Form 8-K COLUMBIA SPORTSWEAR CO For: Feb 08

February 8, 2018 4:08 PM
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 8-K
 
 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 8, 2018
 
COLUMBIA SPORTSWEAR COMPANY
(Exact name of registrant as specified in its charter)
 
Oregon
 
000-23939
 
93-0498284
(State or other jurisdiction
of incorporation)
 
(Commission
File Number)
 
(I.R.S. Employer
Identification No.)
14375 Northwest Science Park Drive
Portland, Oregon 97229
(Address of principal executive offices) (Zip code)
(503) 985-4000
(Registrant’s telephone number, including area code)
No Change
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
¨
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
¨
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
¨
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
¨
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company    ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
 



ITEM 2.02 RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On February 8, 2018, Columbia Sportswear Company (the "Company") issued a press release reporting its fourth quarter and full year 2017 financial results, as well as its 2018 financial outlook. A copy of the Company's press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference. The information in this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.
Attached hereto as Exhibit 99.2 and incorporated by reference herein is financial information and commentary by Jim A. Swanson, Senior Vice President and Chief Financial Officer of Columbia Sportswear Company, on the fourth quarter and full year 2017 financial results and 2018 financial outlook, as posted on the Company's investor relations website, http://investor.columbia.com, on February 8, 2018. The information in this report shall not be treated as filed for purposes of the Securities Exchange Act of 1934, as amended.

ITEM 7.01 REGULATION FD DISCLOSURE
In its February 8, 2018 press release, the Company also announced that its Board of Directors approved a cash dividend of $0.22 per share of common stock to be paid on March 22, 2018 to its shareholders of record on March 9, 2018.

ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS
(d) Exhibits
 
 
Press Release, dated February 8, 2018 (furnished pursuant to Items 2.02 and 7.01 hereof).
 
 
 
Commentary by Jim A. Swanson, Senior Vice President and Chief Financial Officer of Columbia Sportswear Company, dated February 8, 2018 (furnished pursuant to Items 2.02 and 7.01 hereof).



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 
COLUMBIA SPORTSWEAR COMPANY
 
 
 Dated: February 8, 2018
By:
/S/ JIM A. SWANSON
 
 
Jim A. Swanson
 
 
Senior Vice President and Chief Financial Officer


Exhibit 99.1
logo3a44.jpg

Contact:
Christian Buss
Director of Investor Relations
Columbia Sportswear Company
(503) 985-4584
cbuss@columbia.com

COLUMBIA SPORTSWEAR COMPANY REPORTS FOURTH QUARTER, FULL YEAR 2017 FINANCIAL RESULTS AND 2018 FINANCIAL OUTLOOK

(All references to 2016 results are on a reported GAAP basis, unless otherwise noted)


Fourth Quarter 2017 Financial Summary
Record net sales of $776.0 million, an 8 percent increase compared to the fourth quarter of 2016.
Record gross margin of 47.9 percent, compared to 47.1 percent in the prior year.
Fourth quarter 2017 non-GAAP financial measures exclude Project CONNECT program expenses and discrete costs of approximately $6.3 million, $3.9 million net of tax, or $0.05 per diluted share, and Tax Cuts and Jobs Act (TCJA) related income tax expense of $95.6 million, or $1.36 per diluted share.
Record operating income of $109.4 million, and non-GAAP operating income of $115.6 million, compared to $100.4 million in the prior year quarter.
Operating margin of 14.1 percent, and non-GAAP operating margin of 14.9 percent, compared to 14.0 percent in the prior year quarter.
Net loss of $7.1 million, largely due to incremental income tax expense related to the TCJA, and non-GAAP net income of $92.5 million, compared to $84.7 million in the prior year quarter.
Loss per share of $0.10, largely due to incremental income tax expense related to the TCJA, and non-GAAP diluted earnings per share of $1.31, compared to diluted earnings per share of $1.20 in the prior year quarter.
The board of directors approved a 16 percent increase in the company's regular quarterly dividend to $0.22 per share.

Full Year 2017 Financial Summary
Record net sales of $2.47 billion, a 4 percent increase compared to full year 2016.
Record gross margin of 47.0 percent, compared to 46.7 percent in the prior year.
Full year 2017 non-GAAP financial measures exclude Project CONNECT program expenses and discrete costs of approximately $14.9 million, $9.4 million net of tax, or $0.13 per diluted share, and TCJA-related income tax expense of $95.6 million, or $1.36 per diluted share.
Record operating income of $263.0 million, and non-GAAP operating income of $277.8 million, compared to $256.5 million in the prior year.
Operating margin of 10.7 percent, and non-GAAP operating margin of 11.3 percent, compared to 10.8 percent in the prior year.
Net income of $105.1 million, and non-GAAP net income of $210.1 million, compared to $191.9 million in the prior year.
Diluted earnings per share of $1.49, and non-GAAP diluted earnings per share of $2.98, compared to diluted earnings per share of $2.72 in the prior year.

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Record cash and short-term investment balances of $768.1 million at December 31, 2017.
Record operating cash flow of $341.1 million.
Consolidated inventory of $457.9 million at December 31, 2017, a decrease of $30.1 million, or 6 percent, compared to December 31, 2016.
Paid $50.9 million in dividends, and repurchased 665,095 shares for a total of $35.5 million.


Full Year 2018 Financial Outlook Summary
 
 
Full Year 2018 (U.S. Dollar)
 
 
GAAP
 
Non-GAAP*
Net sales growth
 
5.5% to 7.5%
 
4.0% to 6.0%
Gross margin expansion
 
up to 140 bps
 
up to 60 bps
SG&A expense deleverage
 
170 bps to 190 bps
 
40 bps to 50 bps
Income from operations
 
$263 to $273 million
 
$290 to $300 million
Operating margin
 
10.1% to 10.3%
 
11.3% to 11.5%
Licensing Income
 
up to $13.5 million
 
up to $13.5 million
Effective income tax rate
 
approximately 22%**
 
approximately 22%**
Net income
 
$203 to $211 million
 
$224 to $231 million
Diluted earnings per share
 
$2.88 to $2.98
 
$3.17 to $3.27

* Full year 2018 non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in selling, general and administrative (SG&A) expenses of approximately $40 million related to changes in revenue accounting standards, as well as Project CONNECT program expenses and discrete costs of approximately $27 million, $21 million net of tax, or $0.29 per diluted share.

** The full year 2018 financial outlook anticipates an estimated full-year effective income tax rate of approximately 22 percent, which may be affected by further refinement of our 2017 provisional TCJA estimates, as well as changes in our geographic mix of pre-tax income and other discrete events that may occur during the year.

PORTLAND, Ore. - February 8, 2018 - Columbia Sportswear Company (NASDAQ: COLM) today announced record fourth quarter net sales of $776.0 million for the quarter ended December 31, 2017, an 8 percent increase, compared with net sales of $717.4 million for the fourth quarter of 2016. Fourth quarter 2017 operating income was $109.4 million, and non-GAAP operating income was $115.6 million, compared to $100.4 million in the prior year. Operating margin was 14.1 percent, and non-GAAP operating margin was 14.9 percent, compared with 14.0 percent in the prior year. Fourth quarter 2017 net loss was $7.1 million, or $0.10 loss per share, and non-GAAP net income was $92.5 million, or diluted earnings per share of $1.31, compared with fourth quarter 2016 net income of $84.7 million, or diluted earnings per share of $1.20.

Full year 2017 net sales increased 4 percent, to a record $2.47 billion compared with $2.38 billion in 2016. Full year operating income was $263.0 million, and non-GAAP operating income was $277.8 million, compared with $256.5 million in the prior year. Operating margin was 10.7 percent and non-GAAP operating margin was 11.3 percent, compared with 10.8 percent in the prior year. Full year 2017 net income was $105.1 million, or $1.49 per diluted share, and non-GAAP net income was $210.1 million, or $2.98 per diluted share, compared with full year 2016 net income of $191.9 million, or $2.72 per diluted share.

President and Chief Executive Officer Tim Boyle commented, "We are pleased to report better than expected fourth quarter results, including continued growth in Europe, North America, and with our distributor partners around the world. In 2017, we reported record net sales, gross margin, and operating income."

"We are particularly encouraged by the strong results we achieved in Europe-direct in 2017, completing a third consecutive year of double-digit constant-currency net sales growth and continued improvement in operating margin.

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A relentless focus also drove 2017 net sales growth in the United States, with expansion of direct-to-consumer (DTC) offsetting challenges in wholesale resulting from the effect of bankruptcies, liquidations and stores closures."

Boyle concluded, "We look forward to a year of continued revenue and earnings growth in 2018 as well as continued execution of our strategic priorities. Our 2018 outlook anticipates revenue growth of 5.5 percent to 7.5 percent, and non-GAAP revenue growth of 4 percent to 6 percent. We anticipate diluted earnings per share of $2.88 to $2.98, and non-GAAP diluted earnings per share of $3.17 to $3.27, driven by growth in the Columbia, SOREL, and prAna brands, and in all four of our geographic regions.

With record cash and short-term investment balances of $768.1 million exiting 2017, and no long-term debt, we have the flexibility to adapt our business as our major markets continue to evolve. It is from this position of strength that we are investing in our strategic priorities to:

drive brand awareness and sales growth through increased, focused demand creation investments;
enhance consumer experience and digital capabilities in all our channels and geographies;
expand and improve global DTC operations with supporting processes and systems; and
invest in our people and optimize our organization across our portfolio of brands."

Fourth Quarter 2017 Financial Results
(All comparisons are between fourth quarter 2017 and fourth quarter 2016, unless otherwise noted).

Net Sales

Consolidated fourth quarter net sales increased 8 percent to a record $776.0 million with growth in all regions.

Geographies (See "Geographical Net Sales" table below)

U.S. net sales increased 8 percent to $492.6 million, reflecting growth in DTC and benefits from a shift in the timing of shipments of Fall 2017 advance wholesale orders from the third quarter to the fourth quarter.
Latin America/Asia Pacific (LAAP) net sales increased 2 percent to $154.3 million (3 percent constant-currency), including net sales growth with LAAP distributors, in China, in Japan, and essentially flat net sales in Korea.
Europe/Middle East/Africa (EMEA) net sales increased 19 percent to $83.5 million (14 percent constant-currency), including an increase in net sales in Europe-direct and to EMEA distributors.
Canada net sales increased 14 percent to $45.6 million (9 percent constant-currency).

Brands (See "Brand Net Sales" table below)

Global Columbia brand net sales increased 9 percent to $602.4 million.
Global SOREL brand net sales increased 10 percent to $113.9 million (8 percent constant-currency).
Global prAna brand net sales increased 8 percent to $30.4 million.
Global Mountain Hardwear brand net sales decreased 9 percent to $28.4 million (10 percent constant-currency).

