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, 1999
--------------------------------------
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
EXCHANGE ACT OF 1934
For the transition period from ______________ to ______________
Commission file number: 0-23939
COLUMBIA SPORTSWEAR COMPANY
(Exact name of registrant as specified in its charter)
Oregon 93-0498284
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) 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 September 30, 1999, was
25,313,663.
<PAGE>
COLUMBIA SPORTSWEAR COMPANY
SEPTEMBER 30, 1999
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..................................8
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk..........12
PART II. OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K....................................12
SIGNATURES .........................................................13
1
<PAGE>
ITEM 1 - Financial Statements
<TABLE>
<CAPTION>
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 8,601 $ 6,777
Accounts receivable, net of allowance of $4,806 and
$3,395, respectively 183,004 105,967
Inventories (Note 2) 97,214 74,059
Deferred tax asset 9,357 8,895
Prepaid expenses and other current assets 1,537 2,485
------------- -------------
Total current assets 299,713 198,183
Property, plant, and equipment, net 70,478 68,692
Intangibles and other assets 2,234 2,603
------------- -------------
Total assets $ 372,425 $ 269,478
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Notes payable $ 86,508 $ 34,727
Accounts payable 42,562 37,514
Accrued liabilities 25,709 15,469
Income taxes payable 11,618 767
Current portion of long-term debt 246 201
------------- -------------
Total current liabilities 166,643 88,678
Long-term debt 26,731 27,275
Deferred tax liability 4,976 4,111
------------- -------------
Total liabilities 198,350 120,064
Commitments and contingencies - -
Shareholders' Equity:
Preferred stock; 10,000 shares authorized; none
issued and outstanding - -
Common stock; 50,000 shares authorized; 25,314 and
25,267 issued and outstanding, respectively 125,466 124,990
Retained earnings 56,175 32,282
Accumulated other comprehensive income (3,912) (3,478)
Unearned portion of restricted stock issued for future
services (3,654) (4,380)
------------- -------------
Total shareholders' equity 174,075 149,414
------------- -------------
Total liabilities and shareholders' equity $ 372,425 $ 269,478
============= =============
See accompanying notes to condensed consolidated financial statements
</TABLE>
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,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales $ 187,568 $ 173,956 $ 348,198 $ 316,071
Cost of sales 98,097 94,311 194,813 179,106
------------ ------------ ------------ ------------
Gross profit 89,471 79,645 153,385 136,965
Selling, general, and administrative 47,421 39,497 109,668 94,474
------------ ------------ ------------ ------------
Income from operations 42,050 40,148 43,717 42,491
Interest expense, net 1,729 1,513 3,392 2,735
------------ ------------ ------------ ------------
Income before income tax 40,321 38,635 40,325 39,756
Income tax expense (Note 3) 16,430 15,763 16,432 14,219
------------ ------------ ------------ ------------
Net income $ 23,891 $ 22,872 $ 23,893 $ 25,537
============ ============ ============ ============
Net income per share (Note 4):
Basic $ 0.94 $ 0.91 $ 0.94 $ 1.10
Diluted $ 0.93 $ 0.90 $ 0.94 $ 1.08
Weighted average shares outstanding :
Basic 25,303 25,247 25,292 23,219
Diluted 25,627 25,503 25,552 23,561
See accompanying notes to condensed consolidated financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended September 30,
-------------------------------------
1999 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 23,893 $ 25,537
Adjustments to reconcile net income to net cash used in
Operating activities:
Depreciation and amortization 9,175 5,508
Non-cash compensation 726 727
Loss on disposal of property, plant, and equipment 73 19
Deferred income tax provision (benefit) 403 (8,000)
Changes in operating assets and liabilities:
Accounts receivable (77,356) (91,655)
Inventories (22,785) (38,076)
Prepaid expenses and other current assets 926 (397)
Intangibles and other assets 108 (852)
Accounts payable 4,766 30,577
Accrued liabilities 10,341 8,564
Income taxes payable 10,781 17,419
------------- -------------
Net cash used in operating activities (38,949) (50,629)
------------- -------------
Cash Flows From Investing Activities:
Additions to property, plant, and equipment (10,734) (33,474)
Proceeds from sale of property, plant, and equipment 14 160
------------- -------------
Net cash used in investing activities (10,720) (33,314)
------------- -------------
Cash Flows From Financing Activities:
Net borrowings on notes payable 51,749 52,250
Issuance (repayment) of long-term debt (499) 24,538
Issuance of common stock 476 108,081
Distributions paid to shareholders - (95,128)
------------- -------------
Net cash provided by financing activities 51,726 89,741
------------- -------------
Net Effect of Exchange Rate Changes on Cash (233) (95)
------------- -------------
Net Increase in Cash and Cash Equivalents 1,824 5,703
Cash and Cash Equivalents, Beginning of Period 6,777 4,001
------------- -------------
Cash and Cash Equivalents, End of Period $ 8,601 $ 9,704
============= =============
See accompanying notes to condensed consolidated financial statements
</TABLE>
4
<PAGE>
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited 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 necessary to present fairly
the Company's financial position as of September 30, 1999, and the results of
operations for the three months and nine months ended September 30, 1999 and
1998 and of cash flows for the nine months ended September 30, 1999 and 1998. 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, 1999 are not
necessarily indicative of the results to be expected for the full year.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission. It is suggested that these condensed
consolidated financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1998.
