COLM-2013.9.30-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
_______________________
FORM 10-Q
____________________________
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x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2013
OR
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¨ | 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)
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| | |
Oregon | | 93-0498284 |
(State or other jurisdiction of incorporation or organization) | | (IRS Employer Identification Number) |
14375 Northwest Science Park Drive Portland, Oregon | | 97229 |
(Address of principal executive offices) | | (Zip Code) |
(503) 985-4000
(Registrant’s telephone number, including area code)
_____________________________________
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 o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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| | | |
Large accelerated filer | x | Accelerated filer | ¨ |
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x
The number of shares of Common Stock outstanding on October 25, 2013 was 34,499,355.
COLUMBIA SPORTSWEAR COMPANY
SEPTEMBER 30, 2013
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
Item 1 – FINANCIAL STATEMENTS
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
| | | | | | | | | | | | |
| | September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
ASSETS | | | | | | |
Current Assets: | | | | | | |
Cash and cash equivalents | | $ | 274,160 |
| | $ | 290,781 |
| | $ | 94,164 |
|
Short-term investments | | 29,049 |
| | 44,661 |
| | 2,128 |
|
Accounts receivable, net of allowance of $8,731, $7,377 and $7,543, respectively | | 378,032 |
| | 334,324 |
| | 422,756 |
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Inventories, net (Note 4) | | 410,111 |
| | 363,325 |
| | 475,733 |
|
Deferred income taxes | | 50,342 |
| | 50,929 |
| | 53,905 |
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Prepaid expenses and other current assets | | 38,514 |
| | 38,583 |
| | 38,334 |
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Total current assets | | 1,180,208 |
| | 1,122,603 |
| | 1,087,020 |
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Property, plant and equipment, at cost, net of accumulated depreciation of $322,161, $303,043 and $297,036, respectively | | 280,682 |
| | 260,524 |
| | 260,423 |
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Intangible assets, net (Note 5) | | 36,620 |
| | 37,618 |
| | 37,968 |
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Goodwill | | 14,438 |
| | 14,438 |
| | 14,438 |
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Other non-current assets | | 22,354 |
| | 23,659 |
| | 27,997 |
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Total assets | | $ | 1,534,302 |
| | $ | 1,458,842 |
| | $ | 1,427,846 |
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LIABILITIES AND EQUITY | | | | | | |
Current Liabilities: | | | | | | |
Notes payable | | $ | — |
| | $ | 156 |
| | $ | 10,206 |
|
Accounts payable | | 141,755 |
| | 142,240 |
| | 109,879 |
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Accrued liabilities (Note 6) | | 119,654 |
| | 105,190 |
| | 122,501 |
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Income taxes payable | | 9,257 |
| | 4,406 |
| | 13,802 |
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Deferred income taxes | | 67 |
| | 67 |
| | 954 |
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Total current liabilities | | 270,733 |
| | 252,059 |
| | 257,342 |
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Income taxes payable | | 14,355 |
| | 11,638 |
| | 14,841 |
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Deferred income taxes | | 1,849 |
| | 1,807 |
| | 1,745 |
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Other long-term liabilities | | 27,643 |
| | 27,171 |
| | 26,215 |
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Total liabilities | | 314,580 |
| | 292,675 |
| | 300,143 |
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Commitments and contingencies (Note 12) | |
| |
| |
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Columbia Sportswear Company Shareholders’ Equity: | | | | | | |
Preferred stock; 10,000 shares authorized; none issued and outstanding | | — |
| | — |
| | — |
|
Common stock (no par value); 125,000 shares authorized; 34,478, 34,075 and 33,941 issued and outstanding, respectively (Note 9) | | 44,371 |
| | 24,814 |
| | 17,482 |
|
Retained earnings | | 1,129,636 |
| | 1,094,690 |
| | 1,062,674 |
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Accumulated other comprehensive income (Note 8) | | 37,905 |
| | 46,663 |
| | 47,547 |
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Total Columbia Sportswear Company shareholders’ equity | | 1,211,912 |
| | 1,166,167 |
| | 1,127,703 |
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Non-controlling interest (Note 3) | | 7,810 |
| | — |
| | — |
|
Total equity | | 1,219,722 |
| | 1,166,167 |
| | 1,127,703 |
|
Total liabilities and equity | | $ | 1,534,302 |
| | $ | 1,458,842 |
| | $ | 1,427,846 |
|
See accompanying notes to condensed consolidated financial statements.
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Net sales | $ | 523,084 |
| | $ | 545,005 |
| | $ | 1,151,886 |
| | $ | 1,168,503 |
|
Cost of sales | 290,735 |
| | 301,320 |
| | 645,949 |
| | 659,014 |
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Gross profit | 232,349 |
| | 243,685 |
| | 505,937 |
| | 509,489 |
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Selling, general and administrative expenses | 162,951 |
| | 160,154 |
| | 437,789 |
| | 437,881 |
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Net licensing income | 7,501 |
| | 4,287 |
| | 11,482 |
| | 10,817 |
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Income from operations | 76,899 |
| | 87,818 |
| | 79,630 |
| | 82,425 |
|
Interest income (expense), net | 56 |
| | (17 | ) | | 403 |
| | 421 |
|
Other non-operating income (expense) | 417 |
| | — |
| | (686 | ) | | — |
|
Income before income tax | 77,372 |
| | 87,801 |
| | 79,347 |
| | 82,846 |
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Income tax expense | (22,822 | ) | | (23,426 | ) | | (22,025 | ) | | (22,474 | ) |
Net income | 54,550 |
| | 64,375 |
| | 57,322 |
| | 60,372 |
|
Net loss attributable to non-controlling interest | (36 | ) | | — |
| | (289 | ) | | — |
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Net income attributable to Columbia Sportswear Company | $ | 54,586 |
| | $ | 64,375 |
| | $ | 57,611 |
| | $ | 60,372 |
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Earnings per share attributable to Columbia Sportswear Company (Note 9): | | | | | | |
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Basic | $ | 1.58 |
| | $ | 1.90 |
| | $ | 1.68 |
| | $ | 1.79 |
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Diluted | 1.57 |
| | 1.88 |
| | 1.66 |
| | 1.77 |
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Cash dividends per share | $ | 0.22 |
| | $ | 0.22 |
| | $ | 0.66 |
| | $ | 0.66 |
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Weighted average shares outstanding (Note 9): | | | | | | | |
Basic | 34,452 |
| | 33,872 |
| | 34,325 |
| | 33,761 |
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Diluted | 34,753 |
| | 34,155 |
| | 34,640 |
| | 34,035 |
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See accompanying notes to condensed consolidated financial statements.
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
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| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Net income | $ | 54,550 |
| | $ | 64,375 |
| | $ | 57,322 |
| | $ | 60,372 |
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Other comprehensive income (loss): | | | | |
| |
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Unrealized holding gains (losses) on available-for-sale securities (net of tax expense of $0, $4, $4 and $0, respectively) | (9 | ) | | 32 |
| | 7 |
| | — |
|
Unrealized losses on derivative transactions (net of tax benefit of $1,372, $825, $223 and $577, respectively) | (3,204 | ) | | (3,369 | ) | | (1,606 | ) | | (3,952 | ) |
Foreign currency translation adjustments (net of tax (expense) benefit of ($308), ($149), ($210) and $111, respectively) | 11,114 |
| | 8,306 |
| | (7,060 | ) | | 4,602 |
|
Other comprehensive income (loss) | 7,901 |
| | 4,969 |
| | (8,659 | ) | | 650 |
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Comprehensive income | 62,451 |
| | 69,344 |
| | 48,663 |
| | 61,022 |
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Comprehensive loss attributable to non-controlling interest | (15 | ) | | — |
| | (190 | ) | | — |
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Comprehensive income attributable to Columbia Sportswear Company | $ | 62,466 |
| | $ | 69,344 |
| | $ | 48,853 |
| | $ | 61,022 |
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See accompanying notes to condensed consolidated financial statements.
