ANNUAL REPORT
2016
TO SHAREHOLDERS
CO216063_Annual Report to Shareholders_WEB.indd - Final Trim: 8.5x11" pg 1
Dear Fellow Shareholders:
2016 was another record year for Columbia Sportswear
Company. Sales increased 2 percent to $2.38 billion,
while operating profit increased 3 percent to $256
million, representing operating margin of 10.8 percent.
Net income increased 10 percent, to a record $191
million, or $2.72 per diluted share, compared with
$174 million, or $1.45 per diluted share, in 2015.
Over the past three years, we have expanded operating
margin by a total of 300 basis points, achieving
our intermediate goal of returning key profitability
measures to levels that are in line with our peers.
We’ve demonstrated the ability to navigate a wide
variety of market conditions across a diverse global
business, capitalize on the strength of our portfolio
of brands, leverage our operating platforms, and
prioritize investments to drive profitable growth,
all while maintaining a strong balance sheet.
Our first priority is to invest in a continual flow of
new, innovative products and demand-creation
initiatives intended to strengthen consumers’
emotional connections with our brands.
have improved dramatically, and media impressions
driven by our public relations efforts more than doubled
in 2016 to an all-time high for the Columbia brand.
The Columbia brand’s position as a leading outdoor
innovator was reinforced by the expansion of our
patent-pending OutDry Extreme™ waterproof-
breathable technology platform to include insulated
and softshell apparel, as well as trail footwear.
These products complemented the original OutDry
Extreme™ rainwear styles, which now include the award-
winning OutDry Extreme™ ECO rain jacket, heralded by
industry influencers as the most functional performance
raingear with the least impact on the environment. No
perfluorocarbons (PFCs) are used in the construction
of OutDry Extreme™ ECO jackets, which are made of
non-dyed materials that are byproducts of recycled
plastic water bottles, somewhat poetically saving 13
gallons of water per garment. An exclusive December
marketing launch featuring hip-hop music artist
Macklemore drove over 40 million media impressions.
During 2016, the Columbia brand executed several
marketing initiatives that elevated the
brand in key markets around the globe:
COLUMBIA BRAND SALES GREW 2%
Global 2016 Columbia brand sales increased 2
percent, to $1.9 billion. Underpinning all of our
Columbia brand marketing efforts is the “Tested
Tough” brand platform, which is now in its second
year following a global rollout across the roughly
100 countries where Columbia products are sold.
The Tested Tough campaign’s core message – that
Columbia products keep people warm, dry, cool, and
protected so they can enjoy the outdoors longer – is
resonating with consumers. As evidence, Tested Tough’s
social engagement metrics on Instagram and YouTube
An exclusive outerwear brand
partnership with Manchester United
hit the market in September.
Columbia/Montrail served as
the Presenting Sponsor of the
annual Ultra Trail du Mont
Blanc, or UTMB, endurance
race series garnering
exposure to thousands of
participants and spectators,
as well as millions of viewers
through traditional and
social media channels.
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CO216063_Annual Report to Shareholders_WEB.indd - Final Trim:8.5 “ x 11 “ pg 2
Columbia’s second “Directors of Toughness” duo – chosen
from among 6,000 applicants from the U.S., Canada and
the U.K. – began traveling the world testing Columbia
gear in some of the most challenging conditions on the
planet and documenting their experiences for social
media. The Directors of Toughness campaign drives
nearly 1 billion annual media impressions and millions
of views on YouTube, Facebook and Instagram.
The Columbia brand was the exclusive designer and
distributor of a limited collection of Rogue One-
inspired apparel as part of a creative partnership with
Disney’s Star Wars franchise. Its December launch drove
significant retail traffic and visits to Columbia.com, and
generated extensive coverage in business, fashion and
entertainment media.
We began deploying enhanced Columbia brand
in-store environments with key wholesale partners
around the globe as the first wave of several
hundred we plan to roll out in coming years.
The breadth of these marketing collaborations shows the
versatility of the Columbia brand and why we believe
it still holds substantial growth potential around the
world, even as it approaches $2 billion in annual sales.
SOREL BRAND SALES GREW 2%
SOREL’s 2016 sales grew 2 percent to $213 million, on
top of 26 percent growth in 2015. Our second-largest
brand, SOREL remains the most cold-weather-sensitive
of our four brands. Accordingly, our top strategic
priority is to “de-winterize” the brand by broadening
its year-round relevance.The most significant step
SOREL took on this journey during 2016 was the pilot
launch of a Spring assortment. The success of that
pilot led to a full-scale Spring 2017 launch involving
wholesale customers across North America.
In tandem with the launch, SOREL showcased its new
Spring assortment to A-list celebrities, influential style
bloggers and fashion and entertainment fans who were
in Park City, Utah for the annual Sundance Film Festival.
That exposure, coupled with creative use of social media
and online marketing channels to raise awareness and
spur demand, produced encouraging early sell-through
and reinforced our confidence in SOREL’s strategy.
SOREL’s Spring line is resonating with consumers
who already love the SOREL brand and want more
opportunities to wear it throughout the year, as well as
with consumers who are still just discovering the brand.
We believe expanding SOREL’s year-round relevance
will create new opportunities to capitalize on the
brand’s untapped long-term global potential.
CO216063_Annual Report to Shareholders_WEB.indd - Final Trim: 8.5’’ x 11" pg 3
in the U.S. – Mountain Hardwear’s largest market
– and in Korea, which had consistently been the
brand’s second-largest market prior to this year.
Our product creation and marketing teams, under the
leadership of our new brand president who joined the
team in April 2017, are working diligently to reposition
the brand by refocusing on its heritage and reputation
for superior high-altitude performance products.
In this highly demanding and crowded market category,
we know we have a lot more work ahead of us before we
can expect the brand to earn back its high-alpine luster
and return to sales growth. Yet we remain committed to
our strategy and to providing our Mountain Hardwear
team the full support of our corporate operating
platforms as we embrace the challenge together.
R E G I O N A L
P E R F O R M A N C E
We are proud of our 2016 performance because it was
achieved in the face of significant macro headwinds in
key markets around the world.
Sales grew 3 percent in the U.S. and fell 2 percent in
Canada as bankruptcies and liquidations of several
significant wholesale customers, the acceleration of
consumer shopping preferences toward on-line channels
and unseasonable weather combined to drive reduced
sales to wholesale customers. Despite those challenges,
investments that we have made over the past several
years, and that we continue to make, enabled us to
produce profitable sales growth in the U.S. We’ve
built a growing and profitable U.S. direct-to-consumer
platform that includes more than 90 company-owned
outlet stores, distinct ecommerce sites for each of
our four major brands and branded stores in select
markets. Our branded e-commerce sites and stores tell
compelling brand, technology and style stories that
engage consumers who are looking for our most current
products. At the same time, our outlet stores serve as
the primary channel for liquidating excess inventory
more profitably and with less impact to brand integrity
compared with reliance on wholesale liquidation channels.
We’ve expanded into leading online wholesale
channels that are viewed as brand-enhancing venues
by today’s consumers, where we can offer strong brand
presentations and broad assortments, and where
consumers enjoy outstanding service and fast delivery.
We continue to expand the assortment of non-winter
products offered by each of our brands. Versatile
sportswear and rainwear, Columbia’s Performance
Fishing Gear (PFG) collection, yoga and lifestyle
products, footwear for the trail and watersports, and
expanded Spring season assortments are gradually
broadening the year-round relevance of our business.
PRANA BRAND SALES GREW 12%
prAna’s 2016 sales grew 12 percent to $140 million, its 6th
consecutive year of double-digit growth. prAna’s growth
was fueled, in part, by an expanded women’s swimwear
line, as well as by its men’s yoga, fitness and lifestyle
business, proving that its positioning as a healthy, mindful
lifestyle brand resonates with all genders.
prAna is working hard to increase consumer awareness,
enhance in-store presentation and deliver segmented
assortments to attract new wholesale customers in North
America. In addition, prAna continues to partner with
independent distributors to expand into markets outside
North America.
MOUNTAIN HARDWEAR BRAND
SALES DECLINED 11%
The Mountain Hardwear brand generated sales of $104
million in 2016, an 11 percent decline concentrated
CO216063_Annual Report to Shareholders_WEB.indd - Final Trim: 8.5’’ x 11" pg 4
percent and represented 37 percent of total sales, up
from 34 percent in 2015. Within that, ecommerce sales
grew more than 20 percent to approximately $220 million,
accounting for more than 9 percent of 2016 global sales.
While we are pleased with our 2016 performance,
dynamic economic forces demand that we continue
striving for relentless improvement. In that spirit, we
recently engaged a leading consulting firm to assist
us in a thorough assessment of our operating model
and to explore new ways of aligning and organizing
our business to execute our strategic plan.
Looking ahead, our strong balance sheet enables
us to invest strategically in our portfolio of brands,
even as dramatic changes continue to ripple across
the North American retail landscape, as well as
when geopolitical uncertainty and foreign currency
volatility occurs in key international markets.
We are committed to investing in strategies that deepen
consumer engagement with our brands, enhance our
operational excellence, diversify our business to become
less weather-sensitive, and enable us to manage through
business cycles with greater financial discipline.
We remain confident in our ability to continue to
drive sustainable profitable growth through our
powerful brand portfolio and global operations.
Thank you for your continued confidence and support.
Sincerely,
Timothy P. Boyle
Chief Executive Officer
This letter contains forward-looking statements. Actual results may differ materially from those
projected in these forward-looking statements as a result of a number of risks and uncertainties,
including those described in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2016, and subsequent periodic reports, under the heading “Risk Factors.”
Sales in our EMEA (Europe, Middle East, Africa)
region grew 9 percent in 2016. This region consists
of two distinct businesses:
Our Europe-direct business consists of wholesale
operations in which we sell to leading European retailers,
as well as a direct-to-consumer business comprising a
dozen company-owned outlet stores, a branded store
in London and branded e-commerce sites. This portion
of the EMEA region produced a second consecutive
year of 20-percent-plus sales growth, returning to
operating profitability as the Columbia brand regained
wholesale market share across virtually every country.
In early 2017, we transitioned our European Columbia
and SOREL brand ecommerce operations in-house from
a 3rd-party provider to directly service 10 European
countries. We expect this change to drive sales growth
by creating superior brand connections and consumer
experiences with an expanded product offering, while
leveraging our existing European distribution operations.
Our EMEA distributor business consists of sales to
independent distributors in Russia and many Middle
Eastern and African countries. The Columbia brand
is very strong in Russia; however, the devalued
ruble and a weakened Russian economy resulted in
significantly lower sales to our Russian distributor
in 2016. With those macro-economic variables
stabilized as of this writing, we anticipate renewed
growth in sales to our Russian distributor in 2017.
Sales in our LAAP (Latin America/Asia Pacific) region
declined 3 percent during 2016. This region consists
of our China joint venture and subsidiary operations
in Japan and Korea, as well as sales to independent
distributors in Central and South America and Asia.
Our China joint venture posted low-single-digit sales
growth during 2016 as overall market growth moderated
following a decade of rapid expansion. The joint venture
owns and operates more than 90 retail stores and works
closely with independent dealers who operate another
750 stores in Tier 1 and Tier 2 cities. During 2017, we
anticipate the joint venture will implement our global
ERP platform and begin to benefit from enhanced
systems and processes designed to support future
growth while improving profitability and cash flow.
Sales in Japan, which are evenly split between wholesale
and direct-to-consumer, increased at a low-double-digit
rate during 2016.
Sales in Korea, where we work with franchisees that own
and operate more than 200 stores, fell approximately 20
percent during 2016. A shift in consumer demand away
from technical outerwear that began more than 2 years
ago continued to drive contraction in this crowded market.
Our direct-to-consumer business was a bright spot in
every region. Globally, direct-to-consumer sales grew 10
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
——————————————
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2016
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
(State or other jurisdiction of incorporation or organization)
14375 Northwest Science Park Drive Portland, Oregon
(Address of principal executive offices)
93-0498284
(IRS Employer Identification Number)
97229
(Zip Code)
(503) 985-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Common Stock
Name of each exchange on which registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes
No
Indicate by check mark whether the 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
No
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 short period that the registrant was required to submit and post such files).
No
Yes
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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.
Large accelerated filer
Accelerated filer
Non-accelerated filer
(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
The aggregate market value of the voting common stock held by non-affiliates of the registrant as of June 30, 2016,
the last business day of the registrant's most recently completed second fiscal quarter, was $1,562,767,527 based on the last
reported sale price of the Company's common stock as reported by the NASDAQ Global Select Market System on that day.
The number of shares of common stock outstanding on February 10, 2017 was 69,485,035.
Part III is incorporated by reference from the registrant's proxy statement for its 2017 annual meeting of shareholders
to be filed with the Commission within 120 days of December 31, 2016.
COLUMBIA SPORTSWEAR COMPANY
DECEMBER 31, 2016
TABLE OF CONTENTS
Item
Item 1.
Item 1A.
Item 1B.
Item 2.
Item 3.
Item 4.
Item 4A.
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART I
Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unresolved Staff Comments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Mine Safety Disclosures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Officers and Key Employees of the Registrant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of
Equity Securities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . .
Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . .
Controls and Procedures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other Information. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART III
Directors, Executive Officers and Corporate Governance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Certain Relationships and Related Transactions, and Director Independence. . . . . . . . . . . . . . . . . . . .
Principal Accountant Fees and Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
PART IV
Item 15.
Signatures
Exhibits and Financial Statement Schedule . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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Item 1. BUSINESS
General
PART I
Founded in 1938 in Portland, Oregon, as a small, family-owned, regional hat distributor and incorporated in 1961,
Columbia Sportswear Company has grown to become a global leader in designing, sourcing, marketing, and distributing
outdoor and active lifestyle apparel, footwear, accessories, and equipment. Unless the context indicates otherwise, the terms
"we", "us", "our", "the Company," and "Columbia" refer to Columbia Sportswear Company, together with its wholly owned
subsidiaries and entities in which it maintains a controlling financial interest.
As one of the largest outdoor and active lifestyle apparel and footwear companies in the world, our products have
earned an international reputation for innovation, quality and performance. We design, source, market, and distribute outdoor
and active lifestyle apparel, footwear, accessories, and equipment under four primary brands, which complement each other
to address the diverse needs of consumers:
Columbia®
The Columbia brand is our largest brand, offering performance and casual products, including apparel, footwear,
accessories, and equipment, for a wide variety of activities and consumers.
SOREL®
Acquired in 2000, the SOREL brand offers premium fashion, casual and cold weather footwear, apparel and accessories
for a wide demographic, with a primary emphasis on young, fashion-forward female consumers.
Mountain Hardwear®
Acquired in 2003, the Mountain Hardwear brand, headquartered in Richmond, California, offers premium apparel,
accessories and equipment primarily for the high performance needs of mountaineering enthusiasts, as well as for consumers
who are inspired by the outdoor lifestyle.
prAna®
Acquired in 2014, the prAna brand, headquartered in Carlsbad, California, offers stylish and functional active lifestyle
apparel and accessories designed and manufactured with an emphasis on sustainable materials and processes.
Other Brands
The Montrail® brand, acquired in 2006, offers high-performance running footwear, with an emphasis on trail-running.
In February 2016, the Company announced the decision to realign the Montrail brand in spring 2017 as a sub-brand of the
Columbia brand. The new sub-brand will expand its offerings to include full head-to-toe assortments of performance
footwear, apparel and accessories designed specifically for running on the trail.
The OutDry® brand, acquired in 2010, holds various patents pertaining to processes for manufacturing waterproof
and breathable apparel, footwear, accessories, and equipment. We have incorporated OutDry in select Columbia, Mountain
Hardwear, SOREL, and Montrail products and also license the product to other parties.
The Pacific Trail® brand, acquired in 2006, is licensed to third parties across a range of apparel, footwear, accessories,
and equipment.
We distribute our products through a mix of wholesale distribution channels, our own direct-to-consumer channels
(retail stores and e-commerce), independent international distributors, and licensees. In 2016, our products were sold in
approximately 90 countries. In 59 of those countries we sell to distributors to whom we have granted distribution rights.
Substantially all of our products are manufactured by contract manufacturers located outside the United States.
Consumer desire for our products is affected by a number of variables, including the popularity of outdoor activities
and active lifestyles, weather, changing design trends, consumer adoption of innovative performance technologies and the
availability and desirability of competitor alternatives. Therefore, we seek to drive, anticipate and respond to trends and
2
shifts in consumer preferences by developing new products with innovative performance features and designs, creating
persuasive and memorable marketing communications to generate consumer awareness, demand and retention, and adjusting
the mix and price points of available product offerings. 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.
Our business is subject to many risks and uncertainties that may have a material adverse effect on our financial
condition, results of operations or cash flows. Some of these risks and uncertainties are described below under Item 1A,
Risk Factors.
Seasonality and Variability of Business
Our business is affected by the general seasonal trends common to the industry, including seasonal weather and
discretionary consumer shopping and 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. In 2016, approximately 60% of our net sales and approximately 90% of our net income 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. The expansion of our direct-to-consumer channels has increased the proportion of sales, profits
and cash flows that we generate in the second half of the year.
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 global economic and geopolitical conditions and volatility of foreign
currency exchange rates, which, when combined with seasonal weather patterns, disruptions in wholesale channels of
distribution, changes in consumer purchasing behavior, and inflationary or volatile input costs, reduce the predictability of
our business.
For further discussion regarding the effects of the macro-economic environment on our business, see Part II, Item 7,
Management's Discussion and Analysis of Financial Condition and Results of Operations.
Products
We provide high quality apparel, footwear, accessories, and equipment for use in a wide range of outdoor and active
lifestyle activities by all consumers. A large percentage of our products are also worn for casual or leisure purposes. The
durability and functionality of our Columbia brand and Mountain Hardwear brand products make them ideal for a wide
range of outdoor and active lifestyle activities, serving a broad range of consumers, including elite skiers and mountain
climbers, outdoor enthusiasts, hunting and fishing enthusiasts, top endurance trail runners, and outdoor-inspired consumers.
Our prAna brand apparel products focus on consumers whose active lifestyles include activities such as rock climbing, yoga
and outdoor watersports, and our SOREL brand offers consumers premium, durable and functional products, with an
increased focus on fashion footwear.
We develop and manage our merchandise in two principal categories: (1) apparel, accessories and equipment and (2)
footwear. The following table presents the net sales and approximate percentages of net sales attributable to each of our
principal product categories for each of the last three years ended December 31 (dollars in millions).
2016
2015
2014
Net Sales
% of Sales
Net Sales
% of Sales
Net Sales
% of Sales
Apparel, accessories and equipment . . . $ 1,865.4
511.6
Footwear . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . $ 2,377.0
78.5% $ 1,821.2
78.3% $ 1,676.2
21.5
505.0
21.7
424.4
79.8%
20.2
100.0% $ 2,326.2
100.0% $ 2,100.6
100.0%
Apparel, accessories and equipment
We design, develop, market, and distribute apparel, accessories and equipment for men and women under our Columbia,
Mountain Hardwear, SOREL, and prAna brands, and for youth under our Columbia and Mountain Hardwear brands. Our
products incorporate the cumulative design, fabrication, fit, and construction technologies that we have pioneered over
several decades and that we continue to innovate. Our apparel, accessories and equipment are designed to be used during
3
a wide variety of outdoor activities, such as skiing, snowboarding, hiking, climbing, mountaineering, camping, hunting,
fishing, trail running, water sports, yoga, and adventure travel.
Footwear
We design, develop, market, and distribute footwear products for men, women and youth under our Columbia and
SOREL brands. Our footwear products include durable, lightweight hiking boots, trail running shoes, rugged cold weather
boots for activities on snow and ice, sandals for use in amphibious activities, and casual shoes for everyday use. Our Columbia
brand footwear products seek to address the needs of outdoor consumers who participate in activities that typically involve
challenging or unusual terrain in a variety of weather and trail conditions. Our SOREL brand products offer premium casual
and cold weather footwear for all ages and genders, with a focus on young, fashion-conscious female consumers.
Product Design and Innovation
We are committed to designing innovative and functional products for consumers who participate in a wide range of
outdoor activities, enabling them to enjoy those activities longer and in greater comfort by keeping them warm or cool, dry
and protected. We also place significant value on product design and fit (the overall appearance and image of our products)
that, along with technical performance features, distinguish our products in the marketplace.
Our research and development efforts are led by an internal team of specialists who work closely with independent
suppliers to conceive, develop and commercialize innovative technologies and products that provide the unique performance
benefits desired by consumers during outdoor activities. We have also established working relationships with specialists in
the fields of chemistry, biochemistry, engineering, industrial design, materials research, and graphic design, and in other
related fields. We utilize these relationships, along with consumer feedback, to develop and test innovative performance
products, processes, packaging, and displays. We believe that these efforts, coupled with our technical innovation efforts,
represent key factors in the past and future success of our products.
Intellectual Property
We own many trademarks, including Columbia Sportswear Company®, Columbia®, SOREL®, Mountain Hard Wear®,
prAna®, Montrail®, OutDry®, Pacific Trail®, the Columbia diamond shaped logo, the Mountain Hardwear nut logo, the
SOREL polar bear logo, and the prAna sitting pose logo, as well as many other trademarks relating to our brands, products,
styles, and technologies. We believe that our trademarks are an important factor in creating a market for our products, in
identifying our Company, and in differentiating our products from competitors' products. We have design, process and utility
patents as well as pending patent applications in the United States and other countries. We file applications for United States
and foreign patents for inventions, designs and improvements that we believe have commercial value; however, these patents
may or may not ultimately be issued, enforceable or used in our business. We believe our success primarily depends on our
ability to continue offering innovative solutions to match consumer needs through design, research, development, and
production advancements rather than our ability to secure patents. The technologies, processes and designs described in our
patents are incorporated into many of our most important products and expire at various times. We vigorously protect these
proprietary rights against counterfeit reproductions and other infringing activities. Additionally, we license some of our
trademarks across a range of apparel, footwear, accessories, equipment, and home products.
Sales and Distribution
We sell our products through a mix of wholesale distribution channels, our own direct-to-consumer channels,
independent international distributors, and licensees. The majority of our sales are generated through wholesale channels,
which include small, independently operated specialty outdoor and sporting goods stores, regional, national and international
sporting goods chains, large regional, national and international department store chains and, internet retailers. We sell our
products to distributors in various countries where we generally do not have direct sales and marketing operations. We also
sell a wide range of apparel, footwear, accessories, equipment, and home products through licensing arrangements with
third party manufacturers. In addition, we market Columbia brand apparel and accessories under licensing arrangements
with various collegiate and professional sports organizations and entertainment companies.
We also sell our products directly to consumers in each of our geographic segments through our own network of
branded and outlet retail stores and online. In addition, we have concession-based arrangements with third-parties at branded,
outlet and shop-in-shop retail locations in our Latin America, Europe and Asia Pacific regions, where the Company retains
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ownership of inventory and control over certain aspects of operations. Our direct-to-consumer businesses are designed to
elevate consumer perception of our brands, increase consumer and retailer awareness of and demand for our products, model
compelling retail environments for our products and strengthen emotional connections between consumers and our brands
over time. Our branded retail stores and e-commerce sites allow us to showcase a broad selection of products and to support
the brand's positioning with fixtures and imagery that may then be replicated and offered for use by our wholesale and
distributor customers. These stores and sites provide high visibility for our brands and products and help us to monitor the
needs and preferences of consumers. In addition, we operate outlet stores, which serve a role in our overall inventory
management by enabling us to profitably liquidate excess, discontinued and out-of-season products while maintaining the
integrity of our brands in wholesale and distributor channels.
We operate in four geographic segments: (1) the United States, (2) Latin America and Asia Pacific ("LAAP"), (3)
Europe, Middle East and Africa ("EMEA"), and (4) Canada, which are reflective of our internal organization, management
and oversight structure. Each geographic segment operates predominantly in one industry: the design, development,
marketing, and distribution of outdoor and active lifestyle apparel, footwear, accessories, and equipment. The following
table presents net sales to unrelated entities and approximate percentages of net sales by geographic segment for each of
the last three years ended December 31 (dollars in millions):
2016
2015
2014
Net Sales
% of Sales
Net Sales
% of Sales
Net Sales
% of Sales
United States . . . . . . . . . . . . . . . . . . . . . $ 1,505.2
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . .
453.7
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . .
164.6
Total . . . . . . . . . . . . . . . . . . . . . . . $ 2,377.0
253.5
63.3% $ 1,455.2
469.2
19.1
62.6% $ 1,198.4
491.6
20.2
10.7
6.9
233.2
168.6
10.0
7.2
259.2
151.4
57.1%
23.4
12.3
7.2
100.0% $ 2,326.2
100.0% $ 2,100.6
100.0%
United States
The United States accounted for 63.3% of our net sales for 2016. We sell our products in the United States to
approximately 3,300 wholesale customers and through our own direct-to-consumer channels. As of December 31, 2016,
our United States direct-to-consumer businesses consisted of 91 outlet retail stores, 25 branded retail stores, 2 employee
retail stores, and 5 brand-specific e-commerce websites. In addition, we earn licensing income in the United States based
on our licensees' sale of licensed products.
We distribute the majority of our products sold in the United States from distribution centers that we own and operate
in Portland, Oregon and Robards, Kentucky. In some instances, we arrange to have products shipped from contract
manufacturers through third party logistics vendors or directly to wholesale customer-designated facilities in the United
States.
LAAP
The LAAP region accounted for 19.1% of our net sales for 2016. We sell our products in the LAAP region through a
combination of wholesale and direct-to-consumer channels in China, Japan and Korea and to 12 independent international
distributors across the LAAP region.
In Japan and Korea, we sell to approximately 250 wholesale customers. In addition, as of December 31, 2016, there
were 118 and 205 concession-based, branded, outlet and shop-in-shop locations in Japan and Korea, respectively. We also
sell Columbia, Mountain Hardwear and SOREL products through e-commerce websites in Japan and Korea and Montrail
products through an e-commerce website in Japan. We distribute our products to wholesale customers, our own retail stores,
licensed stores, and directly to consumers in Japan through an independent logistics company that owns and operates a
warehouse located near Tokyo. We distribute our products to wholesale customers, our own retail stores and licensed stores
in Korea from a leased warehouse facility near Seoul.
In 2014, we commenced operations of a majority-owned joint venture with Swire Resources Limited ("Swire") for
purposes of continuing the development of our business in China. The joint venture operates 92 retail locations, as well our
brand specific e-commerce websites across multiple platforms and has distribution relationships with approximately 60
wholesale dealers that operate approximately 750 retail locations. As a 60% majority-owned entity that we control, the joint
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venture's operations are included in our consolidated financial results. The joint venture distributes our products to wholesale
customers, our own retail stores and e-commerce customers in China through independent logistic companies with
warehouses in Shanghai.
We sell to 12 distributors that sell to approximately 850 wholesale customers in locations throughout the LAAP region.
In addition, we earn licensing income in our LAAP region based on our distributors' production and sale of licensed products.
The majority of sales to our LAAP distributors are shipped directly from the contract manufacturers from which we source
our products.
EMEA
Sales in our EMEA region accounted for 10.7% of our net sales for 2016. We sell our products in the EMEA region
to approximately 3,500 wholesale customers and to 9 independent international distributors that sell to approximately 500
wholesale customers in locations throughout the EMEA region, including Russia, portions of Europe, the Middle East, and
Africa. In addition, as of December 31, 2016, we operated 20 outlet and shop-in-shop locations and 1 branded retail store
in various locations in Western Europe. We also sell Columbia and SOREL products through brand-specific e-commerce
websites in Austria, Belgium, Finland, France, Germany, Ireland, Italy, the Netherlands, Spain, and the United Kingdom.
We distribute the majority of our products sold to EMEA wholesale customers and our own retail stores from a
distribution center that we own and operate in Cambrai, France. The majority of sales to our EMEA distributors are shipped
directly from the contract manufacturers from which we source our products.
