What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-08-06 compared with 2020-05-07 · 249 added, 147 removed, 155 unchanged (72% of the section changed)

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This quarterly report contains forward-looking statements within the meaning of federal securities laws.

Forward-looking statements include any statements related to our expectations regarding future performance or market position, including statements regarding store openings, the time-frame for the return of consumer demand, capital outflows, operating expense, our ability to timely fulfill future season orders, our ability to manage credit risk, outlet expectations, sales order cancellations, inventory purchases, net sales, profitability, cash and our ability to meet our cash needs.

Forward-looking statements include any statements related to our expectations regarding future performance or market position, including statements regarding the time-frame for the return of consumer demand, capital outflows, operating expense, our ability to manage credit risk, lease concession negotiations, sales order cancellations, inventory purchases, net sales, profitability, cash and our ability to meet our cash needs.

Forward-looking statements often use words such as "will", "anticipate", "estimate", "expect", "should", "may", and other words and terms of similar meaning or reference future dates.

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COVID-19 was first identified in China in December 2019 and a global pandemic of respiratory disease caused by COVID-19 was declared by the World Health Organization in March 2020.

As of March 31, 2020, in response to this pandemic, many regional and local governments worldwide had implemented travel restrictions, business shutdowns or slowdowns, and shelter-in-place or stay-at-home orders.

In first quarter 2020, lower consumer demand related to the COVID-19 pandemic began to impact financial performance in China in late January, Korea and Japan in early February and North America and Europe in March.

Retail traffic trends declined across North America and Europe in early March, prior to store closures which began in mid-March.

As of the date of this filing, certain regional and local governments have started lifting restrictions and orders.

Our top priority throughout this crisis has been to protect the health and safety of our employees, their families, our customers, and our communities.

To promote the health and safety and slow the spread of this virus, we closed our retail stores around the world at various points in time, applied work from home measures, and implemented best practices related to social distancing and cleaning.

We aim to minimize the impact the COVID-19 pandemic is having on our employees and have implemented Catastrophic Paid Leave and furlough benefits which vary by business unit and by region.

As of the time of this filing, the vast majority of our stores in China and Korea have reopened, although many still operate with reduced store hours.

In these markets, retail traffic trends have been improving but remain well below pre-pandemic levels.

Japan experienced a similar recovery trend until early April when a spike of new cases in and around Tokyo prompted store closures.

Across North America and Europe, most of our stores remain closed.

We continue to evaluate timelines for reopening stores in phases and are following the advice of governments and relevant public health authorities to determine when stores reopen.

Our focus will remain on protecting both our employees

and our customers during this reopening process.

In Europe, a small number of stores have reopened and U.S.

store openings are expected to begin as early as May 8, 2020.

The store reopening process will likely take time as each market faces its own unique set of circumstances.

It is uncertain how long it will take until foot traffic increases significantly.

Other geographies throughout the world where our products are sold by our wholesale customers or distributors, such as Russia, have been significantly impacted by the pandemic and its related economic effects.

The vast majority of our wholesale customers' and distributors' stores have followed store closure timelines similar to our store closures, which vary by region, depending on when local governments took action to slow the spread of the virus.

Due to the effects of retail stores closures and the resulting decrease in consumer demand, as well as actions being taken by our wholesale customers to preserve their capital and liquidity, we have received and anticipate significant Spring and Fall 2020 sales order cancellations.

To mitigate the impact of these cancellations, we have significantly curtailed planned Fall 2020 inventory purchases.

Among our top priorities is a focused effort matching inventory supply with projected demand to optimize the use of inventory and maximize sales potential.

In anticipation of elevated inventory levels within our business and in the general marketplace, we expect to increase the amount of clearance inventory that is sold through our outlet stores.

As retailers attempt to reduce excess levels of inventory, the current and potentially continuing elevated promotional environment is anticipated to impact our net sales and gross margin.