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
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| | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 |
Cash flows from operating activities: | | | |
Net income | $ | 57,322 |
| | $ | 60,372 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 30,337 |
| | 30,763 |
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Loss on disposal or impairment of property, plant, and equipment | 370 |
| | 505 |
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Deferred income taxes | 2,173 |
| | 974 |
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Stock-based compensation | 6,532 |
| | 5,707 |
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Excess tax benefit from employee stock plans | (1,083 | ) | | (604 | ) |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (43,712 | ) | | (68,605 | ) |
Inventories | (46,795 | ) | | (108,027 | ) |
Prepaid expenses and other current assets | 114 |
| | (1,784 | ) |
Other assets | 330 |
| | (266 | ) |
Accounts payable | (1,521 | ) | | (45,660 | ) |
Accrued liabilities | 11,654 |
| | 12,926 |
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Income taxes payable | 7,530 |
| | 825 |
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Other liabilities | 472 |
| | 2,298 |
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Net cash provided by (used in) operating activities | 23,723 |
| | (110,576 | ) |
Cash flows from investing activities: | | | |
Purchases of short-term investments | (61,286 | ) | | (39,274 | ) |
Sales of short-term investments | 77,166 |
| | 40,153 |
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Capital expenditures | (49,157 | ) | | (32,431 | ) |
Proceeds from sale of property, plant, and equipment | 49 |
| | 6 |
|
Net cash used in investing activities | (33,228 | ) | | (31,546 | ) |
Cash flows from financing activities: | | | |
Proceeds from credit facilities | 36,896 |
| | 74,846 |
|
Repayments on credit facilities | (37,052 | ) | | (64,640 | ) |
Proceeds from issuance of common stock under employee stock plans | 14,199 |
| | 9,607 |
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Tax payments related to restricted stock unit issuances | (2,144 | ) | | (1,261 | ) |
Excess tax benefit from employee stock plans | 1,083 |
| | 604 |
|
Repurchase of common stock | — |
| | (206 | ) |
Capital contribution from non-controlling interest | 8,000 |
| | — |
|
Cash dividends paid | (22,665 | ) | | (22,309 | ) |
Net cash used in financing activities | (1,683 | ) | | (3,359 | ) |
Net effect of exchange rate changes on cash | (5,433 | ) | | (1,389 | ) |
Net decrease in cash and cash equivalents | (16,621 | ) | | (146,870 | ) |
Cash and cash equivalents, beginning of period | 290,781 |
| | 241,034 |
|
Cash and cash equivalents, end of period | $ | 274,160 |
| | $ | 94,164 |
|
Supplemental disclosures of cash flow information: | | | |
Cash paid during the period for income taxes | $ | 7,867 |
| | $ | 15,891 |
|
Supplemental disclosures of non-cash investing activities: | | | |
Capital expenditures incurred but not yet paid | $ | 1,259 |
| | $ | 5,967 |
|
See accompanying notes to condensed consolidated financial statements.
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements have been prepared by the management of Columbia Sportswear Company (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, the “Company”) and in the opinion of management include all normal recurring material adjustments necessary to present fairly the Company’s financial position as of September 30, 2013 and 2012, the results of operations for the three and nine months ended September 30, 2013 and 2012 and cash flows for the nine months ended September 30, 2013 and 2012. The December 31, 2012 financial information was derived from the Company’s audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. A significant part of the Company’s business is of a seasonal nature; therefore, results of operations for the three and nine months ended September 30, 2013 are not necessarily indicative of results to be expected for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company, however, believes that the disclosures contained in this report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934 for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Certain amounts relating to foreign currency gains and losses previously included in "Selling, general and administrative expenses" are now reported as "Other non-operating expense" on the Condensed Consolidated Statements of Operations. Prior year amounts are immaterial and have not been reclassified.
Principles of Consolidation:
The consolidated financial statements include the accounts of Columbia Sportswear Company, its wholly owned subsidiaries and entities in which it maintains a controlling financial interest. All significant intercompany balances and transactions have been eliminated in consolidation.
Estimates and assumptions:
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions. Some of these more significant estimates relate to revenue recognition, including sales returns and claims from customers, allowance for doubtful accounts, excess, slow-moving and close-out inventories, product warranty, long-lived and intangible assets, income taxes and stock-based compensation.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
There have been no significant changes to the Company’s significant accounting policies as described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.
Recent Accounting Pronouncements:
In July 2012, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2012-02, Intangibles—Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment. This ASU permits an entity to make a qualitative assessment of whether it is more likely than not that indefinite-lived intangible assets are impaired before calculating the fair value of the assets. This ASU is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The Company performs its annual impairment evaluation in the fourth quarter, or more frequently if events or circumstances indicate that the Company's intangible assets might be impaired. The Company does not expect the adoption of this standard to have a material effect on the Company's financial position, results of operations or cash flows.
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
In February 2013, the FASB issued ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This ASU requires an entity to disclose additional information with respect to changes in accumulated other comprehensive income (AOCI) balances by component. In addition, an entity is required to present, either on the face of the financial statements or in the notes, significant amounts reclassified out of AOCI by the respective line items of net income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional details about those amounts. The Company adopted the new guidance as of January 1, 2013. The adoption of this standard did not have a material effect on the Company's consolidated financial position, results of operations or cash flows.
In March 2013, the FASB issued ASU No. 2013-05, Foreign Currency Matters (Topic 830): Parent’s Accounting for the Cumulative Translation Adjustment upon Derecognition of Certain Subsidiaries or Groups of Assets within a Foreign Entity or of an Investment in a Foreign Entity. This ASU provides clarification regarding the release of any cumulative translation adjustment when the parent ceases to have controlling financial interest in a business or group of assets held within a foreign entity. The amendment is effective on a prospective basis for interim and annual periods beginning after December 15, 2013. The Company does not expect the adoption of this standard to have a material effect on the Company’s financial position, results of operations or cash flows.
NOTE 3—NON-CONTROLLING INTEREST
The Company owns a 60% controlling interest in a joint venture formed with Swire Resources, Ltd. ("Swire") to support the development of the Company's business in China. The joint venture is expected to begin operations on January 1, 2014. During the three months ended June 30, 2013, Swire made an initial capital contribution of $8,000,000 in cash and the Company made an initial capital contribution of $12,000,000 in cash. The accounts of the joint venture are included in the Condensed Consolidated Balance Sheets as of September 30, 2013. Swire's share of net income (loss) of the joint venture is included in net loss attributable to non-controlling interest in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2013. The non-controlling equity interest in this entity is included in total equity as non-controlling interest on the Condensed Consolidated Balance Sheets as of September 30, 2013.
The following table presents the changes in equity for the nine months ended September 30, 2013 (in thousands):
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| | | | | | | | | | | | |
| | Columbia Sportswear Company | | Non-Controlling Interest | | Total |
BALANCE, DECEMBER 31, 2012 | | $ | 1,166,167 |
| | $ | — |
| | $ | 1,166,167 |
|
Net income (loss) | | 57,611 |
| | (289 | ) | | 57,322 |
|
Other comprehensive income (loss): | | | | | |
|
Unrealized holding gains on available for sale securities | | 7 |
| | — |
| | 7 |
|
Derivative holding losses | | (1,606 | ) | | — |
| | (1,606 | ) |
Foreign currency translation adjustments | | (7,159 | ) | | 99 |
| | (7,060 | ) |
Cash dividends ($0.66 per share) | | (22,665 | ) | | — |
| | (22,665 | ) |
Issuance of common stock under employee stock plans, net | | 12,055 |
| | — |
| | 12,055 |
|
Capital contribution from non-controlling interest | | — |
| | 8,000 |
| | 8,000 |
|
Tax adjustment from stock plans | | 970 |
| | — |
| | 970 |
|
Stock-based compensation expense | | 6,532 |
| | — |
| | 6,532 |
|
BALANCE, SEPTEMBER 30, 2013 | | $ | 1,211,912 |
| | $ | 7,810 |
| | $ | 1,219,722 |
|
NOTE 4—INVENTORIES, NET
Inventories are carried at the lower of cost or market. Cost is determined using the first-in, first-out method. The Company periodically reviews its inventory for excess, close-out and slow moving items and makes provisions as necessary to properly reflect inventory value.
Inventories, net, consisted of the following (in thousands):
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
Raw materials | $ | 941 |
| | $ | 1,633 |
| | $ | 726 |
|
Work in process | 1,271 |
| | 1,969 |
| | 2,055 |
|
Finished goods | 407,899 |
| | 359,723 |
| | 472,952 |
|
| $ | 410,111 |
| | $ | 363,325 |
| | $ | 475,733 |
|
NOTE 5—INTANGIBLE ASSETS, NET
Intangible assets that are determined to have finite lives include patents and purchased technology and are amortized over their estimated useful lives, which are approximately 10 years. Intangible assets with indefinite useful lives include trademarks and tradenames and are not amortized but are periodically evaluated for impairment.