Canada
Sales in Canada accounted for 6.9% of our net sales for 2016. We sell our products in Canada to approximately 1,100
wholesale customers. In addition, as of December 31, 2016, we operated 4 outlet retail stores and 1 employee retail store
in Canada. We also sell Columbia, Mountain Hardwear and SOREL products through brand-specific e-commerce websites
in Canada.
We distribute the majority of our products sold in Canada from a distribution center that we own in London, Ontario.
Marketing
Our portfolio of brands enables us to target a wide range of consumers across the globe with differentiated products.
Marketing supports and enhances our competitive position in the marketplace, drives global alignment through seasonal
initiatives, builds brand equity, raises global brand relevance and awareness, infuses our brands with excitement, and, most
important, stimulates consumer demand for our products worldwide. During 2016, we invested approximately 5% of our
net sales in marketing programs.
Our integrated marketing efforts deliver consistent messages about the performance benefits, features and styling of
our products within each of our brands. Our target audiences vary by brand and we utilize a variety of means to deliver our
marketing messages, including online advertising and social media, television and print publications, experiential events,
branded retail stores in select high-profile locations, enhanced product displays in partnership with various wholesale
customers and independent international distributors, and consumer focused public relations efforts.
We work closely with our key wholesale customers to reinforce our brand messages through cooperative online,
television, radio, and print advertising campaigns, as well as in stores using branded visual merchandising display tools.
We also employ teams that visit our customers' retail locations in major cities around the world to facilitate favorable in-
store presentation of our products.
We operate branded e-commerce websites and marketing websites in North America, Europe, Japan, Korea, and China,
and maintain a presence on a variety of global social media platforms to connect with consumers. In addition, we authorize
many of our wholesale customers and distributors to operate e-commerce or marketing websites or both and to maintain a
presence on social media platforms that help to reinforce our brand messages. Through digital media, consumers are able
to interact with content created to inform and entertain them about our brands and products, to be directed to nearby retailers,
or to purchase our products directly. Use of digital marketing and social media has become increasingly important within
each of our brands' global efforts to build strong emotional connections with consumers through consistent, brand-enhancing
content.
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Working Capital Utilization
We design, develop, market, and distribute our products, but do not own or operate manufacturing facilities. As a
result, most of our capital is invested in short-term working capital assets, including cash and cash equivalents, short-term
investments, accounts receivable from customers, and finished goods inventory. At December 31, 2016, working capital
assets accounted for approximately 70% of total assets. Accordingly, the degree to which we efficiently utilize our working
capital assets can have a significant effect on our profitability, cash flows and return on invested capital. The overall goals
of our working capital management efforts are to maintain the minimum level of inventory necessary to deliver goods on
time to our customers to satisfy end consumer demand and to minimize the cycle time from the purchase of inventory from
our suppliers to the collection of accounts receivable balances from our customers.
Demand Planning and Inventory Management
As a branded consumer products company, inventory represents one of the largest and riskiest capital commitments
in our business model. We begin designing and developing our seasonal product lines approximately 12 months prior to
soliciting advance orders from our wholesale customers and approximately 18 months prior to the products' availability to
consumers in retail stores. As a result, our ability to forecast and produce an assortment of product styles that matches
ultimate seasonal wholesale customer and end-consumer demand and to deliver products to our customers in a timely and
cost-effective manner can significantly affect our sales, gross margins and profitability. For this reason, we maintain and
continue to make substantial investments in information systems, processes and personnel that support our ongoing demand
planning efforts. The goals of our demand planning efforts are to develop a collaborative forecast that drives the timely
purchase of an adequate amount of inventory to satisfy demand, to minimize transportation and expediting costs necessary
to deliver products to customers by their requested delivery dates and to minimize excess inventory to avoid liquidating
excess, end-of-season goods at discounted prices. Failure to achieve our demand planning goals could reduce our revenues
or increase our costs or both, which would negatively affect our gross margins and profitability and could affect our brand
strength.
In order to manage inventory risk, we use incentive discounts to encourage our wholesale customers and independent
international distributors to place orders at least six months in advance of scheduled delivery. We generally solicit orders
from wholesale customers and distributors for the fall and spring seasons based on seasonal ordering deadlines that we
establish to aid our efforts to plan manufacturing volumes to meet demand.
We use those advance orders, together with forecasted demand from our direct-to-consumer businesses, market trends,
historical data, customer and sales feedback, and other important factors to estimate the volumes of each product to purchase
from our suppliers around the world. From the time of initial order through production, receipt and delivery, we attempt to
manage our inventory to reduce risk. We generally ship the majority of our advance spring season orders to customers
beginning in January and continuing through June. Similarly, we typically ship the majority of our advance fall season
orders to customers beginning in July and continuing through December. Generally, orders are subject to cancellation prior
to the date of shipment.
Our inventory management efforts cannot entirely eliminate inventory risk due to the inherently unpredictable nature
of unseasonable weather, consumer demand, the ability of customers to cancel their advance orders prior to shipment, and
other variables that affect our customers' ability to take delivery of their advance orders when originally scheduled. To
minimize our purchasing costs, the time necessary to fill customer orders and the risk of non-delivery, we place a significant
amount of orders for our products with contract manufacturers prior to receiving our customers' advance orders and we
maintain an inventory of select products that we anticipate will be in greatest demand. In addition, we build calculated
amounts of inventory to support estimated at-once orders from customers and auto-replenishment orders on certain long-
lived styles.
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Credit and Collection
We extend credit to our wholesale customers and distributors based on an assessment of each customer's financial
condition, generally without requiring collateral. To assist us in scheduling production with our suppliers and delivering
seasonal products to our customers on time, we offer customers discounts for placing advance orders and extended payment
terms for taking delivery before peak seasonal shipping periods. These extended payment terms increase our exposure to
the risk of uncollectable receivables. In order to manage the inherent risks of customer receivables, we maintain and continue
to invest in information systems, processes and personnel skilled in credit and collections. In some markets and with some
customers we use credit insurance, customer deposits or standby letters of credit to minimize our risk of credit loss.
Sourcing and Manufacturing
We do not own or operate manufacturing facilities. Virtually all of our products are manufactured to our specifications
by contract manufacturers located outside the United States. We seek to establish and maintain long-term relationships with
key manufacturing partners, but generally do not maintain formal long-term manufacturing volume commitments. We
believe that the use of contract manufacturers enables us to substantially limit our invested capital and to avoid the costs
and risks associated with owning and operating large production facilities and managing large labor forces. We also believe
that the use of contract manufacturers greatly increases our production capacity, maximizes our flexibility and improves
our product pricing. We manage our supply chain from a global and regional perspective and adjust as needed to changes
in the global production environment, including political risks, factory capacity, import limitations and costs, raw material
costs, availability and cost of labor, and transportation costs. Without long-term commitments, there is no assurance that
we will be able to secure adequate or timely production capacity or favorable pricing terms.
Our apparel, accessories and equipment are manufactured in 17 countries, with Vietnam and China accounting for
approximately 65% of our 2016 apparel, accessories and equipment production. Our footwear is manufactured in four
countries, with China and Vietnam accounting for substantially all of our 2016 footwear production.
Our five largest apparel, accessories and equipment factory groups accounted for approximately 28% of 2016 global
apparel, accessories and equipment production, with the largest factory group accounting for 10% of 2016 global apparel,
accessories and equipment production. Our five largest footwear factory groups accounted for approximately 73% of 2016
global footwear production, with the largest factory group accounting for 34% of 2016 global footwear production. Most
of our largest suppliers have multiple factory locations, thus reducing the risk that unfavorable conditions at a single factory
or location will have a material adverse effect on our business.
We maintain 11 manufacturing liaison offices in a total of eight Asian countries. Personnel in these manufacturing
liaison offices are direct employees of Columbia and are responsible for overseeing production at our contract manufacturers.
We believe that having employees physically located in these regions enhances our ability to monitor factories for compliance
with our policies, procedures and standards related to quality, delivery, pricing, and labor practices. Our quality assurance
process is designed to ensure that our products meet our quality standards. We believe that our quality assurance process is
an important and effective means of maintaining the quality and reputation of our products. In addition, independent
contractors that manufacture products for us are subject to standards of manufacturing practices ("SMP"). Columbia sources
products around the world and values legal, ethical and fair treatment of people involved in manufacturing our products.
Each factory producing products for us is monitored regularly against these standards. Additional information about SMP
and corporate responsibility programs may be found at www.columbia.com and www.prana.com. The content on our websites
is not incorporated by reference in this Form 10-K unless expressly noted.
Competition
The markets for outdoor and active lifestyle apparel, footwear, accessories, and equipment are highly competitive.
We believe that the primary competitive factors in the end-use markets are brand strength, product innovation, product
design, functionality, durability, effectiveness of marketing efforts, and price.
In each of our geographic markets, our brands face significant competition from numerous competitors, some of which
are larger than we are and have greater financial, marketing and operational resources with which to compete, and others
that are smaller with fewer resources but that may be deeply entrenched in local markets. The markets in China and Korea
have attracted a large number of competitive local and global brands. In other markets, such as Europe, we face competition
from brands that hold significant market share in one or several European markets but are not significant competitors in
8
other key markets. Some of our large wholesale customers also market competitive apparel, footwear, accessories, and
equipment under their own private label brand names. In addition, our direct-to-consumer businesses expose us to branded
competitors and wholesale customers who operate retail stores in key markets and who sell competitive products online.
Our independent international distributors and licensees also operate in very competitive markets against a variety of local
and global brands.
In addition to competing for end-consumer and wholesale market share, we also compete for manufacturing capacity
of independent factory groups, primarily in Asia, for retail store locations in key markets and for experienced management,
staff and suppliers to lead, operate and support our global business processes. Each of these areas of competition requires
distinct operational and relational capabilities and expertise in order to create and maintain long-term competitive advantages.
Government Regulation
Many of our international shipments are subject to existing or potential governmental tariff and non-tariff barriers to
trade, such as import duties and potential safeguard measures that may limit the quantity of various types of goods that may
be imported into the United States and other countries. These trade barriers often represent a material portion of the cost to
manufacture and import our products. Our products are also subject to domestic and foreign product safety and environmental
standards, laws and other regulations, which are increasingly restrictive and complex. As we strive to achieve technical
innovations, we face a greater risk of compliance issues with regulations applicable to products with complex technical
features. Although we diligently monitor these standards and restrictions, a state, federal or foreign government may impose
new or adjusted quotas, duties, safety requirements, material restrictions, or other restrictions or regulations, any of which
could have a material adverse effect on our financial condition, results of operations or cash flows.
Employees
At December 31, 2016, we had 6,023 full-time equivalent employees.
Available Information
We file with the Securities and Exchange Commission ("SEC") our annual report on Form 10-K, quarterly reports on
Form 10-Q, current reports on Form 8-K and any amendments to those reports, proxy statements, and registration statements.
You may read and copy any material we file with the SEC at the SEC's Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. You may also obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. In addition, the SEC maintains an internet site at http://www.sec.gov that contains reports, proxy
and information statements, and other information regarding issuers, including us, that file electronically. We make available
free of charge on or through our website at www.columbia.com our annual reports on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K, and amendments to these reports filed or furnished pursuant to Section 13(a) or 15(d)
of the Exchange Act as soon as reasonably practicable after we file these materials with the SEC.
Item 1A. RISK FACTORS
In addition to the other information contained in this Form 10-K, the following risk factors should be considered
carefully in evaluating our business. Our business, financial condition, results of operations, or cash flows may be materially
adversely affected by these and other risks. Please note that additional risks not presently known to us or that we currently
deem immaterial may also impair our business and operations.
We Face Many Challenges Executing Growth Strategies
Our business strategies aim to achieve sustainable, profitable growth by creating innovative products at competitive
prices, focusing on product design, utilizing innovations to differentiate our brands from competitors, working to ensure
that our products are sold through strong distribution partners capable of effectively presenting our brands to consumers,
increasing the impact of consumer communications to drive demand for our brands and sell-through of our products, making
sure our products are merchandised and displayed appropriately in retail environments, expanding our presence in key
markets around the world, and continuing to build brand enhancing direct-to-consumer businesses. We intend to pursue
these strategies across our portfolio of brands, product categories and geographic markets. Our failure to implement our
business strategies successfully could have a material adverse effect on our financial condition, results of operations or cash
flows.
9
To implement our business strategies, we must continue to modify and fund various aspects of our business, to maintain
and enhance our information systems and supply chain operations to improve efficiencies and to attract, retain and manage
qualified personnel. These efforts, coupled with cost containment measures, place increasing strain on management,
information technology, financial, product design, marketing, distribution, supply chain, and other resources, and we may
have operating difficulties as a result. For example, in support of our strategic initiatives, we are making significant
investments in our business processes and information technology infrastructure that require significant management
attention and corporate resources. These changes may make it increasingly difficult to pursue acquisitions or to adapt our
information technology systems and business processes to integrate an acquired business. These integration challenges may
also be present as we continue to fully integrate operations of our joint venture business in China, which began operations
in January 2014, and of prAna, which we acquired in May 2014. These business initiatives involve many risks and
uncertainties that, if not managed effectively, may have a material adverse effect on our financial condition, results of
operations or cash flows.
Our business strategies and related increased expenditures could also cause our operating margin to decline if we are
unable to offset our increased spending with increased sales or gross profit or comparable reductions in other operating
costs. If our sales or gross profit decline or fail to grow as planned and we fail to sufficiently leverage our operating expenses,
our profitability will decline. This could result in a decision to delay, reduce, modify, or terminate our strategic business
initiatives, which could limit our ability to invest in and grow our business and could have a material adverse effect on our
financial condition, results of operations or cash flows.
Initiatives to Upgrade Our Business Processes and Information Technology Infrastructure Involve Many Risks Which
Could Result In, Among Other Things, Business Interruptions and Higher Costs
We regularly implement business process improvement initiatives to optimize our performance. Our current business
process initiatives include plans to improve business results through standardization of business processes and technologies
that support our supply chain and go-to-market strategies through on-going implementation of and upgrades to integrated
global enterprise resource planning ("ERP") software solutions and other complementary information technology systems
over the next several years. Implementation of and upgrades to these solutions and systems are highly dependent on
coordination of numerous employees, contractors and software and system providers. The interdependence of these solutions
and systems is a significant risk to the successful completion of the initiatives, and the failure of any one contractor or
system could have a material adverse effect on the implementation of our overall information technology infrastructure.
We may experience difficulties as we transition to these new or upgraded systems and processes, including loss or corruption
of data, delayed shipments, decreases in productivity as our personnel implement and become familiar with new systems,
increased costs, and lost revenues. In addition, transitioning to these new or upgraded systems requires significant capital
investments and personnel resources. Difficulties in implementing new or upgraded information systems or significant
system failures, including system outages and loss of system availability, could disrupt our operations and have a material
adverse effect on our financial condition, results of operations or cash flows.
Implementation of this information technology infrastructure has a pervasive effect on our business processes and
information systems across a significant portion of our operations. As a result, we are undergoing significant changes in
our operational processes and internal controls as our implementation progresses, which in turn require significant change
management, including training of and testing by our personnel. If we are unable to successfully manage these changes as
we implement these systems, including harmonizing our systems, data, processes and reporting analytics, our ability to
conduct, manage and control routine business functions could be negatively affected and significant disruptions to our
business could occur. In addition, we could incur material unanticipated expenses, including additional costs of
implementation or costs of conducting business. These risks could result in significant business disruptions or divert
management's attention from key strategic initiatives and have a material adverse effect on our financial condition, results
of operations or cash flows.
We Rely on Our Highly Customized Information Management Systems
Our business is increasingly reliant on information technology. Information systems are used across our supply chain
and retail operations, from design to distribution and sales, and are used as a method of communication among employees,
with our subsidiaries and liaison offices overseas and with our customers and retail stores. We also rely on our information
systems to allocate resources, pay vendors and collect from customers, manage product data, develop demand and supply
plans, forecast and report operating results, and meet regulatory requirements.
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Our legacy ERP, product development, retail point-of-sale and other systems, on which we continue to manage a
substantial portion of our business activities, are highly customized. As a result, the availability of internal and external
resources with the expertise to maintain these systems is limited. Our legacy systems may not support desired functionality
for our operations and may inhibit our ability to operate efficiently, which could have an adverse effect on our financial
condition, results of operations or cash flows. As we transition from our legacy ERP and supporting systems to our new
ERP and supporting systems, certain functionality and information from our legacy systems, including that of third party
systems that interface with our legacy systems, may not be fully compatible with the new systems. As a result, temporary
processes or solutions may be required, including manual operations, which could significantly increase the risk of loss or
corruption of data and information used by the business or result in business disruptions, which could have a material adverse
effect on our financial condition, results of operations or cash flows.
A Breach in the Security of Our Systems, or the Privacy and Security of Company, Customer, Supplier or Employee
Information, Could Disrupt Our Operations, Damage Our Reputation or Cause Us to Incur Substantial Costs
We manage and store various types of proprietary information and sensitive or confidential data relating to our business,
including sensitive and personally identifiable information. Our information systems are vulnerable to an increasing threat
of continually evolving cybersecurity risks. Unauthorized parties may attempt to gain access to our systems or information
through fraud or other means of deceiving our employees or third party service providers. Hardware, software or applications
we develop or obtain from third parties may contain defects in design or manufacture or other problems that could
unexpectedly compromise information security. The methods used to obtain unauthorized access, disable or degrade service,
or sabotage systems are also constantly changing and evolving, and may be difficult to anticipate or detect for long periods
of time. We have implemented and regularly review and update processes and procedures to protect against unauthorized
access to or use of secured data and to prevent data loss. However, the ever-evolving threats mean we must continually
evaluate and adapt our systems and processes, and there is no guarantee that they will be adequate to safeguard against all
data security breaches or misuses of data.
In February 2017, we reported the discovery of a cyber security incident involving our prAna.com e-commerce website.
See Note 13 of Notes to Consolidated Financial Statements for further disclosure of this incident. The Company is actively
investigating the nature and scope of the incident, including to what extent customer information may have been
compromised. It is reasonably possible that the Company may incur losses in connection with the incident; however, the
Company is still in the early stages of the investigation and at this time the Company is unable to reasonably estimate the
amount of any losses or the amount of expenses, net of any potential insurance recovery, it may incur in addressing this
incident. In addition, we may be required to respond to governmental inquiries and could be subject to litigation relating to
the cyber security incident. Such investigations and claims could divert the attention of management from the operation of
our business, result in reputational damage and have a material adverse effect on our business, financial condition, results
of operations or cash flows.
In addition, any future breaches of our security measures, or the accidental loss, inadvertent disclosure or unapproved
dissemination of proprietary information or sensitive or confidential data about us, our customers, our suppliers, or our
employees, could expose us, our customers, our suppliers, our employees, or other individuals that may be affected to a
risk of loss or misuse of this information, result in litigation and potential liability for us, damage our reputation, or otherwise
harm our business and could have a material adverse effect on our financial condition, results of operations or cash flows.
In addition, as the regulatory environment related to information security, data collection and use and privacy becomes
increasingly rigorous, with new and constantly changing requirements applicable to our business, compliance with those
requirements could also result in additional costs.
We Depend on Contract Manufacturers
Our products are manufactured by contract manufacturers worldwide. Although we enter into purchase order
commitments with these contract manufacturers each season, we generally do not maintain long-term manufacturing
commitments with them. Without long-term or reserve commitments, there is no assurance that we will be able to secure
adequate or timely production capacity or favorable pricing if growth or product demand differs from our forecasts. Contract
manufacturers may fail to perform as expected or our competitors may obtain production capacities that effectively limit
or eliminate the availability of these resources to us. If a contract manufacturer fails to ship orders in a timely manner or to
meet our standards or if we are unable to obtain necessary capacities, this could cause supply disruptions that would hinder
our ability to satisfy customer demand through our direct-to-consumer businesses and we may miss delivery deadlines or
11
incur additional costs, which may cause our customers to cancel their orders, refuse to accept deliveries or demand a reduction
in purchase prices, any of which could have a material adverse effect on our financial condition, results of operations or
cash flows.
Reliance on contract manufacturers also creates quality control risks. Contract manufacturers may need to use sub-
contracted manufacturers to fulfill demand and these manufacturers may have less experience producing our products or
possess lower overall capabilities, which could result in compromised quality of our products. A failure in our quality control
program, or a failure of our contract manufacturers or their contractors to meet our quality control standards, may result in
diminished product quality, which in turn could result in increased order cancellations, price concessions and returns,
decreased consumer demand for our products, non-compliance with our product standards or regulatory requirements, or
product recalls (or other regulatory actions), any of which may have a material adverse effect on our financial condition,
results of operations or cash flows.
We also have license agreements that permit unaffiliated parties to manufacture or contract to manufacture products
using our trademarks. We impose standards of manufacturing practices on our contract manufacturers and licensees for the
benefit of workers and require compliance with our restricted substances list and product safety and other applicable
environmental, health and safety laws. We also require our contract manufacturers and licensees to impose these practices,
standards and laws on their contractors. If a contract manufacturer, licensee or subcontractor violates labor or other laws
or engages in practices that are not generally accepted as safe or ethical, the manufacturer, licensee or subcontractor or its
respective employees may suffer serious injury due to industrial accidents, the manufacturer may suffer disruptions to its
operations due to work stoppages or employee protests and we may experience production disruptions, lost sales or significant
negative publicity that could result in long-term damage to our reputation. In some circumstances, parties may assert that
we are liable for our independent manufacturers', licensees' or subcontractors' labor and operational practices, which could
have a material adverse effect on our brand image and our financial condition, results of operations or cash flows, in particular
if such assertions are successful.
We May Be Adversely Affected by Volatility in Global Production and Transportation Costs and Capacity
Our product costs are subject to substantial fluctuation based on:
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Availability and quality of raw materials;
The prices of oil, leather, natural down, cotton, and other raw materials whose prices are determined by global
commodity markets and can be very volatile;
Changes in labor markets and wage rates paid by our independent factory partners, which are often mandated
by governments in the countries where our products are manufactured, particularly in China and Vietnam;
Disruption to shipping and transportation channels utilized to bring our products to market;
Interest rates and currency exchange rates;
Availability of skilled labor and production capacity at contract manufacturers; and
General economic conditions.
Prolonged periods of inflationary pressure on some or all input costs will result in increased costs to produce our
products that may result in reduced gross profit or necessitate price increases for our products that could adversely affect
consumer demand for our products.
In addition, since the majority of our products are manufactured outside of our principal sales markets, our products
must be transported by third parties over large geographical distances. Shortages in ocean or air freight capacity and volatile
fuel costs can result in rapidly changing transportation costs. Similarly, disruption to shipping and transportation channels
due to labor disputes could cause us to rely more heavily on alternative modes of transportation to achieve timely delivery
to our customers, resulting in significantly higher freight costs. Because we price our products in advance and changes in
transportation and other costs may be difficult to predict, we may not be able to pass all or any portion of these higher costs
on to our customers or adjust our pricing structure in a timely manner in order to remain competitive, either of which could
have a material adverse effect on our financial condition, results of operations or cash flows.
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We May Be Adversely Affected by Volatile Economic Conditions
We are a consumer products company and are highly dependent on consumer discretionary spending and retail traffic
patterns. Purchasing patterns of our wholesale customers can vary year to year as they attempt to forecast and match their
seasonal advance orders, in-season replenishment and at-once orders to eventual seasonal consumer demand. In addition,
as we have expanded our direct-to-consumer businesses, we have increased our direct exposure to the risks associated with
volatile and unpredictable consumer discretionary spending patterns. Consumer discretionary spending behavior is
inherently unpredictable and consumer demand for our products may not reach our sales targets, or may decline, especially
during periods of heightened economic uncertainty in our key markets. Our sensitivity to economic cycles and any related
fluctuation in consumer demand may have a material adverse effect on our financial condition, results of operations or cash
flows.
We May Be Adversely Affected by the Financial Health of Our Customers
In recent periods, sluggish economies and consumer uncertainty regarding future economic prospects in our key
markets had an adverse effect on the financial health of our customers, some of whom have filed or may file for protection
under bankruptcy laws, which may in turn have a material adverse effect on our financial condition, results of operations,
or cash flows. We extend credit to our customers based on an assessment of the customer's financial condition, generally
without requiring collateral. To assist in the scheduling of production and the shipping of seasonal products, we offer
customers discounts for placing advance orders and extended payment terms for taking delivery before the peak shipping
season. These extended payment terms increase our exposure to the risk of uncollectable receivables. In addition, we face
increased risk of order reduction or cancellation or reduced availability of credit insurance coverage when dealing with
financially ailing retailers or retailers struggling with economic uncertainty. Some of our significant wholesale customers
and independent international distributors have liquidated or reorganized, while others have had financial difficulties in the
past or have experienced tightened credit markets, sales declines and reduced profitability, which in turn have had an adverse
effect on our business. Future liquidations and reorganizations could have a material adverse effect on our financial condition,
results of operations or cash flows. We may choose to limit our credit risk by reducing our level of business with customers
experiencing financial difficulties and may not be able to replace those revenues with other customers or through our direct-
to-consumer operations within the same fiscal year, which could have a material adverse effect on our financial condition,
results of operations or cash flows.
We May Be Adversely Affected by Retailer Consolidation
When our wholesale customers combine their operations through mergers, acquisitions or other transactions, their
consolidated order volume may decrease while their bargaining power and the competitive threat they pose by marketing
products under their own private labels may increase. Some of our significant customers have consolidated their operations
in the past, which in turn has had a negative effect on our business. Future customer consolidations could have a material
adverse effect on our financial condition, results of operations or cash flows.
We May Be Adversely Affected by Global Credit Market Conditions
Economic downturns and economic uncertainty generally affect global credit markets. Our vendors, customers and
other participants in our supply chain may require access to credit markets in order to do business. Credit market conditions
may slow our collection efforts as customers find it more difficult to obtain necessary financing, leading to higher than
normal accounts receivable. This could result in greater expense associated with collection efforts and increased bad debt
expense. Credit conditions may impair our vendors' ability to finance the purchase of raw materials or general working
capital needs to support our production requirements, resulting in a delay or non-receipt of inventory shipments during key
seasons.
Historically, we have limited our reliance on debt to finance our working capital, capital expenditures and investing
activity requirements. We expect to fund our future capital expenditures with existing cash, expected operating cash flows
and credit facilities, but, if the need arises to finance additional expenditures, we may need to seek additional funding. Our
ability to obtain additional financing will depend on many factors, including prevailing market conditions, our financial
condition and our ability to negotiate favorable terms and conditions. Financing may not be available on terms that are
acceptable or favorable to us, if at all.
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We May Be Adversely Affected by Currency Exchange Rate Fluctuations
We derive a significant portion of our net sales from markets outside the United States, comprised of sales to wholesale
customers and directly to consumers by our consolidated subsidiaries in Europe, Korea, Japan, and Canada, and our China
joint venture, and sales to independent international distributors who operate within the EMEA and LAAP regions. Sales
and related operational expenses of our foreign subsidiaries and China joint venture, as well as their respective assets and
liabilities, are denominated in currencies other than the U.S. dollar and translated into U.S. dollars for periodic reporting
purposes using the exchange rates in effect during each period. If the U.S. dollar strengthens against the foreign subsidiary's
functional currency, translated revenues and expenses will decline on a relative basis.
The majority of our purchases of finished goods inventory from contract manufacturers are denominated in U.S.
dollars, including purchases by our foreign subsidiaries and China joint venture. The cost of these products may be affected
by relative changes in the value of the local currencies of these subsidiaries and the joint venture in relation to the U.S.
dollar and in relation to the local currencies of our manufacturing vendors. In order to facilitate solicitation of advance
orders from wholesale customers and distributors for the spring and fall seasons, we establish local-currency-denominated
wholesale and retail price lists in each of our foreign subsidiaries approximately six to nine months prior to U.S. dollar-
denominated seasonal inventory purchases. As a result, our consolidated results are directly exposed to transactional foreign
currency exchange risk to the extent that the U.S. dollar strengthens during the six to nine months between when we establish
seasonal local-currency prices and when we purchase inventory.