In addition, we are also experiencing supply chain disruptions, largely resulting from temporary raw material and finished goods supplier closures in Asia related to the COVID-19 pandemic, which we expect will likely affect our ability to timely fulfill some Fall 2020 orders.

We have taken a number of actions to provide greater financial flexibility and liquidity, reduce capital outflows, preserve capital, and contain costs for our business.

In response to this pandemic, many regional and local governments worldwide implemented travel restrictions, business shutdowns or slowdowns, and shelter-in-place or stay-at-home orders.

In first quarter 2020, lower consumer demand related to the COVID-19 pandemic began to impact our financial performance in China in late January, Korea and Japan in early February and North America and Europe in March, due to store closures, reduced operating hours and decreased retail traffic.

Entering the second quarter, the vast majority of our owned stores across the U.S., Europe, Japan, and Canada were closed due to the pandemic.

In addition, many of our wholesale customers' and international distributors' closed stores or reduced operating hours, resulting in lower than expected sales, cancellation of orders and a slowing of receipt of shipments of our products.

Store reopening timelines varied by region, with the vast majority of our stores in China and Korea reopened by late April and our stores in the U.S., Europe, Japan, and Canada reopening predominantly within the May and June timeframe.

Exiting the quarter, nearly all of our owned stores were open globally.

Overall, our store retail traffic remains well below prior year levels.

At the time of this filing, a small number of locations globally that had reopened were closed again due to local regulations or our safety concerns resulting from new outbreaks.

New outbreaks have also had a detrimental impact on our store performance in affected markets.

Stores in destination locations and tourist dependent markets remain some of the most severely impacted stores within our fleet as consumers choose to shop closer to home and online.

Throughout the first and second quarters of 2020, our global DTC e-commerce business remained open, supported by the employees in our distribution centers and call centers.

During the second quarter, our global DTC e-commerce business grew 72% year-over-year and

represented 28% of our global net sales during the quarter.

We anticipate our global e-commerce sales growth to remain high for the remainder of the year compared to 2019.

While work has been done during the pandemic to mitigate its effect on our inventory supply, the combined effect of retail stores closures and the resulting decrease in consumer demand, as well as actions taken by our wholesale customers to preserve their capital and liquidity, caused higher than normal inventory levels at June 30, 2020, as inventories grew 7% compared to the prior year.

We remain focused on maintaining a disciplined approach to inventory management.

We have received, and expect to continue to receive, significant order cancellations.

In response, we have significantly curtailed planned inventory purchases.

We anticipate selling the remaining inventory in current and future seasons by leveraging our wholesale customers, e-commerce platforms and fleet of outlet stores.

Given the actions taken by retailers to reduce inventory levels from a supply perspective, we expect the current elevated promotional environment to moderate in the second half of the year, however, consumer demand may cause an elevated promotional environment to continue, potentially impacting our future net sales and gross margin.

In the second quarter, inventory growth was partially offset by the timing of Fall 2020 receipts, which are more heavily weighted to the third quarter this year, compared to Fall 2019 receipts in the prior year.

This timing shift primarily reflects supply chain disruptions related to the pandemic that occurred earlier in the year.

COVID-19 also impacted our distribution centers, our call centers, our retail stores, our third-party manufacturing partners and other vendors, due to the effects of facility closures, reductions in operating hours, labor shortages and real time changes in operating procedures to accommodate social distancing and additional sanitization measures.

Our work-from-home policies continue in many regions, including the United States.

In response to the uncertainty of the pandemic described above, we enhanced our liquidity position during the year by taking various actions with respect to our domestic credit agreement.

As of the time of this filing, we have:

• increased our total available committed and uncommitted credit lines and facilities to provide $631 million of borrowing capacity, of which $525 million is committed;

• increased our total available committed and uncommitted credit lines and facilities to provide approximately $631 million of borrowing capacity, of which $525 million is committed and available domestically;

• suspended the quarterly dividend and share repurchases;

• reduced planned capital expenditures.