The following table summarizes the Company’s identifiable intangible assets balance (in thousands):
|
| | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
Intangible assets subject to amortization | | | | | |
Gross carrying amount | $ | 14,198 |
| | $ | 14,198 |
| | $ | 14,198 |
|
Accumulated amortization | (4,999 | ) | | (4,001 | ) | | (3,651 | ) |
Net carrying amount | 9,199 |
| | 10,197 |
| | 10,547 |
|
Intangible assets not subject to amortization | 27,421 |
| | 27,421 |
| | 27,421 |
|
Intangible assets, net | $ | 36,620 |
| | $ | 37,618 |
| | $ | 37,968 |
|
Annual amortization expense for intangible assets subject to amortization is estimated to be $1,330,000 in 2013 through 2017.
NOTE 6—PRODUCT WARRANTY
Some of the Company’s products carry limited warranty provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover estimated costs based on the Company’s history of warranty repairs and replacements and is recorded in cost of sales. The warranty reserve is included in accrued liabilities in the Condensed Consolidated Balance Sheets.
A reconciliation of product warranties is as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Balance at beginning of period | $ | 9,665 |
| | $ | 9,453 |
| | $ | 10,209 |
| | $ | 10,452 |
|
Charged to costs and expenses | 1,154 |
| | 1,218 |
| | 3,938 |
| | 3,183 |
|
Claims settled | (806 | ) | | (960 | ) | | (3,976 | ) | | (3,917 | ) |
Other | 126 |
| | 83 |
| | (32 | ) | | 76 |
|
Balance at end of period | $ | 10,139 |
| | $ | 9,794 |
| | $ | 10,139 |
| | $ | 9,794 |
|
NOTE 7—STOCK-BASED COMPENSATION
The Company’s Stock Incentive Plan (the “Plan”) allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units and other stock-based awards. The majority of all stock option and restricted stock unit grants outstanding under the Plan were granted in the first quarter of each fiscal year.
Stock-based compensation expense consisted of the following (in thousands):
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | 2013 | | 2012 | | 2013 | | 2012 |
Stock options | | $ | 873 |
| | $ | 607 |
| | $ | 2,583 |
| | $ | 2,384 |
|
Restricted stock units | | 1,377 |
| | 797 |
| | 3,949 |
| | 3,323 |
|
Total | | $ | 2,250 |
| | $ | 1,404 |
| | $ | 6,532 |
| | $ | 5,707 |
|
Stock Options
The Company estimates the fair value of stock options using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of stock options include the exercise price of the award, the expected option term, the expected volatility of the Company’s stock over the option’s expected term, the risk-free interest rate applicable to the option’s expected term, and the Company’s estimated annual dividend yield.
The following table presents the weighted average assumptions for stock options granted in the period:
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Expected term | 4.49 years | | 4.51 years | | 4.71 years | | 4.78 years |
Expected stock price volatility | 26.87% | | 31.95% | | 30.63% | | 32.20% |
Risk-free interest rate | 1.01% | | 0.47% | | 0.70% | | 0.88% |
Expected dividend yield | 1.38% | | 1.63% | | 1.62% | | 1.80% |
Weighted average grant date fair value | $13.04 | | $12.37 | | $12.34 | | $11.57 |
During the nine months ended September 30, 2013 and 2012, the Company granted a total of 342,358 and 358,169 stock options, respectively. At September 30, 2013, unrecognized costs related to outstanding stock options totaled approximately $6,414,000, before any related tax benefit. The unrecognized costs related to stock options are amortized over the related vesting period using the straight-line attribution method. Unrecognized costs related to stock options at September 30, 2013 are expected to be recognized over a weighted average period of 2.45 years.
Restricted Stock Units
The Company estimates the fair value of service-based and performance-based restricted stock units using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of restricted stock units include the vesting period, dividend yield and closing price of the Company’s common stock on the date of grant.
The following table presents the weighted average assumptions for restricted stock units granted in the period:
|
| | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Vesting period | 4.01 years | | 4.00 years | | 3.93 years | | 3.86 years |
Expected dividend yield | 1.38% | | 1.63% | | 1.59% | | 1.77% |
Estimated average grant date fair value per restricted stock unit | $60.27 | | $50.46 | | $51.97 | | $46.57 |
During the nine months ended September 30, 2013 and 2012, the Company granted 147,590 and 183,816 restricted stock units, respectively. At September 30, 2013, unrecognized costs related to outstanding restricted stock units totaled approximately $11,331,000, before any related tax benefit. The unrecognized costs related to restricted stock units are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs at September 30, 2013 are expected to be recognized over a weighted average period of 2.50 years.
NOTE 8—ACCUMULATED OTHER COMPREHENSIVE INCOME
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Accumulated other comprehensive income, net of applicable taxes, reported on the Company’s Condensed Consolidated Balance Sheets consists of unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses on certain derivative transactions and foreign currency translation adjustments. The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the three months ended September 30, 2013 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Unrealized gains (losses) on available for sale securities | | Unrealized holding gains on derivative transactions | | Foreign currency translation adjustments | | Total |
Balance at June 30, 2013 | | $ | 7 |
| | $ | 4,103 |
| | $ | 25,915 |
| | $ | 30,025 |
|
Other comprehensive income (loss) before reclassifications | | (9 | ) | | (951 | ) | | 11,093 |
| | 10,133 |
|
Amounts reclassified from other comprehensive income | | — |
| | (2,253 | ) | | — |
| | (2,253 | ) |
Net other comprehensive income (loss) during the period | | (9 | ) | | (3,204 | ) | | 11,093 |
| | 7,880 |
|
Balance at September 30, 2013 | | $ | (2 | ) | | $ | 899 |
| | $ | 37,008 |
| | $ | 37,905 |
|
The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the three months ended September 30, 2012 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Unrealized losses on available for sale securities | | Unrealized holding gains on derivative transactions | | Foreign currency translation adjustments | | Total |
Balance at June 30, 2012 | | $ | (34 | ) | | $ | 6,667 |
| | $ | 35,945 |
| | $ | 42,578 |
|
Other comprehensive income (loss) before reclassifications | | 32 |
| | (736 | ) | | 8,306 |
| | 7,602 |
|
Amounts reclassified from other comprehensive income | | — |
| | (2,633 | ) | | — |
| | (2,633 | ) |
Net other comprehensive income (loss) during the period | | 32 |
| | (3,369 | ) | | 8,306 |
| | 4,969 |
|
Balance at September 30, 2012 | | $ | (2 | ) | | $ | 3,298 |
| | $ | 44,251 |
| | $ | 47,547 |
|
The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the nine months ended September 30, 2013 (in thousands):
|
| | | | | | | | | | | | | | | | |
| | Unrealized losses on available for sale securities | | Unrealized holding gains on derivative transactions | | Foreign currency translation adjustments | | Total |
Balance at December 31, 2012 | | $ | (9 | ) | | $ | 2,505 |
| | $ | 44,167 |
| | $ | 46,663 |
|
Other comprehensive income (loss) before reclassifications | | 7 |
| | 1,929 |
| | (7,159 | ) | | (5,223 | ) |
Amounts reclassified from other comprehensive income | | — |
| | (3,535 | ) | | — |
| | (3,535 | ) |
Net other comprehensive income (loss) during the period | | 7 |
| | (1,606 | ) | | (7,159 | ) | | (8,758 | ) |
Balance at September 30, 2013 | | $ | (2 | ) | | $ | 899 |
| | $ | 37,008 |
| | $ | 37,905 |
|
The following table sets forth the changes in accumulated other comprehensive income attributable to Columbia Sportswear Company, net of tax, for the nine months ended September 30, 2012 (in thousands):
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | |
| | Unrealized losses on available for sale securities | | Unrealized holding gains on derivative transactions | | Foreign currency translation adjustments | | Total |
Balance at December 31, 2011 | | $ | (2 | ) | | $ | 7,250 |
| | $ | 39,649 |
| | $ | 46,897 |
|
Other comprehensive income (loss) before reclassifications | | — |
| | (143 | ) | | 4,602 |
| | 4,459 |
|
Amounts reclassified from other comprehensive income | | — |
| | (3,809 | ) | | — |
| | (3,809 | ) |
Net other comprehensive income (loss) during the period | | — |
| | (3,952 | ) | | 4,602 |
| | 650 |
|
Balance at September 30, 2012 | | $ | (2 | ) | | $ | 3,298 |
| | $ | 44,251 |
| | $ | 47,547 |
|
All reclassification adjustments related to derivative transactions are recorded in cost of sales on the Condensed Consolidated Statements of Operations. See Note 11 for further information regarding derivative instrument reclassification adjustments.