Product Categories (See "Categorical Net Sales" table below)

Global Apparel, Accessories & Equipment net sales increased 8 percent to $578.3 million (7 percent constant-currency).
Footwear net sales increased 9 percent to $197.7 million (8 percent constant-currency).     

Profitability
Fourth quarter operating income increased 9 percent to $109.4 million, or 14.1 percent of net sales, compared to $100.4 million, or 14.0 percent of net sales for the same period in 2016.

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Excluding $6.3 million in Project CONNECT program expenses and discrete costs, fourth quarter operating income increased 15 percent on a non-GAAP basis to $115.6 million, or 14.9 percent of net sales, compared to $100.4 million, or 14.0 percent of net sales for the same period in 2016.

Fourth quarter net income decreased 108 percent to a net loss of $7.1 million, or a loss per share of $0.10, compared to net income of $84.7 million, or $1.20 per diluted share for the same period in 2016.
 
Excluding Project CONNECT program expenses and discrete costs of approximately $6.3 million, $3.9 million net of tax, or $0.05 per diluted share, and TCJA-related income tax expense of $95.6 million, or $1.36 per diluted share, fourth quarter 2017 non-GAAP net income increased 9 percent to $92.5 million, or $1.31 per diluted share, compared to net income of $84.7 million, or $1.20 per diluted share in last year's fourth quarter.

Full Year 2017 Financial Results
(All comparisons are between fiscal 2017 and fiscal 2016, unless otherwise noted).

Net Sales

Consolidated 2017 net sales increased 4 percent to a record $2.47 billion, compared with 2016 net sales of $2.38 billion.

Geographies (See "Geographical Net Sales" table below)

U.S. net sales increased 1 percent to $1.52 billion, reflecting growth in DTC, partially offset by declines in wholesale.
LAAP net sales increased 5 percent to $475.1 million (6 percent constant-currency), reflecting net sales growth with LAAP distributors, in China, in Japan, and essentially flat net sales in Korea.
EMEA net sales increased 16 percent to $293.7 million (14 percent constant-currency), reflecting an increase in net sales in Europe-direct and to EMEA distributors.
Canada net sales increased 8 percent to $177.3 million (4 percent constant-currency).

Brands (See "Brand Net Sales" table below)

Global Columbia brand net sales increased 4 percent to $1.99 billion.
Global SOREL brand net sales increased 7 percent to $228.8 million (6 percent constant-currency).
Global prAna brand net sales increased 1 percent to $140.9 million.
Global Mountain Hardwear brand net sales declined 2 percent to $101.6 million (3 percent constant-currency).

Categories (See "Categorical Net Sales" table below)

Global Apparel, Accessories & Equipment net sales increased 3 percent to $1.93 billion.
Global Footwear net sales increased 5 percent to $538.1 million.

Profitability

Full year 2017 operating income increased 3 percent to $263.0 million, or 10.7 percent of net sales, compared with full year 2016 operating income of $256.5 million, or 10.8 percent of net sales.

Excluding $14.9 million in Project CONNECT program expenses and discrete costs, full year 2017 non-GAAP operating income increased 8 percent to $277.8 million, or 11.3 percent of net sales, compared with full year 2016 operating income of $256.5 million, or 10.8 percent of net sales.

Full year 2017 net income decreased 45 percent to $105.1 million, or $1.49 per diluted share. Full year 2016 net income totaled $191.9 million, or $2.72 per diluted share.

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Excluding Project CONNECT program expenses and discrete costs of approximately $14.9 million, $9.4 million net of tax, or $0.13 per diluted share, and TCJA-related income tax expense of $95.6 million or $1.36 per diluted share, full year 2017 non-GAAP net income increased 9 percent to $210.1 million, or $2.98 per diluted share. Full year 2016 net income totaled $191.9 million, or $2.72 per diluted share.

Balance Sheet, Cash Flow and Share Repurchase Activity

During the year ended December 31, 2017, the company generated $341.1 million in operating cash flow, invested $53.4 million in capital expenditures, paid dividends of $50.9 million, and repurchased 665,095 shares for a total of $35.5 million.

At December 31, 2017, cash and short-term investments totaled $768.1 million, compared to $551.9 million at December 31, 2016.

At December 31, 2017, $378.4 million of cash and short-term investments were held by our foreign subsidiaries where a repatriation of those funds to the United States would have resulted in significant tax expense before the enactment of the TCJA.

In light of increased cash balances, strong cash flow generation in 2017, and our expectation under revised U.S. tax laws to repatriate approximately $200 million of cash currently held in foreign jurisdictions, the company has chosen to provide additional insight into priorities for use of cash, found in the "CFO Commentary on Fourth Quarter, Full Year 2017 Financial Results and 2018 Financial Outlook", available on the company's investor relations website: http://investor.columbia.com/results.cfm.

Consolidated inventories decreased 6 percent to $457.9 million at December 31, 2017 compared to $488.0 million at December 31, 2016.

As of December 31, 2017, approximately $137.9 million remained available under the current share repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

Dividend

The board of directors authorized a 16 percent increase in the regular quarterly dividend from $0.19 to $0.22 per share, payable on March 22, 2018 to shareholders of record on March 9, 2018.

Full Year 2018 Financial Outlook

All projections related to anticipated future results are forward-looking in nature and are subject to risks and uncertainties which may cause actual results to differ, perhaps materially. Projections are predicated on normal seasonal weather globally. In addition, our 2018 outlook assumes that current macro and market conditions in key markets do not worsen.

The company's annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal profitability pattern weighted toward the second half of the year.

The company currently expects 2018 net sales growth of approximately 5.5 to 7.5 percent, compared with 2017 net sales of $2.47 billion. The company expects non-GAAP net sales growth of approximately 4.0 to 6.0 percent, which excludes approximately $40 million in net sales associated with changes in revenue accounting standards.


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The company expects full year 2018 gross margin to improve by up to 140 basis points and non-GAAP gross margin to improve by up to 60 basis points, excluding an approximately $40 million benefit to gross profit associated with changes in revenue accounting standards.

The company expects SG&A expenses to increase at a rate faster than net sales, resulting in approximately 170 to 190 basis point of SG&A expense deleverage, and non-GAAP SG&A expense deleverage of approximately 40 to 50 basis points, excluding approximately $40 million in SG&A expenses associated with changes in revenue accounting standards, and approximately $27 million in Project CONNECT program expenses and discrete costs.

Based on the above assumptions, the company expects 2018 operating income between approximately $263 million and $273 million, and non-GAAP operating income between approximately $290 million and $300 million, resulting in operating margin between approximately 10.1 percent and 10.3 percent, and non-GAAP operating margin between approximately 11.3 percent and 11.5 percent.

The change in revenue accounting standards is expected to have a 15 to 20 basis point negative effect on reported operating margin rate for 2018, but no effect on reported operating income.

The company expects an estimated full-year effective income tax rate of approximately 22 percent, which reflects a lower U.S. federal statutory income tax rate as a result of the TCJA and may be materially affected by further refinement of our 2017 TCJA provisional estimates as well as changes in our geographic mix of pre-tax income and other discrete events that may occur during the year.

The company expects 2018 net income between approximately $203 million and $211 million, and non-GAAP net income between approximately $224 million and $231 million, or diluted earnings per share between approximately $2.88 and $2.98, and non-GAAP diluted earnings per share between $3.17 and $3.27.

With respect to our 2018 financial outlook, non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in SG&A expenses of approximately $40 million related to changes in revenue accounting standards, as well as Project CONNECT program expenses and discrete costs of approximately $27 million, $21 million net of tax, or $0.29 per diluted share.

A more detailed version of the company's fourth quarter and full year 2017 financial results and 2018 outlook can be found in the "CFO Commentary on Fourth Quarter, Full Year 2017 Financial Results and 2018 Financial Outlook", available on the company's investor relations website: http://investor.columbia.com/results.cfm.

CFO's Commentary on Fourth Quarter, Full Year 2017 Financial Results and 2018 Financial Outlook Available Online
At approximately 4:15 p.m. ET today, a commentary by Jim Swanson, Senior Vice President and Chief Financial Officer, reviewing the company's fourth quarter, full year 2017 financial results and 2018 financial outlook will be furnished to the SEC on Form 8-K and published on the company's website at http://investor.columbia.com/results.cfm. Analysts and investors are encouraged to review this commentary prior to participating in the conference call.

Conference Call
The company will host a conference call on Thursday, February 8, 2018 at 5:00 p.m. ET to review its fourth quarter and full year 2017 financial results and 2018 outlook. Dial 877-407-9205 to participate. The call will also be webcast live on the Investor Relations section of the company's website at http://investor.columbia.com where it will remain available until approximately February 8, 2019.

Supplemental Financial Information
Since Columbia Sportswear Company is a global company, the comparability of its operating results reported in U.S. Dollars is affected by foreign currency exchange rate fluctuations because the underlying currencies in which it transacts change in value over time compared to the U.S. Dollar. To supplement financial information reported in accordance with GAAP, the company discloses constant-currency net sales information, which is a non-GAAP financial measure,

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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. The company calculates 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. 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 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.

Additionally, this document includes references to other non-GAAP financial measures that exclude program expenses, discrete costs and associated tax effects related to Project CONNECT and TCJA-related income tax expense. The related tax effects of program expenses and discrete costs related to Project CONNECT were calculated using the respective statutory tax rates for applicable jurisdictions. In addition, non-GAAP financial measures in our 2018 financial outlook exclude increased net sales and offsetting increased SG&A expenses related to changes in revenue accounting standards that took effect beginning January 1, 2018. Management believes that these non-GAAP financial measures enable useful and meaningful comparisons of our operating performance from period to period because they exclude the effects of the aforementioned items above that may not be indicative of our core operating results.

These non-GAAP financial measures, including constant-currency net sales, should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The Company provides a reconciliation of non-GAAP measures to the most directly comparable financial measure calculated in accordance with GAAP. See "Supplemental Financial Information" tables included below. The non-GAAP financial measures and constant-currency information presented may not be comparable to similarly titled measures reported by other companies.