• initiated numerous cost containment measures across the organization, including lowering personnel related expenses, reducing demand creation spend, and minimizing discretionary expenditures.

The second quarter is historically our seasonally lowest sales volume period, and based on current and anticipated store closures, as well as uncertainty regarding retail traffic as stores reopen, we expect a significant a decline in our net sales and an operating loss in the second quarter of 2020.

Given the ongoing business disruption and uncertainty surrounding the COVID-19 pandemic, we are unable to estimate full year results with reasonable accuracy.

However we do expect future material financial impacts associated with the COVID-19 pandemic, including, but not limited to, lower global net sales, the delay of inventory production and fulfillment, and incremental costs associated with the COVID-19 pandemic, such as, exceptional provisions for bad debt, severance and restructuring charges and other related expenses.

We have initiated numerous cost containment measures across the organization, including lowering personnel related expenses, reducing demand creation spend, and minimizing discretionary expenditures.

These measures reflect our effort to lower 2020 operating expenses by more than $100 million compared to last year, before incremental extraordinary expenses related to the COVID-19 pandemic including, but not limited to, exceptional provision for bad debts, severance and restructuring charges and other related expenses.

We continue to evaluate our cost structure for 2021 and beyond.

To enable long-term growth and execute our strategic priorities, we anticipate taking additional actions to adjust our current expense structure, including evaluating the reallocation of resources.

See the Liquidity and Capital Resources section below for additional information.

Given the ongoing business disruption and uncertainty surrounding the pandemic, we are unable to estimate full year results with reasonable accuracy.

While significant uncertainty remains, we expect sales volume to stay below prior year levels for the balance of the year.

Absent further deterioration in trends due to the pandemic, we anticipate the second quarter to be the steepest year-over-year percent change in net sales of the year, with declines moderating in the second half of the year.

Overall, we do expect future material financial impacts associated with the COVID-19 pandemic, including, but not limited to, lower global net sales, the delay of inventory production and fulfillment, and incremental costs associated with the COVID-19 pandemic, such as, exceptional provisions for bad debt, severance and restructuring charges and other related expenses.

Strategic Priorities

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Capital Allocation

Given the anticipated declines in net sales, profitability and cash related to the COVID-19 pandemic, our capital allocation priorities have shifted.

We remain committed to maintaining our strong balance sheet in order to provide ourselves with maximum strategic flexibility and access to additional liquidity if warranted.

Within that context, our first priority is to build and preserve liquidity for business operations while continuing to fund high-priority strategic initiatives.

Our second priority is to limit the risk of financial distress given the pressure currently impacting the retail industry.

We plan to revisit our capital allocation priorities when the business stabilizes and there is a more reliable and predictable flow of cash.

As a result of our updated capital allocation priorities, we have suspended quarterly cash dividend payments and further share repurchases.

Given the realized and anticipated declines in net sales, profitability and cash related to the COVID-19 pandemic, our capital allocation priorities have shifted.

We remain committed to maintaining our strong balance sheet to enable maximum strategic flexibility and access to additional liquidity if warranted.

Within that context, our priorities include preserving liquidity for business operations and mitigating the financial impact of external risks given the pressure currently impacting the retail industry.

We plan to revisit our capital allocation priorities when the business stabilizes and cash flows are more reliable and predictable.

Results of Operations

The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and accompanying Notes that appear in Part I, Item 1, Financial Statements in this quarterly report.

All references to quarters relate to the quarter ended March 31 of the particular year.

All references to quarters relate to the quarter ended June 30 of the particular year.

To supplement financial information reported in accordance with accounting principles generally accepted in the United States ("GAAP"), we disclose constant-currency net sales information, which is a non-GAAP financial measure, to provide a framework to assess how the business performed excluding the effects of changes in the exchange rates used to translate net sales generated in foreign currencies into United States dollars.

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The following discussion includes references to constant-currency net sales, and we provide a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP below.