Certain reclassifications of amounts reported in the prior period financial
statements have been made to conform to classifications used in the current
period financial statements.
NOTE 2. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Raw materials $ 2,552 $ 4,071
Work in process 7,221 5,576
Finished goods 87,441 64,412
----------- -----------
$ 97,214 $ 74,059
=========== ===========
</TABLE>
NOTE 3. INCOME TAXES
Prior to the Company's initial public offering completed on April 1, 1998, the
Company operated as an "S" corporation, and as a result was not subject to
federal or most state income taxes. In connection with the public offering, the
Company terminated its "S" corporation status. As a result, since April 1, 1998
the Company has been subject to federal and state income taxes. The Company
recognized a non-recurring, non-cash benefit of approximately $2 million to
earnings in the first quarter of 1998 to record deferred income taxes for the
tax effect of cumulative temporary differences between financial statement and
income tax bases of the Company's assets and liabilities.
5
<PAGE>
NOTE 4. NET INCOME PER SHARE
Statement of Financial Accounting Standards ("SFAS") 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 net income per
share for the three months and nine months ended September 30, 1999 and 1998. A
reconciliation of the common shares used in the denominator for computing basic
and diluted net income per share is as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Weighted average common shares outstanding,
used in computing basic net income per share 25,303 25,247 25,292 23,219
Effect of dilutive stock options 324 256 260 342
------------ ------------ ------------ ------------
Weighted-average common shares outstanding,
used in computing diluted net income per share 25,627 25,503 25,552 23,561
============ ============ ============ ============
Net income per share of common stock:
Basic $ 0.94 $ 0.91 $ 0.94 $ 1.10
Diluted $ 0.93 $ 0.90 $ 0.94 $ 1.08
</TABLE>
NOTE 5. SEGMENT INFORMATION
The Company operates in one industry segment: the design, production, marketing
and selling of active outdoor apparel, including outerwear, sportswear, rugged
footwear, and accessories. The geographic distribution of the Company's net
sales, income before income tax, and identifiable assets are summarized in the
following table (in thousands). Inter-geographic net sales, which are recorded
at a negotiated mark-up and eliminated in consolidation, are not material.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales to unrelated entities:
United States $ 139,836 $ 139,594 $ 256,314 $ 255,234
Canada 25,189 19,807 38,946 28,598
Other International 22,543 14,555 52,938 32,239
------------ ------------ ------------ ------------
$ 187,568 $ 173,956 $ 348,198 $ 316,071
============ ============ ============ ============
Income (loss) before income tax:
United States $ 33,989 $ 35,034 $ 35,020 $ 39,949
Canada 8,098 5,093 10,429 5,425
Other International 1,464 1,154 6 (1,070)
Less interest and other income
(expense) and eliminations (3,230) (2,646) (5,130) (4,548)
------------ ------------ ------------ ------------
$ 40,321 $ 38,635 $ 40,325 $ 39,756
============ ============ ============ ============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Assets:
United States $ 329,490 $ 247,125
Canada 36,792 16,696
Other international 42,068 33,571
------------ ------------
408,350 297,392
Eliminations (35,925) (27,914)
------------ ------------
$ 372,425 $ 269,478
============ ============
</TABLE>
NOTE 6. COMPREHENSIVE INCOME
The schedule detailing the components of comprehensive income is as follows (in
thousands):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 23,891 $ 22,872 $ 23,893 $ 25,537
Foreign currency translation adjustments (680) (140) (354) 328
Derivative loss (28) - (80) -
------------ ------------ ------------ ------------
Comprehensive income $ 23,183 $ 22,732 $ 23,459 $ 25,865
============ ============ ============ ============
</TABLE>
NOTE 7. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management programs, the Company uses or used a
variety of financial instruments, including foreign currency option and forward
exchange contracts. The Company does not hold or issue derivative financial
instruments for trading purposes.