We employ several tactics in an effort to mitigate this transactional currency risk, including the use of currency forward
and option contracts. We may also implement local-currency wholesale and retail price increases in our subsidiary and joint
venture markets in an effort to mitigate the effects of currency exchange rate fluctuations on inventory costs. There is no
assurance that our use of currency forward and option contracts and implementation of price increases, in combination with
other tactics, will succeed in fully mitigating the negative effects of adverse foreign currency exchange rate fluctuations on
the cost of our finished goods in a given period or that price increases will be accepted by our wholesale customers,
distributors, or consumers. Our gross margins are adversely affected whenever we are not able to offset the full extent of
finished goods cost increases caused by adverse fluctuations in foreign currency exchange rates.
Because the functional currencies of our foreign subsidiaries and China joint venture are not the U.S. dollar, we are
also exposed to potential material gains or losses from the remeasurement of U.S. dollar monetary transactions into the
respective functional currencies of those entities. In an effort to mitigate this risk, we use foreign currency forward contracts
to hedge net balance sheet exposures related primarily to our foreign subsidiaries' and joint venture's non-functional currency
denominated monetary assets and liabilities. These consist primarily of cash and cash equivalents, short-term investments,
payables, and intercompany loans for subsidiaries that use European euros, Swiss francs, Canadian dollars, Japanese yen,
Korean won, or Chinese renminbi as their functional currency.
In addition to the direct currency exchange rate exposures described above, our business is indirectly exposed to
currency exchange rate risks. For example, all of the EMEA and LAAP distributors to whom we sell purchase their inventory
from us in U.S. dollars. Weakening of a distributor's functional currency relative to the U.S. dollar makes it more expensive
for it to purchase finished goods inventory from us. In order to make those purchases and pay us on a timely basis, our
distributors must exchange sufficient quantities of their functional currency for U.S. dollars through the financial markets.
Some of our distributors have experienced periods during which they have been unable to obtain U.S. dollars in sufficient
amounts to complete their purchase of finished goods inventory or to pay amounts owed for past purchases. Although each
distributor bears the full risk of fluctuations in the value of its currency against the U.S. dollar, our business can be indirectly
affected when adverse fluctuations cause a distributor to cancel portions of prior advance orders or significantly reduce its
future purchases or both. In addition, price increases that our distributors implement in an effort to offset higher product
costs may make our products less price-competitive in those markets and reduce consumer demand for our products. For
example, economic turmoil has significantly devalued the Russian ruble, causing the U.S. dollar-denominated inventory
purchased by our Russian distributor to be more expensive, resulting in reduced advance orders with us and leading the
distributor to implement local-currency retail price increases in an effort to mitigate the effects of the weaker ruble.
Currency exchange rate fluctuations may also create indirect risk to our business by disrupting the business of
independent finished goods manufacturers from which we purchase our products. When their functional currencies weaken
in relation to other currencies, the raw materials they purchase on global commodities markets become more expensive and
more difficult to finance. Although each manufacturer bears the full risk of fluctuations in the value of its currency against
other currencies, our business can be indirectly affected when adverse fluctuations cause a manufacturer to raise the prices
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of goods it produces for us, disrupt the manufacturer's ability to purchase the necessary raw materials on a timely basis or
disrupt the manufacturer's ability to function as an ongoing business.
Primarily for each of the reasons described above, currency fluctuations and disruptions in currency exchange markets
may have a material adverse effect on our financial condition, results of operations or cash flows.
Our Orders from Customers Are Subject to Cancellation
We do not have long-term contracts with any of our wholesale customers. We do have contracts with our independent
international distributors; however, although these contracts may have annual purchase minimums which must be met in
order to retain distribution rights, the distributors are not otherwise obligated to purchase product. Sales to our wholesale
customers and distributors are generally on an order-by-order basis and are subject to rights of cancellation and rescheduling.
We consider the timing of delivery dates in our wholesale customer orders when we forecast our sales and earnings for
future periods. If any of our major customers, including distributors, experience a significant downturn in business or fail
to remain committed to our products or brands, these customers could postpone, reduce, cancel, or discontinue purchases
from us. As a result, we could experience a decline in sales or gross profit, write-downs of excess inventory, increased
discounts, extended credit terms to our customers, or uncollectable accounts receivable, which could have a material adverse
effect on our financial condition, results of operations or cash flows.
We May Not Realize Returns on Our Investments in Our Direct-to-Consumer Businesses
In recent years, our direct-to-consumer businesses have grown substantially and we anticipate further growth in the
future. Accordingly, we continue to make significant investments in our online platforms and physical retail locations,
including system upgrades, entering into long-term store leases, constructing leasehold improvements, purchasing fixtures
and equipment, and investing in inventory and personnel. Since many of the costs of our direct-to-consumer businesses are
fixed, if we have insufficient sales, we may be unable to reduce expenses in order to avoid losses or negative cash flows.
Our direct-to-consumer businesses are dependent upon our ability to operate in an increasingly complex and evolving
environment and these businesses' results are highly dependent on retail traffic patterns in our physical locations and our
on-line platforms where our products are sold, as well as the spending patterns of our consumers. If we are unable to
effectively navigate the direct-to-consumer environment or anticipate consumer buying patterns, our ability to generate
sales through our direct-to-consumer businesses may be adversely impacted, which in turn could have a material adverse
effect on our financial condition, results of operations or cash flows.
Labor costs and labor-related benefits are primary components in the cost of our retail operations and are affected by
various federal, state and foreign laws governing matters such as minimum wage rates, overtime compensation and other
requirements. For example, we have seen significant political pressure and legislative actions to increase the minimum wage
rate in many of the jurisdictions within which our stores are located. If we are unable to operate profitable stores or if we
close stores, we may experience significant reductions in sales and income or incur significant write-downs of inventory,
severance costs, lease termination costs, impairment losses on long-lived assets, or loss of working capital, which could
have a material adverse effect on our financial condition, results of operations or cash flows.
In addition, from time to time we license the right to operate retail stores for our brands to third parties, primarily to
our independent international distributors. We provide training to support these stores and set operational standards. However,
these third parties may not operate the stores in a manner consistent with our standards, which could cause reputational
damage to our brands or harm the third parties' sales and as a result harm our results of operations.
Our Results of Operations Could Be Materially Harmed If We Are Unable to Accurately Match Supply Forecast
with Consumer Demand for Our Products
Many factors may significantly affect demand for our products, including, among other things, economic conditions,
fashion trends, the financial condition of our independent international distributors and wholesale customers, consumer and
customer preferences, and weather, making it difficult to accurately forecast demand for our products and our future results
of operations. To minimize our purchasing costs, the time necessary to fill customer orders and the risk of non-delivery, we
place a significant amount of orders for our products with contract manufacturers prior to receiving orders from our customers,
and we maintain an inventory of various products that we anticipate will be in greatest demand. In addition, customers are
generally allowed to cancel orders prior to shipment.
Factors that could affect our ability to accurately forecast demand for our products include:
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Unseasonable weather conditions;
Our reliance, for certain demand and supply planning functions, on manual processes and judgment that are
subject to human error;
Consumer acceptance of our products or changes in consumer demand for products of our competitors, which
could increase pressure on our product development cycle;
Unanticipated changes in general market conditions or other factors, which may result in lower advance orders
from wholesale customers and distributors, cancellations of advance orders or a reduction or increase in the rate
of reorders placed by retailers; and
• Weak economic conditions or consumer confidence, which could reduce demand for discretionary items such
as our products.
In some cases, we may produce quantities of product that exceed actual demand, which could result in higher inventory
levels that we need to liquidate at discounted prices. During periods of unseasonable weather conditions, weak economic
conditions, unfavorable currency fluctuations, or unfavorable geopolitical conditions in key markets, we may experience a
significant increase in the volume of order cancellations by our customers, including cancellations resulting from the
bankruptcy, liquidation or contraction of some customers' operations. We may not be able to sell all of the products we have
ordered from contract manufacturers or that we have in our inventory. Inventory levels in excess of customer demand may
result in inventory write-downs and the sale of excess inventory at discounted prices through our owned outlet stores or
third-party liquidation channels, which could have a material adverse effect on our brand image, financial condition, results
of operations, or cash flows.
Conversely, if we underestimate demand for our products or if our contract manufacturers are unable to supply products
when we need them, we may experience inventory shortages. Inventory shortages may prevent us from fulfilling customer
orders, delay shipments to customers, negatively affect customer relationships, result in increased costs to expedite
production and delivery, and diminish our ability to build brand loyalty. Shipments delayed due to limited factory capacity,
transportation or port disruption or other factors could result in order cancellations by our customers, which could have a
material adverse effect on our financial condition, results of operations or cash flows.
We Face Risks Associated with Consumer Preferences and Fashion Trends
Changes in consumer preferences, consumer purchasing behavior or consumer interest in outdoor activities may have
a material adverse effect on our business and changes in fashion trends may have a greater effect than in the past as we
expand our offerings to include more product categories in more geographic areas that are generally more sensitive to fashion
trends. We also face risks because our success depends on our and our customers' abilities to anticipate consumer preferences
and buying patterns, including the growth of e-commerce off-price retailing, and respond to changes in a timely manner.
Lead times for many of our products may make it more difficult for us to respond rapidly to new or changing product trends
or consumer preferences. In addition, our decisions about product designs often are made far in advance of consumer
acceptance. Although we try to manage our inventory risk by soliciting advance order commitments from customers, we
generally place a significant portion of our seasonal production orders with our contract manufacturers before we have
received all of a season's advance orders from customers, and orders may be canceled by customers before shipment. If we
or our customers fail to anticipate and respond to consumer preferences or fail to respond in a timely manner or if we or
our customers are unable to effectively navigate a transforming retail environment, we could suffer reputational damage to
our brands and we may experience lower sales, excess inventories and lower profit margins in current and future periods,
any of which could have a material adverse effect on our financial condition, results of operations or cash flows.
We May Be Adversely Affected by Weather Conditions, Including Global Climate Change Trends
Our business is adversely affected by unseasonable weather conditions. A significant portion of the sales of our
products is dependent in part on the weather and likely to decline in years in which weather conditions do not stimulate
demand for our products. Periods of unseasonably warm weather in the fall or winter or unseasonably cold or wet weather
in the spring and summer may have a material adverse effect on our financial condition, results of operations or cash flows.
Unintended inventory accumulation by our wholesale customers resulting from unseasonable weather in one season generally
negatively affects orders in future seasons, which may have a material adverse effect on our financial condition, results of
operations or cash flows.
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A significant portion of our business is highly dependent on cold-weather seasons and patterns to generate consumer
demand for our cold-weather apparel and footwear. Consumer demand for our cold-weather apparel and footwear may be
negatively affected to the extent global weather patterns trend warmer, reducing typical patterns of cold-weather events or
increasing weather volatility, which could have a material adverse effect on our financial condition, results of operations
or cash flows.
Acquisitions Are Subject to Many Risks
From time to time, we may pursue growth through strategic acquisitions of assets or companies. Acquisitions, including
our acquisition of prAna in May 2014, are subject to many risks, including potential loss of significant customers or key
personnel of the acquired business as a result of the change in ownership, difficulty integrating the operations of the acquired
business or achieving targeted efficiencies, the incurrence of substantial costs and expenses related to the acquisition effort,
and diversion of management's attention from other aspects of our business operations.
Acquisitions may also cause us to incur debt or result in dilutive issuances of our equity securities. Our acquisitions
may cause large one-time expenses or create goodwill or other intangible assets that could result in significant impairment
charges in the future. We also make various estimates and assumptions in order to determine purchase price allocation and
estimate the fair value of assets acquired and liabilities assumed. If our estimates or assumptions used to value these assets
and liabilities vary from actual or future projected results, we may be exposed to losses, including impairment losses, that
could be material.
We do not provide any assurance that we will be able to successfully integrate the operations of any acquired businesses
into our operations or achieve the expected benefits of any acquisitions. The failure to successfully integrate newly acquired
businesses or achieve the expected benefits of strategic acquisitions in the future could have an adverse effect on our financial
condition, results of operations and cash flows. We may not complete a potential acquisition for a variety of reasons, but
we may nonetheless incur material costs in the preliminary stages of evaluating and pursuing such an acquisition that we
cannot recover.
We May Not Succeed in Realizing the Anticipated Benefits of Our Joint Venture in China
Effective January 2014, our joint venture in China with Swire began operations. The joint venture, in which we hold
a 60% interest, is subject to a number of risks and uncertainties, including the following:
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Our ability to effectively operate the joint venture depends upon our ability to manage the employees of the joint
venture, and to attract new employees as necessary to supplement the skills, knowledge and expertise of the
existing management team and other key personnel. We face intense competition for these individuals worldwide,
including in China. We may not be able to attract qualified new employees or retain existing employees to operate
the joint venture. Additionally, turnover in key management positions at the joint venture could impair our ability
to execute our growth strategy, which may negatively affect the value of our investment in the joint venture and
the growth of our sales in China.
• We rely, in part, on the operational skill of our joint venture partner. Additionally, because our joint venture
partner has protective voting rights with respect to specified major business decisions of the joint venture, we
may experience difficulty reaching agreement as to implementation of various changes to the joint venture's
business. For these reasons, or as a result of other factors, we may not realize the anticipated benefits of the joint
venture, and our results of operations could be adversely affected.
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Continued sales growth in China is an important part of our expectations for our joint venture business. Although
China has experienced significant economic growth in recent years, that growth is slowing. Slowing economic
growth in China could result in reduced consumer discretionary spending, which in turn could result in lower
demand for our products, and thus could have a material adverse effect on our financial condition, results of
operations or cash flows.
Although we believe we have achieved a leading market position in China, many of our competitors who are
significantly larger than we are and have substantially greater financial, distribution, marketing, and other
resources, more stable manufacturing resources and greater brand strength are also concentrating on growing
their businesses in China. In addition, the number of competitors in the marketplace has increased significantly
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in recent years. Increased investment by our competitors in this market could decrease our market share and
competitive position in China.
Our International Operations Involve Many Risks, and Global Economic and Political Conditions as Well as Potential
Changes in Legislation and Government Policy May Negatively Affect Our Business
We are subject to risks generally associated with doing business internationally. These risks include the effects of
foreign laws and regulations, foreign government fiscal and political crises, political and economic disputes and sanctions,
changes in consumer preferences, foreign currency exchange rate fluctuations, managing a diverse and widespread
workforce, political unrest, terrorist acts, military operations, disruptions or delays in shipments, disease outbreaks, natural
disasters, and changes in economic conditions in countries in which we manufacture or sell products. These factors, among
others, may affect our ability to sell products in international markets, our ability to collect accounts receivable, our ability
to manufacture products or procure materials, and our cost of doing business. For example, political and economic turmoil
in certain South American distributor markets have resulted in currency and import restrictions, limiting our ability to sell
products in some countries in this region. Also, Russia constitutes a significant portion of our non-U.S. sales and operating
income and a significant change in conditions in that market has had an adverse effect on our results of operations in the
past. The United Kingdom's June 23, 2016 referendum, in which voters approved its exit from the European Union
(commonly referred to as "Brexit"), has created economic uncertainty and volatility in currency exchange rates, and the
potential adverse effects of changes to the legal and regulatory framework that apply to the United Kingdom and its
relationship with the European Union, and the associated effects on our European operations, are unknown. If any of these
or other factors make the conduct of business in a particular country undesirable or impractical, our business may be
materially and adversely affected.
In addition, the new U.S. administration has publicly supported potential trade proposals, including import tariffs,
modifications to international trade policy, and other changes that may affect U.S. trade relations with other countries, any
of which may require us to significantly modify our current business practices or may otherwise materially and adversely
affect our business.
As we expand our operations in geographic scope and product categories, we anticipate intellectual property disputes
will increase, making it more expensive and challenging to establish and protect our intellectual property rights and to
defend against claims of infringement by others. In addition, many of our imported products are subject to duties, tariffs or
other import limitations that affect the cost and quantity of various types of goods imported into the United States and other
markets. Any country in which our products are produced or sold may eliminate, adjust or impose new import limitations,
duties, anti-dumping penalties, or other charges or restrictions, any of which could have a material adverse effect on our
financial condition, results of operations or cash flows.
We May Have Additional Tax Liabilities
As a global company, we determine our income tax liability in various competing tax jurisdictions based on an analysis
and interpretation of local tax laws and regulations. This analysis requires a significant amount of judgment and estimation
and is often based on various assumptions about the future actions of the local tax authorities. These determinations are the
subject of periodic domestic and foreign tax audits. Although we accrue for uncertain tax positions, our accruals may be
insufficient to satisfy unfavorable findings. Unfavorable audit findings and tax rulings may result in payment of taxes, fines
and penalties for prior periods and higher tax rates in future periods, which may have a material adverse effect on our
financial condition, results of operations or cash flows.
Changes in the tax laws of the jurisdictions where we do business, including an increase in tax rates or an adverse
change in the treatment of an item of income or expense, could result in a material increase in our tax expense. For example,
changes in the tax laws of foreign jurisdictions could arise as a result of the Base Erosion and Profit Shifting (BEPS) project
undertaken by the Organization for Economic Co-operation and Development (OECD). The OECD, which represents a
coalition of member countries, is recommending changes to numerous long-standing tax principles. If these changes are
adopted by countries, tax uncertainty could increase and may adversely affect our provision for income taxes. In addition,
in the United States, a number of proposals for broad reform of the corporate tax system are under evaluation by various
legislative and administrative bodies, including a border-adjustment tax, other increased taxes on imports, and a limit on
the ability to defer U.S. taxation on earnings outside the United States until those earnings are repatriated to the United
States. Although it is not possible to accurately determine or predict at this time whether, when or to what extent new U.S.
federal tax laws, regulations, interpretations, or rulings will be issued, or the overall effect of any such changes on our
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effective tax rate, changes such as these may have a material adverse effect on our financial condition, results of operations
or cash flows.
We earn a significant amount of our operating income from outside the United States for which deferred taxes have
not been provided. These earnings are considered indefinitely invested outside of the United States and a repatriation of
these funds may result in a significant increase in our U.S. income taxes and foreign withholding taxes. If we become legally
required to repatriate funds or we encounter a significant need for liquidity domestically or at a particular location that we
cannot fulfill on favorable terms through borrowings, equity offerings or other internal or external sources, we may experience
unfavorable tax and earnings consequences as a result of cash transfers.
We Operate in Highly Competitive Markets
The markets for apparel, footwear, accessories, and equipment are highly competitive, as are the markets for our
licensed products. In each of our geographic markets, we face significant competition from global and regional branded
apparel, footwear, accessories, and equipment companies, including competition from companies with significantly greater
resources than ours.
Retailers who are our customers often pose our most significant competitive threat by designing and marketing apparel,
footwear, accessories, and equipment under their own private labels. For example, in the United States and Europe, several
of our largest customers have developed significant private label brands during the past decade that compete directly with
our products. These retailers have assumed an increasing degree of inventory risk in their private label products and, as a
result, may first cancel advance orders with us in order to manage their own inventory levels downward during periods of
unseasonable weather or weak economic cycles. As our direct-to-consumer businesses grow, we also experience direct
competition from retailers that are our customers, some of which primarily operate e-commerce operations and employ
aggressive pricing strategies. We also compete with other companies for the production capacity of contract manufacturers
from which we source our products and for import capacity. Many of our competitors are significantly larger than we are
and have substantially greater financial, distribution, marketing, and other resources, more stable manufacturing resources
and greater brand strength than we have. In addition, when our competitors combine operations through mergers, acquisitions
or other transactions, their competitive strengths may increase.
Increased competition may result in reduced access to production capacity, challenges in obtaining favorable locations
for our retail stores, reductions in display areas in retail locations, reductions in sales, or reductions in our profit margins,
any of which may have a material adverse effect on our financial condition, results of operations or cash flows.
We Rely on Innovation to Compete in the Market for Our Products
To distinguish our products in the marketplace and achieve commercial success, we rely on product innovations,
including new or exclusive technologies, inventive and appealing design or other differentiating features. Although we are
committed to designing innovative and functional products that deliver relevant performance benefits to consumers, who
participate in a wide range of competitive and recreational outdoor activities, if we fail to introduce technical innovation in
our products that address consumers' performance expectations, we could suffer reputational damage to our brands and
demand for our products could decline.
As we strive to achieve product innovations, we face a greater risk of inadvertent infringements of third party rights
or compliance issues with regulations applicable to products with technical innovations such as electrical heating components
and material treatments. In addition, technical innovations often involve more complex manufacturing processes, which
may lead to higher instances of quality issues, and if we experience problems with the quality of our products, we may incur
substantial expense to address the problems and any associated product risks. For example, in prior years we incurred costs
in connection with recalls of some of our battery-powered electrically heated apparel. Failure to successfully bring to market
innovations in our product lines could have a material adverse effect on our financial condition, results of operations or
cash flows.
Our Success Depends on Our Use and Protection of Intellectual Property Rights
Our registered and common law trademarks and our patented or patent-pending designs and technologies have
significant value and are important to our ability to differentiate our products from those of our competitors and to create
and sustain demand for our products. We also place significant value on our trade dress, the overall appearance and image
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of our products. We regularly discover products that are counterfeit reproductions of our products or that otherwise infringe
on our proprietary rights. Counterfeiting activities typically increase as brand recognition increases, especially in markets
outside the United States. Increased instances of counterfeit manufacture and sales may adversely affect our sales and the
reputation of our brands and result in a shift of consumer preference away from our products. The actions we take to establish
and protect trademarks and other proprietary rights may not be adequate to prevent imitation of our products by others or
to prevent others from seeking to block sales of our products as violations of proprietary rights. In markets outside of the
United States, it may be more difficult for us to establish our proprietary rights and to successfully challenge use of those
rights by other parties. We also license our proprietary rights to third parties. We could suffer reputational damage to our
brands if we fail to choose appropriate licensees and licensed product categories. In addition to our own intellectual property
rights, many of the intellectual property rights in the technology, fabrics and processes used to manufacture our products
are generally owned or controlled by our suppliers and are generally not unique to us. In those cases, we may not be able
to adequately protect our products or differentiate their performance characteristics and fabrications from those of our
competitors. The management of our intellectual property portfolio may affect the strength of our brands, which may in
turn have a material adverse effect on our financial condition, results of operations or cash flows.
Although we have not been materially inhibited from selling products in connection with patent, trademark and trade
dress disputes, as we focus on innovation in our product lines, extend our brands into new product categories and expand
the geographic scope of our marketing, we may become subject to litigation based on allegations of infringement or other
improper use of intellectual property rights of third parties, including third party trademark, copyright and patent rights. An
increasing number of our products include technologies or designs for which we have obtained or applied for patent
protection. Failure to successfully obtain and maintain patents on these innovations could negatively affect our ability to
market and sell our products. Litigation is often necessary to defend against claims of infringement or to enforce and protect
our intellectual property rights. As we utilize e-commerce and social media to a greater degree in our sales and marketing
efforts, we face an increasing risk of patent infringement claims from non-operating entities and others covering broad
functional aspects of internet operations. Intellectual property litigation may be costly and may divert management's attention
from the operation of our business. Adverse determinations in any litigation may result in the loss of our proprietary rights,
subject us to significant liabilities or require us to seek licenses from third parties, which may not be available on commercially
reasonable terms, if at all. Any of these outcomes may have a material adverse effect on our financial condition, results of
operations or cash flows.
Our Success Depends on Our Distribution Facilities
Our ability to meet customer expectations, manage inventory, complete sales, and achieve objectives for operating
efficiencies depends on the proper operation of our existing distribution facilities, the development or expansion of additional
distribution capabilities and services, such as the transition of value-added services functions from contract manufacturers
to our distribution centers, and the timely performance of services by third parties, including those involved in shipping
product to and from our distribution facilities. In the United States, we rely primarily on our distribution centers in Portland,
Oregon and Robards, Kentucky; in Canada, we rely primarily on our distribution facility in London, Ontario; in Europe,
we rely primarily on our distribution center in Cambrai, France; in Japan, we rely primarily on a third-party logistics
distribution provider in Tokyo; in Korea, we rely primarily on one leased distribution facility near Seoul that we manage
and operate; and in China, we rely primarily on two distribution centers managed by third-parties.
Our primary distribution facilities in the United States, France and Canada are highly automated, which means that
their operations are complicated and may be subject to a number of risks related to computer viruses, the proper operation
of software and hardware, electronic or power interruptions, and other system failures. Risks associated with upgrading or
expanding these facilities may significantly disrupt or increase the cost of our operations. For example, in addition to
supporting our traditional wholesale business, our existing distribution facilities have been modified to enable them to also
support our e-commerce businesses in the United States and Canada. Failure to successfully maintain and update these
modifications could disrupt our wholesale and e-commerce shipments and may have a material adverse effect on our financial
condition, results of operations or cash flows.
The fixed costs associated with owning, operating and maintaining these large, highly automated distribution centers
during a period of economic weakness or declining sales can result in lower operating efficiencies, financial deleverage and
potential impairment in the recorded value of distribution assets. This has occurred in recent years in Europe, where our
distribution center is underutilized. This fixed cost structure globally may make it difficult for us to achieve or maintain
20
profitability if sales volumes decline for an extended period of time and could have material adverse effects on our financial
condition, results of operations or cash flows.
Our distribution facilities may also be interrupted by natural disasters, such as earthquakes, tornadoes or fires. We
maintain business interruption insurance, but it may not adequately protect us from the adverse effect that may be caused
by significant disruptions in our distribution facilities.
Our Investments May Be Adversely Affected by Market Conditions
Our investment portfolio is subject to a number of risks and uncertainties. Changes in market conditions, such as
those that accompany an economic downturn or economic uncertainty, may negatively affect the value and liquidity of our
investment portfolio, perhaps significantly. Our ability to find diversified investments that are both safe and liquid and that
provide a reasonable return may be impaired, potentially resulting in lower interest income, less diversification, longer
investment maturities, or other-than-temporary impairments.
We May Be Adversely Affected by Labor Disruptions, Changes in Labor Laws and Other Labor Issues
Our business depends on our ability to source and distribute products in a timely manner. While a majority of our
own operations are not subject to organized labor agreements, our relationship with our Cambrai distribution center
employees is governed by French law, including a formal representation of employees by a Works Council and the application
of a collective bargaining agreement. Labor disputes at contract manufacturers where our goods are produced, shipping
ports, transportation carriers, retail stores, or distribution centers create significant risks for our business, particularly if
these disputes result in work slowdowns, lockouts, strikes, or other disruptions during our peak manufacturing, shipping
and selling seasons. For example, work slowdowns and stoppages at ports on the west coast of the United States in recent
years have resulted in product delays and increased costs. Labor disruptions may have a material adverse effect on our
business, potentially resulting in canceled orders by customers, unanticipated inventory accumulation and reduced revenues
and earnings.
Our ability to meet our labor needs at our distribution centers, retail stores, corporate headquarters, and regional
subsidiaries, including our ability to find qualified employees while controlling wage and related labor costs, is generally
subject to numerous external factors, including the availability of a sufficient number of qualified persons in the work force
of the markets in which our operations are located, unemployment levels within those markets, prevailing and minimum
wage rates, changing demographics, health and other insurance costs, and adoption of new or revised employment and labor
laws and regulations. If we are unable to locate, attract or retain qualified employees, our ability to source, distribute and
sell products in a timely and cost-effective manner may be negatively impacted, which could have a material adverse effect
on our financial condition, results of operations or cash flows.
We Depend on Key Suppliers
Some of the materials that we use may be available from only one source or a very limited number of sources. For
example, some specialty fabrics are manufactured to our specification by one source or a few sources, and a single vendor
supplies the majority of the zippers used in our products. From time to time, we have difficulty satisfying our raw material
and finished goods requirements. Although we believe that we can identify and qualify additional contract manufacturers
to produce these materials as necessary, there are no guarantees that additional contract manufacturers will be available. In
addition, depending on the timing, any changes in sources or materials may result in increased costs or production delays,
which may have a material adverse effect on our financial condition, results of operations or cash flows.