Highlights of the First Quarter of 2020

Lower net sales and profitability in first quarter 2020 compared to first quarter 2019 primarily reflect the impact of lower consumer demand resulting from the ongoing COVID-19 pandemic.

• Net sales decreased $86.4 million, or 13%, to $568.2 million from $654.6 million in the first quarter of 2019.

• Income from operations decreased $89.9 million , or 102%, to a loss of $2.0 million from $88.0 million in the first quarter of 2019.

• Net income decreased $74.0 million, or 100%, to $0.2 million, or $0.00 per diluted share, from $74.2 million, or $1.07 per diluted share, in the first quarter of 2019.

Highlights of the Second Quarter of 2020

Lower net sales and profitability in second quarter 2020 compared to second quarter 2019 primarily reflect the impact of temporary store closures and lower consumer demand resulting from the ongoing COVID-19 pandemic.

• Net sales decreased $209.6 million, or 40%, to $316.6 million from $526.2 million in the second quarter of 2019.

• Income from operations decreased $86.7 million , or 530%, to a loss of $70.3 million from income of $16.4 million in the second quarter of 2019.

• Net income decreased $73.7 million, or 320%, to a loss of $50.7 million, or $(0.77) per share, from income of $23.0 million, or $0.34 per diluted share, in the second quarter of 2019.

The following table sets forth, for the periods indicated, the percentage relationship to net sales of specified items in our Condensed Consolidated Statements of Operations:

Three Months Ended March 31,

Three Months Ended June 30, Six Months Ended June 30,

2020 2019 2020 2019

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Income (loss) from operations (22.2) 3.1 (8.2) 8.8

Interest income, net 0.3 0.5

Other non-operating income 0.3 0.1

Income before income tax 0.3 14.0

Income tax expense (0.3) (2.7)

Net income — % 11.3 %

Interest income (expense), net (0.2) 0.5 0.1 0.5

Other non-operating income, net 0.3 0.2 0.3 0.2

Income (loss) before income tax (22.1) 3.8 (7.8) 9.5

Income tax benefit (expense) 6.1 0.6 2.1 (1.3)

Net income (loss) (16.0) % 4.4 % (5.7) % 8.2 %

Results of Operations — Consolidated

Quarter Ended March 31, 2020 Compared to Quarter Ended March 31, 2019

Consolidated net sales decreased $86.4 million, or 13%, to $568.2 million for the first quarter of 2020 from $654.6 million for the comparable period in 2019.

The decrease primarily reflects the impact of lower consumer demand resulting from the ongoing COVID-19 pandemic and, to a lesser extent, lower demand resulting from warmer weather compared to strong sales performance in first quarter 2019.

The decrease was primarily due to decreased net sales of the Columbia brand in the U.S.

DTC and China businesses, across all product categories.

Our e-commerce businesses have largely remained operational during the COVID-19 pandemic, with the exception of temporary distribution center closures in France and China that have since resumed operations.

Quarter Ended June 30, 2020 Compared to Quarter Ended June 30, 2019

Consolidated net sales decreased $209.6 million, or 40%, to $316.6 million for the second quarter of 2020 from $526.2 million for the comparable period in 2019.

Net sales declines moderated as the quarter progressed with April net sales down 58%, May net sales down 47% and June net sales down 20% compared to the same periods in 2019.

The overall decrease primarily reflects the negative impact of temporary store closures, including our wholesale customers' stores, and lower consumer demand resulting from the ongoing COVID-19 pandemic.

Our e-commerce businesses have largely remained operational during the COVID-19 pandemic, with the exception of temporary distribution center closures to perform deep cleaning.

Our global e-commerce net sales increased 72% for the second quarter of 2020 compared to the second quarter of 2019, and represented 28% of total net sales.

Net sales by brand, product category and channel are summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

Net Sales Adjust for

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Gross Profit:

Gross profit as a percentage of net sales contracted to 47.8% in the first quarter of 2020 from 51.4% for the comparable period in 2019.

Gross profit as a percentage of net sales contracted to 46.2% in the second quarter of 2020 from 48.2% for the comparable period in 2019.