Effective April 1, 1999, the Company adopted SFAS No. 133 - "Accounting for
Derivative Instruments and Hedging Activities". SFAS No. 133 requires that all
derivative financial instruments, such as foreign exchange contracts, be
recognized in the financial statements and measured at fair value regardless of
the purpose or intent for holding them. Changes in the fair value of derivative
financial instruments are either recognized periodically in income or
shareholders' equity (as a component of comprehensive income).
Foreign Currency Exchange Risk Management
The Company uses a combination of foreign currency option and forward exchange
contracts to hedge against the currency risk associated with Japanese yen,
Canadian dollar and European euro denominated, firmly committed and anticipated
transactions for the next twelve months.
The Company accounts for these instruments as cash flow hedges. In accordance
with SFAS No. 133, such financial instruments are marked-to-market with the
offset to other comprehensive income and then subsequently recognized as a
component of gross margin when the underlying transaction is recognized. The
Company measures hedge effectiveness of foreign currency option and forward
exchange contracts based on the forward price of the underlying commodity. Hedge
ineffectiveness was not material during the quarter ended September 30, 1999.
7
<PAGE>
At September 30, 1999, the Company had foreign currency option and forward
exchange contracts outstanding with an aggregate notional amount of
approximately $6.0 million and $17.4 million, respectively. The fair value of
these instruments was negligible as of September 30, 1999 and has been recorded
in accounts receivable with the offset to other comprehensive income and
earnings. The fair value of these instruments will be recognized in earnings
within the next twelve months.
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
availability, and the Year 2000 issue constitute forward - looking statements
that are subject to risks and uncertainties. These risks could cause actual
results or activities to differ materially from those expected. Factors that
could adversely affect selling, general and administrative expense as a
percentage of net sales include factors that could have an adverse impact on
sales and those that could result in unexpected expenses. These include, but are
not limited to, increased competitive factors (including increased competition,
new product offerings by competitors and price pressures), effects of weather,
unfavorable seasonal differences in sales volume, changes in consumer
preferences, as well as an inability to increase sales to department stores, to
open and operate new concept shops, to expand sales of footwear and sportswear,
and to increase sales in international markets. Other factors could include a
failure to manage growth effectively, unavailability of independent
manufacturing, labor or supplies at reasonable prices and the Year 2000 issue.
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 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 factors listed
above. Factors that could materially affect the Company in connection with the
Year 2000 issue include, but are not limited to, unanticipated costs associated
with any additional required modifications to the Company's computer systems and
associated software as well as failures of external systems of suppliers,
business partners or governmental agencies.
Results of Operations
The following table sets forth, for the periods indicated, selected Company
income statement data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 52.3 54.2 55.9 56.7
Gross profit 47.7 45.8 44.1 43.3
Selling, general and administrative expense 25.3 (1) 22.7 31.5 (1) 29.9
Income from operations 22.4 23.1 12.6 13.4
Interest expense, net 0.9 0.9 1.0 0.8
Income before income tax 21.5 22.2 11.6 12.6
Income tax expense 8.8 9.1 4.7 4.5 (2)
Net income 12.7% 13.1% 6.9% 8.1%
(1) Includes a one-time charge of $1.5 million related to the closure of the
Company's manufacturing facility.
(2) Includes a $2.0 million deferred tax benefit which was realized upon the
Company's conversion to C corporate status in conjunction with the Company's
initial public offering.
</TABLE>
8
<PAGE>
Three Months Ended September 30, 1999 Compared to Three Months Ended
September 30, 1998
Net sales: Net sales increased 7.8% to $187.6 million for the three month period
ended September 30, 1999 from $174.0 million for the comparable period in 1998.
Domestic sales increased 0.1% to $139.8 million for the three month period ended
September 30, 1999 from $139.6 million for the comparable period in 1998. Net
international sales, excluding Canada, increased 54.1% to $22.5 million for the
three month period ended September 30, 1999 from $14.6 million for the
comparable period in 1998. Canadian net sales increased 27.3% to $25.2 million
for the three month period ended September 30, 1999 from $19.8 million for the
comparable period in 1998. The international and Canadian unit sales increased
across all merchandise categories.