We Depend on Key Personnel
Our future success will depend in part on the continued service of key personnel and our ability to attract, retain and
develop key managers, designers, sales and information technology professionals, and others. We face intense competition
for these individuals worldwide, and there is a significant concentration of well-funded apparel and footwear competitors
in and near our headquarters in Portland, Oregon. We may not be able to attract qualified new employees or retain existing
employees, which may have a material adverse effect on our financial condition, results of operations or cash flows.
Our Business Is Affected by Seasonality
21
Our business is affected by the general seasonal trends common to the outdoor industry. Our products are marketed
on a seasonal basis and our annual net sales are weighted heavily toward the fall/winter season, while our operating expenses
are more equally distributed throughout the year. As a result, the majority, and sometimes all, of our operating profits are
generated in the second half of the year. The expansion of our direct-to-consumer businesses and sales growth in our winter
footwear business has increased the proportion of sales and profits that we generate in the fourth calendar quarter. This
seasonality, along with other factors that are beyond our control and that are discussed elsewhere in this section, may
adversely affect our business and cause our results of operations to fluctuate. As a result, our profitability may be materially
affected if management is not able to timely adjust expenses in reaction to adverse events such as unfavorable weather,
weak consumer spending patterns or unanticipated levels of order cancellations. Results of operations in any period should
not be considered indicative of the results to be expected for any future period.
Our Products Are Subject to Increasing Product Regulations and We Face Risks of Product Liability and Warranty
Claims
Our products are subject to increasingly stringent and complex domestic and foreign product labeling and performance
and safety standards, laws and other regulations. These requirements could result in greater expense associated with
compliance efforts, and failure to comply with these regulations could result in a delay, non-delivery, recall, or destruction
of inventory shipments during key seasons or in other financial penalties. Significant or continuing noncompliance with
these standards and laws could disrupt our business and harm our reputation and, as a result, could have a material adverse
effect on our financial condition, results of operations or cash flows.
Our products are used in outdoor activities, sometimes in severe conditions. Product recalls or product liability claims
resulting from the failure, or alleged failure, of our products could have a material adverse effect on the reputation of our
brands, our financial condition, results of operations, or cash flows. Most of our products carry limited warranties for defects
in quality and workmanship. We maintain a warranty reserve for estimated future warranty claims, but the actual costs of
servicing future warranty claims may exceed the reserve, which may also have a material adverse effect on our financial
condition, results of operations or cash flows.
Our Common Stock Price May Be Volatile
The price of our common stock has fluctuated substantially since our initial public offering. Our common stock is
traded on the NASDAQ Global Select Market. Factors such as general market conditions, actions by institutional investors
to rapidly accumulate or divest of a substantial number of our shares, fluctuations in financial results, variances from financial
market expectations, changes in earnings estimates or recommendations by analysts, or announcements by us or our
competitors may cause the market price of our common stock to fluctuate, perhaps substantially.
Insiders Control a Majority of Our Common Stock and May Sell Shares
Five related shareholders, Gertrude Boyle, Sarah Bany and Timothy Boyle and his two adult children, beneficially
own a majority of our common stock. As a result, if acting together, they can effectively control matters requiring shareholder
approval without the cooperation of other shareholders. Shares held by these five shareholders are available for resale,
subject to the requirements of, and the rules under, the Securities Act of 1933 and the Securities Exchange Act of 1934. The
sale or the prospect of the sale of a substantial number of these shares may have an adverse effect on the market price of
our common stock.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2.
PROPERTIES
Following is a summary of principal properties owned or leased by us:
22
Corporate Headquarters:
Portland, Oregon (1 location)—owned
U.S. Distribution Facilities:
Portland, Oregon (1 location)—owned
Robards, Kentucky (1 location)—owned
Canadian Operation and Distribution Facility:
London, Ontario (1 location)—owned
—————
(1) Lease expires in June 2020
Europe Headquarters:
Geneva, Switzerland (1 location)—leased (1)
Europe Administrative Operation:
Strasbourg, France (1 location)—owned
Europe Distribution Facility:
Cambrai, France (1 location)—owned
In addition, as of December 31, 2016, we leased approximately 240 locations globally for the operation of our branded
and outlet retail stores. We also have several leases globally for office space, warehouse facilities, storage space, vehicles,
and equipment, among other things. See Note 13 of Notes to Consolidated Financial Statements for further lease-related
disclosures.
Item 3.
LEGAL PROCEEDINGS
We are involved in litigation and various legal matters arising in the normal course of business, including matters
related to employment, retail, intellectual property, contractual agreements, and various regulatory compliance activities.
We have considered facts related to legal and regulatory matters and opinions of counsel handling these matters and do not
believe the ultimate resolution of these proceedings will have a material adverse effect on our financial condition, results
of operations or cash flows.
Item 4. MINE SAFETY DISCLOSURES
Not applicable.
Item 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information about our executive officers. All information is as of the date of the filing
of this report.
Name
Gertrude Boyle. . . . . . . . . . . .
Timothy P. Boyle . . . . . . . . . .
Joseph P. Boyle . . . . . . . . . . .
Peter J. Bragdon . . . . . . . . . . .
Thomas B. Cusick . . . . . . . . .
Franco Fogliato . . . . . . . . . . .
Russell B. Hopcus . . . . . . . . .
Bryan L. Timm. . . . . . . . . . . .
Age
92
67
36
54
49
47
57
53
Position
Chairman of the Board
Chief Executive Officer, Director
Senior Vice President, Columbia Merchandising and Design
Executive Vice President, Chief Administrative Officer, General Counsel and
Secretary
Executive Vice President of Finance, Chief Financial Officer and Treasurer
Senior Vice President and General Manager EMEA
Senior Vice President of North America Sales
President and Chief Operating Officer
Gertrude Boyle has served as Chairman of the Board of Directors since 1970. Columbia was founded by her parents
in 1938 and managed by her husband, Neal Boyle, from 1964 until his death in 1970. Mrs. Boyle also served as Columbia's
President from 1970 to 1988. Mrs. Boyle is Timothy P. Boyle's and Columbia director Sarah A. Bany's mother and Joseph
P. Boyle's grandmother.
Timothy P. Boyle joined Columbia in 1971 as General Manager, served as Columbia's President from 1988 to 2015
and has served as Chief Executive Officer since 1988. He has been a member of the Board of Directors since 1978. Mr.
Boyle is also a member of the Board of Directors of Northwest Natural Gas Company and Craft Brew Alliance, Inc. Mr.
Boyle is Gertrude Boyle's son, Sarah A. Bany's brother and Joseph P. Boyle's father.
Joseph P. Boyle joined Columbia in 2005 and was named Senior Vice President of Merchandising and Design in May
2015. Mr. Boyle previously served at Columbia in a variety of capacities, including brand management, sales, planning,
General Merchandising Manager of Outerwear, Accessories, Equipment, Collegiate and Licensing and Vice President of
23
Apparel Merchandising. From 2003 to 2005, Mr. Boyle served in a business development role for Robert Trent Jones II
Golf Course Architects. Mr. Boyle is a fourth-generation member of Columbia's founding Boyle family, the son of Columbia
CEO Timothy P. Boyle, the grandson of Gertrude Boyle and nephew of Columbia director Sarah A. Bany.
Peter J. Bragdon joined Columbia in 1999 and served as Senior Counsel and Director of Intellectual Property until
January 2003. Mr. Bragdon became Vice President, General Counsel and Secretary of Columbia in July 2004, was named
Senior Vice President of Legal and Corporate Affairs, General Counsel and Secretary in January 2010 and Executive Vice
President, Chief Administrative Officer, General Counsel and Secretary in February 2015. Mr. Bragdon served as Chief of
Staff in the Oregon Governor's office from January 2003 through June 2004. From 1993 to 1999, Mr. Bragdon was an
attorney in the corporate securities and finance group at Stoel Rives LLP. Mr. Bragdon served as Special Assistant Attorney
General for the Oregon Department of Justice for seven months in 1996.
Thomas B. Cusick joined Columbia in September 2002 as Corporate Controller, was named Vice President and
Corporate Controller in March 2006 and was named Vice President and Chief Accounting Officer in May 2008. He was
promoted to Vice President, Chief Financial Officer and Treasurer in January 2009, was named Senior Vice President of
Finance, Chief Financial Officer and Treasurer in January 2010, Executive Vice President of Finance and Chief Financial
Officer in February 2015, and reassumed the added role of Treasurer in March 2016. From 1995 to 2002, Mr. Cusick worked
for Cadence Design Systems (and OrCAD, a company acquired by Cadence in 1999), which operates in the electronic
design automation industry, in various financial management positions. From 1990 to 1995, Mr. Cusick was an accountant
with KPMG LLP. Mr. Cusick is a member of the board of directors of Barrett Business Services, Inc. Mr. Cusick is a certified
public accountant.
Franco Fogliato joined Columbia in November 2013 as Senior Vice President and General Manager EMEA Direct
Sales and in February 2016 was appointed Senior Vice President and General Manager of EMEA. Prior to joining Columbia,
Mr. Fogliato served as general manager of the Billabong Group in Europe from 2004 to 2013 and as a member of that
company's executive board. From 1997 through 2003, Mr. Fogliato held various European leadership positions with The
North Face brand culminating as general manager of Western Europe.
Russell B. Hopcus joined Columbia in July 2013 as Senior Vice President of North America Sales. Prior to joining
Columbia, Mr. Hopcus held various executive positions within the apparel and footwear industry. From 2010 to 2013, Mr.
Hopcus was the Vice President of Global Sales and Market Development for KEEN Footwear. From 2008 to 2010, Mr.
Hopcus served as North America President at Icebreaker Nature Clothing. Mr. Hopcus joined adidas America, Inc in 2002
where he rose to Senior Vice President of U.S. Sales. From 1991 to 2001, Mr. Hopcus held various sales management
positions with NIKE, Inc.
Bryan L. Timm joined Columbia in June 1997 as Corporate Controller and was named Chief Financial Officer in July
2002. In 2003, Mr. Timm was named Vice President, Chief Financial Officer and Treasurer. In April 2008 he was promoted
to Chief Operating Officer and in October 2008 he was named Executive Vice President. In February 2015, Mr. Timm was
named President and Chief Operating Officer. From 1991 to 1997, Mr. Timm held various financial management positions
for Oregon Steel Mills, Inc. rising to Divisional Controller for CF&I Steel, Oregon Steel Mills’ largest division. From 1986
to 1991, Mr. Timm was an accountant with KPMG LLP. Mr. Timm is a member of the board of directors of Umpqua
Holdings Corporation.
24
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is listed on the NASDAQ Global Select Market and trades under the symbol "COLM." At
February 10, 2017, we had approximately 294 shareholders of record, although there is a much larger number of beneficial
owners.
Following are the quarterly high and low sale prices for our common stock for the years ended December 31, 2016
and 2015:
HIGH
LOW
DIVIDENDS
DECLARED
2016
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
First Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Second Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Third Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fourth Quarter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$62.32
$62.95
$61.98
$63.55
$62.19
$64.92
$74.72
$66.00
$43.94
$51.70
$52.97
$53.00
$41.11
$55.35
$55.47
$43.56
$0.17
$0.17
$0.17
$0.18
$0.15
$0.15
$0.15
$0.17
Our current dividend policy is dependent on our earnings, capital requirements, financial condition, restrictions
imposed by our credit agreements, and other factors considered relevant by our Board of Directors. For various restrictions
on our ability to pay dividends, see Note 8 of Notes to Consolidated Financial Statements.
Performance Graph
The line graph below compares the cumulative total shareholder return of our common stock with the cumulative
total return of the Standard & Poor's ("S&P") 400 Mid-Cap Index and the Russell 3000 Textiles Apparel Manufacturers for
the period beginning December 31, 2011 and ending December 31, 2016. The graph assumes that $100 was invested on
December 31, 2011, and that any dividends were reinvested.
Historical stock price performance should not be relied on as indicative of future stock price performance.
25
Columbia Sportswear Company
Stock Price Performance
December 31, 2011—December 31, 2016
Total Return Analysis
Columbia Sportswear Co. . . . . . . . . . . .
S&P 400 Mid-Cap Index . . . . . . . . . . . .
Russell 3000 Textiles Apparel Mfrs. . . .
12/31/2011
$100.00
$100.00
$100.00
12/31/2012
$116.65
$117.88
$111.95
12/31/2013
$174.76
$157.37
$164.62
12/31/2014
$200.43
$172.74
$183.05
12/31/2015
$221.87
$168.98
$179.12
12/31/2016
$268.50
$204.03
$158.29
Issuer Purchases of Equity Securities
Since the inception of our stock repurchase plan in 2004 through December 31, 2016, our Board of Directors has
authorized the repurchase of up to $700,000,000 of our common stock. As of December 31, 2016, we had repurchased
20,992,940 shares under this program for an aggregate purchase price of approximately $526,522,000. Shares of our common
stock may be purchased in the open market or through privately negotiated transactions, subject to market conditions. The
repurchase program does not obligate us to acquire any specific number of shares or to acquire shares over any specified
period of time.
We did not repurchase any equity securities during the three months ended December 31, 2016. From January 1, 2017
through February 10, 2017, we repurchased 616,152 shares of the Company's common stock at an aggregate purchase price
of approximately $33,000,000.
26
Item 6.
SELECTED FINANCIAL DATA
Selected Consolidated Financial Data
The selected consolidated financial data presented below for, and as of the end of, each of the years in the five-year
period ended December 31, 2016 have been derived from our audited consolidated financial statements. The consolidated
financial data should be read in conjunction with the Consolidated Financial Statements and accompanying Notes that
appear elsewhere in this annual report and Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in Item 7. All references below to share or per share amounts have been retroactively adjusted to reflect
our September 26, 2014 two-for-one stock split.
Statement of Operations Data:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Columbia
Sportswear Company . . . . . . . . . . . . . . . . .
Per Share of Common Stock Data:
Earnings per share attributable to
Columbia Sportswear Company:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends per share . . . . . . . . . . . . . . . . .
Weighted average shares outstanding:
Year Ended December 31,
2016
2015
2013
2014
(In thousands, except per share amounts)
2012
$ 2,377,045
$ 2,326,180
$ 2,100,590
$ 1,684,996
$ 1,669,563
191,898
174,337
137,173
94,341
99,859
$
$
2.75
2.72
0.69
$
2.48
2.45
0.62
$
1.97
1.94
0.57
$
1.37
1.36
0.46
1.48
1.46
0.44
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . .
69,683
70,632
70,162
71,064
69,807
70,681
68,756
69,434
67,680
68,264
Balance Sheet Data:
Total assets. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable to related party . . . . . . . . . . . . . .
$ 2,013,894
14,053
$ 1,846,153
15,030
$ 1,792,209
15,728
$ 1,605,588
—
$ 1,458,842
—
2016
2015
2014
2013
2012
December 31,
27
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
This annual report, including Item 1 of Part I and Item 7 of Part II, 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, profitability and
the effect of specified factors on profitability for 2017, expenses, sourcing costs, effects of unseasonable weather on our
results of operations, inventory levels, investments in our business, investments in and implementation of our information
technology systems, intellectual property disputes, our direct-to-consumer channels and other capital expenditures, including
planned store additions, access to raw materials and factory capacity, financing and working capital requirements and
resources, income tax rates and pre-tax income, our exposure to market risk associated with interest rates and foreign
currency exchange rates, as well as statements regarding the effect of and costs associated with the potential cyber security
incident involving our e-commerce website, prAna.com.
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 above in Item 1A, Risk Factors. We do not undertake any duty either 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 and active lifestyle apparel and footwear companies in the world, we design, source,
market and distribute outdoor and active lifestyle apparel, footwear, accessories and equipment primarily under the Columbia,
Mountain Hardwear, SOREL, and prAna brands. Our products are sold through a mix of wholesale distribution channels,
our own direct-to-consumer channels and independent international distributors. 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, variations in seasonal weather, 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 our 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.
In February 2017, we reported the discovery of a cyber security incident involving our prAna.com e-commerce website.
We are in the process of determining the nature and extent of this cyber security incident. See Note 13 of Notes to Consolidated
Financial Statements for further disclosure regarding this incident.
Seasonality and Variability of Business
Our business is affected by the general seasonal trends common to the industry, including seasonal weather and
discretionary consumer shopping and 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. In 2016, approximately 60% of our net sales and approximately 90% of our profitability was 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. The expansion of our direct-to-consumer channels has increased the proportion of sales, profits
and cash flows that we generate in the second half of the year.
We generally solicit orders from wholesale customers and independent international distributors for the fall and spring
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 spring season orders to customers beginning in January and continuing
through June. Similarly, we typically ship the majority of our advance fall season orders to customers beginning in July and
continuing through December. 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 global economic and geopolitical conditions and volatility of foreign
28
currency exchange rates which, when combined with seasonal weather patterns and inflationary or volatile sourcing 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 difficult to predict future
results. Consistent with the historical seasonality of the business, we anticipate 2017 profitability to be heavily concentrated
in the second half of the year. Factors that could significantly affect our full year 2017 financial results include:
•
Performance and profitability of our owned brick-and-mortar stores and e-commerce direct-to-consumer sales
globally;
• Unseasonable weather conditions or other unforeseen factors affecting consumer demand and the resulting effect
on cancellations of advance wholesale orders, sales returns, wholesale customer accommodations, replenishment
orders and reorders, direct-to-consumer sales, changes in mix and volume of full price sales in relation to
promotional and closeout product sales, and suppressed wholesale and end-consumer demand in subsequent
seasons;
•
Industry trends affecting consumer traffic and spending in brick and mortar retail channels, which are creating
uncertainty regarding the long-term financial health of several of our U.S. wholesale customers, including some
who have recently initiated restructuring activities, bankruptcy proceedings or liquidation;
• Difficult economic and competitive environments in certain key markets within our Europe, Middle East and Africa
("EMEA") and Latin America and Asia Pacific ("LAAP") regions, in particular, Russia and Korea;
• Continued sales growth and profitability contributed by our Europe direct business;
• The effects of changes in foreign currency exchange rates on sales, gross margin, operating income, and net income;
and
•
Performance of our Mountain Hardwear business as we work to re-invigorate that brand in the marketplace.
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.
We are continuing to invest in our multi-year global enterprise resource planning ("ERP") implementation. To date,
we have implemented our new ERP system in our North American operations and international distributor businesses,
excluding prAna, as well as the majority of our global supply chain operations. The next planned phase of our global
information systems and infrastructure initiatives is to transition our China joint venture to our new ERP system in 2017.
We remain focused on driving sustainable, profitable sales growth by providing innovative, stylish products at
accessible prices, nurturing stronger emotional connections with consumers through compelling marketing communications,
transforming our global supply chain and information technology platforms and effectively managing inventory and other
working capital assets.
Results of Operations
The following discussion of our results of operations and liquidity and capital resources should be read in conjunction
with the Consolidated Financial Statements and accompanying Notes that appear elsewhere in this annual report. To
supplement financial information reported in accordance with accounting principles generally accepted in the United States
("GAAP"), we disclose constant-currency net sales information, which is a non-GAAP financial measure, to provide a
framework to assess how the business performed excluding the effects of changes in the exchange rates used to translate
net sales generated in foreign currencies into U.S. dollars. Management believes that this non-GAAP financial measure
reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our
GAAP results, provides a more comprehensive understanding of our business and operations. In particular, investors may
find the non-GAAP measures useful by reviewing our net sales results without the significant volatility in foreign currency
exchange rates. This non-GAAP financial measure also facilitates management's internal comparisons to our historical net
sales results and comparisons to competitors' net sales results. Constant-currency financial measures should be viewed in
addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The following
discussion includes references to constant-currency net sales, and we provide a reconciliation of this non-GAAP measure
29
to the most directly comparable financial measure calculated in accordance with GAAP. All references to years relate to
the calendar year ended December 31.
Highlights of the Year Ended December 31, 2016
• Net sales increased $50.8 million, or 2%, to $2,377.0 million from $2,326.2 million in 2015.
• Net income attributable to Columbia Sportswear Company increased 10% to $191.9 million, or $2.72 per diluted
share, from $174.3 million, or $2.45 per diluted share, in 2015.
• We paid cash dividends totaling $48.1 million, or $0.69 per share.
The following table sets forth, for the periods indicated, the percentage relationship to net sales of specified items
in our Consolidated Statements of Operations:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expense. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net licensing income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on note payable to related party. . . . . . . . . . . . . . . . . . . . . . .
Other non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling interest . . . . . . . . . . . . . . . . . . . . .
Net income attributable to Columbia Sportswear Company . . . . . . . . . . . . . .
Year Ended December 31,
2016
100.0%
53.3
46.7
36.4
0.5
10.8
—
—
—
10.8
(2.5)
8.3
0.2
8.1%
2015
100.0%
53.9
46.1
35.8
0.4
10.7
—
—
(0.1)
10.6
(2.9)
7.7
0.2
7.5%
2014
100.0%
54.5
45.5
36.3
0.3
9.5
—
(0.1)
—
9.4
(2.7)
6.7
0.2
6.5%
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Net Sales: Consolidated net sales increased $50.8 million, or 2% (2% constant-currency), to $2,377.0 million in
2016 from $2,326.2 million in 2015.
Sales by Geographic Region
Net sales by geographic region are summarized in the following table:
Year Ended December 31,
Reported
Net Sales
2016
Adjust for
Foreign
Currency
Translation
Constant-
currency
Net Sales
2016(1)
Reported
Net Sales
2015
Constant-
currency
Net Sales
Reported
Net Sales
% Change % Change(1)
United States . . . . . . . . . . . . . . . . . . . . . $ 1,505.2
453.7
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . .
253.5
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . .
164.6
Canada . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,377.0
$
$
(In millions, except for percentage changes)
— $ 1,505.2
450.1
255.9
170.3
$ 2,381.5
$ 1,455.2
469.2
233.2
168.6
$ 2,326.2
(3.6)
2.4
5.7
4.5
3%
(3)%
9%
(2)%
2%
3%
(4)%
10%
1%
2%
(1) Constant-currency net sales information is a non-GAAP financial measure, which excludes the effect of changes in foreign currency exchange rates
against the U.S. dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for
the current period into U.S. dollars at the exchange rates that were in effect during the comparable period of the prior year.
30
Net sales in the United States increased $50.0 million, or 3%, to $1,505.2 million in 2016 from $1,455.2 million in
2015. The increase in net sales in the United States was led by an increase in net sales in our direct-to-consumer business,
partially offset by a decrease in our wholesale business. The increase in our direct-to-consumer business was led by increased
net sales from our retail stores, followed by increased e-commerce net sales. At December 31, 2016, we operated 118 retail
stores, compared with 111 stores at December 31, 2015. The net sales decrease in our wholesale business was primarily
driven by the impact of U.S. wholesale customer bankruptcies during 2016.
Net sales in the LAAP region decreased $15.5 million, or 3% (4% constant-currency), to $453.7 million in 2016 from
$469.2 million in 2015. The net sales decrease in the LAAP region was led by net sales decreases in Korea and our LAAP
distributor business, partially offset by net sales increases in Japan and China. The net sales decrease in Korea reflected a
change in consumer preferences in that country away from the outdoor category that has created an industry-wide excess
of inventory in that market. The net sales decrease in our LAAP distributor business primarily reflected a shift in timing of
shipments of spring advance orders. The net sales increase in Japan was driven by the positive effects of foreign exchange
rates, as nets sales in local currency were essentially unchanged.
Net sales in the EMEA region increased $20.3 million, or 9% (10% constant-currency), to $253.5 million in 2016
from $233.2 million in 2015. The EMEA net sales increase consisted of an increase in our EMEA direct business, partially
offset by a net sales decrease in our EMEA distributor business, reflecting a decline in net sales to our Russian distributor,
due to the macroeconomic challenges in that region.
Net sales in Canada decreased $4.0 million, or 2% (increased 1% constant-currency), to $164.6 million in 2016 from
$168.6 million in 2015. The net sales decrease in Canada reflected a net sales decrease in our wholesale business, partially
offset by a net sales increase in our direct-to-consumer business.
Sales by Brand
Net sales by brand are summarized in the following table:
Year Ended December 31,
Reported
Net Sales
2016
Adjust for
Foreign
Currency
Translation
Constant-
currency
Net Sales
2016
Reported
Net Sales
2015
Reported
Net Sales
% Change
Columbia . . . . . . . . . . . . . . . . . . . . . . . . $ 1,910.1
213.0
SOREL. . . . . . . . . . . . . . . . . . . . . . . . . .
139.9
prAna . . . . . . . . . . . . . . . . . . . . . . . . . . .
104.0
Mountain Hardwear . . . . . . . . . . . . . . . .
10.0
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,377.0
$
$
(In millions, except for percentage changes)
5.3
(0.8)
—
0.1
(0.1)
4.5
$ 1,915.4
212.2
139.9
104.1
9.9
$ 2,381.5
$ 1,864.7
209.2
125.3
116.3
10.7
$ 2,326.2
2%
2%
12%
(11)%
(7)%
2%
Constant-
currency
Net Sales
% Change
3%
1%
12%
(10)%
(7)%
2%
The net sales increase in 2016 compared to 2015 was led by the Columbia brand, followed by the prAna brand and
the SOREL brand, partially offset by lower Mountain Hardwear net sales. The Columbia brand net sales increase was led
by the United States, followed by the EMEA region and Canada, partially offset by a net sales decrease in the LAAP region.
Sales by Product Category
Net sales by product category are summarized in the following table:
31
Reported
Net Sales
2016
Apparel, Accessories and Equipment . . $ 1,865.4
511.6
Footwear . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,377.0
Year Ended December 31,
Reported
Net Sales
2015
Constant-
Adjust for
currency
Foreign
Net Sales
Currency
Translation
2016
(In millions, except for percentage changes)
$ 1,821.2
$ 1,869.5
$
505.0
512.0
$ 2,326.2
$ 2,381.5
4.1
0.4
4.5
$
Reported
Net Sales
% Change
Constant-
currency
Net Sales
% Change
2%
1%
2%
3%
1%
2%
Net sales of apparel, accessories and equipment increased $44.2 million, or 2% (3% constant-currency), to $1,865.4
million in 2016 from $1,821.2 million in 2015. The increase in apparel, accessories and equipment net sales was led by a
net sales increase in the Columbia brand, followed the prAna brand and the SOREL brand, partially offset by lower Mountain
Hardwear brand net sales. The apparel, accessories and equipment net sales increase was led by the United States, followed
by the EMEA region and Canada, partially offset by lower net sales in the LAAP region.
Net sales of footwear increased $6.6 million, or 1% (1% constant-currency), to $511.6 million in 2016 from $505.0
million in 2015. The increase in footwear net sales was led by the Columbia brand, followed by the SOREL brand. The
footwear net sales increase was led by the United States, followed by the EMEA region, partially offset by lower net sales
in Canada and the LAAP region.
Gross Profit: Gross profit as a percentage of net sales increased to 46.7% in 2016 from 46.1% in 2015. Gross margin
expansion was primarily due to:
•
Favorable changes in channel mix with a higher proportion of direct-to-consumer net sales and a lower proportion
of net sales to independent international distributors, which generally carry lower gross margins than wholesale
and direct-to-consumer channels;
• A favorable mix of full-price versus close-out product net sales;
•
Selective price increases; and
• A favorable sourcing environment;
partially offset by:
• An unfavorable impact from foreign currency rates in Canada, China, Europe, and Japan.
Our gross profit may not be comparable to other companies in our industry because some of these companies include
all of the costs related to their distribution network in cost of sales while we, like many others, include these expenses as a
component of selling, general and administrative ("SG&A") expense.
Selling, General and Administrative Expense: SG&A expense includes all costs associated with our design,
merchandising, marketing, distribution, and corporate functions, including related depreciation and amortization.
SG&A expense increased $32.1 million, or 4%, to $864.1 million, or 36.4% of net sales, in 2016, from $832.0 million,
or 35.8% of net sales, in 2015. The SG&A expense increase was primarily due to:
•
•
•
Increased costs to support our expanding global direct-to-consumer channels;
Increased personnel costs to support strategic initiatives and business growth; and
Increased information technology investments;
partially offset by:
• Lower incentive compensation expenses;
• Cost containment measures that have been implemented throughout the year; and
• Lower demand creation expenses.