The gross profit contraction primarily reflected margin pressure related to the COVID-19 pandemic, including:

• an increase in inventory obsolescence provisions associated with unsold inventory;

• a decrease in DTC product margin, reflecting higher promotional activity.

• an increase in inventory reserves;

• lower DTC product margins, reflecting elevated promotional activity;

partially offset by

• favorable DTC sales mix resulting from a higher proportion of e-commerce sales, which generally carry higher gross margins;

• lower volume of wholesale close-out sales.

Our gross profit may not be comparable to other companies in our industry because some of these companies may include all of the costs related to their distribution network in cost of sales while we, like many others, include these expenses as a component of SG&A expense.

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SG&A expense includes all costs associated with our design, merchandising, marketing, distribution and corporate functions, including related depreciation and amortization.

SG&A expense increased $25.1 million, or 10%, to $276.8 million, or 48.7% of net sales, for the first quarter of 2020, from $251.8 million, or 38.5% of net sales, for the comparable period in 2019, primarily due to:

SG&A expense decreased $23.1 million, or 10%, to $217.7 million, or 68.7% of net sales, for the second quarter of 2020, from $240.8 million, or 45.8% of net sales, for the comparable period in 2019, primarily due to:

• lower retail expenses, primarily resulting from lower personnel expenses due to store closures;

• decreased demand creation spending;

• decreased discretionary spending;

• COVID-19 related government subsidies and incentives;

partially offset by

• COVID-19 related expenses, including catastrophic leave and furlough pay as well as severance and other pandemic related costs;

• retail store related impairments.

In March 2020, we initiated numerous cost containment measures across the organization to mitigate the impacts of COVID-19 on our business.

See additional discussion of these measures in the Impacts of COVID-19 discussion above.

Income (Loss) from Operations:

Loss from operations was $70.3 million, or (22.2)% of net sales, in the second quarter of 2020 compared to income from operations of $16.4 million, or 3.1% of net sales, in the comparable period in 2019.

Income Tax Benefit (Expense):

Income tax benefit was $19.5 million for the second quarter of 2020, compared to a benefit of $3.1 million for the comparable period in 2019.

Our effective income tax rate was 27.7% for the second quarter of 2020, compared to negative 15.3% for

the same period in 2019.

Our effective tax rate increased compared to prior year primarily due the change in mix of book income or loss among jurisdictions, as well as the favorable impact of the passage of a Swiss tax reform package on our effective income tax rate for the second quarter of 2019.

Net Income (Loss):

Net loss was $50.7 million, or $(0.77) per share, for the second quarter of 2020 compared to net income of $23.0 million, or $0.34 per diluted share, for the comparable period in 2019.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

Consolidated net sales decreased $296.0 million, or 25%, to $884.8 million for the six months ended June 30, 2020 from $1,180.8 million for the comparable period in 2019.

The decrease primarily reflects the impact of temporary store closures, including our wholesale customers' stores, and lower consumer demand resulting from the ongoing COVID-19 pandemic.

Net sales decreased across all regions, brands and product categories, primarily in the U.S.

DTC and wholesale businesses.

Net sales by brand, product category and channel are summarized in the following table:

Six Months Ended June 30,

Net Sales Adjust for

Foreign Currency

Translation Constant-currency

Net Sales Reported

Net Sales Constant-currency

(In millions, except for percentage changes) 2020 2020 (1)

2019 % Change % Change

Brand Net Sales:

Columbia $ 737.5 $ 4.8 $ 742.3 $ 1,007.1 (27)% (26)%

SOREL 52.0 0.1 52.1 54.6 (5)% (5)%

prAna 64.2 — 64.2 79.9 (20)% (20)%

Mountain Hardwear 31.1 0.2 31.3 39.2 (21)% (20)%

Total $ 884.8 $ 5.1 $ 889.9 $ 1,180.8 (25)% (25)%

Product Category Net Sales:

