997. This increase was primarily due to an
increase in inventories and accounts receivable to support actual and
anticipated increases in sales volume.
The Company's primary capital requirements are for working capital, investing
activities associated with expansion of its distribution center, systems
development and general corporate needs. Net cash used in investing activities
was $33.3 million for the nine months ended September 30, 1998 and $8.5 million
for the comparable period in 1997.
Cash provided by financing activities was $89.7 million for the nine months
ended September 30, 1998 and $54.7 for the comparable period in 1997. The
increase in net cash provided from financing activities was primarily due to
proceeds from senior promissory notes and the Company's initial public offering,
net of distributions to shareholders, offset by a decrease in net short term
borrowings.
To fund its working capital requirements, the Company has available unsecured
revolving lines of credit with aggregate seasonal limits ranging from $75 to
$115 million. As of September 30, 1998, $60.0 million was outstanding under
these lines of credit bearing interest at a rate of 6.0% per annum.
Additionally, the Company maintains credit agreements in order to provide the
Company unsecured lines of credit with a combined limit of $115 million
available as an import line of credit for issuing documentary letters of credit.
In connection with current capital projects, the Company entered into a note
purchase agreement. Pursuant to the note purchase agreement, the Company issued
senior promissory notes in the aggregate principal amount of $25 million,
bearing an interest rate of 6.68% and maturing August 11, 2008. Proceeds from
the notes are being used to finance the expansion of the Company's distribution
center in Portland, Oregon. Up to an additional $15 million in shelf notes may
be issued under the note purchase agreement.
Proceeds from the IPO net of underwriting discounts and commissions totaled
$107.9 million, of which an amount equal to the greater of $95 million or the
amount of the Company Subchapter S accumulated adjustments account as of the
Termination Date was declared as a dividend to shareholders of record on March
23, 1998. As of April 1, 1998, $95 million had been distributed to such
shareholders. The Company has not yet determined the final amount of the
Subchapter S accumulated adjustments account as of the Termination date, but
expects the account to amount to approximately $102 million. The Company
believes that its liquidity requirements for at least the next 12 months will be
adequately covered by the IPO net proceeds, short term arrangements and the
proceeds from the senior notes.
Year 2000 Compliance
The Company has made extensive efforts over the past several years to upgrade or
replace all enterprise level software and hardware platforms. A part of the
selection criteria for new software and hardware systems were global software
support and Year 2000 compliance. The Company is expending capital for new
enterprise management information systems, expected to be fully operational by
late 1998, which will address the Year 2000 issue on all core Company business
systems. These include, but are not limited to, financial, manufacturing and
inventory management, distribution, and sales order processing applications. The
Company has other ancillary systems such as sales reporting, product
development, retail, merchandising and design that are scheduled to be modified
as required to address Year 2000 issues in a timely fashion. Desktop
productivity systems, networking and communications are also integral to the
Company's operations and have been surveyed for Year 2000 compliance.
Non-compliant components and software have been identified and are scheduled for
replacement or upgrade where necessary by mid-1999. Non-Information Technology
systems such as Company-owned manufacturing equipment, office equipment and
local office telephone systems are being assessed for related Year 2000 risks.
The Company conducts business with several customers via Electronic Data
Interchange (EDI) and will implement and test Year 2000 compliant standards and
software to help ensure uninterrupted service. The majority of the Company's
product sourcing is performed through independent manufacturers primarily in
Southeast Asia. Although analyses are
9
<PAGE>
underway, an initial review of these facilities indicates that most operations
and business processes are manual in nature and, consequently, the Company does
not expect the Year 2000 issue will impact its ability to effectively source its
products.
The Company's enterprise management information systems were implemented
primarily to improve its business processes rather than solely to address Year
2000 compliance issues. The costs associated with bringing the Company's
ancillary, desktop productivity, networking, communication and non-Information
Technology systems into Year 2000 compliance are being assessed; however, the
Company does not expect the aggregate of these costs will materially affect its
liquidity and capital resources.