Forward-Looking Statements
This document contains forward-looking statements within the meaning of the federal securities laws, including statements regarding anticipated results, net sales and net sales growth, gross margin, operating expenses, licensing income, operating income, operating margins, net income, earnings per share, income tax rates and the effects of tax reform, SG&A expenses, including deleverage and SG&A expenses associated with changes in revenue accounting standards, and Project CONNECT program expenses and discrete costs, projected growth or decline in specific geographies and brands, the effect of changes in revenue accounting standards on our financial results, and our ability to adapt our business and realize the anticipated benefits of our investments in our strategic priorities. Forward-looking statements often use words such as "will," "anticipate," "estimate," "expect," "should", and "may" and other words and terms of similar meaning or reference future dates. The company's expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, each forward-looking statement involves a number of risks and uncertainties, including those set forth in this document, those described in the company's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q under the heading "Risk Factors," and those that have been or may be described in other reports filed by the company, including reports on Form 8-K. Potential risks and uncertainties that may affect our future revenues, earnings and performance and could cause the actual results of operations or financial condition of the company to differ materially from the anticipated results expressed or implied by forward-looking statements in this document include: loss of key customer accounts; our ability to effectively implement IT infrastructure and business process initiatives and to maintain the strength and security of our IT systems; the effects of unseasonable weather, including global climate change; trends affecting consumer traffic and spending in DTC; our ability to implement our growth strategy; unfavorable economic conditions generally, the financial health of our customers and changes in the level of consumer spending, apparel preferences and fashion trends; changes in international, federal or state tax, labor and other laws and regulations that affect our business, including changes in corporate tax rates or increasing wage rates; the effects of the TCJA, including related changes to our tax obligations and effective tax rate in future periods, as well as future changes to related provisional tax expense recorded in 2017; volatility in global production and transportation costs and capacity; risks inherent in doing business in foreign markets, including fluctuations in currency exchange rates; our ability to attract and retain key personnel; risks associated with our joint venture; higher than expected rates of order cancellations; increased consolidation of our wholesale customers;

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our ability to effectively source and deliver our products to customers in a timely manner; our dependence on independent manufacturers and suppliers and our ability to source finished products and components at competitive prices from them; the effectiveness of our sales and marketing efforts; intense competition in the industry; business disruptions and acts of terrorism, cyber-attacks or military activities around the globe; our ability to establish and protect our intellectual property; the seasonality of our business; and our ability to develop innovative products. The company cautions that forward-looking statements are inherently less reliable than historical information. The company does not undertake any duty to update any of the forward-looking statements after the date of this document to conform them to actual results or to reflect changes in events, circumstances or its expectations. New factors emerge from time to time and it is not possible for the company to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

First Quarter 2018 Reporting Schedule
Columbia Sportswear plans to report first quarter 2018 financial results on Thursday, April 26, 2018 at approximately 4:00 p.m. ET. Following issuance of the earnings release, a commentary reviewing the results will be furnished to the SEC on Form 8-K and published on the investor relations section of the company's website at http://investor.columbia.com/results.cfm. A public webcast of Columbia's earnings conference call will follow at 5:00 p.m. ET at www.columbia.com. To receive email notification of future announcements, please visit http://investor.columbia.com/events.cfm and register for E-Mail Alerts.

About Columbia Sportswear Company
Columbia Sportswear Company has assembled a portfolio of brands for active lives, making it a leader in the global active lifestyle apparel, footwear, accessories and equipment industry. Founded in 1938 in Portland, Oregon, the company's brands are today sold in approximately 90 countries. In addition to the Columbia® brand, Columbia Sportswear Company also owns the Mountain Hardwear®, SOREL®, and prAna® brands. To learn more, please visit the company's websites at www.columbia.com, www.mountainhardwear.com, www.SOREL.com, and www.prana.com.



- Financial tables follow -



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COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

 
 
December 31,
 
 
2017
 
2016
Current Assets:
 
 
 
 
Cash and cash equivalents
 
$
673,166

 
$
551,389

Short-term investments
 
94,983

 
472

Accounts receivable, net
 
364,862

 
333,678

Inventories
 
457,927

 
487,997

Prepaid expenses and other current assets
 
58,559

 
38,487

Total current assets
 
1,649,497

 
1,412,023

 
 
 
 
 
Property, plant, and equipment, net
 
281,394

 
279,650

Intangible assets, net
 
129,555

 
133,438

Goodwill
 
68,594

 
68,594

Deferred income taxes
 
56,804

 
92,494

Other non-current assets
 
27,058

 
27,695

Total assets
 
$
2,212,902

 
$
2,013,894

 
 
 
 
 
Current Liabilities:
 
 
 
 
Accounts payable
 
$
252,301

 
$
215,048

Accrued liabilities
 
182,228

 
142,158

Income taxes payable
 
19,107

 
5,645

Total current liabilities
 
453,636

 
362,851

 
 
 
 
 
Note payable to related party
 

 
14,053

Other long-term liabilities
 
48,735

 
42,622

Income taxes payable
 
58,104

 
12,710

Deferred income taxes
 
168

 
147

Total liabilities
 
560,643

 
432,383

 
 
 
 
 
Equity:
 
 
 
 
Columbia Sportswear Company shareholders' equity
 
1,621,951

 
1,560,820

Non-controlling interest
 
30,308

 
20,691

Total equity
 
1,652,259

 
1,581,511

 
 
 
 
 
Total liabilities and equity
 
$
2,212,902

 
$
2,013,894



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COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)

 
Three Months Ended December 31,
 
Twelve Months Ended December 31,
 
2017
 
2016
 
2017
 
2016
Net sales
$
776,041

 
$
717,450

 
$
2,466,105

 
$
2,377,045

Cost of sales
404,598

 
379,775

 
1,306,143

 
1,266,697

Gross profit
371,443

 
337,675

 
1,159,962

 
1,110,348

 
47.9
%
 
47.1
%
 
47.0
%
 
46.7
%
 
 
 
 
 
 
 
 
Selling, general and administrative expenses
267,035

 
241,241

 
910,894

 
864,084

Net licensing income
4,954

 
3,965

 
13,901

 
10,244

Income from operations
109,362

 
100,399

 
262,969

 
256,508

 
 
 
 
 
 
 
 
Interest income, net
1,275

 
427

 
4,515

 
2,003

Interest expense on note payable to related party

 
(262
)
 
(429
)
 
(1,041
)
Other non-operating income (expense)
(524
)
 
164

 
(321
)
 
(572
)
Income before income tax
110,113

 
100,728

 
266,734

 
256,898

 
 
 
 
 
 
 
 
Income tax expense
(116,469
)
 
(15,162
)
 
(154,419
)
 
(58,459
)
Net income (loss)
(6,356
)
 
85,566

 
112,315

 
198,439

Net income attributable to non-controlling interest
716

 
851

 
7,192

 
6,541

Net income (loss) attributable to Columbia Sportswear Company
$
(7,072
)
 
$
84,715

 
$
105,123

 
$
191,898

 
 
 
 
 
 
 
 
Earnings (loss) per share attributable to Columbia Sportswear Company:
 
 
 
 
 
 
 
Basic
$
(0.10
)
 
$
1.21

 
$
1.51

 
$
2.75

Diluted
(0.10
)
 
1.20

 
1.49

 
2.72

Weighted average shares outstanding:
 
 
 
 
 
 
 
Basic
69,940

 
69,835

 
69,759

 
69,683

Diluted
69,940

 
70,725

 
70,453

 
70,632




10



COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
 
Twelve Months Ended December 31, 
 
 
2017
 
2016
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
 
Net income
 
$
112,315

 
$
198,439

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Depreciation and amortization
 
59,945

 
60,016

Loss on disposal or impairment of property, plant, and equipment
 
1,927

 
4,805

Deferred income taxes
 
44,851

 
(19,178
)
Stock-based compensation
 
11,286

 
10,986

Changes in operating assets and liabilities:
 
 
 
 
Accounts receivable
 
(24,197
)
 
36,710

Inventories
 
46,662

 
(18,777
)
Prepaid expenses and other current assets
 
(19,241
)
 
(5,452
)
Other assets
 
931

 
(5,948
)
Accounts payable
 
30,568

 
1,483

Accrued liabilities
 
11,581

 
4,847

Income taxes payable
 
58,702

 
4,768

Other liabilities
 
5,798

 
2,468

Net cash provided by operating activities
 
341,128

 
275,167

 
 
 
 
 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
 
Purchases of short-term investments
 
(130,993
)
 
(21,263
)
Sales of short-term investments
 
36,282

 
21,263

Capital expenditures
 
(53,352
)
 
(49,987
)
Proceeds from sale of property, plant, and equipment
 
279

 
97

Net cash used in investing activities
 
(147,784
)
 
(49,890
)
 
 
 
 
 
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
 
Proceeds from credit facilities
 
3,374

 
62,885

Repayments on credit facilities
 
(3,374
)
 
(64,825
)
Proceeds from issuance of common stock under employee stock plans
 
19,946

 
13,167

Tax payments related to restricted stock unit issuances
 
(3,662
)
 
(5,117
)
Repurchase of common stock
 
(35,542
)
 
(11
)
Cash dividends paid
 
(50,909
)
 
(48,122
)
Payment of related party note payable
 
(14,236
)
 

Net cash used in financing activities
 
(84,403
)
 
(42,023
)
 
 
 
 
 
NET EFFECT OF EXCHANGE RATE CHANGES ON CASH
 
12,836

 
(1,635
)
NET INCREASE IN CASH AND CASH EQUIVALENTS
 
121,777

 
181,619

 
 
 
 
 
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
 
551,389

 
369,770

CASH AND CASH EQUIVALENTS, END OF YEAR
 
$
673,166

 
$
551,389

 
 
 
 
 
SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING ACTIVITIES:
 
 
 
 
Capital expenditures incurred but not yet paid
 
$
3,188

 
$
2,710




11



COLUMBIA SPORTSWEAR COMPANY
Supplemental Financial Information
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended December 31, 2017
 
 
GAAP Measures (As Reported)
 
Adjust for Project CONNECT Costs(1)
 
Adjust for Effects of the TCJA(2)
 
Non-GAAP Measures
Net sales
 
$
776,041

 
$

 
$

 
$
776,041

Cost of sales
 
404,598

 

 

 
404,598

Gross profit
 
371,443

 

 

 
371,443

Selling, general and administrative expenses
 
267,035

 
(6,265
)
 

 
260,770

Net licensing income
 
4,954

 

 

 
4,954

Income from operations
 
109,362

 
6,265

 

 
115,627

Non-operating income, net

 
751

 

 

 
751

Income before income tax
 
110,113

 
6,265

 

 
116,378

Income tax expense
 
(116,469
)
 
(2,318
)
 
95,611

 
(23,176
)
Net income (loss)
 
(6,356
)
 
3,947

 
95,611

 
93,202

Net income attributable to non-controlling interest
 
716

 

 

 
716

Net income (loss) attributable to Columbia Sportswear Company
 
$
(7,072
)
 
$
3,947

 
$
95,611

 
$
92,486

Earnings (loss) per share attributable to Columbia Sportswear Company:
 
 
 
 
 
 
 
 
Basic
 
$
(0.10
)
 
 
 
 
 
$
1.32

Diluted
 
(0.10
)
 
 
 
 
 
1.31

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
69,940

 
 
 
 
 
69,940

Diluted
 
69,940

 
 
 
 
 
70,594

(1) Amounts reflect professional fees, severance and other program expenses related to Project CONNECT that we believe are incremental to our ongoing operations. The related tax effects of these charges were calculated using the respective statutory tax rates for applicable jurisdictions.
(2) Amounts reflect a provisional income tax expense of $95.6 million recorded during the fourth quarter of 2017 in connection with the TCJA.