Apparel, Accessories and Equipment $ 696.0 $ 3.6 $ 699.6 $ 958.2 (27)% (27)%

Footwear 188.8 1.5 190.3 222.6 (15)% (15)%

Total $ 884.8 $ 5.1 $ 889.9 $ 1,180.8 (25)% (25)%

Channel Net Sales:

Wholesale $ 485.8 $ 2.6 $ 488.4 $ 659.4 (26)% (26)%

DTC 399.0 2.5 401.5 521.4 (23)% (23)%

Total $ 884.8 $ 5.1 $ 889.9 $ 1,180.8 (25)% (25)%

(1) Constant-currency net sales information is a non-GAAP financial measure that excludes the effect of changes in foreign currency exchange rates against the United States dollar between comparable reporting periods.

We calculate constant-currency net sales by translating net sales in foreign currencies for the current period into United States dollars at the average exchange rates that were in effect during the comparable period of the prior year.

Gross Profit:

Gross profit as a percentage of net sales, decreased to 47.2% in the six months ended June 30, 2020, from 50.0% for the comparable period in 2019.

The gross profit contraction primarily reflected margin pressure related to the COVID-19 pandemic, including:

• an increase in inventory obsolescence provisions associated with unsold inventory;

• a decrease in DTC product margin, reflecting higher promotional activity.

Selling, General and Administrative Expense :

SG&A expense increased $2.0 million, or 0.4%, to $494.5 million, or 55.9% of net sales, for the six months ended June 30, 2020, from $492.5 million, or 41.7% of net sales, for the comparable period in 2019.

The SG&A expense increase was primarily due to:

• increased bad debt expense, reflecting heightened accounts receivable risk resulting from the ongoing COVID-19 pandemic;

• higher personnel expense, primarily reflecting merit increases and the annualization of prior year headcount increases;

• incremental extraordinary expenses related to the COVID-19 pandemic;

• increased information technology expenses;

partially offset by

• lower incentive compensation;

• lower retail expenses, primarily resulting from lower personnel expenses due to store closures;

• decreased demand creation spending;

In March 2020, we began to realize the initial benefits of cost containment measures as some were implemented.

The full impact of these measures will be more evident in full year operating expense performance.

• decreased discretionary spending.

In March 2020, we initiated numerous cost containment measures across the organization to mitigate the impacts of COVID-19 on our business.

See additional discussion of these measures in the Impacts of COVID-19 discussion above.

Income (Loss) from Operations:

Loss from operations was $2.0 million, or (0.3)% of net sales, in the first quarter of 2020 compared to income from operations of $88.0 million, or 13.4% of net sales, in the comparable period in 2019.

Income Tax Expense:

Income tax expense decreased $16.3 million to $1.4 million for the first quarter of 2020, from $17.6 million for the comparable period in 2019.

Our effective income tax rate was 86.4% for the first quarter of 2020, compared to 19.2% for the same period in 2019.

Our effective tax rate increased compared to prior year primarily due to the uncertainty of the COVID-19 pandemic on our full year 2020 financial results.

Our effective income tax rate for the three months ended March 31, 2020 reflects the change in mix of book income or loss among jurisdictions, a revaluation of the valuation allowance against deferred tax assets for foreign operating loss carryforward, and rate arbitrage between the current year expected taxable net operating loss and the tax rate in the year the carryback would offset.

Net income decreased $74.0 million, or 100%, to $0.2 million, or $0.00 per diluted share, for the first quarter of 2020 from $74.2 million, or $1.07 per diluted share, for the comparable period in 2019.

Loss from operations was $72.3 million, or 8.2% of net sales, for the six months ended June 30, 2020 compared to income from operations of $104.3 million, or 8.8% of net sales for the comparable period in 2019.

Income Tax Benefit (Expense):

Income tax benefit was $18.1 million for the six months ended June 30, 2020 compared to an income tax expense of $14.6 million for the comparable period in 2019.