The Company has undergone what it believes is a reasonable and thorough review
of Year 2000 issues on its operations, liquidity and financial condition and
identified the related issues and risks. As a result of this review, the Company
believes no identified issues or reasonably foreseeable circumstances should
have a material affect on the company.
The most reasonable likely issue facing the Company regarding Year 2000
compliance is the inability of compliant software or systems to perform as
intended. Although the Company does not have a comprehensive contingency plan,
it expects to apply its own resources and the resources of system providers to
solve these issues as they are identified. The Company will continue to take
appropriate measures to assure that its operating systems are prepared for Year
2000 related issues. It should be understood that the Company is reliant on many
external parties and their related systems which could affect the Company's
ability to meet possible eventualities. Such external entities include, but are
not limited to, certain United States and foreign governmental agencies,
material suppliers, and product manufacturers as well as service providers such
as freight forwarders, transportation, and utilities companies. In addition, the
Company as well as these external entities are expecting that the software and
hardware put into place will perform all functions as expected.
Euro Currency Conversion
European Union ("EU") finance members have approved 11 of the 15 EU member
states for participation in economic and monetary union. On January 1, 1999, the
euro will be adopted as the national currency of the participating countries -
Austria, Belgium, Finland, France, Germany, Ireland, Italy, Luxembourg,
Netherlands, Portugal and Spain. Initially, the euro will be used for non-cash
transactions. Currencies of the participating member states ("legacy
currencies") will remain legal tender until January 1, 2002. On this date,
euro-denominated bills and coins will be issued for use in cash transactions.
Currently, the Company is in the process of determining the effect of this
change on its European operations and information systems.
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
10
<PAGE>
PART II. OTHER INFORMATION
ITEM 5 - Other Information
In accordance with amendments adopted on May 21, 1998 to Rule 14a-4 under
the Securities and Exchange Act of 1934, if notice of a shareholder proposal to
be raised at the annual meeting of shareholders is received at the principal
executive offices of the Company after March 12, 1999 (45 days prior to the
month and in 1999 corresponding to the date on which the Company expects to mail
its proxy materials for the 1999 annual meeting), proxy voting on that proposal
when and if raised at the 1999 annual meeting will be subject to the
discretionary voting authority of the designated proxy holders. Any shareholder
proposal to be considered for inclusion in proxy materials for the Company's
1999 annual meeting must be received at the principal executive offices of the
Company no later than December 22, 1998.
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
10.1. Buying Agency Agreement between the Company and Nissho Iwai American
Corporation dated October 1, 1998
27.1 Financial Data Schedule
(b) Reports on Form 8-K
None.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLUMBIA SPORTSWEAR COMPANY
Date: 11/12/98 PATRICK D. ANDERSON
-----------------------------------
Patrick D. Anderson
Chief Financial Officer
and Authorized Officer
12
BUYING AGENCY AGREEMENT
DATED: OCTOBER 1, 1998
BETWEEN: NISSHO IWAI AMERICAN CORPORATION "NIAC"
1211 S.W. Fifth Avenue
Portland, Oregon 97204
AND: COLUMBIA SPORTSWEAR COMPANY "COLUMBIA"
6600 N. Baltimore Street
Portland, Oregon 97203
WHEREAS, NIAC and COLUMBIA entered into a certain Buying Agency Agreement
dated January 1, 1992 pursuant to which COLUMBIA appointed NIAC as its buying
agent with respect to COLUMBIA brand clothing products which COLUMBIA purchased
outside the United States for resale in the United States; and
WHEREAS, that Buying Agency Agreement, as subsequently amended, will expire
on September 30, 1998; and
WHEREAS, COLUMBIA and NIAC now desire to enter into a new Buying Agency
Agreement pursuant to which COLUMBIA appoints NIAC as a buying agent with
respect to COLUMBIA brand clothing products which will be purchased outside the
United States for resale by COLUMBIA in the United States (collectively the
"Goods").
NOW, THEREFORE, the parties agree as follows:
ARTICLE I
AGREEMENT TO PURCHASE
During each year of this Agreement, COLUMBIA agrees that it shall purchase
through NIAC, as its buying agent, at least eighty-five percent (85%) of the
Goods which COLUMBIA purchases outside of the United States for resale by
COLUMBIA in the United States.