32
Depreciation and amortization included in SG&A expense totaled $59.2 million in 2016, compared to $55.5 million
in 2015.
Net Licensing Income: Net licensing income increased $2.0 million to $10.2 million in 2016, compared to $8.2
million in 2015. The increase in net licensing income was primarily due to increased licensing income from accessories
and equipment in the United States.
Other Non-Operating Expense: Other non-operating expense totaled $0.6 million in 2016, compared to $2.8 million
in 2015. The $2.2 million decrease in other non-operating expense was attributed to lower net losses incurred on the
revaluation of foreign currency denominated assets and liabilities, the change in fair value of foreign currency contracts not
designated as cash flow hedges and the settlement of foreign-currency denominated transactions.
Income Tax Expense: Income tax expense decreased to $58.5 million in 2016 from $67.5 million in 2015. Our
effective income tax rate decreased to 22.8% from 27.3% in 2015. The decrease in our effective income tax rate was due
to a higher proportion of taxable income in foreign jurisdictions where tax rates are generally lower than the United States,
an increased income tax benefit from the utilization of foreign tax credits and an income tax benefit recognized as a result
of the company's early adoption of ASU No. 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-
Based Payment Accounting. See Note 1 of the financial statements under Changes affecting comparability for further
discussion regarding the adoption of ASU No. 2016-09. These comparative income tax benefits were partially offset by a
non-recurring tax benefit that was recognized in 2015 from the utilization of net operating loss carry-forwards and the
release of associated valuation allowances in certain international tax jurisdictions.
Net Income Attributable to Columbia Sportswear Company: Net income increased $17.6 million, or 10%, to $191.9
million in 2016 from $174.3 million in 2015. Diluted earnings per share was $2.72 in 2016 compared to $2.45 in 2015.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Net Sales: Consolidated net sales increased $225.6 million, or 11% (15% constant-currency), to $2,326.2 million
in 2015 from $2,100.6 million in 2014.
Sales by Geographic Region
Net sales by geographic region are summarized in the following table:
Year Ended December 31,
Reported
Net Sales
2015
Adjust for
Foreign
Currency
Translation
Constant-
currency
Net Sales
2015
Reported
Net Sales
2014
Constant-
currency
Net Sales
Reported
Net Sales
% Change % Change(1)
United States . . . . . . . . . . . . . . . . . . . . . $ 1,455.2
469.2
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . .
233.2
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . .
168.6
Canada . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,326.2
$
$
(In millions, except for percentage changes)
— $ 1,455.2
499.0
259.3
196.7
$ 2,410.2
$ 1,198.4
491.6
259.2
151.4
$ 2,100.6
29.8
26.1
28.1
84.0
21%
(5)%
(10)%
11%
11%
21%
2%
—%
30%
15%
Net sales in the United States increased $256.8 million, or 21%, to $1,455.2 million in 2015 from $1,198.4 million
in 2014. The increase in net sales in the United States was led by an increase in net sales in our wholesale business, followed
by our direct-to-consumer businesses. The increase in our wholesale business was primarily the result of a net sales increase
in Columbia, SOREL and prAna brand net sales, and was driven by shipments of increased fall season advance orders. The
net sales increase in our direct-to-consumer business was led by increased net sales from our retail stores, followed by
increased e-commerce net sales. At December 31, 2015, we operated 111 retail stores, compared with 95 stores at December
31, 2014.
33
Net sales in the LAAP region decreased $22.4 million, or 5% (increased 2% constant-currency), to $469.2 million in
2015 from $491.6 million in 2014. The net sales decrease in the LAAP region was led by Korea, followed by Japan, partially
offset by net sales increases in our LAAP distributor business and China. The net sales decrease in Korea reflected business
weakness amid the extremely competitive outdoor sector in that country. The net sales decrease in Japan was negatively
affected by foreign currency exchange rates, which offset a net sales increase in local currency. The net sales increase in
our LAAP distributor business primarily reflected increased advance orders combined with a favorable shift in timing of
shipments.
Net sales in the EMEA region decreased $26.0 million, or 10% (remained flat on constant-currency basis), to $233.2
million in 2015 from $259.2 million in 2014. The EMEA net sales decrease consisted of a decrease in our EMEA distributor
business, partially offset by a net sales increase in our EMEA direct business. The EMEA distributor net sales decrease was
largely attributable to a decline in net sales to our Russian distributor as a result of challenging economic conditions.
Net sales in Canada increased $17.2 million, or 11% (30% constant-currency), to $168.6 million in 2015 from $151.4
million in 2014. The net sales increase in Canada reflected net sales increases in our wholesale and direct-to-consumer
businesses.
Sales by Brand
Net sales by brand are summarized in the following table:
Year Ended December 31,
Reported
Net Sales
2015
Adjust for
Foreign
Currency
Translation
Constant-
currency
Net Sales
2015
Reported
Net Sales
2014
Reported
Net Sales
% Change
Columbia . . . . . . . . . . . . . . . . . . . . . . . . $ 1,864.7
209.2
SOREL. . . . . . . . . . . . . . . . . . . . . . . . . .
125.3
prAna . . . . . . . . . . . . . . . . . . . . . . . . . . .
116.3
Mountain Hardwear . . . . . . . . . . . . . . . .
10.7
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,326.2
$
$
(In millions, except for percentage changes)
65.9
13.2
—
4.3
0.6
84.0
$ 1,750.3
166.2
53.7
119.8
10.6
$ 2,100.6
$ 1,930.6
222.4
125.3
120.6
11.3
$ 2,410.2
7%
26%
133%
(3)%
1%
11%
Constant-
currency
Net Sales
% Change
10%
34%
133%
1%
7%
15%
The net sales increase in 2015 compared to 2014 was led by the Columbia brand, followed by the prAna brand and
the SOREL brand, partially offset by lower Mountain Hardwear net sales. The Columbia brand net sales increase was led
by the United States, followed by Canada, partially offset by lower net sales in the EMEA and LAAP regions. The net sales
increase in the prAna brand, which was acquired on May 30, 2014, includes approximately $56.0 million of incremental
net sales for the first five months of 2015.
Sales by Product Category
Net sales by product category are summarized in the following table:
Year Ended December 31,
Reported
Net Sales
2015
Apparel, Accessories and Equipment . . $ 1,821.2
505.0
Footwear . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,326.2
Reported
Net Sales
2014
Constant-
Adjust for
currency
Foreign
Net Sales
Currency
Translation
2015
(In millions, except for percentage changes)
$ 1,676.2
$ 1,875.1
$
424.4
535.1
$ 2,100.6
$ 2,410.2
53.9
30.1
84.0
$
Reported
Net Sales
% Change
Constant-
currency
Net Sales
% Change
9%
19%
11%
12%
26%
15%
Net sales of apparel, accessories and equipment increased $145.0 million, or 9% (12% constant-currency), to $1,821.2
million in 2015 from $1,676.2 million in 2014. The increase in apparel, accessories and equipment net sales was led by a
34
net sales increase in the Columbia brand, followed by the prAna brand, partially offset by lower Mountain Hardwear brand
net sales. The apparel, accessories and equipment net sales increase was led by the United States, followed by Canada,
partially offset by lower net sales in the EMEA and LAAP regions.
Net sales of footwear increased $80.6 million, or 19% (26% constant-currency), to $505.0 million in 2015 from $424.4
million in 2014. The increase in footwear net sales was led by the SOREL brand, followed by the Columbia brand. The
footwear net sales increase was led by the United States, followed by Canada, the LAAP region, and the EMEA region.
Gross Profit: Gross profit as a percentage of net sales increased to 46.1% in 2015 from 45.5% in 2014. Gross margin
expansion was primarily due to:
• Lower provisions for slow-moving inventory; and
• A more favorable channel mix due to a higher proportion of direct-to-consumer net sales and a lower proportion
of sales to independent international distributors, which carry lower gross margins than wholesale and direct-
to-consumer channels;
partially offset by:
• Unfavorable foreign currency hedge rates; and
• Lower margin on close-out product sales.
Our gross profit may not be comparable to other companies in our industry because some of these companies include
all of the costs related to their distribution network 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 our design,
merchandising, marketing, distribution, and corporate functions, including related depreciation and amortization.
SG&A expense increased $68.9 million, or 9%, to $832.0 million, or 35.8% of net sales, in 2015, from $763.1 million,
or 36.3% of net sales, in 2014. The SG&A expense increase was primarily due to:
•
•
•
•
Increased personnel expenses to support business growth and strategic initiatives;
Increased expenses relating to our expanding global direct-to-consumer channels;
Increased operating costs associated with the inclusion of a full year of prAna expenses; and
Increased demand creation investments;
partially offset by:
•
Favorable foreign currency translation.
Depreciation and amortization included in SG&A expense totaled $55.5 million in 2015, compared to $49.2 million
in 2014.
Net Licensing Income: Net licensing income increased $1.2 million to $8.2 million in 2015, compared to $7.0
million in 2014. The increase in net licensing income was primarily due to increased licensing income from accessories
and equipment, including socks and backpacks, in the United States.
Other Non-Operating Expense: Other non-operating expense totaled $2.8 million in 2015, compared to $0.3 million
in 2014. The increase in expense reflects net losses incurred on the revaluation of foreign currency denominated assets and
liabilities and net losses incurred on the settlement of foreign-currency denominated intercompany transactions during 2015.
Income Tax Expense: Income tax expense increased to $67.5 million in 2015 from $56.7 million in 2014. Our
effective income tax rate decreased to 27.3% from 28.5% in 2014. The decrease in our effective income tax rate in 2015 was
primarily due to a tax benefit from the utilization of net operating loss carry-forwards and the release of associated valuation
allowances in certain international tax jurisdictions, as well as a benefit from the utilization of foreign tax credits. These
35
benefits were partially offset by a reduction in the tax benefits we recognized from the resolution of audits compared to
2014. Additionally, in 2015 we generated a higher proportion of taxable income in the United States where tax rates are
generally higher than in international jurisdictions.
Net Income Attributable to Columbia Sportswear Company: Net income increased $37.1 million, or 27%, to $174.3
million in 2015 from $137.2 million in 2014. Diluted earnings per share was $2.45 in 2015 compared to $1.94 in 2014.
Liquidity and Capital Resources
Our primary ongoing funding requirements are for working capital, investing activities associated with our global
direct-to-consumer expansion, ongoing ERP and complementary systems implementations, general corporate needs and
the expansion of our global operations. At December 31, 2016, we had total cash and cash equivalents of $551.4 million
compared to $369.8 million at December 31, 2015. In addition, we had short-term investments of $0.5 million at December
31, 2016 compared to $0.6 million at December 31, 2015. At December 31, 2016, approximately 49% of our cash and short-
term investments were held by our foreign subsidiaries, from which repatriation of those funds to the United States would
likely result in a significant tax expense for us. However, based on the capital and liquidity needs of our foreign operations,
as well as the status of current tax law, we intend to indefinitely reinvest these funds outside the United States. In addition,
our United States operations do not require the repatriation of these funds to meet our currently projected liquidity needs.
2016 compared to 2015
Net cash provided by operating activities was $275.2 million in 2016, compared to $95.1 million in 2015. The increase
in cash provided by operating activities was primarily driven by a lower increase in inventory levels, a reduction in accounts
receivable and an increase in net income during 2016 compared to 2015.
Net cash used in investing activities was $49.9 million in 2016, compared to $43.0 million in 2015. For 2016, net
cash used in investing activities primarily consisted of $50.0 million for capital expenditures. For 2015, net cash used in
investing activities primarily consisted of $69.9 million for capital expenditures, partially offset by $26.8 million in net
sales of short-term investments.
Net cash used in financing activities was $42.0 million in 2016, compared to $91.2 million in 2015. For 2016, net
cash used in financing activities primarily consisted of dividend payments of $48.1 million, partially offset by net proceeds
of $8.1 million from the issuance of common stock related to our stock compensation programs. For 2015, net cash used
in financing activities primarily consisted of the repurchase of common stock at an aggregate price of $70.1 million and
dividend payments of $43.5 million, partially offset by net proceeds of $12.5 million from the issuance of common stock
related to our stock compensation programs.
2015 compared to 2014
Net cash provided by operating activities was $95.1 million in 2015, compared to $185.8 million in 2014. The decrease
in cash provided by operating activities was primarily driven by increased inventory levels and related payments for accounts
payable, increased payments for income taxes and increased accounts receivable, partially offset by an increase in net income
during 2015 compared to 2014. The increased inventory levels primarily reflect more timely production and receipt of
spring 2016 product compared to spring 2015 product at the same time in 2014.
Net cash used in investing activities was $43.0 million in 2015, compared to $184.0 million in 2014. For 2015, net
cash used in investing activities primarily consisted of $69.9 million for capital expenditures, partially offset by $26.8
million of net sales of short-term investments. For 2014, net cash used in investing activities primarily consisted of $188.5
million for the net cash purchase of prAna, $60.3 million for capital expenditures, partially offset by $64.7 million in proceeds
from net sales of short-term investments.
Net cash used in financing activities was $91.2 million in 2015, compared to $14.6 million in 2014. For 2015, net
cash used in financing activities primarily consisted of the repurchase of common stock at an aggregate price of $70.1
million and dividend payments of $43.5 million, partially offset by net proceeds of $12.5 million from the issuance of
common stock related to our stock compensation programs. For 2014, net cash used in financing activities primarily consisted
36
of dividend payments of $39.8 million and the repurchase of common stock at an aggregate price of $15.0 million, partially
offset by net proceeds of $19.1 million from the issuance of common stock related to our stock compensation programs.
Short-term borrowings and credit lines
We have an unsecured, committed $125.0 million revolving line of credit available to fund our domestic working
capital requirements. At December 31, 2016, no balance was outstanding under this line of credit and we were in compliance
with all associated covenants. Internationally, our subsidiaries have operating lines of credit in place guaranteed by the
parent company with a combined limit of approximately $84.3 million at December 31, 2016, of which $2.4 million is
designated as a European customs guarantee. At December 31, 2016, no balance was outstanding under these lines of credit.
We expect to fund our future working capital expenditures with existing cash, operating cash flows and credit facilities.
If the need arises, we may need to seek additional funding. Our ability to obtain additional financing will depend on many
factors, including prevailing market conditions, our financial condition, and our ability to negotiate favorable terms and
conditions. Financing may not be available on terms that are acceptable or favorable to us, if at all.
Our operations are affected by seasonal trends typical in the outdoor apparel and footwear industry and have historically
resulted in higher sales and profits in the third and fourth calendar quarters. This pattern has resulted primarily from the
timing of shipments of fall season products to wholesale customers in the third and fourth quarters and proportionally higher
sales in our direct-to-consumer channels in the fourth quarter, combined with an expense base that is more consistent
throughout the year. We believe that our liquidity requirements for at least the next 12 months will be adequately covered
by existing cash, cash provided by operations and existing short-term borrowing arrangements. We plan to fund future cash
dividends and share repurchases with cash generated from operating activities.
Contractual obligations
The following table presents our estimated significant contractual commitments (in thousands):
Year ended December 31,
Inventory purchase obligations (1) . . . $202,391
Operating lease obligations (2) . . . . . .
61,682
Long-term debt obligations (3) . . . . . .
997
$
— $
— $
— $
— $
— $202,391
56,748
15,040
46,707
39,181
33,625
111,800
349,743
—
—
—
—
16,037
2017
2018
2019
2020
2021
Thereafter
Total
See Inventory Purchase Obligations in Note 13 of Notes to Consolidated Financial Statements.
See Operating Leases in Note 13 of Notes to Consolidated Financial Statements.
—————
(1)
(2)
(3) Amounts represent interest and principal obligations under our related party note with Swire. See Note 22 of Notes to Consolidated Financial
Statements.
We have recorded long-term liabilities for net unrecognized tax benefits related to income tax uncertainties in our
Consolidated Balance Sheet at December 31, 2016 of approximately $12.7 million; however, they have not been included
in the table above because we are uncertain about whether or when these amounts may be settled. See Note 10 of Notes to
Consolidated Financial Statements.
Quantitative and Qualitative Disclosures About Market Risk
In the normal course of business, our financial position and results of operations are subject to a variety of risks,
including risks associated with global financial and capital markets, primarily currency exchange rate risk and, to a lesser
extent, interest rate risk and equity market risk. We regularly assess these risks and have established policies and business
practices designed to mitigate their effects. We do not engage in speculative trading in any financial or capital market.
Our primary currency exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows
attributable to changes in exchange rates. We focus on mitigating changes in functional currency equivalent cash flows
resulting from anticipated U.S. dollar denominated inventory purchases by subsidiaries that use European euros, Canadian
dollars, Japanese yen, or Chinese renminbi as their functional currency. We manage this risk primarily by using currency
forward contracts. Additionally, we hedge net balance sheet exposures related primarily to non-functional currency
37
denominated monetary assets and liabilities using foreign currency forward contracts in euros, yen, Canadian dollars, and
Swiss francs. Non-functional currency denominated monetary assets and liabilities consist primarily of cash and cash
equivalents, short-term investments, payables, and intercompany loans.
The net fair value of our derivative contracts was favorable by approximately $12.8 million at December 31, 2016.
A 10% unfavorable exchange rate change in the euro, franc, Canadian dollar, yen, and renminbi against the U.S. dollar
would have resulted in the net fair value declining by approximately $27.1 million at December 31, 2016. Changes in fair
value resulting from foreign exchange rate fluctuations would be substantially offset by the change in value of the underlying
hedged transactions.
Our negotiated credit facilities generally charge interest based on a benchmark rate such as the London Interbank
Offered Rate ("LIBOR"). Fluctuations in short-term interest rates cause interest payments on drawn amounts to increase
or decrease. At December 31, 2016, no balance was outstanding under our credit facilities.
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations are based on our consolidated
financial statements, which have been prepared in accordance with accounting principles generally accepted in the United
States of America. The preparation of these financial statements requires us to make various estimates and assumptions that
affect reported amounts of assets and liabilities and related disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. We believe
that the estimates and assumptions involved in the accounting policies described below have the greatest potential impact
on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the
uncertainty inherent in these matters, actual results may differ from the estimates we use in applying these critical accounting
policies. We base our ongoing estimates on historical experience and various other assumptions that we believe to be
important in the circumstances. Many of these critical accounting policies affect working capital account balances, including
the policy for revenue recognition, the allowance for doubtful accounts, the provision for potential excess, closeout and
slow moving inventory, product warranty, income taxes, and stock-based compensation.
Management regularly discusses with our Audit Committee each of our critical accounting estimates, the development
and selection of these accounting estimates, and the disclosure about each estimate in Management's Discussion and Analysis
of Financial Condition and Results of Operations. These discussions typically occur at our quarterly Audit Committee
meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts
of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters
related to these estimates, including significant issues concerning accounting principles and financial statement presentation.
Revenue Recognition
We record wholesale, distributor, e-commerce and licensed product revenues when title passes and the risks and
rewards of ownership have passed to the customer. Title generally passes upon shipment to or upon receipt by the customer
depending on the applicable terms of sale with the customer. Retail store revenues are recorded at the time of sale. Revenue
is recorded net of sales taxes, value added taxes or similar taxes, which are collected on behalf of local taxing authorities.
Where title passes upon receipt by the customer, predominantly in our European wholesale business, Japan and in
certain of our e-commerce operations, precise information regarding the date of receipt by the customer is not readily
available. In these cases, we estimate the date of receipt by the customer based on historical and expected delivery times
by geographic location. We periodically test the accuracy of these estimates based on actual transactions. Delivery times
vary by geographic location, generally from one to seven days. To date, we have found these estimates to be materially
accurate.
At the time of revenue recognition, we also provide for estimated sales returns and miscellaneous claims from customers
as reductions to revenues. The estimates are based on historical rates of product returns and claims, as well as events and
circumstances that indicate changes to historical rates of returns and claims. However, actual returns and claims in any
future period are inherently uncertain and thus may differ from the estimates. If actual or expected future returns and claims
are significantly greater or lower than the reserves that we have established, we will record a reduction or increase to net
revenues in the period in which we make such a determination.
38
Allowance for Uncollectable Accounts Receivable
We make ongoing estimates of the collectability of our accounts receivable and maintain an allowance for estimated
losses resulting from the inability of our customers to make required payments. In determining the amount of the allowance,
we consider our historical level of credit losses, and we make judgments about the creditworthiness of customers based on
ongoing credit evaluations. We analyze specific customer accounts, customer concentrations, credit insurance coverage,
standby letters of credit, and other forms of collateral, current economic trends, and changes in customer payment terms.
Continued uncertainty in credit and market conditions may slow our collection efforts if customers experience difficulty
accessing credit and paying their obligations, leading to higher than normal accounts receivable and increased bad debt
expense. Because we cannot predict future changes in the financial stability of our customers, actual future losses from
uncollectable accounts may differ from our estimates and may have a material effect on our consolidated financial position,
results of operations or cash flows. If the financial condition of our customers deteriorates and results in their inability to
make payments, a larger allowance may be required. If we determine that a smaller or larger allowance is appropriate, we
will record a credit or a charge to SG&A expense in the period in which we make such a determination.
Excess, Close-Out and Slow Moving Inventory
We make ongoing estimates of potential excess, close-out or slow moving inventory. We evaluate our inventory on
hand considering our purchase commitments, sales forecasts and historical liquidation experience to identify excess, close-
out or slow moving inventory and make provisions as necessary to properly reflect inventory value at the lower of cost or
estimated market value. If we determine that a smaller or larger reserve is appropriate, we will record a credit or a charge
to cost of sales in the period in which we make such a determination.
Product Warranty
We make ongoing estimates of potential future product warranty costs. When we evaluate our reserve for warranty
costs, we consider our product warranty policies, historical claim rates by season, product category and mix, current warranty
claim trends, and the historical cost to repair, replace or refund the original sale. If we determine that a smaller or larger
reserve is appropriate, we will record a credit or a charge to cost of sales in the period in which we make such a determination.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill
Long-lived assets, which include property, plant and equipment and intangible assets with finite lives, are amortized
over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying
value may be impaired. In these cases, we estimate the future undiscounted cash flows to be derived from the asset or asset
group to determine whether a potential impairment exists. If the sum of the estimated undiscounted cash flows is less than
the carrying value of the asset, we recognize an impairment loss, measured as the amount by which the carrying value
exceeds the estimated fair value of the asset. For the years ended December 31, 2016 and 2015, we recorded impairment
charges for certain underperforming retail stores of $4.3 million and $4.2 million, respectively
We review and test our intangible assets with indefinite useful lives and goodwill for impairment in the fourth quarter
of each year and when events or changes in circumstances indicate that the carrying amount of such assets may be impaired.
Our intangible assets with indefinite lives consist of trademarks and trade names. Substantially all of our goodwill is recorded
in the United States segment and impairment testing for goodwill is performed at the reporting unit level. In the impairment
test for goodwill, the two-step process first compares the estimated fair value of the reporting unit with the carrying amount
of that reporting unit. We estimate the fair value of our reporting units using a combination of discounted cash flow analysis
and market-based valuation methods, as appropriate. If step one indicates impairment, step two compares the estimated fair
value of the reporting unit to the estimated fair value of all reporting unit assets and liabilities, except goodwill, to determine
the implied fair value of goodwill. We calculate impairment as the excess of carrying amount of goodwill over the implied
fair value of goodwill. In the impairment tests for trademarks and trade names, we compare the estimated fair value of each
asset to its carrying amount. The fair values of trademarks and trade names are generally estimated using a relief from
royalty method under the income approach. If the carrying amount of a trademark or trade name exceeds its estimated fair
value, we calculate impairment as the excess of carrying amount over the estimate of fair value.
Our 2016 impairment tests of goodwill and intangible assets with indefinite lives indicated that all reporting units and
intangible assets with indefinite lives exceeded their respective carrying values by more than 20%, with the exception of
goodwill for the Mountain Hardwear reporting unit. In the first step of the Mountain Hardwear goodwill impairment analysis,
39
the estimated fair value of the reporting unit exceeded its carrying value by approximately 13%, and as such the reporting
unit’s goodwill balance of $12.2 million was not impaired. While no impairment was indicated during our 2016 tests, if the
Mountain Hardwear brand's actual or projected future performance deteriorates from the modest projections considered in
our 2016 tests, it is possible that an impairment charge would be required.
Our impairment tests and related fair value estimates are based on a number of factors, including assumptions and
estimates for projected sales, income, cash flows, discount rates, market-based multiples, remaining useful lives, and
other operating performance measures. Changes in estimates or the application of alternative assumptions could produce
significantly different results. These assumptions and estimates may change in the future due to changes in economic
conditions, changes in our ability to meet sales and profitability objectives or changes in our business operations or
strategic direction.
Acquisition Accounting
We account for business combinations using the purchase method, which requires us to allocate the cost of an acquired
business to the acquired assets and liabilities based on their estimated fair values at the acquisition date. We recognize the
excess of an acquired business' cost over the fair value of the acquired assets and liabilities as goodwill. Determining the
fair value of certain assets and liabilities acquired is judgmental in nature and often involves the use of significant estimates
and assumptions. We use a variety of information sources to determine the fair value of acquired assets and liabilities and
we generally use third party appraisers to assist us in the determination of the fair value and useful lives of identifiable
intangible assets.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, we recognize income tax
expense for the amount of taxes payable or refundable for the current year and for the amount of deferred tax liabilities and
assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We
make assumptions, judgments and estimates to determine our current provision for income taxes, our deferred tax assets
and liabilities and our uncertain tax positions. Our judgments, assumptions and estimates relative to the current provision
for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of current
and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws
and the resolution of current and future tax audits could significantly affect the amounts provided for income taxes in our
consolidated financial statements. Our assumptions, judgments and estimates relative to the value of a deferred tax asset
take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying
amount and category of income in future years could cause our current assumptions, judgments and estimates of recoverable
net deferred taxes to be inaccurate. Changes in any of the assumptions, judgments and estimates mentioned above could
cause our actual income tax obligations to differ from our estimates, which could materially affect our financial position,
results of operations and cash flows.
Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for
discrete items, if any, that are taken into account in the relevant period. As the calendar year progresses, we periodically
refine our estimate based on actual events and earnings by jurisdiction. This ongoing estimation process can result in changes
to our expected effective tax rate for the full calendar year. When this occurs, we adjust the income tax provision during
the quarter in which the change in estimate occurs so that our year-to-date provision equals our expected annual effective
tax rate.
Stock-Based Compensation
Stock-based compensation cost is estimated at the grant date based on the award's fair value and is recognized as
expense over the requisite service period using the straight-line attribution method. We estimate stock-based compensation
for stock awards granted using the Black-Scholes option pricing model, which requires various subjective assumptions,
including volatility and expected option life. Further, we estimate forfeitures for stock-based awards granted, but which are
not expected to vest. If any of these inputs or assumptions changes significantly, stock-based compensation expense may
differ materially in the future from that recorded in the current period.
Recent Accounting Pronouncements
40
See "Recent Accounting Pronouncements" in Note 2 of Notes to Consolidated Financial Statements.
41
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information required by this item is included in Management's Discussion and Analysis of Financial Condition
and Results of Operations and is incorporated herein by this reference.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our management is responsible for the information and representations contained in this report. The financial
statements have been prepared in conformity with accounting principles generally accepted in the United States, which we
consider appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other
financial information in this report is consistent with these financial statements.
Our accounting systems include controls designed to reasonably ensure that assets are safeguarded from unauthorized
use or disposition and which provide for the preparation of financial statements in conformity with accounting principles
generally accepted in the United States. These systems are supplemented by the selection and training of qualified financial
personnel and an organizational structure providing for appropriate segregation of duties.
The Audit Committee is responsible for appointing the independent registered public accounting firm and reviews
with the independent registered public accounting firm and management the scope and the results of the annual examination,
the effectiveness of the accounting control system and other matters relating to our financial affairs as they deem appropriate.