Gross Profit: Gross profit as a percentage of net sales was 47.7% for the three
months ended September 30, 1999 compared to 45.8% for the comparable period in
1998. The increase in gross margin was primarily attributable to the increase in
international sales (which generally have a higher gross profit margin than
domestic sales), reduced spring and fall close-out sales and favorable pricing
and deliveries on fall 1999 production from the Company's overseas sourcing
operations as compared to the three months ended September 30, 1998.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 20.0% to $47.4 million for the three months
ended September 30, 1999 from $39.5 million for the comparable period in 1998,
primarily as a result of the accrual of $1.5 million related to the announced
closure of the Company's only manufacturing facility and the additional
depreciation expense attributable to the continuing investment in global
infrastructure. As a percentage of sales, selling, general, and administrative
expenses increased to 25.3% for the three months ended September 30, 1999 from
22.7% for the comparable period in 1998, reflecting the manufacturing facility
closure and the additional depreciation associated with the recent
capitalization of the domestic distribution center expansion and enterprise
information system. 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.
Interest Expense: Interest expense increased by 14.3% for the three months ended
September 30, 1999 from the comparable period in 1998. The increase was
attributable primarily to less interest being capitalized in the current quarter
due to the completion of the distribution center and enterprise information
system installations.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September 30,
1998
Net sales: Net sales increased 10.2% to $348.2 million for the nine month period
ended September 30, 1999 from $316.1 million for the comparable period in 1998.
Domestic sales increased 0.4% to $256.3 million for the nine month period ended
September 30, 1999 from $255.2 million for the comparable period in 1998. Net
international sales, excluding Canada, increased 64.3% to $52.9 million for the
nine month period ended September 30, 1999 from $32.2 million for the comparable
period in 1998. Canadian net sales increased 36.0% to $38.9 million for the nine
month period ended September 30, 1999 from $28.6 million for the comparable
period in 1998. These increases were primarily attributable to increased sales
in Europe and Canada across all merchandise categories and increased sales of
spring sportswear and footwear units in other regions.
Gross Profit: Gross profit as a percentage of net sales was 44.1% for the nine
months ended September 30, 1999 compared to 43.3% for the comparable period in
1998. The increase in gross margin was primarily due to decreased domestic sales
of spring close-out products, favorable pricing and deliveries on fall 1999
production from the Company's overseas sourcing
9
<PAGE>
operations, and increased sales of current fall products in Europe (which
generally have a higher gross profit margin than domestic sales) during the nine
months ended September 30, 1999 when compared to the prior year.
Selling, General and Administrative Expense: Selling, general, and
administrative expense increased 16.1% to $109.7 million for the nine months
ended September 30, 1999 from $94.5 million for the comparable period in 1998,
primarily as a result of an increase in variable selling and operating expenses
to support the higher level of sales, the Company's announced only manufacturing
facility closure, and additional depreciation expense related to the continuing
investment in global infrastructure. As a percentage of sales, selling, general,
and administrative expenses increased to 31.5% for the nine months ended
September 30, 1999 from 29.9% for the comparable period in 1998, reflecting the
manufacturing facility closure and additional depreciation from the remaining
components of the domestic distribution center expansion and enterprise
information system being capitalized in the first nine months of 1999.
Interest Expense: Interest expense increased by 24.0% for the nine months ended
September 30, 1999 from the comparable period in 1998. The increase was
attributable to the issuance of long-term senior promissory notes in the third
quarter of 1998 to finance the expansion of the domestic distribution center and
the reduction in capitalized interest following completion of the domestic
distribution center and enterprise information system.
Seasonality of Business
The Company's business is affected by the general seasonal trends that are
characteristic of many companies in the outdoor apparel industry in which sales
and profits are highest in the third calendar quarter. The Company's products
are marketed on a seasonal basis, with a product mix weighted substantially
toward the fall season. Results of operations in any period should not be
considered indicative of the results to be expected for any future period. The
sale of the Company's products is subject to substantial cyclical fluctuation or
impact from unseasonal weather conditions. Sales tend to decline in periods of
recession or uncertainty regarding future economic prospects that affect
consumer spending, particularly on discretionary items. This cyclicality and any
related fluctuation in consumer demand could have a material adverse effect on
the Company's results of operations and financial condition.
Liquidity and Capital Resources
The Company's primary capital requirements are for working capital, investing
activities associated with expansion of its domestic distribution center,
information systems development and general corporate needs. At September 30,
1999, the Company had total cash equivalents of $8.6 million compared to $9.7
million at September 30, 1998. Cash used in operating activities was $38.9
million for the nine months ended September 30, 1999 and $50.6 million for the
comparable period in 1998. This decrease was primarily due to a reduction in the
rate of change in accounts receivable and inventories over the nine month period
ended September 30, 1999 compared to the same period in the prior year.