NOTE 9—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 outstanding. Diluted EPS reflects the potential dilution that could occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock. For the calculation of diluted EPS, the basic weighted average number of shares is increased by the dilutive effect of stock options and restricted stock units determined using the treasury stock method.
A reconciliation of common shares used in the denominator for computing basic and diluted EPS is as follows (in thousands, except per share amounts):
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Weighted average shares of common stock outstanding, used in computing basic earnings per share | 34,452 |
| | 33,872 |
| | 34,325 |
| | 33,761 |
|
Effect of dilutive stock options and restricted stock units | 301 |
| | 283 |
| | 315 |
| | 274 |
|
Weighted average shares of common stock outstanding, used in computing diluted earnings per share | 34,753 |
| | 34,155 |
| | 34,640 |
| | 34,035 |
|
Earnings per share of common stock attributable to Columbia Sportswear Company: | | | | | | | |
Basic | $ | 1.58 |
| | $ | 1.90 |
| | $ | 1.68 |
| | $ | 1.79 |
|
Diluted | 1.57 |
| | 1.88 |
| | 1.66 |
| | 1.77 |
|
Stock options and service-based restricted stock units representing 393,993 and 923,275 shares of common stock for the three months ended September 30, 2013 and 2012, respectively, and 586,220 and 932,362 shares of common stock for the nine months ended September 30, 2013 and 2012, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive as a result of applying the treasury stock method. In addition, performance-based restricted stock units representing 10,560 and 40,304 shares of common stock for the three months ended September 30, 2013 and 2012, respectively, and 10,560 and 38,259 shares of common stock for the nine months ended September 30, 2013 and 2012, respectively, were outstanding but were excluded from the computation of diluted EPS because these shares were subject to performance conditions that had not been met.
Since the inception of the Company’s stock repurchase plan in 2004 through September 30, 2013, the Company’s Board of Directors has authorized the repurchase of $500,000,000 of the Company’s common stock. As of September 30, 2013, the Company had repurchased 9,593,278 shares under this program at an aggregate purchase price of approximately $441,443,000. During the nine months ended September 30, 2013, the Company did not repurchase any shares of the Company's common stock. During the nine months ended September 30, 2012, the Company repurchased an aggregate of $206,000 of the Company's common stock. Shares of the Company’s common stock may be purchased in the open market or through privately negotiated transactions, subject to market conditions. The repurchase program does not obligate the Company to acquire any specific number of shares or to acquire shares over any specified period of time.
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
NOTE 10—SEGMENT INFORMATION
The Company operates in four geographic segments: (1) United States, (2) Latin America and Asia Pacific ("LAAP"), (3) Europe, Middle East and Africa (“EMEA”) and (4) Canada, which are reflective of the Company’s internal organization, management, and oversight structure. Each geographic segment operates predominantly in one industry: the design, development, marketing and distribution of active outdoor apparel, footwear, accessories and equipment.
The geographic distribution of the Company’s net sales and income from operations are summarized in the following tables (in thousands). Inter-segment net sales, which are recorded at a negotiated mark-up and eliminated in consolidation, are not material.
|
| | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Net sales to unrelated entities: | | | | | | | |
United States | $ | 323,120 |
| | $ | 347,757 |
| | $ | 663,407 |
| | $ | 672,879 |
|
LAAP | 71,968 |
| | 84,614 |
| | 236,297 |
| | 245,560 |
|
EMEA | 78,102 |
| | 60,583 |
| | 172,056 |
| | 168,655 |
|
Canada | 49,894 |
| | 52,051 |
| | 80,126 |
| | 81,409 |
|
| $ | 523,084 |
| | $ | 545,005 |
| | $ | 1,151,886 |
| | $ | 1,168,503 |
|
Segment income from operations: | | | | | | | |
United States | $ | 50,260 |
| | $ | 62,475 |
| | $ | 47,113 |
| | $ | 50,039 |
|
LAAP | 9,199 |
| | 7,128 |
| | 23,964 |
| | 24,797 |
|
EMEA | 11,188 |
| | 7,862 |
| | 4,913 |
| | 2,295 |
|
Canada | 6,252 |
| | 10,353 |
| | 3,640 |
| | 5,294 |
|
Total income from operations | 76,899 |
| | 87,818 |
| | 79,630 |
| | 82,425 |
|
Interest | 56 |
| | (17 | ) | | 403 |
| | 421 |
|
Other non-operating income (expense) | 417 |
| | — |
| | (686 | ) | | — |
|
Income before income taxes | $ | 77,372 |
| | $ | 87,801 |
| | $ | 79,347 |
| | $ | 82,846 |
|
NOTE 11—FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In the normal course of business, the Company’s financial position and results of operations are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market.
The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated U.S. dollar denominated inventory purchases by subsidiaries that use European euros, Canadian dollars or Japanese yen as their functional currency. The Company manages this risk by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is determined by evaluating the ability of a hedging instrument’s cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, the change in fair value attributable to changes in forward points are excluded from the determination of hedge effectiveness and included in current cost of sales. Hedge ineffectiveness was not material during the three and nine months ended September 30, 2013 and 2012.
The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use European euros, Canadian dollars, Japanese yen, Korean won or Chinese renminbi as their functional currency. Non-functional currency denominated monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, payables and intercompany loans. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in other non-operating income (expense), net by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities.
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
The following table presents the gross notional amount of outstanding derivative instruments (in thousands):
|
| | | | | | | | | | | |
| September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
Derivative instruments designated as cash flow hedges: | | | | | |
Currency forward contracts | $ | 84,500 |
| | $ | 70,000 |
| | $ | 97,925 |
|
Derivative instruments not designated as cash flow hedges: | | | | | |
Currency forward contracts | 65,900 |
| | 121,934 |
| | 89,462 |
|
At September 30, 2013, approximately $1,903,000 of deferred net gains on both outstanding and matured derivatives accumulated in other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to net income are dependent on U.S. dollar exchange rates in effect against the European euro, Canadian dollar and Japanese yen when outstanding derivative contracts mature.
At September 30, 2013, the Company’s derivative contracts had a remaining maturity of approximately two years or less. All the counterparties to these transactions had both long-term and short-term investment grade credit ratings and as a result, the Company does not require collateral to facilitate transactions. The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was approximately $1,000,000 at September 30, 2013. The Company does not hold derivatives featuring credit-related contingent terms. In addition, the Company is not a party to any derivative master agreement featuring credit-related contingent terms. Finally, the Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.
The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):
|
| | | | | | | | | | | | | | |
| | Balance Sheet Classification | | September 30, 2013 | | December 31, 2012 | | September 30, 2012 |
Derivative instruments designated as cash flow hedges: | | | | | | | | |
Derivative instruments in asset positions: | | | | | | | | |
Currency forward contracts | | Prepaid expenses and other current assets | | $ | 1,526 |
| | $ | 2,147 |
| | $ | 2,170 |
|
Currency forward contracts | | Other non-current assets | | — |
| | 489 |
| | — |
|
Derivative instruments in liability positions: | | | | | | | | |
Currency forward contracts | | Accrued liabilities | | 573 |
| | 579 |
| | 580 |
|
Derivative instruments not designated as cash flow hedges: | | | | | | | | |
Derivative instruments in asset positions: | | | | | | | | |
Currency forward contracts | | Prepaid expenses and other current assets | | 403 |
| | 4,072 |
| | 582 |
|
Derivative instruments in liability positions: | | | | | | | | |
Currency forward contracts | | Accrued liabilities | | 26 |
| | 743 |
| | 1,640 |
|
The following table presents the statement of operations effect and classification of derivative instruments (in thousands):
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
|
| | | | | | | | | | | | | | | | | | |
| | Statement of Operations Classification | | Three Months Ended September 30, | | Nine Months Ended September 30, |
| | | 2013 | | 2012 | | 2013 | | 2012 |
Currency Forward Contracts: | | | | | | | | | | |
Derivative instruments designated as cash flow hedges: | | | | | | | | |
Gain (loss) recognized in other comprehensive income or loss | | — | | $ | (951 | ) | | $ | (736 | ) | | $ | 1,929 |
| | $ | (143 | ) |
Gain reclassified from accumulated other comprehensive income or loss to income for the effective portion | | Cost of sales | | 3,217 |
| | 3,219 |
| | 4,843 |
| | 4,011 |
|
Gain reclassified from accumulated other comprehensive income or loss to income as a result of cash flow hedge discontinuance | | Cost of sales | | — |
| | — |
| | — |
| | 441 |
|
Gain (loss) recognized in income for amount excluded from effectiveness testing and for the ineffective portion | | Cost of sales | | 8 |
| | (12 | ) | | (37 | ) | | (16 | ) |
Derivative instruments not designated as cash flow hedges: | | | | | | | | |
Gain recognized in income | | Other non-operating income (expense) | | 137 |
| | — |
| | 6,149 |
| | — |
|
Loss recognized in income | | Selling, general and administrative expense | | — |
| | (881 | ) | | — |
| | (7,134 | ) |
NOTE 12—COMMITMENTS AND CONTINGENCIES
Inventory Purchase Obligations
Inventory purchase obligations consist of open production purchase orders and other commitments for raw materials and sourced apparel, footwear, accessories and equipment. At September 30, 2013, inventory purchase obligations were $240,165,000.