12



COLUMBIA SPORTSWEAR COMPANY
Supplemental Financial Information
Reconciliation of GAAP to Non-GAAP Financial Measures
(In thousands, except per share amounts)
(Unaudited)
 
 
Twelve Months Ended December 31, 2017
 
 
GAAP Measures (As Reported)
 
Adjust for Project CONNECT Costs(1)
 
Adjust for Effects of the TCJA(2)
 
Non-GAAP Measures
Net sales
 
$
2,466,105

 
$

 
$

 
$
2,466,105

Cost of sales
 
1,306,143

 

 

 
1,306,143

Gross profit
 
1,159,962

 

 

 
1,159,962

Selling, general and administrative expenses
 
910,894

 
(14,878
)
 

 
896,016

Net licensing income
 
13,901

 

 

 
13,901

Income from operations
 
262,969

 
14,878

 

 
277,847

Non-operating income, net

 
3,765

 

 

 
3,765

Income before income tax
 
266,734

 
14,878

 

 
281,612

Income tax expense
 
(154,419
)
 
(5,505
)
 
95,611

 
(64,313
)
Net income
 
112,315

 
9,373

 
95,611

 
217,299

Net income attributable to non-controlling interest
 
7,192

 

 

 
7,192

Net income attributable to Columbia Sportswear Company
 
$
105,123

 
$
9,373

 
$
95,611

 
$
210,107

Earnings per share attributable to Columbia Sportswear Company:
 
 
 
 
 
 
 
 
Basic
 
$
1.51

 
 
 
 
 
$
3.01

Diluted
 
1.49

 
 
 
 
 
2.98

Weighted average shares outstanding:
 
 
 
 
 
 
 
 
Basic
 
69,759

 
 
 
 
 
69,759

Diluted
 
70,453

 
 
 
 
 
70,453

(1) Amounts reflect professional fees, severance and other program expenses related to Project CONNECT that we believe are incremental to our ongoing operations. The related tax effects of these charges were calculated using the respective statutory tax rates for applicable jurisdictions.
(2) Amounts reflect a provisional income tax expense of $95.6 million recorded during the fourth quarter of 2017 in connection with the TCJA.


13



COLUMBIA SPORTSWEAR COMPANY
Supplemental Financial Information
Reconciliation of GAAP to Non-GAAP Full Year 2018 Financial Outlook
(Unaudited)

 
 
Full Year 2018 Financial Outlook
 
 
GAAP Measures
 
Adjust for Project CONNECT Costs(1)
 
Adjust for effect of ASC 606 Adoption(3)
 
Non-GAAP Measures
Net sales growth
 
5.5% to 7.5%
 
 
($40) million
 
4.0% to 6.0%
Gross margin expansion
 
up to 140 bps
 
 
($40) million
 
up to 60 bps
SG&A expense deleverage
 
170 bps to 190 bps
 
($27) million
 
($40) million
 
40 bps to 50 bps
Income from operations
 
$263 to $273 million
 
$27 million
 
 
$290 to $300 million
Operating margin
 
10.1% to 10.3%
 
 
 
11.3% to 11.5%
Licensing Income
 
up to $13.5 million
 
 
 
up to $13.5 million
Effective income tax rate
 
approximately 22%(4)
 
 
 
approximately 22%(4)
Net income
 
$203 to $211 million
 
$21 million
 
 
$224 to $231 million
Diluted earnings per share
 
$2.88 to $2.98
 
$0.29
 
 
$3.17 to $3.27
(1) Amounts reflect professional fees, severance and other program expenses related to Project CONNECT that we believe are incremental to our ongoing operations. The related tax effects of these charges were calculated using the respective statutory tax rates for applicable jurisdictions.
(3) In fiscal year 2018, the Company will adopt new revenue accounting guidance, Accounting Standards Codification Topic 606 (ASC 606), which changes the presentation of fees paid to third parties in conjunction with certain concession-based retail arrangements. These fees have historically been recognized in net sales, and will be classified as a component of selling, general and administrative expense upon adopting ASC 606. As a result, the Company's non-GAAP Full Year 2018 Financial Outlook adjusts for the approximate $40 million revenue gross-up and offsetting $40 million increase in selling, general and administrative expense resulting from the adoption ASC 606 to enable meaningful comparisons of our operating performance compared to fiscal year 2017.
(4) The Company's Full Year 2018 Financial Outlook anticipates an estimated full year effective income tax rate of approximately 22 percent, which may be affected by further refinement of our 2017 provisional TCJA estimates as well as changes in our geographic mix of pre-tax income and other discrete events that may occur during the year.




















14






COLUMBIA SPORTSWEAR COMPANY
Supplemental Financial Information
Reconciliation of GAAP to Non-GAAP Constant-currency Net Sales Growth
(In millions, except percentage changes)
(Unaudited)
 
Three Months Ended December 31,
 
 
 
Adjust for
 
Constant-
 
 
 
 
 
Constant-
 
Reported
 
Foreign
 
currency
 
Reported
 
Reported
 
currency
 
Net Sales
 
Currency
 
Net Sales
 
Net Sales
 
Net Sales
 
Net Sales
 
2017
 
Translation
 
2017(5)
 
2016
 
% Change
 
% Change(5)
Geographical Net Sales:
 
 
 
 
 
 
 
 
 
 
 
United States
$
492.6

 
$

 
$
492.6

 
$
455.4

 
8%
 
8%
LAAP
154.3

 
1.4

 
155.7

 
151.9

 
2%
 
3%
EMEA
83.5

 
(3.5
)
 
80.0

 
70.1

 
19%
 
14%
Canada
45.6

 
(2.1
)
 
43.5

 
40.0

 
14%
 
9%
    Total
$
776.0

 
$
(4.2
)
 
$
771.8

 
$
717.4

 
8%
 
8%
 
 
 
 
 
 
 
 
 
 
 
 
Brand Net Sales:
 
 
 
 
 
 
 
 
 
 
 
Columbia
$
602.4

 
$
(2.8
)
 
$
599.6

 
$
552.3

 
9%
 
9%
SOREL
113.9

 
(1.3
)
 
112.6

 
103.8

 
10%
 
8%
prAna
30.4

 

 
30.4

 
28.2

 
8%
 
8%
Mountain Hardwear
28.4

 
(0.2
)
 
28.2

 
31.3

 
(9)%
 
(10)%
Other
0.9

 
0.1

 
1.0

 
1.8

 
(50)%
 
(44)%
    Total
$
776.0

 
$
(4.2
)
 
$
771.8

 
$
717.4

 
8%
 
8%
 
 
 
 
 
 
 
 
 
 
 
 
Categorical Net Sales:
 
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
$
578.3

 
$
(2.7
)
 
$
575.6

 
$
535.8

 
8%
 
7%
Footwear
197.7

 
(1.5
)
 
196.2

 
181.6

 
9%
 
8%
     Total
$
776.0

 
$
(4.2
)
 
$
771.8

 
$
717.4

 
8%
 
8%
(5) 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.



15



COLUMBIA SPORTSWEAR COMPANY
Supplemental Financial Information
Reconciliation of GAAP to Non-GAAP Constant-currency Net Sales Growth
(In millions, except percentage changes)
(Unaudited)
 
Twelve Months Ended December,
 
 
 
Adjust for
 
Constant-
 
 
 
 
 
Constant-
 
Reported
 
Foreign
 
currency
 
Reported
 
Reported
 
currency
 
Net Sales
 
Currency
 
Net Sales
 
Net Sales
 
Net Sales
 
Net Sales
 
2017
 
Translation
 
2017(5)
 
2016
 
% Change
 
% Change(5)
Geographical Net Sales:
 
 
 
 
 
 
 
 
 
 
 
United States
$
1,520.0

 
$

 
$
1,520.0

 
$
1,505.2

 
1%
 
1%
LAAP
475.1

 
6.3

 
481.4

 
453.7

 
5%
 
6%
EMEA
293.7

 
(4.9
)
 
288.8

 
253.5

 
16%
 
14%
Canada
177.3

 
(5.6
)
 
171.7

 
164.6

 
8%
 
4%
    Total
$
2,466.1

 
$
(4.2
)
 
$
2,461.9

 
$
2,377.0

 
4%
 
4%
 
 
 
 
 
 
 
 
 
 
 
 
Brand Net Sales:
 
 
 
 
 
 
 
 
 
 
 
Columbia
$
1,990.3

 
$
(1.4
)
 
$
1,988.9

 
$
1,910.1

 
4%
 
4%
SOREL
228.8

 
(2.6
)
 
226.2

 
213.0

 
7%
 
6%
prAna
140.9

 

 
140.9

 
139.9

 
1%
 
1%
Mountain Hardwear
101.6

 
(0.3
)
 
101.3

 
104.0

 
(2)%
 
(3)%
Other
4.5

 
0.1

 
4.6

 
10.0

 
(55)%
 
(54)%
    Total
$
2,466.1

 
$
(4.2
)
 
$
2,461.9

 
$
2,377.0

 
4%
 
4%
 
 
 
 
 
 
 
 
 
 
 
 
Categorical Net Sales:
 
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
$
1,928.0

 
$
(2.5
)
 
$
1,925.5

 
$
1,865.4

 
3%
 
3%
Footwear
538.1

 
(1.7
)
 
536.4

 
511.6

 
5%
 
5%
     Total
$
2,466.1

 
$
(4.2
)
 
$
2,461.9

 
$
2,377.0

 
4%
 
4%
(5) 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.


16




Exhibit 99.2
logo3a44.jpg
14375 NW Science Park Drive
Portland, OR 97229

February 8, 2018

CFO Commentary on Fourth Quarter, Full Year 2017 Financial Results
and 2018 Financial Outlook

Financial Information
Please reference accompanying financial information in the corresponding earnings release at
http://investor.columbia.com/results.cfm

Conference Call
The company will host a conference call on Thursday, February 8, 2018 at 5:00 p.m. ET to review fourth quarter, full year 2017 financial results, as well as its full year 2018 financial outlook. To participate, please dial (877) 407-9205 in the United States. The call will be webcast live on the Investor Relations section of the company’s website http://investor.columbia.com where it will remain available until February 8, 2019.