42
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Columbia Sportswear Company
Portland, Oregon
We have audited the accompanying consolidated balance sheets of Columbia Sportswear Company and subsidiaries
(the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, comprehensive
income, equity, and cash flows for each of the three years in the period ended December 31, 2016. Our audits also included
the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule
are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements
and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of
Columbia Sportswear Company and subsidiaries as of December 31, 2016 and 2015 and the results of their operations and
their cash flows for each of the three years in the period ended December 31, 2016, in conformity with accounting principles
generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the Company's internal control over financial reporting as of December 31, 2016, based on the criteria established
in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 23, 2017, expressed an unqualified opinion on the Company's internal control
over financial reporting.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
February 23, 2017
43
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED BALANCE SHEETS
(In thousands)
December 31,
2016
2015
Current Assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant, and equipment, net (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill (Note 7). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
551,389
$
369,770
472
333,678
487,997
38,487
629
371,953
473,637
33,400
1,412,023
1,249,389
279,650
133,438
68,594
92,494
27,695
291,687
138,584
68,594
76,181
21,718
$ 2,013,894
$ 1,846,153
Current Liabilities:
LIABILITIES AND EQUITY
Short-term borrowings (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities (Note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Note payable to related party (Note 22) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other long-term liabilities (Notes 11, 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
— $
1,940
215,048
142,158
5,645
362,851
14,053
42,622
12,710
147
217,230
141,862
5,038
366,070
15,030
40,172
8,839
229
432,383
430,340
Commitments and contingencies (Note 13)
Shareholders' Equity:
Preferred stock; 10,000 shares authorized; none issued and outstanding . . . . . . . . . . . .
Common stock (no par value); 250,000 shares authorized; 69,873 and 69,277 issued
and outstanding (Note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss (Note 17) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Columbia Sportswear Company shareholders' equity . . . . . . . . . . . . . . . . . .
Non-controlling interest (Note 4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities and equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
53,801
34,776
1,529,636
(22,617)
1,560,820
1,385,860
(20,836)
1,399,800
20,691
16,013
1,581,511
1,415,813
$ 2,013,894
$ 1,846,153
See accompanying notes to consolidated financial statements
44
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . .
Net licensing income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on note payable to related party (Note 22). . . . . . . . . . . . . .
Other non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (Note 10) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to non-controlling interest . . . . . . . . . . . . . . . . . . . .
Net income attributable to Columbia Sportswear Company . . . . . . . . . . . . .
Earnings per share attributable to Columbia Sportswear Company (Note
16):
Year Ended December 31,
2016
2015
2014
$ 2,377,045
$ 2,326,180
$ 2,100,590
1,266,697
1,252,680
1,145,639
1,110,348
1,073,500
864,084
10,244
256,508
2,003
(1,041)
(572)
256,898
(58,459)
198,439
6,541
831,971
8,192
249,721
1,531
(1,099)
(2,834)
247,319
(67,468)
179,851
5,514
954,951
763,063
6,956
198,844
1,004
(1,053)
(274)
198,521
(56,662)
141,859
4,686
$
191,898
$
174,337
$
137,173
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2.75
2.72
$
2.48
2.45
1.97
1.94
Weighted average shares outstanding (Note 16):
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
69,683
70,632
70,162
71,064
69,807
70,681
See accompanying notes to consolidated financial statements
45
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Unrealized holding gains (losses) on available-for-sale securities (net
of tax effects of $0, ($3), and ($5), respectively) . . . . . . . . . . . . . . . . .
Unrealized gains (losses) on derivative transactions (net of tax effects
of ($1,922), ($849) and ($1,507), respectively) . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustments (net of tax effects of ($347),
($760) and $1,023, respectively) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Comprehensive income attributable to non-controlling interest. . . . . . . . . . .
Comprehensive income attributable to Columbia Sportswear Company . . . .
Year Ended December 31,
2016
2015
2014
$
198,439
$
179,851
$
141,859
(2)
(6)
10
843
(2,908)
7,751
(4,485)
(3,644)
194,795
4,678
(34,887)
(37,801)
142,050
4,382
(27,789)
(20,028)
121,831
4,185
$
190,117
$
137,668
$
117,646
See accompanying notes to consolidated financial statements
46
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal or impairment of property, plant, and equipment . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefit from employee stock plans. . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities: . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . .
Other assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Acquisition of business, net of cash acquired . . . . . . . . . . . . . . . . . . . . . . . .
Purchases of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales of short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital expenditures. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from sale of property, plant, and equipment. . . . . . . . . . . . . . . . . .
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Proceeds from credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments on credit facilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from issuance of common stock under employee stock plans . . . .
Tax payments related to restricted stock unit issuances. . . . . . . . . . . . . . . . .
Excess tax benefit from employee stock plans . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Proceeds from note payable to related party . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities. . . . . . . . . . . . . . . . . . . .
Net effect of exchange rate changes on cash . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents. . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, beginning of year . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents, end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplemental disclosures of cash flow information:
Cash paid during the year for income taxes. . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid during the year for interest on note payable to related party . . . .
Supplemental disclosures of non-cash investing activities:
$
$
Year Ended December 31,
2016
2015
2014
$
198,439
$
179,851
$
141,859
60,016
4,805
(19,178)
10,986
—
36,710
(18,777)
(5,452)
(5,948)
1,483
4,847
4,768
2,468
275,167
—
(21,263)
21,263
(49,987)
97
(49,890)
62,885
(64,825)
13,167
(5,117)
—
(11)
(48,122)
—
(42,023)
(1,635)
181,619
369,770
551,389
70,424
1,049
$
$
56,521
5,098
(11,709)
11,672
(7,873)
(40,419)
(103,296)
4,411
(2,524)
11,418
(2,017)
(10,994)
4,966
95,105
—
(38,208)
64,980
(69,917)
144
(43,001)
53,429
(51,479)
17,442
(4,895)
7,873
(70,068)
(43,547)
—
(91,245)
(4,647)
(43,788)
413,558
369,770
87,350
1,115
$
$
54,017
481
(6,978)
11,120
(4,927)
(31,478)
(62,086)
(4,869)
4,291
41,941
35,051
1,166
6,195
185,783
(188,467)
(48,243)
112,895
(60,283)
71
(184,027)
52,356
(52,205)
22,277
(3,141)
4,927
(15,000)
(39,836)
16,072
(14,550)
(11,137)
(23,931)
437,489
413,558
53,958
838
Capital expenditures incurred but not yet paid . . . . . . . . . . . . . . . . . . . . . . .
2,710
4,698
7,196
See accompanying notes to consolidated financial statements
47
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
(In thousands)
Columbia Sportswear Company Shareholders' Equity
Common Stock
Shares
Outstanding
Amount
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
Controlling
Interest
Total
69,190
$ 52,325
$1,157,733
$
35,360
$
BALANCE, JANUARY 1, 2014 . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Unrealized holding gains on available-for-sale
securities, net . . . . . . . . . . . . . . . . . . . . . . . .
Unrealized holding gains on derivative
transactions, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net . .
Cash dividends ($0.57 per share) . . . . . . . . . . . . . .
Issuance of common stock under employee stock
plans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax adjustment from stock plans . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . .
Repurchase of common stock
BALANCE, DECEMBER 31, 2014 . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive loss:
Unrealized holding losses on available-for-
sale securities, net. . . . . . . . . . . . . . . . . . . . .
Unrealized holding losses on derivative
transactions, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net . .
Cash dividends ($0.62 per share) . . . . . . . . . . . . . .
Issuance of common stock under employee stock
plans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax adjustment from stock plans . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . .
Repurchase of common stock. . . . . . . . . . . . . . . . .
BALANCE, DECEMBER 31, 2015 . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Unrealized holding losses on available-for-
sale securities, net. . . . . . . . . . . . . . . . . . . . .
Unrealized holding gains on derivative
transactions, net . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustment, net . .
Cash dividends ($0.69 per share) . . . . . . . . . . . . . .
Issuance of common stock under employee stock
plans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock-based compensation expense . . . . . . . . . . . .
Repurchase of common stock. . . . . . . . . . . . . . . . .
—
—
—
—
—
—
137,173
—
—
—
—
—
—
—
(39,836)
1,059
19,136
—
—
(421)
5,119
11,120
(15,000)
—
—
—
—
69,828
72,700
1,255,070
—
—
—
—
—
—
174,337
—
—
—
—
—
—
—
(43,547)
835
12,547
—
—
(1,386)
7,925
11,672
(70,068)
—
—
—
—
—
10
7,751
(27,288)
—
—
—
—
—
7,446
4,686
$ 1,252,864
141,859
—
—
(501)
—
—
—
—
—
10
7,751
(27,789)
(39,836)
19,136
5,119
11,120
(15,000)
15,833
—
11,631
5,514
1,355,234
179,851
(6)
(2,908)
(33,755)
—
—
—
—
—
—
—
(1,132)
—
—
—
—
—
(6)
(2,908)
(34,887)
(43,547)
12,547
7,925
11,672
(70,068)
69,277
34,776
1,385,860
(20,836)
—
191,898
—
16,013
6,541
1,415,813
198,439
—
—
—
—
—
596
—
—
—
—
—
—
8,050
10,986
(11)
—
(2)
—
(2)
—
—
(48,122)
—
—
—
686
(2,465)
—
157
(2,020)
—
—
—
—
—
—
—
843
(4,485)
(48,122)
8,050
10,986
(11)
BALANCE, DECEMBER 31, 2016 . . . . . . . .
69,873
$ 53,801
$1,529,636
$
(22,617) $
20,691
$ 1,581,511
See accompanying notes to consolidated financial statements
48
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION
Nature of the business:
Columbia Sportswear Company is a global leader in the design, sourcing, marketing, and distribution of outdoor and
active lifestyle apparel, footwear, accessories, and equipment.
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 (the "Company"). All intercompany balances
and transactions have been eliminated in consolidation.
Estimates and assumptions:
The preparation of financial statements in conformity with accounting principles generally accepted in the United
States of America (U.S. GAAP) 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, goodwill, income taxes, and stock-based compensation.
Changes affecting comparability:
In March 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")
No. 2016-09, Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which
simplifies how several aspects of share-based payments are accounted for and presented in the financial statements. The
Company elected to early-adopt ASU 2016-09 with an effective date of January 1, 2016. Under previous guidance, excess
tax benefits and deficiencies from stock-based compensation arrangements were recorded in equity when the awards vested
or were settled. ASU 2016-09 requires prospective recognition of excess tax benefits and deficiencies in the income statement,
resulting in the recognition of excess tax benefits of $5,499,000 in income tax expense, rather than in paid-in capital, for
the year ended December 31, 2016. If we had retrospectively adopted this guidance, we would have recognized excess tax
benefits of $7,925,000 and $5,119,000 in income tax expense, rather than in paid-in capital, for the years ended December
31, 2015 and 2014, respectively.
In addition, under ASU 2016-09, excess income tax benefits from stock-based compensation arrangements are
classified as cash flow from operations, rather than as cash flow from financing activities. The Company has elected to
apply the cash flow classification guidance of ASU 2016-09 prospectively, resulting in an increase to operating cash flow
of $5,538,000 for the year ended December 31, 2016; the prior years have not been adjusted.
The Company has elected to continue to estimate the number of stock-based awards expected to vest, as permitted
by ASU 2016-09, rather than electing to account for forfeitures as they occur.
ASU 2016-09 requires excess tax benefits and deficiencies to be prospectively excluded from assumed future proceeds
in the calculation of diluted shares, resulting in an increase in diluted weighted average shares outstanding of 240,016 shares
for the year ended December 31, 2016.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents:
Cash and cash equivalents are stated at fair value or at cost, which approximates fair value, and include investments
with original maturities of 90 days or less at the date of acquisition. At December 31, 2016, and 2015 cash and cash equivalents
consisted of cash, money market funds and time deposits.
49
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Investments:
At December 31, 2016 and 2015, short-term investments consisted of investments held as part of the Company's
deferred compensation plan expected to be distributed in the next twelve months. Investments held as part of the Company's
deferred compensation plan are classified as trading securities and are recorded at fair value with any unrealized gains and
losses reported in operating income. Realized gains or losses are determined based on the specific identification method.
At December 31, 2016 and 2015, long-term investments included in other non-current assets consisted of mutual fund
shares held to offset liabilities to participants in the Company's deferred compensation plan. The investments are classified
as long-term because the related deferred compensation liabilities are not expected to be paid within the next year. These
investments are classified as trading securities and are recorded at fair value with unrealized gains and losses reported as a
component of operating income.
Accounts receivable:
Accounts receivable have been reduced by an allowance for doubtful accounts. The Company makes ongoing estimates
of the collectability of accounts receivable and maintains an allowance for estimated losses resulting from the inability of
the Company's customers to make required payments.
Inventories:
Inventories consist primarily of finished goods and are carried at the lower of cost or market. Cost is determined using
the first-in, first-out method. The Company periodically reviews its inventories for excess, close-out or slow moving items
and makes provisions as necessary to properly reflect inventory value.
Property, plant, and equipment:
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided using the
straight-line method over the estimated useful lives of the assets. The principal estimated useful lives are: land improvements,
15 years; buildings and building improvements, 15-30 years; furniture and fixtures, 3-10 years; and machinery, software
and equipment, 3-10 years. Leasehold improvements are depreciated over the lesser of the estimated useful life of the
improvement, which is most commonly 7 years, or the remaining term of the underlying lease.
Improvements to property, plant and equipment that substantially extend the useful life of the asset are capitalized.
Repair and maintenance costs are expensed as incurred. Internal and external costs directly related to the development of
internal-use software during the application development stage, including costs incurred for third party contractors and
employee compensation, are capitalized and depreciated over a 3-10 year estimated useful life.
Impairment of long-lived assets:
Long-lived assets are amortized over their estimated useful lives and are measured for impairment only when events
or circumstances indicate the carrying value may be impaired. In these cases, the Company estimates the future undiscounted
cash flows to be derived from the asset or asset group to determine whether a potential impairment exists. If the sum of the
estimated undiscounted cash flows is less than the carrying value of the asset, the Company recognizes an impairment loss,
measured as the amount by which the carrying value exceeds the estimated fair value of the asset. Impairment charges for
long-lived assets are included in selling, general and administrative ("SG&A") expense and were $4,310,000, $4,171,000
and $73,000 for the years ended December 31, 2016, 2015 and 2014, respectively. Charges during the years ended December
31, 2016 and 2015 were recorded in the United States and LAAP regions for certain underperforming retail stores. Charges
during the year ended December 31, 2014 were recorded in the United States region for certain underperforming retail
stores.
Intangible assets and goodwill:
Intangible assets with indefinite useful lives and goodwill are not amortized but are periodically evaluated for
impairment. Intangible assets that are determined to have finite lives are amortized using the straight-line method over their
50
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may
be impaired.
Impairment of intangible assets and goodwill:
The Company reviews and tests its intangible assets with indefinite useful lives and goodwill for impairment in the
fourth quarter of each year and when events or changes in circumstances indicate that the carrying amount of such assets
may be impaired. The Company's intangible assets with indefinite lives consist of trademarks and trade names. Substantially
all of the Company's goodwill is recorded in the United States segment and impairment testing for goodwill is performed
at the reporting unit level. In the impairment test for goodwill, the two-step process first compares the estimated fair value
of the reporting unit with the carrying amount of that reporting unit. The Company estimates the fair value of its reporting
units using a combination of discounted cash flow analysis, comparisons with the market values of similar publicly traded
companies and other operating performance based valuation methods, as necessary. If step one indicates impairment, step
two compares the estimated fair value of the reporting unit to the estimated fair value of all reporting unit assets and liabilities,
except goodwill, to determine the implied fair value of goodwill. The Company calculates impairment as the excess of
carrying amount of goodwill over the implied fair value of goodwill. In the impairment tests for trademarks and trade names,
the Company compares the estimated fair value of each asset to its carrying amount. The fair values of trademarks and trade
names are generally estimated using a relief from royalty method under the income approach. If the carrying amount of a
trademark or trade name exceeds its estimated fair value, the Company calculates impairment as the excess of carrying
amount over the estimate of fair value.
If events or circumstances indicate the carrying value of intangible assets with finite lives may be impaired, the
Company estimates the future undiscounted cash flows to be derived from the asset or asset group to determine whether a
potential impairment exists. If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset
the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the estimated
fair value of the asset. Our 2016 impairment tests of goodwill and intangible assets with indefinite lives indicated that all
reporting units and intangible assets with indefinite lives exceeded their respective carrying values by more than 20%, with
the exception of goodwill for the Mountain Hardwear reporting unit. In the first step of the Mountain Hardwear goodwill
impairment analysis, the estimated fair value of the reporting unit exceeded its carrying value by approximately 13%, and
as such the reporting unit’s goodwill balance of $12.2 million was not impaired.
Impairment charges, if any, are classified as a component of SG&A expense. The impairment tests and related fair
value estimates are based on a number of factors, including assumptions and estimates for projected sales, income, cash
flows, discount rates, remaining useful lives, and other operating performance measures. Changes in estimates or the
application of alternative assumptions could produce significantly different results. These assumptions and estimates may
change in the future due to changes in economic conditions, changes in the Company's ability to meet sales and profitability
objectives or changes in the Company's business operations or strategic direction.
Income taxes:
Income taxes are provided on financial statement earnings for financial reporting purposes. Income taxes are based
on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are
recognized in the financial statements in different periods than they are recognized in tax returns. As a result of timing of
recognition and measurement differences between financial accounting standards and income tax laws, temporary differences
arise between amounts of pre-tax financial statement income and taxable income and between reported amounts of assets
and liabilities in the Consolidated Balance Sheets and their respective tax bases. Deferred income tax assets and liabilities
reported in the Consolidated Balance Sheets reflect estimated future tax effects attributable to these temporary differences
and to net operating loss and net capital loss carryforwards, based on tax rates expected to be in effect for years in which
the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income
in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered likely to be
realized. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries, where such earnings
are considered to be indefinitely invested, or to the extent such recognition would result in a deferred tax asset.
51
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits relating to
uncertain tax positions, including related interest and penalties, appropriately classified as current or noncurrent. The
Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be
sustained on examination by the relevant taxing authority based on the technical merits of the position. The tax benefits
recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater
than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. In making this determination,
the Company assumes that the taxing authority will examine the position and that it will have full knowledge of all relevant
information. The provision for income taxes also includes estimates of interest and penalties related to uncertain tax positions.
Derivatives:
The effective portion of changes in fair values of outstanding cash flow hedges is recorded in other comprehensive
income until earnings are affected by the hedged transaction, and any ineffective portion is included in current income. In
most cases amounts recorded in other comprehensive income will be released to earnings after maturity of the related
derivative. The Consolidated Statements of Operations classification of effective hedge results is the same as that of the
underlying exposure. Results of hedges of product costs are recorded in cost of sales when the underlying hedged transactions
affect earnings. Results of hedges of revenue are recorded in net sales when the underlying hedged transactions affect
earnings. Unrealized derivative gains and losses, which are recorded in assets and liabilities, respectively, are non-cash
items and therefore are taken into account in the preparation of the Consolidated Statements of Cash Flows based on their
respective balance sheet classifications. See Note 19 for more information on derivatives and risk management.
Foreign currency translation:
The assets and liabilities of the Company's foreign subsidiaries have been translated into U.S. dollars using the exchange
rates in effect at period end, and the net sales and expenses have been translated into U.S. dollars using average exchange
rates in effect during the period. The foreign currency translation adjustments are included as a separate component of
accumulated other comprehensive income in shareholders' equity and are not currently adjusted for income taxes when they
relate to indefinite net investments in non-U.S. operations.
Revenue recognition:
The Company records wholesale, distributor, e-commerce and licensed product revenues when title passes and the
risks and rewards of ownership have passed to the customer. Title generally passes upon shipment to, or upon receipt by,
the customer depending on the terms of sale with the customer. Retail store revenues are recorded at the time of sale. Revenue
is recorded net of sales taxes, value added taxes or similar taxes which are collected on behalf of local taxing authorities.
Where title passes upon receipt by the customer, predominantly in the Company's European wholesale business, Japan
and in certain of our e-commerce operations, precise information regarding the date of receipt by the customer is not readily
available. In these cases, the Company estimates the date of receipt by the customer based on historical and expected delivery
times by geographic location. The Company periodically tests the accuracy of these estimates based on actual transactions.
Delivery times vary by geographic location, generally from one to seven days. To date, the Company has found these
estimates to be materially accurate.
At the time of revenue recognition, the Company also provides for estimated sales returns and miscellaneous claims
from customers as reductions to revenues. The estimates are based on historical rates of product returns and claims as well
as events and circumstances that indicate changes to historical rates of returns and claims. However, actual returns and
claims in any future period are inherently uncertain and thus may differ from the estimates. If actual or expected future
returns and claims are significantly greater or lower than the reserves that have been established, the Company would record
a reduction or increase to net revenues in the period in which it made such determination.
Cost of sales:
The expenses that are included in cost of sales include all direct product costs related to shipping, duties and importation.
Specific provisions for excess, close-out or slow moving inventory are also included in cost of sales. In addition, some of
the Company's products carry limited warranty provisions for defects in quality and workmanship. A warranty reserve is
52
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
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.
Selling, general and administrative expense:
SG&A expense consists of personnel-related costs, advertising, depreciation, occupancy, and other selling and general
operating expenses related to the Company's business functions, including planning, receiving finished goods, warehousing,
distribution, retail operations and information technology.
Shipping and handling costs:
Shipping and handling fees billed to customers and consumers are recorded as revenue. The direct costs associated
with shipping goods to customers and consumers are recorded as cost of sales. Inventory planning, receiving, storing and
handling costs are recorded as a component of SG&A expenses and were $65,757,000, $61,338,000 and $59,561,000 for
the years ended December 31, 2016, 2015 and 2014, respectively.
Stock-based compensation:
Stock-based compensation cost is estimated at the grant date based on the award's fair value and is recognized as
expense over the requisite service period using the straight-line attribution method. The Company estimates stock-based
compensation for stock options granted using the Black-Scholes option pricing model, which requires various subjective
assumptions, including volatility and expected option life. Further, the Company estimates forfeitures for stock-based awards
granted which are not expected to vest. For restricted stock unit awards subject to performance conditions, the amount of
compensation expense recorded in a given period reflects the Company's assessment of the probability of achieving its
performance targets. If any of these inputs or assumptions changes significantly, stock-based compensation expense may
differ materially in the future from that recorded in the current period. Assumptions are evaluated and revised as necessary
to reflect changes in market conditions and the Company's experience. Estimates of fair value are not intended to predict
actual future events or the value ultimately realized by people who receive equity awards. The fair value of service-based
and performance-based restricted stock units is discounted by the present value of the estimated future stream of dividends
over the vesting period using the Black-Scholes model.
Advertising costs:
Advertising costs are expensed in the period incurred and are included in SG&A expenses. Total advertising expense,
including cooperative advertising costs, was $118,663,000, $120,764,000 and $110,109,000 for the years ended December
31, 2016, 2015 and 2014, respectively.
Through cooperative advertising programs, the Company reimburses its wholesale customers for some of their costs
of advertising the Company's products based on various criteria, including the value of purchases from the Company and
various advertising specifications. Cooperative advertising costs are included in expenses because the Company receives
an identifiable benefit in exchange for the cost, the advertising may be obtained from a party other than the customer, and
the fair value of the advertising benefit can be reasonably estimated. Cooperative advertising costs were $8,699,000,
$10,008,000 and $8,056,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Recent accounting pronouncements:
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers Topic 606, outlining a
single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that
supersedes most current revenue recognition guidance. The updated guidance requires an entity to recognize revenue when
it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the
entity expects to be entitled in exchange for those goods or services. In addition, the new standard requires disclosure of
the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company
expects to adopt the standard on January 1, 2018. The new standard is required to be applied retrospectively to each prior
reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of
initial application. The Company plans to conclude upon its transition method during the first half of 2017, and is in the
53
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
process of evaluating the new standard against its existing accounting policies, including principal and agent considerations,
timing of revenue recognition, and balance sheet classifications, to determine the effect the guidance will have on the
Consolidated Financial Statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition
and Measurement of Financial Assets and Financial Liabilities, an update to their accounting guidance related to the
recognition and measurement of certain financial instruments. This new standard requires equity investments that are not
accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income
and also updates certain presentation and disclosure requirements. This standard is effective beginning in the first quarter
of 2018 with early adoption permitted. The adoption of ASU 2016-01 is not expected to have a material impact on the
Company's financial position, results of operations or cash flows.
Effective January 1, 2016, the Company adopted ASU No. 2016-09, Improvements to Employee Share-Based Payment
Accounting (Topic 718). See Changes affecting comparability under Note 1.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), in order to increase transparency and
comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for most leases
previously classified as operating leases. The new standard will become effective beginning with the first quarter of 2019
using a modified retrospective approach and early adoption is permitted. The Company is currently evaluating the impact
of this guidance, and expects the adoption will result in a material increase in the assets and liabilities on our consolidated
balance sheets and will likely have an insignificant impact on our consolidated statements of operations.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement
of Credit Losses on Financial Instruments. The pronouncement changes the impairment model for most financial assets,
and will require the use of an "expected loss" model for instruments measured at amortized cost. Under this model, entities
will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the
amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the
financial asset. This standard is effective beginning in the first quarter of 2020. The adoption of ASU 2016-13 is not expected
to have a material impact on the Company's financial position, results of operations or cash flows.
In October 2016, the FASB issued ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other
than Inventory, which requires the recognition of the income tax effects of an intra-entity transfer of an asset, other than
inventory, when the transfer occurs, eliminating an exception under current GAAP in which the tax effects of intra-entity
asset transfers are deferred until the transferred asset is sold to a third party or otherwise recovered through use. Income tax
effects of intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party.
The Company expects to adopt this new guidance during the first quarter of 2018, and anticipates it will result in increased
volatility in our effective income tax rate. The Company plans to apply the required modified retrospective approach with
a cumulative-effect adjustment to retained earnings of previously deferred charges.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the
Test for Goodwill Impairment, which simplifies the accounting for goodwill impairments by eliminating step two from the
goodwill impairment test. Under this new guidance, if the carrying amount of a reporting unit exceeds its fair value, an
impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated
to that reporting unit. The new standard will become effective during the first quarter of 2019, with early adoption permitted.
We are currently evaluating the impacts and expect the adoption of ASU 2017-04 to affect the amount and timing of future
goodwill impairment charges, if any.
NOTE 3—CONCENTRATIONS
Trade receivables
The Company had one customer that accounted for approximately 15.9% of consolidated accounts receivable at
December 31, 2016. No single customer accounted for 10% or more of consolidated accounts receivable at December 31,
2015. No single customer accounted for 10% or more of consolidated revenues for any of the years ended December 31,
2016, 2015 or 2014.
Derivatives
54
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company uses derivative instruments to hedge the currency exchange rate risk of anticipated transactions
denominated in non-functional currencies that are designated and qualify as cash flow hedges. The Company also uses
derivative instruments to economically hedge the currency exchange rate risk of certain investment positions, to hedge
balance sheet re-measurement risk and to hedge other anticipated transactions that do not qualify as cash flow hedges. At
December 31, 2016, the Company's derivative contracts had a remaining maturity of less than two years. The maximum
net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with
that counterparty, was less than $4,000,000 at December 31, 2016. All of the Company's derivative counterparties have
investment grade credit ratings. See Note 19 for further disclosures concerning derivatives.
Country and supplier concentrations
The Company's products are produced by contract manufacturers located outside the United States, principally in
Southeast Asia. Apparel is manufactured in approximately 17 countries, with Vietnam and China together accounting for
approximately 65% of 2016 global apparel production. Footwear is manufactured in four countries, with China and Vietnam
accounting for substantially all of 2016 global footwear production. The five largest apparel factory groups accounted for
approximately 28% of 2016 global apparel production, with the largest factory group accounting for 10% of 2016 global
apparel production. The five largest footwear factory groups accounted for approximately 73% of 2016 global footwear
production, with the largest factory group accounting for 34% of 2016 global footwear production. These companies,
however, have multiple factory locations, many of which are in different countries, thus reducing the risk that unfavorable
conditions at a single factory or location will have a material adverse effect on the Company.