ARTICLE II
----------
AGREEMENT TO PROCURE GOODS
--------------------------
2.1 During the term of the Agreement, NIAC will purchase as COLUMBIA's
<PAGE>
agent under purchase price terms specified as F.O.B. vessel loading port of
country of origin (hereinafter referred to as "F.O.B. Price"), all Goods
requested by COLUMBIA and arrange for delivery of such Goods as directed by
COLUMBIA, to a delivery point within the United States after clearing U.S.
Customs ("Delivery Point"). COLUMBIA shall be responsible for locating the
supply source for the Goods ("Suppliers") and negotiating the purchase, the
F.O.B. Price, and delivery schedules for such Goods with the Suppliers. COLUMBIA
will also be responsible for negotiating all terms and conditions with any
freight forwarder or transportation provider involved in the movement and
delivery of the Goods.
2.2 On behalf of COLUMBIA, NIAC shall advance the costs for acquisition of
the Goods and other costs incurred in bringing the Goods to the Delivery Point
including, without limitation, the amount paid by NIAC to the Supplier for the
Goods purchased, transportation costs, costs of loading and unloading, costs of
insurance, any costs incurred in protecting the Goods, custom duties, and fees
of custom brokers for handling air shipments ("Reimbursable Costs").
Reimbursable Costs will not include bank service charges, fees of custom brokers
(except for air shipments), and NIAC's overhead costs, including salaries paid
to NIAC's employees.
ARTICLE III
-----------
PAYMENT FOR GOODS
-----------------
3.1 At the direction of COLUMBIA, NIAC shall arrange for payment on behalf
of COLUMBIA to the Supplier of the Goods. Payment to the Supplier shall be made
as directed by COLUMBIA either through an at sight letter of credit opened by
NIAC to the Supplier ("L/C") or through a direct wire transfer of funds from
NIAC to the Supplier or its designated bank.
3.2 NIAC shall have the right to choose which bank it utilizes for the
opening of any L/C used for payment of the Goods. If NIAC should choose to use a
bank that does not presently have a system in place with NIAC which allows for
the direct electronic exchange of information associated with the L/C, NIAC will
use its best efforts to secure such a system with that bank as soon as possible.
ARTICLE IV
----------
REIMBURSEMENT TERMS
-------------------
4.1 COLUMBIA shall (i) reimburse NIAC for all Reimbursable Costs, and (ii)
pay a commission to NIAC for its services as COLUMBIA's buying agent in the
amount of one and one half percent (1.5%) of the F.O.B Price of the Goods
("Commission").
2
<PAGE>
Commission is a bona fide buying agency and financing commission and is not any
type of "selling commission" as that term is used in the U.S. Tariff Act of
1930, amended by the Trade Agreements Act of 1979, as set forth in 19 U.S.C.A.
Section 1401a(b)(1).
4.2 After delivery of the Goods to Delivery Point, NIAC shall invoice
COLUMBIA for all Reimbursable Costs and for the Commission. Any Reimbursable
Costs incurred thereafter shall be billed by NIAC as soon as possible after such
costs are incurred.
4.3 The "Reimbursement Starting Date" shall be (i) the date of the
disbursement of funds drawn under the L/C or (ii) the date payment is made
through wire transfer from NIAC to the Supplier. COLUMBIA shall pay NIAC for all
Reimbursable Costs and the applicable Commission in United States currency
within ninety (90) days from the Reimbursement Starting Date ("Due Date").
4.4 COLUMBIA shall pay interest to NIAC on all Reimbursable Costs and
Commission at a rate equal to thirty-five (35%) basis points over the three
month LIBOR published in the Wall Street Journal on the first business day of
each month. Interest shall accrue from the Reimbursement Starting Date to the
date of payment by COLUMBIA with the interest rate based on that which is in
effect on the first of the month in which NIAC makes payment to Supplier.