Fourth Quarter 2017 Financial Summary

Record net sales of $776.0 million, an 8 percent increase compared to the fourth quarter of 2016.
Fourth quarter 2017 non-GAAP financial measures exclude Project CONNECT program expenses and discrete costs of approximately $6.3 million, $3.9 million net of tax, or $0.05 per diluted share, and Tax Cuts and Jobs Act (TCJA) related income tax expense of $95.6 million, or $1.36 per diluted share.
Operating margin of 14.1 percent, and non-GAAP operating margin of 14.9 percent, compared to 14.0 percent in the prior year quarter.
Loss per share of $0.10, largely due to incremental income tax expense related to the TCJA, and non-GAAP diluted earnings per share of $1.31, compared to diluted earnings per share of $1.20 in the prior year quarter.
 
 
GAAP
 
Non-GAAP
 
 
Q4 2017
(millions)
 
Q4 2016
(millions)
 
% Change
 
Q4 2017
(millions)
 
Q4 2016
(millions)
 
% Change
Net sales
 
$776.0
 
$717.4
 
8%
 
$776.0
 
$717.4
 
8%
Gross margin
 
47.9%
 
47.1%
 
80 bps
 
47.9%
 
47.1%
 
80 bps
SG&A rate
 
34.4%
 
33.6%
 
80 bps
 
33.6%
 
33.6%
 
0 bps
Operating income
 
$109.4
 
$100.4
 
9%
 
$115.6
 
$100.4
 
15%
Operating margin
 
14.1%
 
14.0%
 
10 bps
 
14.9%
 
14.0%
 
90 bps
Net income (loss)
 
($7.1)
 
$84.7
 
(108)%
 
$92.5
 
$84.7
 
9%
Earnings (loss) per share
 
($0.10)
 
$1.20
 
(108)%
 
$1.31
 
$1.20
 
9%

Full Year 2017 Financial Summary

Record net sales of $2.47 billion, a 4 percent increase compared to full year 2016.
Net sales through the company's global direct-to-consumer (DTC) businesses increased 10 percent compared to the prior year, and represented approximately 40 percent of consolidated net sales, including approximately 9 percent of net sales from our global e-commerce businesses.

1




Full year 2017 non-GAAP financial measures exclude Project CONNECT program expenses and discrete costs of approximately $14.9 million, $9.4 million net of tax, or $0.13 per diluted share, and TCJA-related income tax expense of $95.6 million, or $1.36 per diluted share.
Operating margin of 10.7 percent, and non-GAAP operating margin of 11.3 percent, compared to 10.8 percent in the prior year.
Diluted earnings per share of $1.49, and non-GAAP diluted earnings per share of $2.98, compared to diluted earnings per share of $2.72 in the prior year.
Record cash and short-term investment balances of $768.1 million at December 31, 2017.
Record operating cash flow of $341.1 million.
Consolidated inventory of $457.9 million at December 31, 2017, a decline of $30.1 million, or 6 percent, compared to December 31, 2016.
 
 
GAAP
 
Non-GAAP
 
 
FY 2017
(millions)
 
FY 2016
(millions)
 
% Change
 
FY 2017
(millions)
 
FY 2016
(millions)
 
% Change
Net sales
 
$2,466.1
 
$2,377.0
 
4%
 
$2,466.1
 
$2,377.0
 
4%
Gross margin
 
47.0%
 
46.7%
 
30 bps
 
47.0%
 
46.7%
 
30 bps
SG&A rate
 
36.9%
 
36.4%
 
50 bps
 
36.3%
 
36.4%
 
(10) bps
Operating income
 
$263.0
 
$256.5
 
3%
 
$277.8
 
$256.5
 
8%
Operating margin
 
10.7%
 
10.8%
 
(10) bps
 
11.3%
 
10.8%
 
50 bps
Net income
 
$105.1
 
$191.9
 
(45)%
 
$210.1
 
$191.9
 
9%
Earnings per share
 
$1.49
 
$2.72
 
(45)%
 
$2.98
 
$2.72
 
10%

Full Year 2018 Financial Outlook Summary
 
 
Full Year 2018 (U.S. Dollar)
 
 
GAAP
 
Non-GAAP*
Net sales growth
 
5.5% to 7.5%
 
4.0% to 6.0%
Gross margin expansion
 
up to 140 bps
 
up to 60 bps
SG&A expense deleverage
 
170 bps to 190 bps
 
40 bps to 50 bps
Income from operations
 
$263 to $273 million
 
$290 to $300 million
Operating margin
 
10.1% to 10.3%
 
11.3% to 11.5%
Licensing Income
 
up to $13.5 million
 
up to $13.5 million
Effective income tax rate
 
approximately 22%**
 
approximately 22%**
Net income
 
$203 to $211 million
 
$224 to $231 million
Diluted earnings per share
 
$2.88 to $2.98
 
$3.17 to $3.27

* Full year 2018 non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in selling, general and administrative (SG&A) expenses of approximately $40 million related to changes in revenue accounting standards, as well as Project CONNECT program expenses and discrete costs of approximately $27 million, $21 million net of tax, or $0.29 per diluted share.

** Our full year 2018 financial outlook anticipates an estimated full-year effective income tax rate of approximately 22 percent, which may be affected by further refinement of our 2017 provisional TCJA estimates, as well as changes in our geographic mix of pre-tax income and other discrete events that may occur during the year.

The Full Year 2018 Financial Outlook section below contains a more detailed discussion of the factors contributing to this outlook.

Fourth Quarter 2017 Financial Results

(All comparisons are between fourth quarter 2017 and fourth quarter 2016, unless otherwise noted).


2




Net Sales

Consolidated fourth quarter net sales increased 8 percent to a record $776.0 million, driven by performance in the U.S. and Europe-direct.

Geographies
 
 
 
 
 
 
 
Constant-
 
 
 
 
 
 
 
currency
 
Net Sales
(millions)
 
Net Sales
(millions)
 
Net Sales
 
Net Sales
 
Q4 2017
 
Q4 2016
 
% Change
 
% Change
United States
$492.6
 
$455.4
 
8%
 
8%
LAAP
154.3
 
151.9
 
2%
 
3%
EMEA
83.5
 
70.1
 
19%
 
14%
Canada
45.6
 
40.0
 
14%
 
9%
 Total
$776.0
 
$717.4
 
8%
 
8%

United States
DTC net sales increased low-double-digit percent, driven by brick & mortar store net sales growth and modest e-commerce growth, reflecting the strategic decision to reduce promotional activity relative to the fourth quarter of 2016.
Wholesale net sales increased mid-single-digit percent, with benefits from a shift in the timing of shipments of Fall 2017 advance wholesale orders from the third quarter into the fourth quarter, and improved order conversion of Fall 2017 product, partially offset by the comparative effects of sales to U.S. wholesale customers who have undergone bankruptcies, liquidations and store closures, as well as more limited closeout sales as a function of reduced levels of excess inventory.
During the fourth quarter of 2017, the company operated 129 U.S. retail stores (105 outlet; 24 branded) and 4 branded e-commerce sites, compared with 118 stores (93 outlet; 25 branded) and 5 branded e-commerce sites during the same period in 2016.

Latin America/Asia Pacific (LAAP)
LAAP distributor net sales increased high-single-digit percent, driven by a shift in the timing of Spring 2018 advance orders from the first quarter of 2018 into the fourth quarter of 2017 relative to the fourth quarter of 2016.
China net sales increased low-single-digit percent (essentially flat constant-currency) with e-commerce growth partially offset by wholesale declines reflecting increased sales returns following the strategic decision to transition our Beijing wholesale business to new dealers in order to revitalize growth in the Beijing market.
Japan net sales increased low-single-digit percent (mid-single-digit percent constant-currency), driven by DTC growth, offsetting a slight wholesale decline.
Korea net sales were essentially flat (low-single-digit percent net sales decline constant-currency).

Europe/Middle East/Africa (EMEA)
Europe-direct net sales increased high-20 percent (high-teens percent constant-currency), driven by increased Fall 2017 advance wholesale orders and reorders as well as increased DTC sales.
EMEA distributor net sales increased mid-single-digit percent, largely due to shipments of increased Spring 2018 advance orders to our Russian distributor.

Canada
DTC net sales increased low-20 percent (mid-teens percent constant-currency), driven by growth in both brick & mortar stores and e-commerce.
Wholesale net sales increased low-double-digit percent (mid-single-digit percent constant-currency), driven by increased Fall 2017 advance wholesale orders.



3




Brands
 
 
 
 
 
 
 
Constant-
 
 
 
 
 
 
 
currency
 
Net Sales
(millions)
 
Net Sales
(millions)
 
Net Sales
 
Net Sales
 
Q4 2017
 
Q4 2016
 
% Change
 
% Change
Columbia
$602.4
 
$552.3
 
9%
 
9%
SOREL
113.9
 
103.8
 
10%
 
8%
prAna
30.4
 
28.2
 
8%
 
8%
Mountain Hardwear
28.4
 
31.3
 
(9)%
 
(10)%
Other
0.9
 
1.8
 
(50)%
 
(44)%
 Total
$776.0
 
$717.4
 
8%
 
8%


Columbia brand net sales increased in all regions, led by the U.S. and Europe-direct. U.S. DTC net sales were up low-double-digit percent, while U.S. wholesale net sales increased mid-single-digit percent driven by a shift in timing of Fall 2017 advance wholesale orders from the third quarter into the fourth quarter and improved order conversion. Europe-direct sales growth was driven by shipments of advance Fall 2017 orders and wholesale reorders.
 
SOREL brand net sales increased in U.S. wholesale, driven by a shift in the timing of Fall 2017 advance wholesale orders from the third quarter into the fourth quarter, and higher closeout sales. SOREL brand net sales also increased in Europe-direct, supported by increased demand for cold-weather product.
 
prAna brand net sales growth was driven by U.S. e-commerce.

Mountain Hardwear brand net sales declined primarily as a result of a net sales decline in U.S. Fall 2017 advance wholesale orders, partially offset by increased closeout sales, and a net sales decline in Korea.

Product Categories
 
 
 
 
 
 
 
Constant-
 
 
 
 
 
 
 
currency
 
Net Sales
(millions)
 
Net Sales
(millions)
 
Net Sales
 
Net Sales
 
Q4 2017
 
Q4 2016
 
% Change
 
% Change
Apparel, Accessories and Equipment
$578.3
 
$535.8
 
8%
 
7%
Footwear
197.7
 
181.6
 
9%
 
8%
 Total
$776.0
 
$717.4
 
8%
 
8%

Apparel, Accessories & Equipment net sales increased in the Columbia and prAna brands, partially offset by a net sales decline in the Mountain Hardwear brand.

Footwear net sales growth was driven by the SOREL brand, followed by growth in the Columbia brand.