NOTE 4—NON-CONTROLLING INTEREST
The Company owns a 60% controlling interest in a joint venture formed with Swire Resources, Limited ("Swire"),
which began operations on January 1, 2014, to support the development and operation of the Company's business in China.
The accounts and operations of the joint venture are included in the Consolidated Financial Statements for the years ended
December 31, 2016, 2015 and 2014. Swire's share of the net income of the joint venture is included in net income attributable
to non-controlling interest in the Consolidated Statements of Operations. The non-controlling equity interest in the joint
venture is presented separately in the Consolidated Balance Sheets and Consolidated Statements of Equity.
NOTE 5—ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, is as follows (in thousands):
Trade accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
December 31,
2016
342,234
(8,556)
333,678
$
$
2015
381,881
(9,928)
371,953
55
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 6—PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following (in thousands):
Land and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Buildings and improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Machinery, software and equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture and fixtures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
$
20,862
$
20,832
165,746
301,566
79,103
107,574
13,475
165,182
286,055
75,682
102,056
5,158
688,326
(408,676)
279,650
$
654,965
(363,278)
291,687
$
NOTE 7—INTANGIBLE ASSETS, NET AND GOODWILL
Intangible assets that are determined to have finite lives include patents, purchased technology and customer
relationships and are amortized over their estimated useful lives, which range from approximately 3 to 10 years, and are
measured for impairment only when events or circumstances indicate the carrying value may be impaired. Goodwill and
intangible assets with indefinite useful lives, including trademarks and trade names, are not amortized but are periodically
evaluated for impairment. At December 31, 2016 and 2015, the Company determined that its goodwill and intangible assets
were not impaired.
Intangible assets
The following table summarizes the Company's identifiable intangible assets balance (in thousands):
December 31,
2016
2015
Intangible assets subject to amortization:
Patents and purchased technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross carrying amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization:. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Patents and purchased technology. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net carrying amount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets not subject to amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
14,198
$
23,000
37,198
(9,321)
(9,860)
(19,181)
18,017
14,198
23,000
37,198
(7,992)
(6,043)
(14,035)
23,163
115,421
115,421
$
133,438
$
138,584
Amortization expense was $5,146,000 for both years ended December 31, 2016 and 2015, and was $7,057,000 for
the year ended December 31, 2014.
Annual amortization expense is estimated to be as follows for the years 2017 through 2021 (in thousands):
56
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,883
2,980
2,980
2,537
1,650
NOTE 8—SHORT-TERM BORROWINGS AND CREDIT LINES
The Company has a domestic credit agreement for an unsecured, committed $125,000,000 revolving line of credit.
The maturity date of this agreement is July 1, 2020. Interest, payable monthly, is based on the Company's applicable funded
debt ratio, ranging from USD LIBOR plus 87.5 to 162.5 basis points. This line of credit requires the Company to comply
with certain financial covenants covering net income, funded debt ratio, fixed charge coverage ratio, and borrowing basis.
If the Company is in default, it is prohibited from paying dividends or repurchasing common stock. At December 31, 2016,
the Company was in compliance with all associated covenants. At December 31, 2016 and 2015, no balance was outstanding
under this line of credit.
The Company's Canadian subsidiary has available an unsecured and uncommitted line of credit guaranteed by the
parent company providing for borrowing up to a maximum of C$30,000,000 (US$22,320,000) at December 31, 2016. The
revolving line accrues interest at the bank's Canadian prime rate. At December 31, 2016 no balance was outstanding under
this line of credit. At December 31, 2015 a balance of $1,940,000 was outstanding under this line of credit.
The Company's European subsidiary has available two separate unsecured and uncommitted lines of credit guaranteed
by the parent company providing for borrowing up to a maximum of €25,800,000 and €5,000,000 , respectively (combined
US$32,392,000), at December 31, 2016, of which US$2,419,000 of the €5,000,000 line is designated as a European customs
guarantee. These lines accrue interest based on the European Central Bank refinancing rate plus 50 basis points and the
Euro Overnight Index Average plus 75 basis points, respectively. There was no balance outstanding under either line at
December 31, 2016 or 2015.
The Company's Japanese subsidiary has two separate unsecured and uncommitted lines of credit guaranteed by the
parent company providing for borrowing up to a maximum of US$7,000,000 and ¥300,000,000, respectively (combined
US$9,565,000), at December 31, 2016. These lines accrue interest at JPY LIBOR plus 100 basis points and the Bank of
Tokyo Prime Rate, respectively. There was no balance outstanding under either line at December 31, 2016 or 2015.
The Company's Korean subsidiary has available an unsecured and uncommitted line of credit guaranteed by the parent
company providing for borrowing up to a maximum of US$20,000,000. The revolving line accrues interest at the Korean
three-month CD rate plus 220 basis points. There was no balance outstanding under this line at December 31, 2016 or 2015.
NOTE 9—ACCRUED LIABILITIES
Accrued liabilities consisted of the following (in thousands):
Accrued salaries, bonus, paid time off and other benefits . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued import duties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Product warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
A reconciliation of product warranties is as follows (in thousands):
December 31,
2016
66,227
14,366
11,455
50,110
142,158
$
$
2015
68,714
14,602
11,487
47,059
141,862
$
$
57
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for warranty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Warranty claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Year Ended December 31,
2015
11,148
4,560
(3,708)
(513)
11,487
2016
11,487
3,802
(3,726)
(108)
11,455
$
$
$
2014
10,768
4,675
(3,906)
(389)
11,148
NOTE 10—INCOME TAXES
Consolidated income from continuing operations before income taxes consisted of the following (in thousands):
U.S. operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2015
173,966
73,353
247,319
2016
173,798
83,100
256,898
$
$
$
$
2014
118,743
79,778
198,521
The components of the provision (benefit) for income taxes consisted of the following (in thousands):
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State and local . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-U.S.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2015
2014
2016
$
53,840
6,370
18,708
78,918
$
61,211
6,520
21,014
88,745
(12,921)
(2,166)
(5,372)
(20,459)
(8,883)
(906)
(11,488)
(21,277)
42,790
3,175
20,679
66,644
(5,147)
(739)
(4,096)
(9,982)
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
58,459
$
67,468
$
56,662
The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial
statements:
Provision for federal income taxes at the statutory rate . . . . . . . . . . . . . . . . .
State and local income taxes, net of federal benefit . . . . . . . . . . . . . . . . . . . .
Non-U.S. income taxed at different rates . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction of unrecognized tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reduction of valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from stock plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Actual provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
58
2016
Year Ended December 31,
2015
(percent of income)
2014
35.0%
1.5
(5.8)
(3.0)
(2.5)
—
(0.8)
—
(2.1)
0.5
22.8%
35.0%
2.2
(3.9)
(1.7)
—
(0.8)
(0.9)
(2.7)
—
0.1
27.3%
35.0%
1.5
(3.4)
—
—
(3.2)
(0.9)
—
—
(0.5)
28.5%
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Significant components of the Company's deferred taxes consisted of the following (in thousands):
Deferred tax assets:
Accruals and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Capitalized inventory costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Valuation allowance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Deferred tax liabilities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
2015
$
51,724
39,661
6,476
3,637
19,313
443
263
121,517
(1,323)
120,194
(25,703)
(667)
(1,477)
(27,847)
47,290
27,669
6,585
2,971
14,288
5,805
400
105,008
(258)
104,750
(26,608)
(1,477)
(713)
(28,798)
Total net deferred taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
92,347
$
75,952
The Company records net deferred tax assets to the extent it believes these assets will more likely than not be realized.
In making such a determination, the Company considers all available positive and negative evidence, including future
reversals of existing taxable temporary differences, projected future taxable income, tax-planning strategies, and results of
recent operations. The Company had net operating loss carryforwards at December 31, 2016 and 2015 in certain international
tax jurisdictions of $19,932,000 and $12,159,000, respectively, which will begin to expire in 2027. The net operating losses
result in deferred tax assets of $3,637,000 and $2,971,000 at December 31, 2016 and 2015, respectively. These deferred
tax assets were subject to a valuation allowance of $1,060,000 at December 31, 2016. There was no valuation allowance
for these deferred tax assets as of December 31, 2015.
The Company had undistributed earnings of foreign subsidiaries of approximately $422,940,000 at December 31,
2016 for which deferred taxes have not been provided. Such earnings are considered indefinitely invested outside of the
United States. If these earnings were repatriated to the United States, the earnings would be subject to U.S. taxation. The
amount of the unrecognized deferred tax liability associated with the undistributed earnings was approximately $94,193,000
at December 31, 2016. The unrecognized deferred tax liability approximates the excess of the United States tax liability
over the creditable foreign taxes paid that would result from a full remittance of undistributed earnings.
The Company conducts business globally, and, as a result, the Company or one or more of its subsidiaries files income
tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination
by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Japan, South Korea,
Switzerland, and the United States. The Company has effectively settled Canadian tax examinations of all years through
2011, U.S. and Japanese tax examinations of all years through 2012, France tax examinations of all years through 2013,
Italian tax examinations of all years through 2010, and Swiss tax examinations of all years through 2013. The Korean
National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014. Further,
the Korean National Tax Service concluded an audit of the Company's 2014 corporate income tax return in 2016, and due
to the nature of the findings in both of these audits, the Company has invoked the Mutual Agreement Procedures outlined
in the U.S.-Korean income tax treaty. The Company does not anticipate that adjustments relative to this dispute, or any
other ongoing tax audits, will result in material changes to its financial condition, results of operations or cash flows. Other
than the dispute previously noted, the Company is not currently under examination in any major jurisdiction.
59
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
Balance at beginning of year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to prior year tax positions . . . . . . . . . . . . . . . . . . . . . . . . . .
Decreases related to prior year tax positions. . . . . . . . . . . . . . . . . . . . . . . . . .
Increases related to current year tax positions . . . . . . . . . . . . . . . . . . . . . . . .
Settlements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expiration of statute of limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Balance at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
2016
11,187
2,514
(5,119)
1,599
—
(183)
9,998
December 31,
2015
$
$
6,630
365
(2,019)
6,564
—
(353)
11,187
$
$
2014
14,639
821
(7,623)
2,473
(3,121)
(559)
6,630
Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of
limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following
December 31, 2016 by a range of zero to $4,410,000. Open tax years, including those previously mentioned, contain matters
that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing,
or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle.
Unrecognized tax benefits of $7,723,000 and $9,358,000 would affect the effective tax rate if recognized at December
31, 2016 and 2015, respectively.
The Company recognizes interest expense and penalties related to income tax matters in income tax expense. The
Company recognized a net increase of accrued interest and penalties of $637,000 in 2016, and a net reversal of accrued
interest and penalties of $356,000 and $65,000 in 2015 and 2014, respectively, all of which related to uncertain tax positions.
The Company had $3,042,000 and $2,402,000 of accrued interest and penalties related to uncertain tax positions at December
31, 2016 and 2015, respectively.
NOTE 11—OTHER LONG-TERM LIABILITIES
Other long-term liabilities consisted of the following (in thousands):
Straight-line and deferred rent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation plan liability (Note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 31,
2016
30,869
3,342
8,411
42,622
$
$
2015
30,313
2,972
6,887
40,172
$
$
NOTE 12—RETIREMENT SAVINGS PLANS
401(k) Profit-Sharing Plan
The Company has a 401(k) profit-sharing plan, which covers substantially all U.S. employees. Participation begins
the first day of the quarter following completion of 30 days of service. The Company may elect to make discretionary
matching or non-matching contributions. All Company contributions to the plan as determined by the Board of Directors
totaled $7,754,000, $6,981,000 and $7,056,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Deferred Compensation Plan
The Company sponsors a nonqualified retirement savings plan for certain senior management employees whose
contributions to the tax qualified 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan allows
participants to defer receipt of a portion of their salary and incentive compensation and to receive matching contributions
for a portion of the deferred amounts. Company matching contributions to the plan totaled $200,000, $180,000 and $239,000
for the years ended December 31, 2016, 2015 and 2014, respectively. Participants earn a return on their deferred compensation
based on investment earnings of participant-selected mutual funds. Deferred compensation, including accumulated earnings
60
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
on the participant-directed investment selections, is distributable in cash at participant-specified dates or upon retirement,
death, disability, or termination of employment.
The Company has purchased specific mutual funds in the same amounts as the participant-directed investment
selections underlying the deferred compensation liabilities. These investment securities and earnings thereon, held in an
irrevocable trust, are intended to provide a source of funds to meet the deferred compensation obligations, subject to claims
of creditors in the event of the Company's insolvency. Changes in the market value of the participants' investment selections
are recorded as an adjustment to the investments and as unrealized gains and losses in SG&A expense. A corresponding
adjustment of an equal amount is made to the deferred compensation liabilities and compensation expense, which is included
in SG&A expense.
At December 31, 2016 and 2015, the long-term portion of the liability to participants under this plan was $8,411,000
and $6,887,000, respectively, and was recorded in other long-term liabilities. At December 31, 2016 and 2015, the current
portion of the participant liability was $472,000 and $629,000, respectively, and was recorded in accrued liabilities. At
December 31, 2016 and 2015, the fair value of the long-term portion of the mutual fund investments related to this plan
was $8,411,000 and $6,887,000, respectively, and was recorded in other non-current assets. At December 31, 2016 and
2015, the current portion of the mutual fund investments related to this plan was $472,000 and $629,000, respectively, and
was recorded in short-term investments.
NOTE 13—COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company leases, among other things, retail space, office space, warehouse facilities, storage space, vehicles, and
equipment. Generally, the base lease terms are between 5 and 10 years. Certain lease agreements contain scheduled rent
escalation clauses in their future minimum lease payments. Future minimum lease payments are recognized on a straight-
line basis over the minimum lease term and the pro rata portion of scheduled rent escalations is included in other long-term
liabilities. Certain retail space lease agreements provide for additional rents based on a percentage of annual sales in excess
of stipulated minimums ("percentage rent"). Certain lease agreements require the Company to pay real estate taxes, insurance,
common area maintenance ("CAM"), and other costs, collectively referred to as operating costs, in addition to base rent.
Percentage rent and operating costs are recognized as incurred in SG&A expense in the Consolidated Statements of
Operations. Certain lease agreements also contain lease incentives, such as tenant improvement allowances and rent holidays.
The Company recognizes the benefits related to the lease incentives on a straight-line basis over the applicable lease term.
Rent expense, including percentage rent but excluding operating costs for which the Company is obligated, consisted
of the following (in thousands):
Rent expense included in SG&A expense. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rent expense included in cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
Year Ended December 31,
2015
67,881
1,689
69,570
2016
75,457
1,626
77,083
$
$
$
$
2014
62,704
1,631
64,335
Approximate future minimum payments, including rent escalation clauses and committed leases for stores that are
not yet open, on all lease obligations at December 31, 2016, are as follows (in thousands). Operating lease obligations listed
below do not include percentage rent, real estate taxes, insurance, CAM, and other costs for which the Company is obligated.
These operating lease commitments are not reflected on the Consolidated Balance Sheets.
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
61,682
56,748
46,707
39,181
33,625
111,800
349,743
61
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Inventory Purchase Obligations
Inventory purchase obligations consist of open production purchase orders for sourced apparel, footwear, accessories,
and equipment, and raw material commitments not included in open production purchase orders. At December 31, 2016,
inventory purchase obligations were $202,391,000.
Litigation
The Company is involved in litigation and various legal matters arising in the normal course of business, including
matters related to employment, retail, intellectual property, contractual agreements, and various regulatory compliance
activities. Management has considered facts related to legal and regulatory matters and opinions of counsel handling these
matters, and does not believe the ultimate resolution of these proceedings will have a material adverse effect on the Company's
financial position, results of operations or cash flows.
Cyber Security Incident
In February 2017, we became aware of a cyber security incident involving our prAna.com e-commerce website. The
Company has taken steps to address the incident and has launched an investigation, engaging a cyber security firm to assist.
The Company is actively investigating the nature and scope of the incident, including to what extent customer information
may have been compromised. It is reasonably possible that the Company may incur losses in connection with the incident;
however, the Company is still in the early stages of the investigation and at this time the Company is unable to reasonably
estimate the amount of any losses or the amount of expenses, net of any potential insurance recovery, it may incur in
addressing this incident.
Indemnities and Guarantees
During its normal course of business, the Company has made certain indemnities, commitments and guarantees under
which it may be required to make payments in relation to certain transactions. These include (i) intellectual property
indemnities to the Company's customers and licensees in connection with the use, sale or license of Company products,
(ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease,
(iii) indemnities to customers, vendors and service providers pertaining to claims based on the negligence or willful
misconduct of the Company, (iv) executive severance arrangements, and (v) indemnities involving the accuracy of
representations and warranties in certain contracts. The duration of these indemnities, commitments and guarantees varies,
and in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for
any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has
not recorded any liability for these indemnities, commitments and guarantees in the accompanying Consolidated Balance
Sheets.
NOTE 14—SHAREHOLDERS' EQUITY
Since the inception of the Company's stock repurchase plan in 2004 through December 31, 2016, the Company's Board
of Directors has authorized the repurchase of $700,000,000 of the Company's common stock. As of December 31, 2016,
the Company had repurchased 20,992,940 shares under this program at an aggregate purchase price of approximately
$526,522,000. During the year ended December 31, 2016, the Company purchased an aggregate of $11,000 of common
stock under the stock repurchase plan. 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.
From January 1, 2017 through February 10, 2017, the Company repurchased 616,152 shares of the Company's common
stock at an aggregate purchase price of approximately $33,000,000.
NOTE 15—STOCK-BASED COMPENSATION
The Company's stock incentive plan (the "Plan") provides for issuance of up to 20,800,000 shares of the Company's
common stock, of which 3,089,699 shares were available for future grants under the Plan at December 31, 2016. The Plan
62
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, and
other stock-based or cash-based awards. The Company uses original issuance shares to satisfy share-based payments.
Stock-based compensation expense consisted of the following (in thousands):
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
SG&A expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Pre-tax stock-based compensation expense . . . . . . . . . . . . . . . . . . . . . . .
Income tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total stock-based compensation expense, net of tax . . . . . . . . . . . . . . . .
$
$
233
10,753
10,986
(3,969)
7,017
$
$
326
11,346
11,672
(4,044)
7,628
$
$
399
10,721
11,120
(3,874)
7,246
Year Ended December 31,
2015
2014
2016
The Company realized a tax benefit for the deduction from stock-based award transactions of $9,576,000, $11,872,000
and $8,835,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
Stock Options
Options to purchase the Company's common stock are granted at exercise prices equal to or greater than the fair market
value of the Company's common stock on the date of grant. Options generally vest and become exercisable ratably on an
annual basis over a period of four years and expire ten years from the date of the grant.
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, expected
volatility of the Company's stock over the option's expected term, the risk-free interest rate over the option's expected term,
and the Company's expected annual dividend yield. The option's expected term is derived from historical option exercise
behavior and the option's terms and conditions, which the Company believes provide a reasonable basis for estimating an
expected term. The expected volatility is estimated based on observations of the Company's historical volatility over the
most recent term commensurate with the expected term. The risk-free interest rate is based on the U.S. Treasury yield
approximating the expected term. The dividend yield is based on the expected cash dividend payouts. Assumptions are
evaluated and revised as necessary to reflect changes in market conditions and the Company's experience. Estimates of fair
value are not intended to predict actual future events or the value ultimately realized by people who receive equity awards.
The following table presents the weighted average assumptions for the years ended December 31:
Expected term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected stock price volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average grant date fair value. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
4.63 years
4.60 years
4.69 years
29.79%
26.57%
27.62%
1.17%
1.20%
$13.38
1.20%
1.26%
$10.36
1.22%
1.34%
$8.69
63
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table summarizes stock option activity under the Plan:
Options outstanding at January 1, 2014 . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at December 31, 2014 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at December 31, 2015 . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options outstanding at December 31, 2016 . . . . . . . . . . . . . .
Options vested and expected to vest at December 31, 2016 . .
Options exercisable at December 31, 2016 . . . . . . . . . . . . . . .
Weighted
Average
Exercise
Price
Weighted
Average
Remaining
Contractual
Life
Aggregate
Intrinsic Value
(in thousands)
25.02
39.69
28.39
24.28
28.00
48.46
34.59
25.63
32.69
56.63
47.33
29.25
37.40
36.95
28.63
6.36
$
45,187
6.50
43,682
6.50
38,209
6.39
6.32
4.90
$
$
$
45,253
44,798
34,691
Number of
Shares
3,148,264
$
512,761
(102,598)
(917,642)
2,640,785
500,761
(172,018)
(680,658)
2,288,870
430,544
(117,699)
(450,173)
2,151,542
2,086,456
1,168,794
$
$
$
The aggregate intrinsic value in the table above represents pre-tax intrinsic value that would have been realized if all
options had been exercised on the last business day of the period indicated, based on the Company's closing stock price on
that day.
Total stock option compensation expense for the years ended December 31, 2016, 2015 and 2014 was $3,896,000,
$3,637,000 and $3,587,000, respectively. At December 31, 2016, unrecognized costs related to stock options totaled
approximately $6,678,000, before any related tax benefit. The unrecognized costs related to stock options are being amortized
over the related vesting period using the straight-line attribution method. Unrecognized costs related to stock options at
December 31, 2016 are expected to be recognized over a weighted average period of 2.11 years. The aggregate intrinsic
value of stock options exercised was $12,976,000, $20,400,000 and $16,345,000 for the years ended December 31, 2016,
2015 and 2014, respectively. The total cash received as a result of stock option exercises for the years ended December 31,
2016, 2015 and 2014 was $13,167,000, $17,442,000 and $22,277,000, respectively.
Restricted Stock Units
Service-based restricted stock units are granted at no cost to key employees and generally vest over a period of four
years. Performance-based restricted stock units are granted at no cost to certain members of the Company's senior executive
team, excluding the Chairman of the Board of Directors and the Chief Executive Officer. Performance-based restricted
stock units granted prior to 2010 generally vest over a performance period of between two and one-half and three years
with an additional required service period of one year. Performance-based restricted stock units granted after 2009 generally
vest over a performance period of between two and three years. Restricted stock units vest in accordance with the terms
and conditions established by the Compensation Committee of the Board of Directors, and are based on continued service
and, in some instances, on individual performance or Company performance or both. For the majority of restricted stock
units granted, the number of shares issued on the date the restricted stock units vest is net of the minimum statutory
withholding requirements that the Company pays in cash to the appropriate taxing authorities on behalf of its employees.
For the years ended December 31, 2016, 2015 and 2014, the Company withheld 88,335, 90,355 and 78,265 shares,
respectively, to satisfy $5,127,000, $4,895,000 and $3,141,000 of employees' tax obligations, respectively.
64
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of service-based and performance-based restricted stock units is discounted by the present value of the
estimated future stream of dividends over the vesting period using the Black-Scholes model. The relevant inputs and
assumptions used in the Black-Scholes model to compute the discount are the vesting period, expected annual 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 the years ended December 31:
Vesting period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Estimated average fair value per restricted stock unit granted . . . . . . . . . . . . .
2016
2015
2014
3.57 years
3.82 years
3.83 years
1.08%
$55.93
1.14%
$51.07
1.33%
$38.98
The following table summarizes the restricted stock unit activity under the Plan:
Restricted stock units outstanding at January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units outstanding at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units outstanding at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Restricted stock units outstanding at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . .
Number of
Shares
674,494
272,642
(220,348)
(68,028)
658,760
207,040
(243,765)
(68,746)
553,289
205,734
(235,059)
(57,489)
466,475
Weighted Average
Grant Date Fair
Value Per Share
25.67
$
38.98
25.21
28.51
31.03
51.07
28.09
34.57
38.85
55.93
33.98
46.35
47.23
$
Restricted stock unit compensation expense for the years ended December 31, 2016, 2015 and 2014 was $7,090,000,
$8,035,000 and $7,533,000, respectively. At December 31, 2016, unrecognized costs related to restricted stock units totaled
approximately $12,430,000, 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 December
31, 2016 are expected to be recognized over a weighted average period of 1.94 years. The total grant date fair value of
restricted stock units vested during the years ended December 31, 2016, 2015 and 2014 was $7,988,000, $6,848,000 and
$5,554,000, respectively.
NOTE 16—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.
65
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of the common shares used in the denominator for computing basic and diluted EPS is as follows (in
thousands, except per share amounts):
Weighted average common shares outstanding, used in computing basic
earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of dilutive stock options and restricted stock units. . . . . . . . . . . . . . . . .
Weighted-average common shares outstanding, used in computing diluted
earnings per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings per share of common stock attributable to Columbia Sportswear
Company:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended December 31,
2016
2015
2014
69,683
949
70,162
902
69,807
874
70,632
71,064
70,681
$
$
2.75
2.72
$
2.48
2.45
1.97
1.94
Stock options and service-based restricted stock units representing 517,654, 154,170 and 409,250 shares of common
stock for the years ended December 31, 2016, 2015 and 2014, respectively, were outstanding but were excluded in 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 63,430, 122,858 and 120,363 shares for the years ended
December 31, 2016, 2015 and 2014, 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.
NOTE 17—ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss, net of applicable taxes, reported on the Company's Consolidated Balance
Sheets consists of unrealized gains and losses on available-for-sale securities, unrealized gains and losses on 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 related tax effects, for the years ended
December 31, 2016, 2015 and 2014 (in thousands):
Unrealized
gains (losses)
on available for
sale securities
Unrealized holding
gains (losses) on
derivative
transactions
Foreign
currency
translation
adjustments
Total
Balance at January 1, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications .
Amounts reclassified from other comprehensive income . . .
Net other comprehensive income (loss) during the year . . . .
Balance at December 31, 2014 . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications .
Amounts reclassified from other comprehensive income . . .
Net other comprehensive income (loss) during the year . . . .
Balance at December 31, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss) before reclassifications .
Amounts reclassified from other comprehensive income . . .
Net other comprehensive income (loss) during the year . . . .
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
$
$
(6) $
10
—
10
4
(6)
—
(6)
(2)
(2)
—
(2)
(4) $
1,244
9,462
(1,711)
7,751
8,995
9,791
(12,699)
(2,908)
6,087
420
266
686
6,773
$
34,122
(27,288)
—
(27,288)
6,834
(33,755)
$ 35,360
(17,816)
(1,711)
(19,527)
15,833
(23,970)
— (12,699)
(36,669)
(20,836)
(2,047)
266
(1,781)
$ (29,386) $(22,617)
(33,755)
(26,921)
(2,465)
—
(2,465)
All reclassification adjustments related to derivative transactions are recorded in cost of sales on the Consolidated
Statements of Operations. See Note 19 for further information regarding derivative instrument reclassification adjustments.
66
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 18—SEGMENT INFORMATION
The Company has aggregated its operating segments into four reportable geographic segments: (1) the 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 outdoor and active lifestyle apparel,
footwear, accessories, and equipment. Intersegment net sales and intersegment profits, which are recorded at a negotiated
mark-up and eliminated in consolidation, are not material. Unallocated corporate expenses consist of expenses incurred by
centrally-managed departments, including global information systems, finance, human resources and legal, executive
compensation, unallocated benefit program expense, and other miscellaneous costs.
The geographic distribution of the Company's net sales, income from operations, interest income (expense), income
tax (expense) benefit, and depreciation and amortization expense are summarized in the following tables (in thousands) for
the years ended December 31, 2016, 2015 and 2014 and for accounts receivable, net and inventories at December 31, 2016
and 2015.
Net sales to unrelated entities:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2016
2015
2014
$ 1,505,302
$ 1,455,283
$ 1,198,405
453,686
253,487
164,570
469,140
233,226
168,531
491,648
259,163
151,374
$ 2,377,045
$ 2,326,180
$ 2,100,590
Segment income from operations:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total segment income from operations. . . . . . . . . . . . . . . . . . . . . . .
Unallocated corporate expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense on note payable to related party . . . . . . . . . . . . . . . . . .