4.5 Overdue interest shall be payable on all amounts due NIAC from the Due
Date of said amount to the date NIAC actually receives payments thereof. The
applicable overdue interest rate shall be the Prime Rate announced by Citibank
N.A., New York plus two percent (2%) as set forth on each invoice issued by NIAC
or the maximum rate allowed by law, whichever is lower.
ARTICLE V
---------
LINE OF CREDIT
--------------
5.1 Prior to February 1 of each year, COLUMBIA shall submit to NIAC its
annual preliminary financial plan for COLUMBIA's forthcoming fiscal year. Such
plan will consist of monthly income statements, balance sheets, and statements
of cash flows. Following a reasonable review of said annual financial plan and
the financial statements, and provided NIAC is reasonably satisfied with the
financial plan and the financial statements provided under Article VII "Reports
and Records," NIAC shall specify the amount of the "Credit Line" which it is
willing to establish for COLUMBIA for the purchase of Goods under Articles II,
III and IV above for the forthcoming COLUMBIA fiscal year.
3
<PAGE>
5.2 The amount of Credit Line which shall be available from time to time
shall be an amount equal to the Credit Line minus (i) the amount of outstanding
unpaid invoices issued by NIAC to COLUMBIA, (ii) any Reimbursable Costs and
Commissions which have not yet been invoiced to COLUMBIA and (iii) the amount of
any purchase orders issued to Suppliers for which payment has not yet been made,
(collectively, the "Outstandings").
5.3 Notwithstanding the above, however, NIAC shall have no obligation to
place orders for Goods with the Supplier ("Orders") as requested by COLUMBIA or
extend credit under the Credit Line if at any time:
(a) COLUMBIA has operated at a loss during any three consecutive
fiscal quarters or COLUMBIA has accumulated a loss in the current fiscal year,
the total amount of which exceeds fifty percent (50%) of the amount of
consolidated net worth at the end of the preceding fiscal year;
(b) The Outstandings equal one hundred percent (100%) of the Credit
Line; or
(c) There is any default by COLUMBIA under this Agreement.
ARTICLE VI
----------
WARRANTY LIMITATIONS AND INDEMNIFICATION
----------------------------------------
6.1 NIAC shall purchase the Goods ordered by COLUMBIA from the Suppliers.
NIAC shall assign to COLUMBIA any warranties regarding the Goods, which are
provided by the Suppliers, but shall not provide any warranties itself. NIAC
EXPRESSLY DISCLAIMS ALL WARRANTIES, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PURPOSE. NIAC shall not be obligated to pay
or give any purchase discount or allowance to COLUMBIA for defective or B grade
goods. NIAC shall, however, give COLUMBIA any discounts or allowance given to
NIAC by the Supplier for Goods.
6.2 COLUMBIA hereby releases and shall indemnify and hold harmless NIAC
from any claim, loss, or liability arising from any claim by any third party
against NIAC arising out of this Agreement, any actions or omissions of NIAC
pursuant to this Agreement, or the Goods purchased hereunder unless and to the
extent such claim, loss or liability arises from the sole negligence of NIAC.
6.3 COLUMBIA shall maintain with a reasonably acceptable insurance company
product liability insurance in an amount per occurrence of not less than
$1,000,000 covering any claim of product liability with respect to the Goods
delivered by NIAC to COLUMBIA under this Agreement, naming NIAC as an additional
named
4
<PAGE>
insured, and providing for not less than ten (10) days' advance notice to NIAC
of cancellation. COLUMBIA shall submit to NIAC promptly upon issuance of such
policy of insurance and upon each anniversary thereof a certificate issued by
the insurance company evidencing such insurance.
ARTICLE VII
-----------
REPORTS AND RECORDS
-------------------
7.1 COLUMBIA shall prepare and submit to NIAC the following reports:
(a) Within forty-five (45) days following the end of each of the first
three (3) COLUMBIA Fiscal Year quarters, COLUMBIA will submit to NIAC the
unaudited consolidated balance sheet and statement of income as of the end of
such quarter accompanied by a copy of COLUMBIA's quarterly report to the
Securities and Exchange Commission, Form 10-Q.