Our effective income tax rate was 26.4% for the six months ended June 30, 2020 compared to 13.0% for the same prior year in 2019.

Our effective income tax rate for the six months ended June 30, 2020 compared to prior year primarily due the change in mix of book income or loss among jurisdictions, as well as the favorable impact of the passage of a Swiss tax reform package on our effective income tax rate for the comparable period in 2019.

Net Income (Loss):

Net loss was $50.5 million, or $(0.76) per share, for the six months ended June 30, 2020 compared to net income of $97.2 million, or $1.41 per diluted share, for the comparable period in 2019.

Results of Operations — Segment

Quarter Ended March 31, 2020 Compared to Quarter Ended March 31, 2019

Quarter Ended June 30, 2020 Compared to Quarter Ended June 30, 2019

Net Sales by Geographic Region:

Net sales by geographic region are summarized in the following table:

Three Months Ended March 31,

Three Months Ended June 30,

Adjust for Constant- Constant-

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Unless otherwise noted below, net sales decreases within all regions reflect the impact of lower consumer demand resulting from the ongoing COVID-19 pandemic and, to a lesser extent, lower demand resulting from warmer weather compared to strong sales performance for the comparable period in 2019.

net sales decreased $36.3 million, or 9%, to $375.9 million for the first quarter of 2020 from $412.2 million for the comparable period in 2019.

net sales decreased primarily in the U.S.

DTC business, and, to a lesser extent the U.S.

wholesale business.

Unless otherwise noted below, net sales decreases within all regions primarily reflect the impact of temporary store closures, including our wholesale customers' stores, and lower consumer demand resulting from the ongoing COVID-19 pandemic compared to the same period in 2019.

net sales decreased $132.3 million, or 42%, to $183.2 million for the second quarter of 2020 from $315.5 million for the comparable period in 2019.

net sales decreased in the U.S.

wholesale and DTC businesses.

The net sales decrease in the U.S.

DTC business was driven by decreased net sales from retail stores, partially offset by increased net sales from e-commerce business.

• LAAP region net sales decreased $30.3 million, or 23% (22% constant-currency), to $102.6 million for the first quarter of 2020 from $132.9 million for the comparable period in 2019.

The net sales decrease in the LAAP region was led by decreased net sales in our China business, followed by our Japan and Korea businesses, partially offset by increased net sales in our LAAP distributor business.

The increase in LAAP distributor net sales primarily resulted from a greater portion of Fall 2019 shipments falling into the first quarter of 2020 compared to the timing of Fall 2018 shipments in the first quarter of 2019.

• EMEA region net sales decreased $15.5 million, or 22% (20% constant-currency), to $55.8 million for the first quarter of 2020 from $71.3 million for the comparable period in 2019.

The net sales decrease in the EMEA region was led by decreased net sales in our Europe-direct business, followed by the EMEA distributor business.

The decrease in EMEA distributor net sales was primarily driven by a lower portion of Spring 2020 shipments falling into the first quarter of 2020 compared to the timing of Spring 2019 shipments for the first quarter of 2019.

• Canada net sales decreased $4.3 million, or 11% (13% constant-currency), to $33.9 million for the first quarter of 2020 from $38.2 million for the comparable period in 2019.

DTC business was driven by decreased net sales from retail stores, partially offset by increased net sales from our e-commerce business.

• LAAP region net sales decreased $34.2 million, or 34% (32% constant-currency), to $67.4 million for the second quarter of 2020 from $101.6 million for the comparable period in 2019.

The net sales decrease in the LAAP region was primarily driven by decreased net sales in our Japan and LAAP distributor businesses.

• EMEA region net sales decreased $33.3 million, or 36%, to $58.3 million for the second quarter of 2020 from $91.6 million for the comparable period in 2019.

The net sales decrease in the EMEA region was led by decreased net sales in our EMEA distributor business, followed by our Europe-direct business.

• Canada net sales decreased $9.8 million, or 56% (54% constant-currency), to $7.7 million for the second quarter of 2020 from $17.5 million for the comparable period in 2019.