Litigation
The Company is a party to various legal claims, actions and complaints from time to time. Although the ultimate resolution of legal proceedings cannot be predicted with certainty, management believes that disposition of these matters will not have a material adverse effect on the Company’s consolidated financial statements.
NOTE 13—FAIR VALUE MEASURES
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
|
| |
Level 1 – | observable inputs such as quoted prices for identical assets or liabilities in active liquid markets; |
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 transactions; and |
Level 3 – | unobservable inputs for which there is little or no market data available, that require the reporting entity to develop its own assumptions. |
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Assets and liabilities measured at fair value on a recurring basis at September 30, 2013 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Cash equivalents | | | | | | | |
Money market funds | $ | 153,382 |
| | $ | — |
| | $ | — |
| | $ | 153,382 |
|
Time deposits | 25,092 |
| | — |
| | — |
| | 25,092 |
|
Reverse repurchase agreements | — |
| | 25,000 |
| | — |
| | 25,000 |
|
U.S. Government-backed municipal bonds | — |
| | 3,218 |
| | — |
| | 3,218 |
|
Available-for-sale short-term investments (1) | | | | | | | |
Certificates of deposit | — |
| | 1,470 |
| | — |
| | 1,470 |
|
Variable-rate demand notes | — |
| | 27,320 |
| | — |
| | 27,320 |
|
Other short-term investments | | | | | | | |
Mutual fund shares | 259 |
| | — |
| | — |
| | 259 |
|
Other current assets | | | | | | | |
Derivative financial instruments (Note 11) | — |
| | 1,929 |
| | — |
| | 1,929 |
|
Other non-current assets | | | | | | | |
Mutual fund shares | 4,560 |
| | — |
| | — |
| | 4,560 |
|
Total assets measured at fair value | $ | 183,293 |
| | $ | 58,937 |
| | $ | — |
| | $ | 242,230 |
|
Liabilities: | | | | | | | |
Accrued liabilities | | | | | | | |
Derivative financial instruments (Note 11) | $ | — |
| | $ | 599 |
| | $ | — |
| | $ | 599 |
|
Total liabilities measured at fair value | $ | — |
| | $ | 599 |
| | $ | — |
| | $ | 599 |
|
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Assets and liabilities measured at fair value on a recurring basis at December 31, 2012 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Cash equivalents | | | | | | | |
Money market funds | $ | 70,857 |
| | $ | — |
| | $ | — |
| | $ | 70,857 |
|
Time deposits | 25,035 |
| | — |
| | — |
| | 25,035 |
|
Certificates of deposit | — |
| | 2,450 |
| | — |
| | 2,450 |
|
U.S. Government-backed repurchase agreements | — |
| | 25,000 |
| | — |
| | 25,000 |
|
U.S. Government-backed municipal bonds | — |
| | 5,348 |
| | — |
| | 5,348 |
|
Available-for-sale short-term investments (1) | | | | | | | |
Certificates of deposit | — |
| | 7,596 |
| | — |
| | 7,596 |
|
Variable-rate demand notes | — |
| | 22,640 |
| | — |
| | 22,640 |
|
U.S. Government-backed municipal bonds | — |
| | 14,425 |
| | — |
| | 14,425 |
|
Other current assets | | | | | | | |
Derivative financial instruments (Note 11) | — |
| | 6,219 |
| | — |
| | 6,219 |
|
Other non-current assets | | | | | | | |
Derivative financial instruments (Note 11) | — |
| | 489 |
| | — |
| | 489 |
|
Mutual fund shares | 4,080 |
| | — |
| | — |
| | 4,080 |
|
Total assets measured at fair value | $ | 99,972 |
| | $ | 84,167 |
| | $ | — |
| | $ | 184,139 |
|
Liabilities: | | | | | | | |
Accrued liabilities | | | | | | | |
Derivative financial instruments (Note 11) | $ | — |
| | $ | 1,322 |
| | $ | — |
| | $ | 1,322 |
|
Total liabilities measured at fair value | $ | — |
| | $ | 1,322 |
| | $ | — |
| | $ | 1,322 |
|
Assets and liabilities measured at fair value on a recurring basis at September 30, 2012 are as follows (in thousands):
|
| | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
Assets: | | | | | | | |
Cash equivalents | | | | | | | |
Money market funds | $ | 13,700 |
| | $ | — |
| | $ | — |
| | $ | 13,700 |
|
Time deposits | 10,016 |
| | — |
| | — |
| | 10,016 |
|
Available-for-sale short-term investments (1) | | | | | | | |
Time deposits | — |
| | 2,128 |
| | — |
| | 2,128 |
|
Other current assets | | | | | | | |
Derivative financial instruments (Note 11) | — |
| | 2,752 |
| | — |
| | 2,752 |
|
Other non-current assets | | | | | | | |
Mutual fund shares | 3,879 |
| | — |
| | — |
| | 3,879 |
|
Total assets measured at fair value | $ | 27,595 |
| | $ | 4,880 |
| | $ | — |
| | $ | 32,475 |
|
Liabilities: | | | | | | | |
Accrued liabilities | | | | | | | |
Derivative financial instruments (Note 11) | $ | — |
| | $ | 2,220 |
| | $ | — |
| | $ | 2,220 |
|
Total liabilities measured at fair value | $ | — |
| | $ | 2,220 |
| | $ | — |
| | $ | 2,220 |
|
| |
(1) | Investments have remaining maturities greater than three months but less than two years and are available for use in current operations. |
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)
Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from inputs, other than quoted market prices in active markets, that are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions.
There were no material assets and liabilities measured at fair value on a nonrecurring basis as of September 30, 2013, December 31, 2012, or September 30, 2012.
Item 2 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This quarterly report contains forward-looking statements. Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding anticipated sales, gross margins and operating margins across markets, distribution channels and product categories, licensing income, expenses, input costs and cost containment measures, effects of unseasonable weather on our results of operations, inventory levels, investments in our business, including commencement, further funding and operation of our China joint venture, investments in and implementation of our information technology systems, our direct-to-consumer channels and other capital expenditures, access to raw materials and factory capacity, financing and working capital requirements and resources, tax rates and pre-tax income, and our exposure to market risk associated with interest rates and foreign currency exchange rates.
These forward-looking statements, and others we make from time to time, are subject to a number of risks and uncertainties. Many factors may cause actual results to differ materially from those projected in forward-looking statements, including the risks described below in Part II, Item 1A, Risk Factors. We do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or expectations.
Our Business
As one of the largest outdoor apparel and footwear companies in the world, we design, source, market and distribute active outdoor apparel, footwear, accessories and equipment under the Columbia, Mountain Hardwear, Sorel and Montrail brands. Our products are sold through a mix of wholesale distribution channels, independent distributors, and our own direct-to-consumer channels. In addition, we license some of our trademarks across a range of apparel, footwear, accessories and equipment.
The popularity of outdoor activities, changing design trends, consumer adoption of innovative performance technologies and the availability and desirability of competitor alternatives affect consumer desire for our products. Therefore, we seek to drive, anticipate and respond to trends and shifts in consumer preferences by adjusting the mix and price points of available product offerings, developing new products with innovative performance features and designs, and creating persuasive and memorable marketing communications to generate consumer awareness, demand and retention. Failure to anticipate or respond to consumer needs and preferences in a timely and adequate manner could have a material adverse effect on our sales and profitability.