(b) Within ninety (90) days after the end of each COLUMBIA Fiscal
Year, COLUMBIA will submit to NIAC the consolidated balance sheet, statement of
earnings, and statement of cash flow accompanied by (i) the audit report of
COLUMBIA's independent certified public accountants and (ii) a copy of
COLUMBIA's annual report to the Securities and Exchange Commission, Form 10-K.
(c) At such time, if any, that COLUMBIA provides or is required to
provide to any entity extending credit to it any other report or financial
information, COLUMBIA shall at the same time provide a copy thereof to NIAC.
(d) Within fifteen (15) days of its receipt of notice from the
financial rating agencies, COLUMBIA will notify NIAC of any changes in
COLUMBIA's S&P or Moody's credit rating.
(e) Such other information and reports relating to the affairs of
COLUMBIA as NIAC may reasonably request from time to time.
7.2 All financial statements to be submitted by COLUMBIA to NIAC shall be
prepared in accordance with GAAP consistently maintained by COLUMBIA.
7.3 Upon NIAC's request, COLUMBIA shall submit any documents or agreements
related to customs or other purposes which are necessary for NIAC's handling of
the Goods in accordance with this Agreement.
7.4 NIAC shall during the term of this Agreement and for a period of five
(5) years following its termination maintain complete and accurate records of
all import transactions in accordance with the requirements of customs and shall
provide such records to COLUMBIA upon request.
7.5 NIAC shall, at the request of and in conjunction with COLUMBIA, provide
complete and timely information in response to any investigation or inquiry from
the U.S.
5
<PAGE>
Customs Service or any other governmental agency. In addition, NIAC will provide
any information requested by COLUMBIA for use in any lawsuit or administrative
proceeding in which COLUMBIA may be involved.
7.6 In the event one or both parties should incur any material
out-of-pocket expenses or costs related to any such investigations or
proceedings, the parties shall negotiate in good faith to determine the
responsibility for and allocation of such expenses or costs between the parties.
ARTICLE VIII
------------
ORDERING FORECASTS: ORDERING PROCEDURE
--------------------------------------
8.1 In order to facilitate NIAC's procurement of Goods, COLUMBIA shall
provide NIAC from time to time and as requested by NIAC with forecasts of the
quantity and type of Goods COLUMBIA intends to purchase using NIAC.
8.2 COLUMBIA shall provide NIAC any purchase orders for Goods to be
purchased under this Agreement as far in advance as is reasonably practicable
from the planned time of production of the Goods.
8.3 NIAC will place Orders with Suppliers and if applicable arrange to open
the L/C for such Orders as soon as reasonably practicable following NIAC's
receipt of the order from COLUMBIA.
8.4 NIAC may delay placing the Orders and opening the L/C should any of the
conditions described in Section 5.3 arise or exist.
8.5 In the event NIAC, for whatever reason, should decide with respect to
any particular order that it does not wish to provide financing and to handle
that order, it will immediately notify COLUMBIA of that decision. In such event,
COLUMBIA shall be free to secure other financing arrangements and place the
affected order without the assistance of NIAC. COLUMBIA's obligation for the
applicable year under Article I would then be reduced by the amount of such
affected order.
ARTICLE IX
----------
INSURANCE AND CLAIMS
--------------------
9.1 NIAC shall at COLUMBIA's expense maintain with a reasonably acceptable
insurance company a policy which will cover all Goods while in transit Ex
6
<PAGE>
Works to the ultimate Delivery Point. Such policy shall insure the Goods in an
amount equal to one hundred fifty percent (150%) of the F.O.B. Price.
9.2 NIAC shall promptly process any claims with the appropriate party for
damage or shortage that were incurred during the shipment and/or delivery of the
Goods. NIAC shall make every effort to settle each claim, either with the
responsible party or the insurance company, for an amount which will fully
compensate COLUMBIA for the total loss which COLUMBIA has incurred. NIAC shall
indemnify COLUMBIA for the loss due to such damage or shortages to the extent
NIAC is actually indemnified by the party responsible or the insurance company
for such loss and NIAC shall promptly forward to COLUMBIA the full amount of any
and all such payments.