Net cash used in investing activities was $10.7 million for the nine months
ended September 30, 1999 and $33.3 million for the comparable period in 1998 as
a result of decreasing capital investment and completion of the enterprise
information system installation and domestic distribution center expansion.
Cash provided by financing activities was $51.7 million for the nine months
ended September 30, 1999 compared to $89.7 million for the comparable period in
1998. The decrease in net cash provided by financing activities was primarily
due to issuance of long-term debt in the prior year.
10
<PAGE>
To fund its working capital requirements, the Company has available unsecured
revolving lines of credit with aggregate seasonal limits ranging from
approximately $112 to $132 million. As of September 30, 1999, $86.5 million was
outstanding under these lines of credit. Additionally, the Company maintains
credit agreements in order to provide the Company unsecured lines of credit with
a combined limit of approximately $105 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 on August 11, 1998. 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 have been used to finance the expansion of the Company's
domestic distribution center in Portland, Oregon. Up to an additional $15
million in shelf notes are available under the note purchase agreement.
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 is global software
support and Year 2000 compliance. The Company has replaced its management
information system with an enterprise system that integrates Electronic Data
Interchange (EDI) and inventory management capabilities and will address the
Year 2000 issue on all core Company business systems. These include, but are not
limited to, purchasing, manufacturing, inventory management, distribution, sales
order processing, and financial applications. The Company has two ancillary
systems, product development and cooperative advertising, that are in the
process of being modified or scheduled to be modified as required to address
Year 2000 issues by the end of 1999. 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 upgraded or replaced in all essential worldwide desktop computer inventory.
Non-information technology systems such as Company-owned manufacturing
equipment, office equipment and local office telephone systems have been
assessed for related Year 2000 risks have been updated and/or replaced as
necessary. The Company is also reliant on many external parties and their
related systems in the production and delivery of its products. 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. The Company has surveyed its key suppliers and service providers and
preliminary results indicate that the Year 2000 issue will not materially impact
the Company's ability to effectively source and deliver 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 have been assessed and the Company
estimates that expenditures for the project will be approximately $0.8 million
for the year ended December 31, 1999, of which $0.6 million has been incurred as
of September 30, 1999, with costs being paid out of working capital. This
estimate, based on currently available information, will be updated as the
Company continues its assessment and proceeds with implementation and testing,
and may require further revision.
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 effect on the Company.
11
<PAGE>
The most reasonable likely worst case scenario facing the Company regarding Year
2000 compliance is the inability of purportedly compliant software or systems,
particularly those of third parties, to perform as intended. A corporate Year
2000 steering committee developed a strategy which identified critical business
processes and systems and their associated risks to and impact on the Company.
From this strategy, comprehensive contingency plans have been developed. 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. The Company will continue to take
appropriate measures to assure that its operations are prepared for Year 2000
related issues.
Euro Currency Conversion
On January 1, 1999, the euro was adopted as the national currency of these
participating European Union ("EU") countries - Austria, Belgium, Finland,
France, Germany, Ireland, Italy, Luxembourg, Netherlands, Portugal and Spain.
The Company has committed resources to conduct risk assessments and to take
corrective actions, where required, to ensure that the enterprise information
system is not adversely affected by the implementation of the euro. The Company
is undertaking a review of the euro implementation both in participating and
non-participating EU countries where it has operations. Progress regarding euro
implementation is reported periodically to management.
The Company has not experienced any significant operational disruptions to date
and does not expect the continued implementation of the euro to cause any
significant operational disruptions. In addition, the Company has not incurred
and does not expect to incur any significant costs from the continued
implementation of the euro which could materially affect the Company's liquidity
or capital resources.
ITEM 3 - Quantitative and Qualitative Disclosures about Market Risk
Not Applicable
PART II. OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule.
(a) Reports on Form 8-K
None
12
<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: November 10, 1999 PATRICK D. ANDERSON
-----------------------------------------
Patrick D. Anderson
Chief Financial Officer
and Authorized Officer
13
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 8,601
<SECURITIES> 0
<RECEIVABLES> 183,004
<ALLOWANCES> 4,806
<INVENTORY> 97,214
<CURRENT-ASSETS> 299,713
<PP&E> 70,478
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<CURRENT-LIABILITIES> 166,643
<BONDS> 26,731
0
0
<COMMON> 125,466
<OTHER-SE> 48,609
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<SALES> 348,198
<TOTAL-REVENUES> 0
<CGS> 194,813
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 109,668
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,392
<INCOME-PRETAX> 40,325
<INCOME-TAX> 16,432
<INCOME-CONTINUING> 23,893
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,893
<EPS-BASIC> 0.94
<EPS-DILUTED> 0.94
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