Seasonality and Variability of Business
Our business is affected by the general seasonal trends common to the outdoor industry and is heavily dependent upon weather and discretionary consumer spending patterns. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. The expansion of our global direct-to-consumer operations has increased the proportion of sales and profits that we generate in the fourth calendar quarter. As a result, our sales and profits tend to be highest in the third and fourth calendar quarters. In 2012, approximately 63 percent of our net sales and all of our profitability were realized in the second half of the year, illustrating our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs.
We generally solicit orders from wholesale customers and independent distributors for each of the fall and spring selling seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance fall season orders to wholesale customers and independent distributors beginning in June and continuing through November. Similarly, the majority of our advance spring season orders ship to wholesale customers and independent distributors beginning in December and continuing through May. Generally, orders are subject to cancellation prior to the date of shipment.
Results of operations in any period should not be considered indicative of the results to be expected for any future period, particularly in light of persistent volatility in economic conditions. Sales of our products are subject to substantial cyclical fluctuation, the effects of unseasonable weather conditions, the relative popularity of competitors' brands, and the continued popularity of outdoor activities as part of an active lifestyle in key markets. Volatile economic environments in key markets, seasonal weather patterns and inflationary or volatile input costs reduce the predictability of our business.
Business Outlook
The global business climate continues to present us with a great deal of uncertainty, making it more difficult to predict future results. Factors that could significantly affect our full year 2013 outlook include:
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• | Unseasonable weather conditions or other unforeseen factors affecting consumer demand and the resulting effect on order cancellations, sales returns, customer accommodations, reorders, direct-to-consumer sales and suppressed demand in subsequent seasons; |
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• | Changes in mix and volume of full price sales relative to closeout product sales and promotional sales activity; |
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• | Costs and business interruption risks related to our supply chain and information technology infrastructure investments and projects, including our multi-year global enterprise resource planning ("ERP") system implementation; |
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• | Our ability to implement and maintain effective cost containment measures in order to limit the growth of selling, general and administrative (“SG&A”) expenses; |
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• | Continued economic uncertainty, which is creating headwinds in key global markets, particularly Europe as it relates to our EMEA direct business where we have ongoing efforts to revitalize Columbia brand sales; |
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• | Ongoing political and economic uncertainty, particularly in South America with respect to import restrictions and currency constraints in key distributor markets; |
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• | The rate of new store expansion and performance of our existing stores in our global direct-to-consumer operations; |
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• | Changes in consumer spending activity; and |
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• | Fluctuating currency exchange rates. |
These factors and others may have a material effect on our financial condition, results of operations, or cash flows, particularly with respect to quarterly comparisons.
Our previously announced joint venture in mainland China with Swire is expected to commence operations effective January 1, 2014, subject to regulatory approval in the People's Republic of China and other conditions customary in transactions of this size and type. As a majority-owned entity, the joint venture's operations will be included in our consolidated financial results. During 2013, our financial results are affected as we transition to the joint venture from our current third-party distributor relationship with Swire. We funded our initial capital contribution of $12 million in cash and Swire funded its initial capital contribution of $8 million in cash to the joint venture during the second quarter of 2013. Additional capital will be provided in the fourth quarter of 2013 in the form of proportionate shareholder loans totaling up to $40 million. We have incurred approximately $2.1 million of organizational and other pre-operating costs, including personnel costs, professional fees and selling-related expenses, during the first nine months of 2013 and we expect to incur approximately $1.6 million in additional China-related costs during the fourth quarter. Our shipments of spring 2014 inventory for the China market, anticipated to begin in the fourth quarter of 2013, will be 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 distributor model, will be deferred and recognized in future periods as the joint venture sells that inventory to wholesale customers and consumers. Similarly, on or about December 31, 2013, Swire's inventory of fall 2013 and prior seasons will be transferred to the joint venture. We have deferred 2013 profits related to the existing inventory expected to be transferred to the joint venture and we will recognize those profits as the inventory is sold by the joint venture in future periods. The actual amount of profit eliminations and deferrals from the remainder of 2013 into future periods will be dependent upon the volume of spring 2014 inventory purchased by the joint venture in the fourth quarter of 2013 and the actual remaining balance of inventory from prior seasons that will be transferred to the joint venture at December 31, 2013. These adjustments have been included in our 2013 outlook described below.
Our current fiscal year 2013 outlook assumes:
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• | a net sales decline of up to 1.5 percent compared to 2012, including: a decline in the LAAP region following two years of rapid growth, driven by import restrictions and currency constraints in key South American distributor markets, the transition to a new distributor in Australia, the effects of transitioning to a joint venture in China, and a decline in Japan due to a significantly weaker yen; increased sales in the EMEA region reflecting increased sales to EMEA distributors partially offset by decreased sales in the EMEA direct markets due to continued product assortment and macro-economic challenges that have hampered our ongoing efforts to revitalize our brands in key European markets; increased sales in the United States driven by the anticipated results of our direct-to-consumer business, largely offset by a decline in wholesale net sales resulting from cautious fall 2013 advance orders following mild winter weather in 2012; a slight increase in net sales in Canada; and an approximately 2 percentage point negative effect from changes in foreign currency exchange rates. |
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• | gross margin expansion of approximately 50 basis points compared with 2012, reflecting a higher proportion of direct-to-consumer sales and less promotional activity, partially offset by unfavorable foreign currency hedge rates. |
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• | SG&A expenses approximately 2.0 percent higher than 2012, resulting in SG&A expense deleverage of approximately 125 basis points. The slight increase in projected SG&A expense includes pre-tax restructuring charges of approximately $5.2 million, primarily related to employee termination and lease exit costs in our European operation, and $3.7 million in pre-operating expenses related to the China joint venture. The increase in SG&A expense is predominately related to the expansion of our global direct-to-consumer platform, partially offset by favorable foreign currency exchange translation and reduced expenses from our EMEA direct business. |
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• | licensing income comparable to 2012, including the effect of deferring approximately $3.5 million of licensing income into 2014 in conjunction with the transition to the China joint venture. |
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• | the year-over-year differences in currency exchange rates, particularly the Japanese yen, are anticipated to negatively affect net sales and operating income by approximately 2 percent and 4 percent, respectively. |
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• | a full year tax rate of approximately 27.5 percent; however, the actual rate could differ based on the status of tax uncertainties, the geographic mix of pre-tax income, and other discrete events that may occur during the year. |
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• | 2013 capital expenditures of approximately $65 million, comprising information technology, project-based and maintenance capital, and direct-to-consumer expansion. |
The combination of the above assumptions leads us to anticipate 2013 operating margin of approximately 7.25 percent. Excluding anticipated restructuring charges of approximately $5.2 million, and the effects of pre-operating costs of approximately $3.7 million and operating income deferral of approximately $5.6 million related to transitioning to the China joint venture, full year 2013 operating margins are expected to be approximately 8.1 percent.
We intend to continue managing discretionary costs diligently with the goal of limiting the growth of SG&A expense as a percentage of net sales, while we remain focused on driving renewed sales growth by providing innovative products at accessible prices, transforming our supply chain, managing inventory, and nurturing stronger emotional connections with consumers through compelling marketing communications.
Results of Operations
The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the Condensed Consolidated Financial Statements and accompanying Notes that appear elsewhere in this quarterly report. All references to quarters relate to the quarter ended September 30 of the particular year.