ARTICLE X
---------
CONFIDENTIAL INFORMATION
------------------------
It is understood that certain of the information which COLUMBIA will
provide to NIAC during the term of this Agreement is confidential. NIAC shall
use its best efforts to maintain the confidentiality of all such confidential
information in the same manner in which NIAC maintains its own confidential
information. Upon termination of this Agreement, if requested by COLUMBIA in
writing, NIAC, at its option, will deliver to COLUMBIA or destroy that
confidential information of COLUMBIA which NIAC does not need to retain for its
own business purpose in connection with this Agreement.
ARTICLE XI
----------
COVENANT
--------
COLUMBIA shall, so long as (i) there are any amounts outstanding payable by
COLUMBIA to NIAC, or (ii) NIAC shall have any obligation to perform the services
as described herein:
(a) Perform and comply with each of the provisions of the "Credit
Agreement" dated July 31, 1997, between COLUMBIA and Wells Fargo Bank National
Association;
(b) As soon as possible and in any event within seven (7) days after
the occurrence of a default under the Credit Agreement notify NIAC in writing
setting forth the details of the default and the action which COLUMBIA proposes
to take with respect thereto;
(c) As soon as possible and in any event at least ninety (90) days
prior to the termination of the Credit Agreement notify NIAC in writing of such
termination, and in good faith negotiate with NIAC to promptly implement such
financial covenants herein as shall be mutually agreed.
7
<PAGE>
ARTICLE XII
-----------
TERM
----
This Agreement shall be in effect as of October 1, 1998 and, unless sooner
terminated pursuant to its provisions, shall remain in full force and effect
until September 30, 2001. This Agreement shall be automatically extended for a
3-year period thereafter unless a party desiring not to renew the Agreement
gives the other party written notice of its election not to renew no later than
March 31, 2001.
ARTICLE XIII
------------
TERMINATION AND DEFAULT
-----------------------
13.1 If any party shall cease to conduct its business or shall make any
involuntary assignment of either its assets or its business for the benefit of
creditors; if a trustee or receiver is appointed to administer or conduct its
business affairs; if it is judged in any legal proceeding to be a debtor in
bankruptcy; or if any insolvency proceedings are commenced against it and not
terminated or dismissed within ninety (90) days, then such event shall be
considered a default of the Agreement and the other party may terminate this
Agreement.
13.2 In addition to the special rights of termination provided in the
section above, if (i) any party fails to perform any of its material obligations
in this Agreement or (ii) the lender has declared a default under the Credit
Agreement and has accelerated repayment of the loan thereunder, such event shall
constitute a default of this Agreement. If such non-performance is not cured
within thirty (30) days after notice of such failure is sent, then the party
giving the notice of non-performance may elect to terminate this Agreement. If
written election to terminate is given, this Agreement shall terminate ten (10)
days following delivery of this notice.
13.3 Upon Agreement expiration or termination by COLUMBIA arising from a
default by NIAC under this Agreement, (i) NIAC shall affirm any and all NIAC
commitments with respect to partially completed transactions including Goods in
transit and pending customs matters which have not been performed at such time,
(ii) COLUMBIA shall accept all orders for which NIAC has arranged for issuance
of an L/C or other payment to the Supplier, and (iii) all unpaid amounts due and
to become due to NIAC shall be accelerated and shall be payable upon demand.
13.4 Upon termination of this Agreement by NIAC arising from a default by
COLUMBIA under this Agreement, NIAC shall have the right to rescind and/or
reaffirm
8
<PAGE>
any or all purchase orders which have not been performed at such time, and
COLUMBIA shall be liable for all costs and expenses NIAC incurs thereby.
13.5 Upon any default the non-defaulting party shall have all rights
permitted to it under law including, without limitation, the rights arising from
default specified in this Agreement.