Other non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 331,706
$ 309,162
$ 229,784
61,994
8,403
19,010
65,846
8,664
23,772
66,810
12,667
22,784
421,113
(164,605)
2,003
(1,041)
(572)
$ 256,898
407,444
(157,723)
1,531
(1,099)
(2,834)
$ 247,319
332,045
(133,201)
1,004
(1,053)
(274)
$ 198,521
Interest income (expense), net:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax (expense) benefit:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
2,334
(216)
2,663
(2,778)
2,003
$
$
4,765
(555)
152
(2,831)
1,531
$
$
4,804
(138)
(661)
(3,001)
1,004
(45,584) $
(12,345)
(58,487) $
(10,058)
(40,431)
(14,062)
67
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,507
(2,037)
(58,459) $
5,305
(4,228)
(67,468) $
678
(2,847)
(56,662)
$
Depreciation and amortization expense:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unallocated corporate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
24,920
$
25,490
$
25,736
6,392
3,189
2,912
5,437
2,419
3,020
22,603
20,155
$
60,016
$
56,521
$
4,750
2,550
3,463
17,518
54,017
Accounts receivable, net:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
LAAP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment, net:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
All other countries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 162,017
$ 177,893
84,947
42,195
44,519
92,155
41,294
60,611
$ 333,678
$ 371,953
$ 308,721
$ 298,591
95,033
51,226
33,017
98,986
42,499
33,561
$ 487,997
$ 473,637
$ 211,572
$ 222,164
28,159
39,919
29,294
40,229
$ 279,650
$ 291,687
Net sales by product category:
Apparel, accessories and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Footwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,865,449
$ 1,821,182
$ 1,676,192
511,596
504,998
424,398
$ 2,377,045
$ 2,326,180
$ 2,100,590
NOTE 19—FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In the normal course of business, the Company's financial position, results of operations and cash flows 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.
68
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from
anticipated non-functional currency denominated purchases and sales. Our subsidiaries and joint venture that use European
euros, Canadian dollars, Japanese yen, or Chinese renminbi as their functional currency are primarily exposed to changes
in functional currency equivalent cash flows from anticipated U.S. dollar inventory purchases. The Company's prAna
subsidiary uses U.S. dollars as its functional currency and is exposed to anticipated Canadian dollar denominated sales. The
Company manages these risks by using currency forward and option contracts formally designated and effective as cash
flow hedges. Hedge effectiveness is generally 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 is excluded from the determination
of hedge effectiveness and included in current cost of sales for hedges of anticipated U.S. dollar inventory purchases and
in net sales for hedges of anticipated Canadian dollar sales. For option contracts, the change in fair value attributable to
changes in time value is excluded from the assessment of hedge effectiveness and included in current period cost of sales.
Hedge ineffectiveness was not material during the years ended December 31, 2016, 2015 and 2014.
The Company also uses foreign currency forward contracts not formally designated as hedges using euros, yen,
Canadian dollars, and Swiss francs to manage the consolidated currency exchange risk associated with the remeasurement
of non-functional currency denominated monetary assets and liabilities. 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.
The following table presents the gross notional amount of outstanding derivative instruments (in thousands):
December 31,
2016
2015
Derivative instruments designated as cash flow hedges:
Currency forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 206,000
$ 161,000
Derivative instruments not designated as hedges:
Currency forward contracts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184,940
113,195
At December 31, 2016, approximately $6,984,000 of deferred net gains on both outstanding and matured derivatives
accumulated in other comprehensive income are expected to be reclassified to income before tax 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 euro, Canadian dollar, yen, and renminbi
when outstanding derivative contracts mature.
At December 31, 2016, the Company's derivative contracts had remaining maturities of less than two years. The
maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts
with that counterparty, was less than $4,000,000 at December 31, 2016. All of the Company's derivative counterparties have
investment grade credit ratings. The Company is a party to master netting arrangements that contain features that allow
counterparties to net settle amounts arising from multiple separate derivative transactions or net settle in the case of certain
triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. Finally, the Company
has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.
69
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):
Balance Sheet Classification
2016
2015
December 31,
Derivative instruments designated as cash flow
hedges:
Derivative instruments in asset positions:
Currency forward contracts . . . . . . . . . . . . . Prepaid expenses and other current assets
Currency forward contracts . . . . . . . . . . . . .
Other non-current assets
Derivative instruments in liability positions:
Currency forward contracts . . . . . . . . . . . . .
Accrued liabilities
$
9,805
$
5,394
1,969
106
566
224
Derivative instruments not designated as hedges:
Derivative instruments in asset positions:
Currency forward contracts . . . . . . . . . . . . . Prepaid expenses and other current assets
1,361
1,328
Derivative instruments in liability positions:
Currency forward contracts . . . . . . . . . . . . .
Accrued liabilities
180
1,693
The following table presents the effect and classification of derivative instruments for the years ended December 31,
2016, 2015 and 2014 (in thousands):
Statement Of Operations
Classification
2016
2015
2014
For the Year Ended
December 31,
Currency Forward Contracts:
Derivative instruments designated as cash flow
hedges:
Gain recognized in other comprehensive
income, net of tax. . . . . . . . . . . . . . . . . . .
Gain (loss) reclassified from accumulated
other comprehensive income to income
for the effective portion . . . . . . . . . . . . . .
Loss reclassified from accumulated other
comprehensive income to income as a
result of cash flow hedge discontinuance
Gain (loss) reclassified from accumulated
other comprehensive income to income
for the effective portion . . . . . . . . . . . . . .
Gain (loss) recognized in income for
amount excluded from effectiveness
testing and for the ineffective portion . . .
Gain (loss) recognized in income for
amount excluded from effectiveness
testing and for the ineffective portion . . .
Derivative instruments not designated as
hedges:
—
$
583
$
9,791
$
9,462
Cost of sales
(724)
15,446
2,727
Cost of sales
(24)
—
—
Net sales
115
385
(27)
Cost of sales
1,240
(209)
(353)
Net sales
1
(30)
—
Gain recognized in income . . . . . . . . . . . . .
Other non-operating
expense
2,739
2,838
7,111
70
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 20—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 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.
Assets measured at fair value on a recurring basis as of December 31, 2016 are as follows (in thousands):
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
299,769
73,127
$
— $
—
—
$
$
$
472
—
—
8,411
381,779
$
11,166
1,969
—
13,135
— $
— $
286
286
— $
—
299,769
73,127
—
—
472
11,166
—
—
— $
1,969
8,411
394,914
— $
— $
286
286
Other short-term investments:
Mutual fund shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets:
Derivative financial instruments (Note 19). . . . . . . .
Non-current assets:
Derivative financial instruments (Note 19). . . . . . . .
Mutual fund shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets measured at fair value . . . . . . . . .
Liabilities:
Accrued liabilities:
Derivative financial instruments (Note 19). . . . . . . .
Total liabilities measured at fair value. . . . . . .
$
$
$
71
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Assets and liabilities measured at fair value on a recurring basis at December 31, 2015 are as follows (in thousands):
Level 1
Level 2
Level 3
Total
Assets:
Cash equivalents:
Money market funds . . . . . . . . . . . . . . . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
114,247
63,327
$
— $
—
— $
—
114,247
63,327
Other short-term investments:
Mutual fund shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets:
Derivative financial instruments (Note 19). . . . . . . .
Non-current assets:
Derivative financial instruments (Note 19). . . . . . . .
Mutual fund shares . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets measured at fair value . . . . . . . . .
Liabilities:
Accrued liabilities:
Derivative financial instruments (Note 19). . . . . . . .
Total liabilities measured at fair value. . . . . . .
629
—
—
6,887
185,090
$
—
6,722
566
—
7,288
— $
— $
1,917
1,917
$
$
$
$
$
$
—
—
629
6,722
—
—
— $
566
6,887
192,378
— $
— $
1,917
1,917
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 at December 31, 2016 or
2015.
NOTE 21—BUSINESS ACQUISITION
On May 30, 2014, the Company purchased 100% of the equity interest in prAna Living, LLC ("prAna") for
$188,467,000, net of acquired cash of $4,946,000.
Purchase price allocation
Acquired assets and liabilities were recorded at estimated fair value as of the acquisition date. The excess of the
purchase price over the estimated fair value of identifiable net assets resulted in the recognition of goodwill of $54,156,000,
all of which was assigned to the United States segment, and is attributable to future growth opportunities and any intangible
assets that did not qualify for separate recognition. The goodwill is deductible for tax purposes.
The following table summarizes the fair value of the net assets acquired and liabilities assumed as of the acquisition
date of May 30, 2014, including measurement period adjustments (in thousands):
72
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquired intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total identifiable assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,946
10,021
9,641
2,531
5,192
114,500
258
147,089
2,803
5,029
7,832
Net identifiable assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
139,257
54,156
193,413
NOTE 22—RELATED PARTY TRANSACTIONS
On January 1, 2014, the Company commenced operations of a majority-owned joint venture in mainland China. Upon
commencement, the joint venture entered into Transition Services Agreements ("TSAs") with Swire, the non-controlling
shareholder in the joint venture, under which Swire renders administrative and information technology services on behalf
of the joint venture. The joint venture incurred service fees, valued under the TSAs at Swire's cost of $3,294,000, $5,974,000
and $8,638,000 for the years ended December 31, 2016, 2015 and 2014, respectively. These fees are included in SG&A
expenses on the Consolidated Statement of Operations. In addition, the joint venture pays Swire sourcing fees related to
the purchase of certain inventory. These sourcing fees are capitalized into inventories and charged to cost of sales as the
inventories are sold. For the years ended December 31, 2016, 2015 and 2014, the joint venture incurred sourcing fees of
$71,000, $396,000 and $388,000, respectively.
In 2014, both the Company and Swire funded long-term loans to the joint venture. The Company's loan has been
eliminated in consolidation, while the Swire loan is reflected as note payable to related party on the Consolidated Balance
Sheets as of December 31, 2016 and 2015. The note with Swire, in the principal amount of 97,600,000 RMB (US$14,053,000
at December 31, 2016), matures on December 31, 2018 and bears interest at a fixed annual rate of 7%. Interest expense
related to this note was $1,041,000, $1,099,000 $1,053,000 for the years ended December 31, 2016, 2015 and 2014,
respectively.
As of December 31, 2016 and 2015, payables to Swire for service fees and interest expense totaled $707,000 and
$1,472,000, respectively, and were included in accounts payable on the Consolidated Balance Sheets.
In addition to the transactions described above, Swire is also a third-party distributor of the Company's brands in
certain regions outside of mainland China and purchases products from the Company under the Company's normal third-
party distributor terms and pricing.
73
SUPPLEMENTARY DATA—QUARTERLY FINANCIAL DATA (Unaudited)
The following table summarizes the Company's quarterly financial data for the past two years ended December 31,
2016 (in thousands, except per share amounts):
2016
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Columbia Sportswear
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per share attributable to Columbia
Sportswear Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2015
Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) attributable to Columbia Sportswear
Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Earnings (loss) per share attributable to Columbia
Sportswear Company
$
$
$
First
Quarter
Second
Quarter
Third
Quarter
Fourth
Quarter
525,136
247,377
$
388,745
179,584
$
745,714
345,712
$
717,450
337,675
31,770
(8,172)
83,585
84,715
0.46
0.45
First
Quarter
478,982
228,774
$
$
(0.12) $
(0.12)
1.20
1.18
Second
Quarter
Third
Quarter
380,234
171,318
$
767,550
356,460
$
$
1.21
1.20
Fourth
Quarter
699,414
316,948
26,471
(6,545)
91,061
63,350
Basic. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.38
0.37
(0.09) $
(0.09)
$
1.29
1.28
0.91
0.90
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
Item 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and
Chief Financial Officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by
this report pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (the "Exchange Act"). Based on that
evaluation, our chief executive officer and chief financial officer have concluded that, as of the end of the period covered
by this report, our disclosure controls and procedures were effective in ensuring that information required to be disclosed
in our Exchange Act reports is (1) recorded, processed, summarized, and reported in a timely manner and (2) accumulated
and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to
allow timely decisions regarding required disclosure.
Design and Evaluation of Internal Control Over Financial Reporting
Report of Management
Our management is responsible for establishing and maintaining adequate internal control over financial reporting.
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems
determined to be effective can provide only reasonable assurance with respect to financial statement preparation and
presentation.
Under the supervision and with the participation of our management, we assessed the effectiveness of our internal
control over financial reporting as of December 31, 2016. In making this assessment, we used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission in Internal Control - Integrated Framework (2013).
74
Based on our assessment we believe that, as of December 31, 2016, the Company's internal control over financial reporting
is effective based on those criteria.
We are implementing an enterprise resource planning ("ERP") system and complementary systems that support our
operations and financial reporting, which significantly affect our business and financial transaction and reporting processes.
This implementation is occurring in phases globally over several years, with implementation to date at our North American
operations and independent international distributor businesses, excluding prAna, as well as the majority of our global
supply chain operations. Each implementation phase of our worldwide ERP system and complementary systems involves
changes to the processes that constitute our internal control over financial reporting. We are taking steps to monitor and
maintain appropriate internal control over financial reporting and will continue to evaluate these controls for effectiveness.
There were no other changes in our internal control over financial reporting that occurred during the quarter ended
December 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over
financial reporting.
Our independent auditors have issued an audit report on the effectiveness of our internal control over financial reporting
as of December 31, 2016, which is included herein.
75
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders
Columbia Sportswear Company
Portland, Oregon
We have audited the internal control over financial reporting of Columbia Sportswear Company and subsidiaries (the
"Company") as of December 31, 2016, based on criteria established in Internal Control — Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is
responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting, included in the accompanying Report of Management. Our responsibility is to
express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective
internal control over financial reporting was maintained in all material respects. Our audit included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's
principal executive and principal financial officers, or persons performing similar functions, and effected by the company's
board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial
reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of
the company are being made only in accordance with authorizations of management and directors of the company; and (3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of
the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion
or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected
on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting
to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that
the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting
as of December 31, 2016, based on the criteria established in Internal Control — Integrated Framework (2013) issued by
the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31,
2016 of the Company, and our report dated February 23, 2017, expressed an unqualified opinion on those financial statements
and financial statement schedule.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
February 23, 2017
76
Item 9B. OTHER INFORMATION
None.
77
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The sections of our 2017 Proxy Statement entitled "Election of Directors," "Corporate Governance - Code of Business
Conduct and Ethics," "Corporate Governance - Board Committees," "Corporate Governance - Director Nomination Policy,"
and "Section 16(a) Beneficial Ownership Reporting Compliance" are incorporated herein by reference.
See Item 4A of this Annual Report on Form 10-K for information regarding our executive officers.
Item 11. EXECUTIVE COMPENSATION
The sections of our 2017 Proxy Statement entitled "Executive Compensation," "Director Compensation," "Corporate
Governance - Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report" are
incorporated herein by reference.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The sections of our 2017 Proxy Statement entitled "Security Ownership of Certain Beneficial Owners and
Management" and "Equity Compensation Plan Information" are incorporated herein by reference.
Item 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The sections of our 2017 Proxy Statement entitled "Corporate Governance - Certain Relationships and Related
Transactions," "Corporate Governance - Related Transactions Approval Process," and "Corporate Governance -
Independence" are incorporated herein by reference.
Item 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The sections of our 2017 Proxy Statement entitled "Ratification of Selection of Independent Registered Public
Accounting Firm - Principal Accountant Fees and Services" and "Pre-Approval Policy" are incorporated herein by reference.
78
PART IV
Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) and (a)(2) Financial Statements. The Financial Statements of Columbia and Supplementary Data filed as part
of this Annual Report on Form 10-K are on pages 44 to 74 of this Annual Report. The financial statement schedule required
to be filed by Item 8 and paragraph (b) of this Item 15 is included below.
(a)(3) See Exhibit Index beginning on page 81 for a description of the documents that are filed as Exhibits to this
Annual Report on Form 10-K or incorporated herein by reference.
Schedule II
Valuation and Qualifying Accounts
(in thousands)
Description
Year Ended December 31, 2016:
Balance at
Beginning
of Period
Charged to
Costs and
Expenses
Deductions
(a)
Other
(b)
Balance at
End of
Period
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . .
Allowance for sales returns and miscellaneous claims . .
Year Ended December 31, 2015:
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . .
Allowance for sales returns and miscellaneous claims . .
Year Ended December 31, 2014:
Allowance for doubtful accounts. . . . . . . . . . . . . . . . . . .
Allowance for sales returns and miscellaneous claims . .
$
$
$
9,928
40,510
8,943
27,379
8,282
25,125
$
$
$
2,037
49,822
$ (3,406) $
(50,548)
(3) $ 8,556
39,768
(16)
2,788
54,017
$ (1,239) $
(40,022)
(564) $ 9,928
40,510
(864)
2,299
47,187
$ (1,344) $
(43,322)
(294) $ 8,943
27,379
(1,611)
—————
(a) Charges to the accounts included in this column are for the purposes for which the reserves were created.
(b) Amounts included in this column primarily relate to foreign currency translation.
79
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
COLUMBIA SPORTSWEAR COMPANY
By:
/s/ THOMAS B. CUSICK
Thomas B. Cusick
Executive Vice President of Finance, Chief Financial Officer and
Treasurer
Date: February 23, 2017
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
/s/
Signatures
TIMOTHY P. BOYLE
Timothy P. Boyle
THOMAS B. CUSICK
Thomas B. Cusick
GERTRUDE BOYLE
Gertrude Boyle
SARAH A. BANY
Sarah A. Bany
EDWARD S. GEORGE
Edward S. George
MURREY R. ALBERS
Murrey R. Albers
JOHN W. STANTON
John W. Stanton
WALTER T. KLENZ
Walter T. Klenz
STEPHEN E. BABSON
Stephen E. Babson
ANDY D. BRYANT
Andy D. Bryant
RONALD E. NELSON
Ronald E. Nelson
MALIA H. WASSON
Malia H. Wasson
Date: February 23, 2017
Title
Chief Executive Officer and Director (Principal
Executive Officer)
Executive Vice President of Finance, Chief Financial
Officer and Treasurer (Principal Financial and
Accounting Officer)
Chairman of the Board of Directors
Director
Director
Director
Director
Director
Director
Director
Director
Director
80
EXHIBIT INDEX
In reviewing the agreements included as exhibits to this Annual Report on Form 10-K, please remember they are
included to provide you with information regarding their terms and are not intended to provide any other factual or
disclosure information about Columbia or the other parties to the agreements. The agreements may contain representations
and warranties by each of the parties to the applicable agreement. These representations and warranties have been made
solely for the benefit of the other party or parties to the applicable agreement and:
•
•
•
•
should not in all instances be treated as categorical statements of fact, but rather as a means of allocating the
risk to one of the parties if those statements prove to be inaccurate;
may have been qualified by disclosures that were made to the other party or parties in connection with the
negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;
may apply standards of materiality in a manner that is different from what may be viewed as material to you
or other investors; and
were made only as of the date of the applicable agreement or other date or dates that may be specified in the
agreement and are subject to more recent developments.
Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were
made or at any other time. Additional information about Columbia may be found elsewhere in this Annual Report on Form
10-K and Columbia's other public filings, which are available without charge through the SEC's website at http://
www.sec.gov.
Exhibit No.
Exhibit Name
3.1
3.2
3.3
3.4
3.5
3.6
4.1
+ 10.1
† 10.1(a)
Third Restated Articles of Incorporation (incorporated by reference to exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2000) (File No. 000-23939)
Amendment to Third Restated Articles of Incorporation (incorporated by reference to exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2002) (File No.
0-23939)
2000 Restated Bylaws, as amended (incorporated by reference to exhibit 3.2 to the Company's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2011) (File No. 000-23939)
Amendment to 2000 Restated Bylaws of Columbia Sportswear Company, as amended, effective
October 24, 2014 (incorporated by reference to exhibit 3.2 to the Company's Form 8-K filed on October
30, 2014) (File No. 0-23939)
Amendment to 2000 Restated Bylaws of Columbia Sportswear Company, as amended, effective March
19, 2015 (incorporated by reference to exhibit 3.2 to the Company's Form 8-K filed on March 23, 2015)
File No. 000-23939)
Amendment to 2000 Restated Bylaws of Columbia Sportswear Company, as amended, effective July
24, 2015 (incorporated by reference to exhibit 3.2 to the Company's Form 8-K filed on July 29, 2015)
File No. 000-23939)
See Article II of Exhibit 3.1, as amended by Exhibit 3.2, and Article I of Exhibit 3.3
Columbia Sportswear Company 1997 Stock Incentive Plan, as amended (incorporated by reference to
exhibit 10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30,
2012) (File No. 000-23939)
Subscription and Shareholders' Agreement, dated August 6, 2012, by and among CSMM Hong Kong
Limited, SCCH Limited, Columbia Sportswear Company and Swire Resources Limited (incorporated
by reference to exhibit 10.1 of the Company's Quarterly Report on Form 10-Q for the quarterly period
ended September 30, 2012) (File No. 000-23939)
10.1(b)
Share purchase agreement, dated April 28, 2014, by and among Columbia Sportswear Company, prAna
Living, LLC, the Shareholders of prAna Living, LLC and Steelpoint Capital Advisors, LLC as the
shareholder representative (incorporated by reference to exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended June 30, 2014) (File No. 000-23939)
+ 10.1(c)
Employment agreement between Columbia Sportswear International Sàrl ("Employer") and Franco
Fogliato ("Employee")
81
Exhibit No.
Exhibit Name
+ 10.2
+ 10.2(a)
+ 10.2(b)
+ 10.2(c)
+ 10.2(d)
+ 10.2(e)
+ 10.2(f)
+ 10.2(g)
+ 10.2(h)
+ 10.2(i)
+ 10.2(j)
Form of Nonstatutory Stock Option Agreement for stock options granted prior to July 20, 2006
(incorporated by reference to exhibit 10.3 to the Company's Registration Statement Filed on Form S-1
filed on December 24, 1997) (File No. 333-43199)
Form of Nonstatutory Stock Option Agreement for stock options granted on or after July 20, 2006 and
before January 23, 2009 (incorporated by reference to exhibit 99.1 to the Company's Form 8-K filed on
July 26, 2006)
Form of Nonstatutory Stock Option Agreement for stock options granted on or after January 23, 2009
(incorporated by reference to exhibit 10.2 (e) to the Company's Annual Report on Form 10-K for the
year ended December 31, 2008) (File No. 000-23939)
Form of Executive Stock Option Agreement (incorporated by reference to exhibit 10.3 (a) to the
Company's Annual Report on Form 10-K for the year ended December 31, 2000) (File No. 000-23939)
Form of Restricted Stock Unit Award Agreement for awards granted on or after January 23, 2009
(incorporated by reference to exhibit 10.2(f) to the Company's Annual Report on Form 10-K for the
year ended December 31, 2008) (File No. 000-23939)
Form of Performance-based Restricted Stock Unit Award Agreement for performance-based restricted
stock units granted on or after March 29, 2010 (incorporated by reference to exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2011) (File No.
000-23939)
Columbia Sportswear Company 401(k) Excess Plan (incorporated by reference to exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2009) (File No.
000-23939)
Form of Restricted Stock Unit Award Agreement for restricted stock units granted on or after June 7,
2012 (incorporated by reference to exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for
the quarterly period ended June 30, 2012) (File No. 000-23939)
Form of Nonstatutory Stock Option Agreement for stock options granted on or after June 7, 2012
(incorporated by reference to exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 2012) (File No. 000-23939)
Form of Performance-based Restricted Stock Unit Award Agreement for performance-based restricted
stock units granted on or after December 17, 2013 (incorporated by reference to exhibit 10.2(l) to the
Company's Annual Report on Form 10-K for the year ended December 31, 2013) (File No. 000-23939)
Form of Long-Term Incentive Cash Award Agreement for cash awards granted on or after December 17,
2013 (incorporated by reference to exhibit 10.2(m) to the Company's Annual Report on Form 10-K for
the year ended December 31, 2013) (File No. 000-23939)
+ 10.2(k)
Long-Term Cash Incentive Plan of Columbia Sportswear Company, effective as of March 1, 2015
+ 10.4
Columbia Sportswear Company Change in Control Severance Plan (incorporated by reference to exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2013)
(File No. 000-23939)
10.5
10.5(a)
10.5(b)
10.5(c)
10.5(d)
10.5(e)
Credit Agreement between the Company and Wells Fargo Bank National Association dated June 15,
2010 (incorporated by reference to the Company's Form 8-K filed on June 18, 2010) (File No. 0-23939)
First Amendment to Credit Agreement between the Company and Wells Fargo Bank National
Association dated December 16, 2010 (incorporated by reference to the Company's Form 8-K filed on
December 17, 2010) (File No. 0-23939)
Second Amendment to Credit Agreement between the Company and Wells Fargo Bank National
Association dated September 20, 2011 (incorporated by reference to the Company's Form 8-K filed on
September 21, 2011) (File No. 0-23939)
Third amendment to Credit Agreement between the Company and Wells Fargo Bank National
Association dated June 18, 2013 (incorporated by reference to the Company's Form 8-K filed on June
19, 2013) (File No. 0-23939)
Fourth amendment to Credit Agreement between the Company and Wells Fargo Bank National
Association dated September 27, 2013 (incorporated by reference to the Company's Form 8-K filed on
September 30, 2013) (File No. 0-23939)
Fifth amendment to Credit Agreement dated September 26, 2014 among Columbia Sportswear Company,
Wells Fargo Bank, National Association, as the administrator for the lenders and as a lender, and Bank of
America, N.A., as a lender (incorporated by reference to the Company's Form 8-K filed on September 30,
2014) (File No. 0-23939)
82
Exhibit No.
Exhibit Name
10.5(f)
10.5(g)
10.5(f)
* 10.9
+ 10.10
+ 10.11
+ 10.12
21.1
23.1
31.1
31.2
32.1
32.2
Sixth amendment to Credit Agreement dated August 31, 2015 among Columbia Sportswear Company,
Wells Fargo Bank, National Association, as the administrator for the lenders and as a lender, and Bank
of America, N.A., as a lender (incorporated by reference to the Company's Form 8-K filed on
September 2, 2015) (File No. 0-23939)
Seventh amendment to Credit Agreement dated September 29, 2015 among Columbia Sportswear
Company, Wells Fargo Bank, National Association, as the administrator for the lenders and as a lender,
and Bank of America, N.A., as a lender (incorporated by reference to the Company's Form 8-K filed on
October 2, 2015) (File No. 0-23939)
Eighth amendment to Credit Agreement dated August 1, 2016 among Columbia Sportswear Company,
Wells Fargo Bank, National Association, as the administrator for the lenders and as a lender, and Bank
of America, N.A., as a lender (incorporated by reference to the Company's Form 8-K filed on August 2,
2016) (File No. 0-23939)
Form of Indemnity Agreement for Directors
1999 Employee Stock Purchase Plan, as amended (incorporated by reference to exhibit 10.21 to the
Company's Annual Report on Form 10-K for the year ended December 31, 2001) (File No. 000-23939)
Executive Incentive Compensation Plan, as amended (incorporated by reference to exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2013) (File No.
000-23939)
Form of Indemnity Agreement for Directors and Executive Officers (incorporated by reference to
exhibit 10.23 to the Company's Annual Report on Form 10-K for the year ended December 31, 2004)
Subsidiaries of the Company
Consent of Deloitte & Touche LLP
Rule 13a-14(a) Certification of Timothy P. Boyle, Chief Executive Officer
Rule 13a-14(a) Certification of Thomas B. Cusick, Executive Vice President of Finance and Chief
Financial Officer
Section 1350 Certification of Timothy P. Boyle, Chief Executive Officer
Section 1350 Certification of Thomas B. Cusick, Executive Vice President of Finance and Chief
Financial Officer
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB XBRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document
——————
+ Management Contract or Compensatory Plan
†
Confidential treatment has been granted for certain portions omitted from this exhibit pursuant to Rule 24b-2 under
the Securities Exchange Act of 1934, as amended. Confidential portions of this exhibit have been separately filed
with the Securities and Exchange Commission.
Incorporated by reference to the Company's Registration Statement on Form S-1 (Reg. No. 333-43199).
*
83