Highlights of the Third Quarter of 2013
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• | Net sales for the third quarter of 2013 decreased $21.9 million, or 4%, to $523.1 million from $545.0 million for the third quarter of 2012. Changes in foreign currency exchange rates compared with the third quarter of 2012 negatively affected the consolidated net sales comparison by one percentage point. |
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• | Net income attributable to Columbia Sportswear Company for the third quarter of 2013 decreased 15% to $54.6 million, or $1.57 per diluted share, compared to net income of $64.4 million, or $1.88 per diluted share, for the third quarter of 2012. |
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• | We paid a quarterly cash dividend of $0.22 per share, or $7.6 million, in the third quarter of 2013. |
The following table sets forth, for the periods indicated, the percentage relationship to net sales of specified items in our Condensed Consolidated Statements of Operations:
|
| | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2013 | | 2012 | | 2013 | | 2012 |
Net sales | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
Cost of sales | 55.6 |
| | 55.3 |
| | 56.1 |
| | 56.4 |
|
Gross profit | 44.4 |
| | 44.7 |
| | 43.9 |
| | 43.6 |
|
Selling, general and administrative expense | 31.2 |
| | 29.4 |
| | 38.0 |
| | 37.4 |
|
Net licensing income | 1.5 |
| | 0.8 |
| | 1.0 |
| | 0.9 |
|
Income from operations | 14.7 |
| | 16.1 |
| | 6.9 |
| | 7.1 |
|
Interest income (expense), net | — |
| | — |
| | — |
| | — |
|
Other non-operating income (expense) | 0.1 |
| | — |
| | — |
| | — |
|
Income before income tax | 14.8 |
| | 16.1 |
| | 6.9 |
| | 7.1 |
|
Income tax expense | (4.4 | ) | | (4.3 | ) | | (1.9 | ) | | (1.9 | ) |
Net income | 10.4 |
| | 11.8 |
| | 5.0 |
| | 5.2 |
|
Net loss attributable to non-controlling interest | — |
| | — |
| | — |
| | — |
|
Net income attributable to Columbia Sportswear Company | 10.4 | % | | 11.8 | % | | 5.0 | % | | 5.2 | % |
Quarter Ended September 30, 2013 Compared to Quarter Ended September 30, 2012
Net Sales: Consolidated net sales decreased $21.9 million, or 4%, to $523.1 million for the third quarter of 2013 from $545.0 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the third quarter of 2012 negatively affected the consolidated net sales comparison by one percentage point.
Sales by Geographic Region
Net sales by geographic region are summarized in the following table:
|
| | | | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 | | % Change |
| (In millions, except for percentage changes) |
United States | $ | 323.1 |
| | $ | 347.8 |
| | (7)% |
LAAP | 72.0 |
| | 84.7 |
| | (15)% |
EMEA | 78.1 |
| | 60.5 |
| | 29% |
Canada | 49.9 |
| | 52.0 |
| | (4)% |
| $ | 523.1 |
| | $ | 545.0 |
| | (4)% |
Net sales in the United States decreased $24.7 million, or 7%, to $323.1 million for the third quarter of 2013 from $347.8 million for the comparable period in 2012. The decrease in net sales in the United States was led by a net sales decrease in footwear, followed by apparel, accessories and equipment, and consisted of a decrease in net sales in our wholesale business, partially offset by a net sales increase in our direct-to-consumer business. The net sales decrease in our wholesale business was due to a decline in advance orders following mild winter weather in 2012. The net sales increase in our direct-to-consumer business was primarily attributable to a net sales increase in the Columbia brand, and was led by increased net sales within our retail stores, followed by increased e-commerce net sales. At September 30, 2013, we operated 68 retail stores, compared with 58 at September 30, 2012.
Net sales in the LAAP region decreased $12.7 million, or 15%, to $72.0 million for the third quarter of 2013 from $84.7 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the third quarter of 2012 negatively affected the LAAP net sales comparison by approximately nine percentage points. The net sales decrease in the LAAP region was led by apparel, accessories and equipment, followed by footwear. The LAAP net sales decrease primarily consisted of a net sales decrease in the Columbia brand and was led by our LAAP distributor business, followed by Japan, partially offset by a net sales increase in Korea. The LAAP distributor net sales decrease was primarily due to lower advance orders, geopolitical issues in key South American distributor markets and a transition to a new distributor in Australia. The decrease in Japan net sales was due to unfavorable changes in currency exchange rates that more than offset a net sales increase in local currency. The increase in Korea net sales was primarily due to a greater number of retail stores operating during the third quarter of 2013 than during the third quarter of 2012, and a small benefit from changes in foreign currency exchange rates.
Net sales in the EMEA region increased $17.6 million, or 29%, to $78.1 million for the third quarter of 2013 from $60.5 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the third quarter of 2012 contributed four percentage points of benefit to the EMEA net sales comparison. The net sales increase in the EMEA region consisted of an increase in apparel, accessories and equipment, partially offset by a net sales decrease in footwear. The increase in net sales in the EMEA region was primarily attributable to the Columbia brand, partially offset by a net sales decrease in the Sorel brand, and consisted of an increase in net sales to our EMEA distributors, partially offset by a net sales decrease in our EMEA direct business. The EMEA distributor net sales increase was primarily due to a shift in the timing of shipments as a higher percentage of increased fall 2013 advance orders shipped in the third quarter of 2013, while a higher percentage of fall 2012 advance orders shipped in the second quarter of 2012. The decrease in net sales in our EMEA direct business was primarily due to a decline in advance orders placed for the Sorel and Columbia brands.
Net sales in Canada decreased $2.1 million, or 4%, to $49.9 million for the third quarter of 2013 from $52.0 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the third quarter of 2012 negatively affected the net sales comparison by approximately three percentage points. The decrease in net sales in Canada was due to a decline in advance orders for the Sorel brand and a shift in timing of shipments of Columbia brand orders from the third quarter into the fourth quarter as we transitioned to a new warehouse management system in our Canadian distribution center.
Sales by Product Category
Net sales by product category are summarized in the following table:
|
| | | | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 | | % Change |
| (In millions, except for percentage changes) |
Apparel, Accessories and Equipment | $ | 428.6 |
| | $ | 429.5 |
| | —% |
Footwear | 94.5 |
| | 115.5 |
| | (18)% |
| $ | 523.1 |
| | $ | 545.0 |
| | (4)% |
Net sales of apparel, accessories and equipment decreased $0.9 million, or less than 1%, to $428.6 million for the third quarter of 2013 from $429.5 million for the comparable period in 2012. The decrease in apparel, accessories and equipment net sales was led by the Mountain Hardwear brand, partially offset by a net sales increase in the Columbia brand, and was led by the United States, followed by the LAAP region, partially offset by a net sales increase in the EMEA region and Canada. The apparel, accessories and equipment net sales decrease in the United States consisted of a net sales decrease in our wholesale business, reflecting a decline in advance orders.
Net sales of footwear decreased $21.0 million, or 18%, to $94.5 million for the third quarter of 2013 compared to $115.5 million for the comparable period in 2012. The decrease in footwear net sales was led by a net sales decrease in the Sorel brand, followed by the Columbia brand. The decrease in footwear net sales was led by the United States, followed by the LAAP region, the EMEA region and Canada. The decrease in footwear net sales in the United States consisted of decreases in all brands and was due to a decline in advance orders for cold-weather footwear following mild winter weather in 2012.
Sales by Brand
Net sales by brand are summarized in the following table:
|
| | | | | | | | | |
| Three Months Ended September 30, |
| 2013 | | 2012 | | % Change |
| (In millions, except for percentage changes) |
Columbia | $ | 431.5 |
| | $ | 436.8 |
| | (1)% |
Mountain Hardwear | 40.6 |
| | 44.4 |
| | (9)% |
Sorel | 47.4 |
| | 61.2 |
| | (23)% |
Other | 3.6 |
| | 2.6 |
| | 38% |
| $ | 523.1 |
| | $ | 545.0 |
| | (4)% |
The net sales decrease for the third quarter of 2013 compared to the third quarter of 2012 was led by the Sorel brand, followed by the Columbia and Mountain Hardwear brands. The Sorel brand net sales decrease was led by the United States, followed by the EMEA region and Canada.
Gross Profit: Gross profit, as a percentage of net sales, decreased to 44.4% for the third quarter of 2013 from 44.7% for the comparable period in 2012. Gross profit contraction was primarily due to:
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• | Unfavorable foreign currency hedge rates; and |
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• | A higher proportion of shipments to distributors, which carry lower gross margins; |
partially offset by:
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• | A lower proportion of close-out product sales; and |
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• | A higher proportion of direct-to-consumer sales, which generate higher gross margins. |
Our gross profits may not be comparable to those of other companies in our industry because some include costs related to both their distribution network and retail store occupancy in cost of sales while we, like many others, include these expenses as a component of SG&A expense.
Selling, General and Administrative Expense: SG&A expense includes all costs associated with design, merchandising, marketing, distribution and corporate functions, including related depreciation and amortization.
SG&A expense increased $2.8 million, or 2%, to $163.0 million, or 31.2% of net sales, for the third quarter of 2013 from $160.2 million, or 29.4% of net sales, for the comparable period in 2012. The SG&A expense increase was primarily due to:
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• | Expansion of our direct-to-consumer operations globally; |
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• | Increased incentive compensation; and |
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• | Increased expenses related to our ongoing ERP implementation; |
partially offset by:
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• | Decreased selling expenses; and |
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• | Favorable foreign currency exchange rates. |
Depreciation and amortization included in SG&A expense totaled $10.1 million for the third quarter of 2013, compared to $9.5 million for the same period in 2012.