Gross Margin

Fourth quarter 2017 gross margin expanded 80 basis points to a record 47.9 percent compared to 47.1 percent in last year's fourth quarter, primarily reflecting:
a favorable sourcing environment resulting in lower product input costs for Fall 2017;
a higher proportion of higher margin full-price versus closeout product sales; and
a higher proportion of DTC net sales which generally carry higher gross margin.





4




Selling, General and Administrative (SG&A) expenses

Fourth quarter 2017 SG&A expenses increased $25.8 million, or 11 percent, to $267.0 million, or 34.4 percent of net sales, compared to 33.6 percent of net sales in last year’s fourth quarter, resulting in 80 basis points of SG&A expense deleverage.

The increased SG&A expenses included:
increased expenses related to the company’s expanding global DTC businesses;
Project CONNECT program and discrete expenses;
increased demand creation spending; and
increased incentive compensation.

Excluding $6.3 million in Project CONNECT program expenses and discrete costs, fourth quarter 2017 non-GAAP SG&A expenses increased $19.5 million, or 8 percent, to $260.8 million, or 33.6 percent of net sales, compared to 33.6 percent of net sales in last year’s fourth quarter.

Licensing

Net licensing income increased 25 percent to $5.0 million, driven by net sales growth of newer licensing partners.

Operating Income

Fourth quarter operating income increased 9 percent to a record $109.4 million, or 14.1 percent of net sales, compared to $100.4 million, or 14.0 percent of net sales, for the same period in 2016.

Excluding $6.3 million in Project CONNECT program expenses and discrete costs, fourth quarter 2017 non-GAAP operating income increased 15 percent to $115.6 million, or 14.9 percent of net sales, compared to $100.4 million, or 14.0 percent of net sales, in last year's fourth quarter.

Income Tax Expense

Income tax expense for the fourth quarter of 2017 was $116.5 million, including $95.6 million of TCJA-related income tax expense.

The Tax Reform section below contains a more detailed discussion of the effect of the TCJA on fourth quarter income tax expense.

Fourth quarter 2017 non-GAAP income tax expense, excluding the effect of Project CONNECT and TCJA-related income tax expense, was $23.2 million resulting in an effective income tax rate of 19.9 percent, compared to $15.2 million, or 15.1 percent, for the same period last year. Our non-GAAP effective income tax rate increased primarily due to a discrete benefit from the utilization of foreign tax credits in the fourth quarter of 2016.

Net Income

Fourth quarter net income declined 108 percent to a fourth quarter loss of $7.1 million, or $0.10 loss per share, due to incremental income tax expense related to the TCJA, compared to net income of $84.7 million, or $1.20 earnings per diluted share, in last year's fourth quarter.
 
Excluding Project CONNECT program expenses and discrete costs of approximately $6.3 million, $3.9 million net of tax, or $0.05 per diluted share, and TCJA-related income tax expense of $95.6 million, or $1.36 per diluted share, fourth quarter 2017 non-GAAP net income increased 9 percent to $92.5 million, or $1.31 per diluted share, compared to $84.7 million, or $1.20 per diluted share, in last year's fourth quarter.



5




Regular Quarterly Cash Dividend

The board of directors authorized a 16 percent increase in the regular quarterly dividend from $0.19 to $0.22 per share, payable on March 22, 2018 to shareholders of record on March 9, 2018.

Full Year 2017 Financial Results:

(All comparisons are between full year 2017 and full year 2016, unless otherwise noted).

Net Sales

Consolidated 2017 net sales increased 4 percent to a record $2.47 billion, compared with 2016 net sales of $2.38 billion.

Global DTC net sales increased 10 percent, and represented approximately 40 percent of consolidated net sales, including approximately 9 percent of net sales from our global e-commerce businesses.

Global wholesale and distributor net sales were flat, affected by the comparative effects of sales to U.S. wholesale customers who have undergone bankruptcies, liquidations and store closures over the past 24 months.

Geographies
 
 
 
 
 
 
 
Constant-
 
 
 
 
 
 
 
currency
 
Net Sales
(millions)
 
Net Sales
(millions)
 
Net Sales
 
Net Sales
 
FY 2017
 
FY 2016
 
% Change
 
% Change
United States
$1,520.0
 
$1,505.2
 
1%
 
1%
LAAP
475.1
 
453.7
 
5%
 
6%
EMEA
293.7
 
253.5
 
16%
 
14%
Canada
177.3
 
164.6
 
8%
 
4%
 Total
$2,466.1
 
$2,377.0
 
4%
 
4%

United States
DTC net sales increased high-single-digit percent, primarily reflecting growth in brick & mortar stores, followed by e-commerce.
Wholesale net sales declined mid-single-digit percent, primarily due to the effects of U.S. wholesale customers that have undergone bankruptcies, liquidations and store closures.

LAAP
LAAP distributor net sales increased mid-20 percent, driven by shipments of increased advance orders for both Spring 2017 and Fall 2017, as well as a favorable shift in timing of both Spring 2017 and Spring 2018 advance orders relative to the prior year.
China net sales increased low-single-digit percent (mid-single-digit percent constant-currency) driven by continued net sales growth in e-commerce, partially offset by net sales declines from brick & mortar stores and wholesale. Wholesale net sales were affected by the strategic decision to transition our Beijing wholesale business to new dealers in order to revitalize growth in the Beijing market.
Japan net sales increased low-single-digit percent (mid-single-digit percent constant-currency) driven by growth in DTC, partially offset by net sales declines in wholesale.
Korea net sales were essentially flat (low-single-digit percent net sales decline constant-currency).

EMEA
Europe-direct net sales increased low-20 percent (high-teens percent constant-currency), driven by increased advance wholesale orders for both Spring 2017 and Fall 2017 and increased DTC net sales. This represents the third consecutive year of double-digit percent constant-currency net sales growth in the region.

6




EMEA distributor net sales increased mid-single-digit percent driven by improving sales conditions in Russia.

Canada
Wholesale net sales increased mid-single-digit percent (declined low-single-digit percent constant-currency).
DTC net sales increased high-teens percent (high-single-digit percent constant currency), driven by both brick & mortar stores and e-commerce.

Brands
 
 
 
 
 
 
 
Constant-
 
 
 
 
 
 
 
currency
 
Net Sales
(millions)
 
Net Sales
(millions)
 
Net Sales
 
Net Sales
 
FY 2017
 
FY 2016
 
% Change
 
% Change
Columbia
$1,990.3
 
$1,910.1
 
4%
 
4%
SOREL
228.8
 
213.0
 
7%
 
6%
prAna
140.9
 
139.9
 
1%
 
1%
Mountain Hardwear
101.6
 
104.0
 
(2)%
 
(3)%
Other
4.5
 
10.0
 
(55)%
 
(54)%
 Total
$2,466.1
 
$2,377.0
 
4%
 
4%

Columbia brand net sales growth was driven by increased net sales in U.S. DTC, in Europe-direct, and to a lesser degree with LAAP distributors, in Canada and with EMEA distributors. This net sales growth was partially offset by a decline in U.S. wholesale.

SOREL brand net sales growth was driven by increased net sales in Europe-direct, U.S. wholesale and Canada. Net sales growth in the U.S. was driven by increased net sales of lighter-weight fall and winter product, expansion of SOREL’s Spring 2017 product line, and higher closeout sales volume. SOREL brand net sales also increased in Europe-direct, supported by increased demand for cold-weather product.

prAna brand net sales growth was driven by U.S. DTC, primarily due to e-commerce, largely offset by lower Fall 2017 advance wholesale orders in the U.S.

Mountain Hardwear brand net sales decline was led by U.S. wholesale due to lower shipments of Fall 2017 advance wholesale orders, partially offset by increased closeout sales to liquidate prior season inventory, as well as a net sales increase in U.S. DTC.

Product Categories
 
 
 
 
 
 
 
Constant-
 
 
 
 
 
 
 
currency
 
Net Sales
(millions)
 
Net Sales
(millions)
 
Net Sales
 
Net Sales
 
FY 2017
 
FY 2017
 
% Change
 
% Change
Apparel, Accessories and Equipment
$1,928.0
 
$1,865.4
 
3%
 
3%
Footwear
538.1
 
511.6
 
5%
 
5%
 Total
$2,466.1
 
$2,377.0
 
4%
 
4%

Global Apparel, Accessories & Equipment net sales growth was driven primarily by the Columbia brand.

Global Footwear net sales growth was led by the SOREL brand, followed by the Columbia brand.

Gross Margin

Full year 2017 gross margin expanded 30 basis points to a record 47.0 percent from 46.7 percent in 2016, reflecting:

7




a favorable sourcing environment resulting in lower product input costs for Spring 2017 and Fall 2017;
lower inventory provisions for obsolete inventory;
a higher proportion of DTC net sales which generally carry higher gross margin; and
slightly favorable foreign currency hedge rates; partially offset by
a higher volume of closeout product sales which generally carry lower gross margin.

SG&A Expenses

SG&A expenses increased $46.8 million, or 5 percent, to $910.9 million, representing 36.9 percent of net sales, compared to $864.1 million, or 36.4 percent of net sales in 2016, representing 50 basis points of SG&A expense deleverage.

The increased SG&A expenses included:
increased costs to support the company’s expanding DTC businesses;
Project CONNECT program expenses and discrete costs;
increased personnel costs and incentive compensation to support strategic initiatives and business growth; and
increased demand creation spending.

Marketing expenses were $121.8 million in 2017, or 4.9 percent of net sales, up from $118.7 million in the prior year. We remain committed to our strategic priority to drive brand awareness and sales growth in our wholesale and DTC businesses through increased, focused demand creation investments.
 
Excluding $14.9 million in Project CONNECT program expenses and discrete costs, full year 2017 non-GAAP SG&A expenses increased $31.9 million, or 4 percent, to $896.0 million, representing 36.3 percent of net sales, compared to $864.1 million, or 36.4 percent of net sales in 2016, representing 10 basis points of SG&A expense leverage.

Licensing

Net licensing income totaled $13.9 million, compared with $10.2 million in 2016, driven by net sales growth in newer licensing partners.

Operating Income

Full year 2017 operating income increased 3 percent to $263.0 million, or 10.7 percent of net sales, compared with full year 2016 operating income of $256.5 million, or 10.8 percent of net sales.

Excluding $14.9 million in Project CONNECT program expenses and discrete costs, full year 2017 non-GAAP operating income increased 8 percent to $277.8 million, or 11.3 percent of net sales, compared with full year 2016 operating income of $256.5 million, or 10.8 percent of net sales.

Income Tax Expense

Income tax expense for 2017 was $154.4 million, which included $95.6 million of TCJA-related tax expense.

The Tax Reform section below contains a more detailed discussion of the effects of the TCJA on 2017 income tax expense.

Full year 2017 non-GAAP income tax expense, excluding the effects of Project CONNECT and TCJA-related tax expense was $64.3 million, resulting in an effective income tax rate of 22.8 percent, compared to $58.5 million, or 22.8 percent, for the same period last year.