ARTICLE XIV
-----------
SECURITY
--------
COLUMBIA shall not grant (or suffer the existence of) any liens, security
interests or encumbrances on COLUMBIA's inventories and accounts receivable to
any vendor other than NIAC without (i) at least thirty (30) days in advance of
such intended grant, giving NIAC written notice thereof and (ii) granting NIAC a
security interest in such assets, provided that this article shall not limit
COLUMBIA's ability to grant any liens, security interests or encumbrances to
COLUMBIA's banks or other institutional lenders.
ARTICLE XV
----------
YEAR 2000 SYSTEMS COMPLIANCE
----------------------------
NIAC agrees that it will review all internal information systems that are
required for the performance of this Agreement and take whatever action is
necessary to replace, upgrade, or modify such systems to assure that they are
century compliant for the year 2000.
ARTICLE XVI
-----------
GOVERNING LAW
-------------
This Agreement is made in the State of Oregon and its effectiveness,
interpretation and enforcement shall be governed by the law of such state.
9
<PAGE>
ARTICLE XVII
------------
WAIVER
------
The waiver of non-performance of an obligation of a party under this
Agreement in one case shall not be deemed to be waiver of non-performance of the
same obligation in any other case.
ARTICLE XVIII
------------
FORCE MAJEURE
-------------
No party shall be liable for the failure to carry out its obligations
hereunder in the event that it is prevented from doing so by any act beyond its
control, including without limitations, war or warlike condition, unavailability
of shipping vessels, insurrection, labor disturbances, casualty, governmental
tariffs or quotas, or U.S. Government credit restrictions. This Article shall
not apply to COLUMBIA's obligation to make any payment as provided in this
Agreement.
ARTICLE XIX
-----------
NOTICES
-------
Any notice made in relation to this Agreement or performance thereunder
shall be in writing and delivered by hand or sent by prepaid certified mail,
return receipt requested, or facsimile (with a copy by certified mail) to the
following addresses or such other addresses as either party may designate by
notice duly given:
TO NIAC:
Nissho Iwai American Corporation
Suite 2200, Pacwest Center
1211 S.W. Fifth Avenue
Portland, OR 97204-3782
Attn: Branch General Manager
Fax No.: (503) 220-0560
WITH COPY TO:
General Counsel
Nissho Iwai American Corporation
1211 Avenue of Americas
New York, NY 10036-8880
Fax No.: (212) 840-2317
10
<PAGE>
TO COLUMBIA:
Columbia Sportswear Company
6600 N. Baltimore Street
Portland, OR 97203
Attn: Chief Financial Officer
Fax No.: (503) 286-9491
ARTICLE XX
----------
ENTIRE AGREEMENT
----------------
This instrument constitutes the entire agreement and understanding of the
parties hereto with respect to the subject matter of this Agreement, and
supersedes all prior discussions, agreements and understandings between the
parities with respect to the said matter. No amendment, modification or
assignment of this Agreement shall be binding on the parties unless made in
writing expressly referring to this Agreement and signed by authorized officers
or representatives of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first written above.
NISSHO IWAI AMERICAN CORP. COLUMBIA SPORTSWEAR COMPANY
By: /s/ YUTAKA KASE By: /s/ TIM BOYLE
-------------------------------- --------------------------------
Yutaka Kase, General Manager & Tim Boyle, President
Senior Vice President
11
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 9704
<SECURITIES> 0
<RECEIVABLES> 169312
<ALLOWANCES> 3798
<INVENTORY> 86561
<CURRENT-ASSETS> 280534
<PP&E> 63634
<DEPRECIATION> 0
<TOTAL-ASSETS> 347485
<CURRENT-LIABILITIES> 165534
<BONDS> 27327
0
0
<COMMON> 124883
<OTHER-SE> 24241
<TOTAL-LIABILITY-AND-EQUITY> 347485
<SALES> 316071
<TOTAL-REVENUES> 0
<CGS> 179106
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 94474
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2735
<INCOME-PRETAX> 39756
<INCOME-TAX> 14219
<INCOME-CONTINUING> 25537
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25537
<EPS-PRIMARY> 1.10
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</TABLE>