Net Licensing Income: Net licensing income increased $3.2 million to $7.5 million for the third quarter of 2013 compared to $4.3 million for the same period in 2012. The increase in net licensing income was primarily due to a shift in timing of production and delivery of licensed product into the third quarter of 2013. This shift was driven by later delivery dates requested by an independent distributor in the LAAP region.
Interest Income (Expense), Net: Net interest income was $0.1 million for the third quarter of 2013 compared to nominal net interest expense for the same period in 2012.
Other Non-Operating Income: Other non-operating income was $0.4 million for the third quarter of 2013 and consisted of foreign currency gains and losses.
Income Tax Expense: Income tax expense decreased to $22.8 million for the third quarter of 2013 from $23.4 million for the comparable period in 2012. Our effective income tax rate was 29.5% for the third quarter of 2013 compared to 26.7% for the same period in 2012. Our effective income tax rate increased primarily due to the effect of discrete benefits that were recognized in the third quarter of 2012 that did not recur in 2013. Many factors could cause our annual effective tax rate to differ materially from our quarterly effective tax rates, including changes in the geographic mix of taxable income and discrete events in future periods.
Net Income Attributable to Columbia Sportswear Company: Net income decreased $9.8 million, or 15%, to $54.6 million, or $1.57 per diluted share, for the third quarter of 2013 from $64.4 million, or $1.88 per diluted share for the comparable period in 2012.
Nine Months Ended September 30, 2013 Compared to Nine Months Ended September 30, 2012
Net Sales: Consolidated net sales decreased $16.6 million, or 1%, to $1,151.9 million for the nine months ended September 30, 2013 from $1,168.5 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the nine months ended September 30, 2012 negatively affected the consolidated net sales comparison by one percentage point.
Sales by Geographic Region
Net sales by geographic region are summarized in the following table:
|
| | | | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 | | % Change |
| (In millions, except for percentage changes) |
United States | $ | 663.4 |
| | $ | 672.9 |
| | (1)% |
LAAP | 236.3 |
| | 245.6 |
| | (4)% |
EMEA | 172.1 |
| | 168.6 |
| | 2% |
Canada | 80.1 |
| | 81.4 |
| | (2)% |
| $ | 1,151.9 |
| | $ | 1,168.5 |
| | (1)% |
Net sales in the United States decreased $9.5 million, or 1%, to $663.4 million for the nine months ended September 30, 2013 from $672.9 million for the comparable period in 2012. The decrease in net sales in the United States primarily consisted of a net sales decrease in footwear, and consisted of a decrease in net sales in our wholesale business, partially offset by a net sales increase in our direct-to-consumer business. The net sales decrease in our wholesale business was led by the Columbia brand, followed by the Sorel and Mountain Hardwear brands, and was due a decline in advance orders following mild winter weather in 2012. The net sales increase in our direct-to-consumer business was led by the Columbia brand, followed by the Sorel and Mountain Hardwear brands, and was led by increased net sales within our retail stores, followed by increased e-commerce net sales. At September 30, 2013, we operated 68 retail stores, compared with 58 at September 30, 2012.
Net sales in the LAAP region decreased $9.3 million, or 4%, to $236.3 million for the nine months ended September 30, 2013 from $245.6 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the nine months ended September 30, 2012 negatively affected the LAAP net sales comparison by approximately seven percentage points. The net sales decrease in the LAAP region was led by apparel, accessories and equipment, followed by footwear. The LAAP net
sales decrease was led by the Columbia brand, followed by the Mountain Hardwear brand, and was led by Japan, followed by our LAAP distributor business, partially offset by a net sales increase in Korea. The decrease in Japan net sales was due to unfavorable changes in currency exchange rates that more than offset a net sales increase in local currency. The LAAP distributor net sales decrease was primarily due to lower advance orders, geopolitical issues in key South American distributor markets and a transition to a new distributor in Australia. The increase in Korea net sales was due to a greater number of retail stores operating during the nine months ended September 30, 2013 than during the comparable period in 2012, partially offset by decreased sales from existing stores.
Net sales in the EMEA region increased $3.5 million, or 2%, to $172.1 million for the nine months ended September 30, 2013 from $168.6 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the nine months ended September 30, 2012 contributed two percentage points of benefit to the EMEA net sales comparison. The net sales increase in the EMEA region consisted of an increase in apparel, accessories and equipment, partially offset by a net sales decrease in footwear. The increase in net sales in the EMEA region was concentrated in the Columbia brand and our EMEA distributor business. The EMEA distributor net sales increase was primarily due to increased advance orders for fall 2013 products.
Net sales in Canada decreased $1.3 million, or 2%, to $80.1 million for the nine months ended September 30, 2013 from $81.4 million for the comparable period in 2012. Changes in foreign currency exchange rates compared with the nine months ended September 30, 2012 negatively affected the Canada net sales comparison by approximately three percentage points, offsetting a net sales increase in local currency. The decrease in net sales in Canada was led by the Sorel brand, followed by the Mountain Hardwear brand, partially offset by a net sales increase in the Columbia brand, and consisted of a net sales decrease in footwear, partially offset by a net sales increase in apparel, accessories and equipment.
Sales by Product Category
Net sales by product category are summarized in the following table:
|
| | | | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 | | % Change |
| (In millions, except for percentage changes) |
Apparel, Accessories and Equipment | $ | 958.6 |
| | $ | 954.7 |
| | —% |
Footwear | 193.3 |
| | 213.8 |
| | (10)% |
| $ | 1,151.9 |
| | $ | 1,168.5 |
| | (1)% |
Net sales of apparel, accessories and equipment increased $3.9 million, or less than one percent, to $958.6 million for the nine months ended September 30, 2013 from $954.7 million for the comparable period in 2012. The increase in apparel, accessories and equipment net sales consisted of an increase in the Columbia brand, partially offset by a net sales decrease in the Mountain Hardwear brand, and was led by the EMEA region, followed by the United States, partially offset by a net sales decrease in the LAAP region. The apparel, accessories and equipment net sales increase in the EMEA region was due to higher advance orders for fall 2013 products.
Net sales of footwear decreased $20.5 million, or 10%, to $193.3 million for the nine months ended September 30, 2013 compared to $213.8 million for the comparable period in 2012. The decrease in footwear net sales was led by the Columbia brand, followed by the Sorel and Montrail brands. The decrease in footwear net sales was led by the United States, followed by the EMEA region, the LAAP region and Canada. The decrease in footwear net sales in the United States was led by the Columbia brand and was due to a decline in advance orders for cold-weather footwear following mild winter weather in 2012.
Sales by Brand
Net sales by brand are summarized in the following table:
|
| | | | | | | | | |
| Nine Months Ended September 30, |
| 2013 | | 2012 | | % Change |
| (In millions, except for percentage changes) |
Columbia | $ | 985.1 |
| | $ | 990.6 |
| | (1)% |
Mountain Hardwear | 95.2 |
| | 98.8 |
| | (4)% |
Sorel | 62.7 |
| | 70.5 |
| | (11)% |
Other | 8.9 |
| | 8.6 |
| | 3% |
| $ | 1,151.9 |
| | $ | 1,168.5 |
| | (1)% |
The net sales decrease for the nine months ended September 30, 2013 compared to the nine months ended September 30, 2012 was led by the Sorel brand, followed by the Columbia and Mountain Hardwear brands. The Sorel brand net sales decrease was led by the EMEA region, followed by Canada and the United States, and was due to a decline in advance orders for cold-weather footwear following mild winter weather in 2012.
Gross Profit: Gross profit, as a percentage of net sales, increased to 43.9% for the nine months ended September 30, 2013 from 43.6% for the comparable period in 2012. Gross profit expansion was primarily due to:
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• | Higher full price margins on direct-to-consumer sales; and |
| |
• | A higher proportion of direct-to-consumer sales, which carry higher gross margins; |
partially offset by:
| |
• | Unfavorable foreign currency hedge rates. |
Selling, General and Administrative Expense: SG&A expense decreased $0.1 million, or less than one percent, to $437.8 million, or 38.0% of net sales, for the nine months ended September 30, 2013 from $437.9 million, or 37.4% of net sales, for the comparable period in 2012. The SG&A expense decrease was primarily due to:
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• | Favorable foreign currency exchange rates; |
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• | Lower personnel and related expenses |