8




Net Income

2017 net income declined 45 percent to $105.1 million, or $1.49 per diluted share. Full year 2016 net income totaled $191.9 million, or $2.72 per diluted share.

Excluding Project CONNECT program expenses and discrete costs of approximately $14.9 million, $9.4 million net of tax, or $0.13 per diluted share, and TCJA-related income tax expense of $95.6 million, or $1.36 per diluted share, full year 2017 non-GAAP net income increased 9 percent to $210.1 million, or $2.98 per diluted share. Full year 2016 net income totaled $191.9 million, or $2.72 per diluted share.

Balance Sheet

At December 31, 2017, cash and short-term investments totaled $768.1 million, compared to $551.9 million at December 31, 2016.

At December 31, 2017, $378.4 million of cash and short-term investments were held by our foreign subsidiaries where a repatriation of those funds to the United States would have resulted in significant tax expense before the enactment of the TCJA.

In light of increased cash balances, strong cash flow generation in 2017, and our expectation under revised U.S. tax laws to repatriate approximately $200 million of cash currently held in foreign jurisdictions, the company has chosen to provide additional insight into priorities for its use of cash in the Capital Allocation section below.
 
Consolidated accounts receivable at December 31, 2017 totaled $364.9 million, a 9 percent increase compared with December 31, 2016. Consolidated Days Sales Outstanding (DSO) at December 31, 2017 stood at 42 days, consistent with December 31, 2016.
 
Consolidated inventory of $457.9 million at December 31, 2017 declined $30.1 million, or 6 percent, compared to December 31, 2016, as a result of disciplined inventory management across geographies and brands.

We are pleased with the composition of inventory exiting the year, including a decline in excess and closeout inventory compared with the prior year.

Our 2017 return on invested capital of 18.6% increased by 170 basis points compared to the prior year.

Full Year 2017 Cash Flow

Operating cash flow for the year ended December 31, 2017 was a record $341.1 million, compared to $275.2 million in 2016.

Capital expenditures totaled $53.4 million in 2017, compared to $50.0 million in 2016.

During 2017, the company paid dividends totaling $50.9 million, and repurchased 665,095 shares for a total of $35.5 million.

At December 31, 2017, approximately $137.9 million remained available under the current share repurchase authorization. The share repurchase authorization does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

Full Year 2018 Financial Outlook

Our objective in providing a forward-looking financial outlook is to help investors understand our business and the variables that we consider when planning our business and evaluating our own performance.
 

9




All projections related to anticipated future results are forward-looking in nature and may change, perhaps significantly. Our annual net sales are weighted more heavily toward the Fall/Winter season, while operating expenses are more equally distributed throughout the year, resulting in a highly seasonal net sales and profitability pattern weighted toward the second half of the year.

Spring and Fall season advance wholesale orders typically drive a significant portion of our annual net sales and are two of several significant factors we use to formulate our full year outlook. However, among the many risks inherent in our global business, our projected full year net sales and profitability may be materially affected by unfavorable weather patterns and other factors that affect consumer demand and store traffic and lead to higher-than-anticipated order cancellations and lower reorders by our wholesale customers or lower-than-projected net sales through our DTC businesses, particularly during the fourth quarter. Projections are predicated on normal seasonal weather globally.

In addition, bankruptcies and further consolidation among U.S. wholesale customers, such as those we experienced during 2016 and 2017, create increased uncertainty in our ability to predict near-term net sales and profitability. We are also facing macroeconomic, competitive and geopolitical uncertainties as well as foreign currency exchange rate volatility in several major markets, making it more difficult to forecast our net sales and profitability.

Our 2018 outlook assumes that current macroeconomic and market conditions in key markets do not worsen, and that global regulatory and tax policies remain largely unaltered for the balance of the year. The Tax Reform section below contains a more detailed discussion of the effects of TCJA on income tax expense.

In addition, the outlook is based on the company’s adoption of new revenue accounting guidance, Accounting Standards Codification (ASC) Topic 606, which is effective in 2018. As required by the new guidance, the company wil1 provide a reconciliation to the old revenue accounting guidance for the 2018 transition year.

Taking the above factors into consideration, our current full year 2018 outlook anticipates:
 
 
Full Year 2018 (U.S. Dollar)
 
 
GAAP
 
Non-GAAP*
Net sales growth
 
5.5% to 7.5%
 
4.0% to 6.0%
Gross margin expansion
 
up to 140 bps
 
up to 60 bps
SG&A expense deleverage
 
170 bps to 190 bps
 
40 bps to 50 bps
Income from operations
 
$263 to $273 million
 
$290 to $300 million
Operating margin
 
10.1% to 10.3%
 
11.3% to 11.5%
Licensing Income
 
up to $13.5 million
 
up to $13.5 million
Effective income tax rate
 
approximately 22%**
 
approximately 22%**
Net income
 
$203 to $211 million
 
$224 to $231 million
Diluted earnings per share
 
$2.88 to $2.98
 
$3.17 to $3.27

*Full year 2018 non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in SG&A expenses of approximately $40 million related to changes in revenue accounting standards, as well as Project CONNECT program expenses and discrete costs of approximately $27 million, $21 million net of tax, or $0.29 per diluted share.

** The full year 2018 financial outlook anticipates an estimated full-year effective income tax rate of approximately 22 percent, which may be affected by further refinement of our 2017 provisional TCJA estimates, as well as changes in our geographic mix of pre-tax income and other discrete events that may occur during the year.

Net Sales

The company currently expects 2018 net sales growth of 5.5 to 7.5 percent compared with 2017 net sales of $2.47 billion. The company expects non-GAAP net sales growth of approximately 4.0 to 6.0 percent (including less than one

10




percent contribution from foreign currency), which excludes approximately $40 million in net sales due to changes in revenue accounting standards.

Our 2018 outlook is further based on the expectation of non-GAAP net sales growth in the Columbia, SOREL, and prAna brands and a modest decline in Mountain Hardwear net sales as brand repositioning continues. Other assumptions considered in our non-GAAP net sales outlook include:

U.S. net sales growth of mid-single-digit percent, consisting of high-single-digit percent growth in DTC net sales and low-single-digit percent growth in wholesale net sales.

EMEA net sales increase of low-teens percent (high-single-digit percent constant-currency), consisting of a mid-teens percent increase (low-double-digit percent constant-currency) in Europe-direct, and a mid-single-digit percent increase with EMEA distributors.

LAAP net sales increase of low-single-digit percent, including:
China net sales increase of mid-single-digit percent;
Japan net sales increase of low-single-digit percent;
Korea net sales decline of low-single-digit percent (mid-single-digit percent decline constant-currency); and
LAAP distributor net sales decline of low-single-digit percent.
 
Mid-single-digit percent net sales growth in Canada.

Gross Margin

The company expects 2018 gross margin to improve by up to 140 basis points and non-GAAP gross margin to improve by up to 60 basis points, excluding an approximately $40 million benefit to gross profit due to changes in revenue accounting standards.

Gross margin expansion reflects:
a benefit from changes in revenue accounting standards;
a higher proportion of higher margin full-price versus closeout product sales;
favorable effects from foreign currency hedging rates; and
a favorable channel mix with a greater proportion of higher gross margin DTC net sales.

SG&A Expenses

The company expects 2018 SG&A expenses to increase at a rate faster than net sales, resulting in approximately 170 to 190 basis points of SG&A expense deleverage, and non-GAAP SG&A expense deleverage of approximately 40 to 50 basis points, excluding approximately $40 million in SG&A expenses due to changes in revenue accounting standards, and approximately $27 million in Project CONNECT program expenses and discrete costs.
The increase in projected SG&A expenses is aligned with our strategic priorities, and consists primarily of:
increased expenses to support continued expansion in the company's global DTC businesses;
incremental expenses from changes in revenue accounting standards;
Project CONNECT program expenses and discrete costs;
increased information technology related expenses to support strategic initiatives including our multi-year consumer-first omnichannel investments;
increased personnel expenses to support strategic initiatives and business growth; and
increased demand creation spending.

11




 
Licensing

The company expects 2018 licensing income of up to $13.5 million with the outlook based on expected performance of existing licensing partners.

Operating Income

Based on the above assumptions, the company expects 2018 operating income between approximately $263 million and $273 million, and non-GAAP operating income between approximately $290 million and $300 million, resulting in operating margin between approximately 10.1 percent and 10.3 percent, and non-GAAP operating margin between approximately 11.3 percent and 11.5 percent.

The change in revenue accounting standards is expected to have a 15 to 20 basis point negative effect on reported operating margin rate for 2018, but no effect on reported operating income.

Income Tax Expense

The company expects an estimated full year 2018 effective income tax rate of approximately 22 percent, which reflects a lower U.S. federal statutory income tax rate as a result of the TCJA and may be materially affected by further refinement of our 2017 TCJA provisional estimates as well as change in our geographic mix of pre-tax income and other discrete events that may occur during the year.

The Tax Reform section below contains a more detailed discussion of the factors that may affect 2018 income tax expense.

Net Income

The company expects 2018 net income between approximately $203 million and $211 million, and non-GAAP net income between approximately $224 million and $231 million, or diluted earnings per share between approximately $2.88 and $2.98, and non-GAAP diluted earnings per share between $3.17 and $3.27 per diluted share.

Cash Flows

The company expects 2018 capital expenditures of approximately $70 million, comprising investments in DTC expansion, information technology, project-based, and maintenance capital.

The company expects 2018 operating cash flow of up to $230 million.

Non-GAAP Financial Measures

With respect to our 2018 financial outlook, non-GAAP financial measures exclude net sales of approximately $40 million, with an offsetting increase in SG&A expenses of approximately $40 million related to changes in revenue accounting standards, as well as Project CONNECT program expenses and discrete costs of approximately $27 million, $21 million net of tax, or $0.29 per diluted share.

First Quarter 2018 Outlook

Based upon current visibility, we anticipate first quarter 2018 non-GAAP net sales growth and first quarter 2018 non-GAAP net income growth modestly above the rate anticipated for the full year.

Strategic Priorities

As part of the company's commitment to driving sustainable and profitable growth and relentless improvement, senior

12




management is focused on investment in our strategic priorities including:

driving brand awareness and sales growth through increased, focused demand creation investments;
enhancing consumer experience and digital capabilities in all our channels and geographies;
expanding and improving global DTC operations with supporting processes and systems; and
investing in our people and optimizing our organization across our portfolio of brands.

Ultimately, we expect our investments to accelerate market share capture across all brands, expand gross margin, improve SG&A expense efficiency, and drive improved operating margin.

Consumer-First Initiative

During the second quarter of 2017, we commenced investment in our consumer-first initiative (C1), which encompasses the Global Retail Platform and IT systems infrastructure to support the growth and continued development of our omnichannel capabilities. The objective of this initiative is consistent with our strategic priorities to deliver an enhanced consumer experience, and to modernize and standardize our processes and systems to enable us to better anticipate and deliver against the needs of our consumers. This multi-year global initiative is currently in the design phase, targeting regional implementations beginning in the first half of 2019. Our financial outlook for 2018 includes the SG&A expenses and capital expenditures that we anticipate incurring for the year for this initiative.

Ongoing ERP Implementation

We are continuing to invest in our multi-year global enterprise resource planning ERP implementation, which has been executed across the majority of our operations to date. We implemented the ERP system in our China joint venture in the second quarter of 2017. We plan to transition Europe-direct onto the system in mid-2018, at which point we will have completed the major components of our global rollout.

Project CONNECT

Project CONNECT is a comprehensive assessment of the company's operating model aimed at aligning our resources to accelerate execution on our strategic priorities. In 2017, we completed the operational assessment phase of Project CONNECT, which included a shift in the company's operating model, executive organization structure and decision rights to enable a brand-led and consumer-focused organization. We have also identified and scoped key business processes requiring modification, operational improvements, and investment in new capabilities in order to support the realigned organization and drive meaningful financial value.

During the second half of 2017, the company began implementation of operational improvements throughout the business. Project CONNECT includes initiatives to drive revenue, capture cost of sales efficiencies, generate SG&A savings, and improve our marketing effectiveness.

A few of these initiatives will be among the first to be implemented. Examples include initiatives in the area of e-commerce optimization, indirect procurement, marketing effectiveness, and refining the promotional cadence in DTC. Other initiatives generally will be implemented following further development, particularly those pertaining to product creation such as assortment optimization and intensifying our emphasis on designing products with the features and functions that consumers value most.

As these improvements begin to be realized, we intend to reallocate resources to our strategic priorities, including incremental demand creation spending and other investments to drive growth across our brands and distribution channels. Our 2018 financial outlook contemplates modest financial benefits attributable to the execution of these initiatives, and we anticipate more meaningful financial value capture beginning in 2019.

In 2017, the company incurred Project CONNECT program expenses and discrete costs of approximately $14.9 million, $9.4 million net of tax, or $0.13 per diluted share. We currently expect to incur Project CONNECT program expenses

13




and discrete costs of approximately $27 million in 2018.

Tax Reform

On December 22, 2017, the U.S. government enacted comprehensive tax legislation, commonly referred to as the Tax Cuts and Jobs Act (TCJA). The TCJA makes broad and complex changes to the U.S. tax code, including, but not limited to (1) reducing the U.S. federal corporate tax rate from 35 percent to 21 percent; (2) requiring companies to pay a one-time transition tax on certain unrepatriated earnings of foreign subsidiaries; (3) requiring a current inclusion in U.S. federal taxable income of certain earnings of controlled foreign corporations; (4) modifying the U.S. tax treatment of foreign withholding taxes; and (5) a new provision designed to tax global intangible low-taxed income (GILTI).

In connection with the company's initial analysis of the effect of the TCJA, we recorded provisional tax expense of $95.6 million during the fourth quarter of 2017, which increased our full-year 2017 income tax expense from $58.8 million to $154.4 million, and increased our effective tax rate from 22.0 percent to 57.9 percent.

This provisional amount primarily consists of (1) $15.0 million related to the re-measurement of the company's net deferred tax assets at the new corporate income tax rate of 21 percent; (2) $49.9 million related to the one-time transition tax; (3) $23.7 million of additional deferred tax liabilities for estimated withholding taxes on future anticipated repatriations of foreign earnings; and (4) $7.0 million related to the disallowance of foreign tax credits. An estimate has not been recorded related to the new GILTI tax under the TCJA because of the complexity of the new tax rules and the lack of clarity surrounding the application of the relevant accounting guidance.

The company's accounting for these elements is provisional and based upon our present interpretations, current available information and reasonable estimates of the effects of the TCJA, and these estimates are subject to further refinement, possibly materially, as additional information becomes available. Our 2018 effective tax rate of 22 percent does not incorporate any of these potential effects.

Capital Allocation

In light of increased cash balances, strong cash flow generation in 2017, and our expectation under revised U.S. tax laws to repatriate certain cash balances currently held in foreign jurisdictions , the company is providing additional insight into its priorities for use of cash.

First and foremost, the company remains committed to maintaining a strong balance sheet while utilizing cash to invest in growth opportunities for the business. We continue to believe that the lowest risk and highest return for the company is to remain focused on improving results in the assets that we already own. We will also look to return 40 to 60 percent of free cash flow, defined as operating cash flow less capital expenditures, to shareholders by increasing our dividend when appropriate and repurchasing shares in the marketplace. Finally, we have demonstrated the capacity to make and integrate acquisitions as opportunities arise.

With the combination of dividend payouts and share repurchases, we returned $86.5 million in cash to shareholders in 2017, representing 30 percent of free cash flow.

The board has approved an increase in the company’s regular quarterly dividend to $0.22 per share from $0.19 per share, representing a 16 percent increase in the quarterly dividend.

As of December 31, 2017, approximately $137.9 million remained available under the current share repurchase authorization, which does not obligate the company to acquire any specific number of shares or to acquire shares over any specified period of time.

As a result of the TCJA, we also intend to repatriate approximately $200 million of foreign cash in 2018, a portion of which may be utilized in returning cash to shareholders.
 


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Supplemental Financial Information

Since Columbia Sportswear Company is a global company, the comparability of its operating results reported in U.S. Dollars is affected by foreign currency exchange rate fluctuations because the underlying currencies in which it transacts change in value over time compared to the U.S. Dollar. To supplement financial information reported in accordance with GAAP, the company discloses 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. The company calculates 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. 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 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.

Additionally, this document includes references to other non-GAAP financial measures that exclude program expenses, discrete costs and associated tax effects related to Project CONNECT and TCJA-related income tax expense. The related tax effects of program expenses and discrete costs related to Project CONNECT were calculated using the respective statutory tax rates for applicable jurisdictions. In addition, non-GAAP financial measures in our 2018 financial outlook exclude increased net sales and offsetting increased SG&A expenses related to changes in revenue accounting standards that took effect beginning January 1, 2018. Management believes that these non-GAAP financial measures enable useful and meaningful comparisons of our operating performance from period to period because they exclude the effects of the aforementioned items above that may not be indicative of our core operating results.

These non-GAAP financial measures, including constant-currency net sales, should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The company provides a reconciliation of non-GAAP measures to the most directly comparable financial measure calculated in accordance with GAAP. See "Supplemental Financial Information" tables included in the earnings release announcing fourth quarter, full year 2017 financial results and 2018 outlook located on the investor relations section of the company’s website at http://investor.columbia.com/results.cfm). The non-GAAP financial measures and constant-currency information presented may not be comparable to similarly entitled measures reported by other companies.

First Quarter 2018 Reporting Schedule

Columbia Sportswear plans to report first quarter 2018 financial results on Thursday, April 26, 2018 at approximately 4:00 p.m. ET. Following issuance of the earnings release, a commentary reviewing the results will be furnished to the SEC on Form 8-K and published on the investor relations section of the company’s website at http://investor.columbia.com/results.cfm. A public webcast of Columbia’s earnings conference call will follow at 5:00 p.m. ET at www.columbia.com. To receive email notification of future announcements, please visit http://investor.columbia.com/events.cfm and register for E-Mail Alerts.

Forward-Looking Statements

This document contains forward-looking statements within the meaning of the federal securities laws, including statements regarding anticipated results, net sales and net sales growth, gross margin, including changes in specific components, operating expenses, licensing income, operating income, operating margins, net income, earnings per share, operating cash flow, income tax rates and the effects of tax reform, cash flow, SG&A expense, including deleverage and projected increases and decreases in specific components of SG&A, SG&A expenses associated with changes in revenue accounting standards, Project CONNECT program expenses and discrete costs and our global retail platform initiative, the performance of our U.S. DTC and wholesale businesses, our Europe-direct and our EMEA and LAAP distributor businesses, projected growth or decline in specific geographies, countries and brands, capital expenditures, changes in foreign currency exchange rates, the effect of changes in revenue accounting standards on our financial results, our ability to realize the anticipated benefits of our investments in our strategic priorities, our

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expectation regarding progress on our ERP implementation, the implementation and expected benefits of initiatives related to Project CONNECT, our expectations regarding repatriation of cash balances held in foreign jurisdictions and our anticipated use of cash balances, including returning cash to shareholders. Forward-looking statements often use words such as "will," "anticipate," "estimate," "expect," "should" and "may" and other words and terms of similar meaning or reference future dates. The company’s expectations, beliefs and projections are expressed in good faith and are believed to have a reasonable basis; however, each forward-looking statement involves a number of risks and uncertainties, including those set forth in this document, those described in the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q under the heading "Risk Factors," and those that have been or may be described in other reports filed by the company, including reports on Form 8-K. Potential risks and uncertainties that may affect our future revenues, earnings and performance and could cause the actual results of operations or financial condition of the company to differ materially from the anticipated results expressed or implied by forward-looking statements in this document include: loss of key customer accounts; our ability to effectively implement IT infrastructure and business process initiatives and to maintain the strength and security of our IT systems; the effects of unseasonable weather, including global climate change; trends affecting consumer traffic and spending in DTC; our ability to implement our growth strategy; unfavorable economic conditions generally, the financial health of our customers and changes in the level of consumer spending, apparel preferences and fashion trends; changes in international, federal or state tax, labor and other laws and regulations that affect our business, including changes in corporate tax rates or increasing wage rates; the effects of the TCJA, including related changes to our tax obligations and effective tax rate in future periods, as well as future changes to related provisional tax expense recorded in 2017; volatility in global production and transportation costs and capacity; risks inherent in doing business in foreign markets, including fluctuations in currency exchange rates; our ability to attract and retain key personnel; risks associated with our joint venture; higher than expected rates of order cancellations; increased consolidation of our wholesale customers; our ability to effectively source and deliver our products to customers in a timely manner; our dependence on independent manufacturers and suppliers and our ability to source finished products and components at competitive prices from them; the effectiveness of our sales and marketing efforts; intense competition in the industry; business disruptions and acts of terrorism, cyber-attacks or military activities around the globe; our ability to establish and protect our intellectual property; the seasonality of our business; and our ability to develop innovative products. The company cautions that forward-looking statements are inherently less reliable than historical information. The company does not undertake any duty to update any of the forward-looking statements after the date of this document to conform them to actual results or to reflect changes in events, circumstances or its expectations. New factors emerge from time to time and it is not possible for the company to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

End
©2018, Columbia Sportswear Company

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