The net sales decrease in Canada was primarily driven by decreased net sales in our wholesale business.

Segment Income from Operations:

Segment income from operations includes net sales, cost of sales, SG&A expenses, and net licensing income for each of our four reportable geographic segments.

Income from operations as a percentage of net sales in the U.S.

is typically higher than the other segments due to scale efficiencies associated with the larger base of net sales in the U.S.

Segment Income (Loss) from Operations:

Segment income (loss) from operations includes net sales, cost of sales, SG&A expenses, and net licensing income for each of our four reportable geographic segments.

Typically, income from operations as a percentage of net sales in the U.S.

is higher than the other segments due to scale efficiencies associated with the larger base of net sales in the U.S.

and incremental licensing income compared to other segments.

We anticipate this trend will continue until other segments achieve scale efficiencies from higher levels of net sales volume relative to the fixed cost structure necessary to operate the business.

The EMEA segment, in particular, has realized lower operating margins compared to other segments due to a relatively higher fixed cost structure associated with our supply chain and administrative functions, compared to net sales.

Generally, we anticipate this trend will continue until other segments achieve scale efficiencies from higher levels of net sales volume relative to the fixed cost structure necessary to operate the business.

The EMEA segment, in particular, typically has realized lower operating margins compared to other segments due to a relatively higher fixed cost structure associated with our supply chain and administrative functions, compared to net sales.

To the extent net sales increase in the EMEA segment, we would anticipate an improvement in the operating income margin of that segment.

Table of Conten t s

The following table presents segment income from operations for each reportable segment for the three months ended March 31:

Three Months Ended March 31,

The following table presents segment income (loss) from operations for each reportable segment:

Three Months Ended June 30,

(In millions, except for percentage changes) 2020 2019 Change ($)

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Canada (8.8) (2.6) (6.2)

Total segment income (loss) from operations (29.0) 63.4 (92.4)

Unallocated corporate expenses (41.3) (47.0) (5.7)

Income (loss) from operations $ (70.3) $ 16.4 $ (86.7)

Unless otherwise noted below, segment income from operations within all regions decreased due to the impact of temporary store closures, including our wholesale customers' stores, and lower consumer demand primarily resulting from the ongoing COVID-19 pandemic compared to same period in 2019.

loss from operations of $18.2 million, or (9.9)% of net sales, for the second quarter of 2020 decreased $64.7 million from income from operations of $46.5 million, or 14.7% of net sales, for the comparable period in 2019.

The decrease resulted from decreases in net sales combined with decreased gross margin.

SG&A expense increased as a percentage of net sales to 57.7% for the second quarter of 2020 compared to 34.9% for the same period in 2019.

SG&A expense for the second quarter of 2020 included incremental COVID-19 related expenses, including catastrophic paid leave and furlough pay as well as severance and other pandemic related costs.

• LAAP loss from operations of $2.1 million, or (3.2)% of net sales, for the second quarter of 2020 decreased $12.1 million from income from operations of $10.0 million, or 9.8% of net sales, for the comparable period in 2019.

The decrease resulted from decreases in net sales combined with decreased gross margin.

LAAP SG&A expense increased as a percentage of net sales to 57.9% for the second quarter of 2020 compared to 46.1% for the same period in 2019.

• EMEA income from operations of $0.1 million, or 0.2% of net sales, for the second quarter of 2020 decreased $9.4 million from $9.5 million, or 10.4% of net sales, for the comparable period in 2019.

The decrease was driven by decreased net sales, combined with decreased gross margin.

EMEA SG&A expense increased as a percentage of net sales to 34.7% for the second quarter of 2020 compared to 25.6% for the same period of 2019.

• Canada loss from operations of $8.8 million, or (113.0)% of net sales, for the second quarter of 2020 increased $6.2 million from $2.6 million, or (14.9)% of net sales, for the comparable period in 2019.

The increased loss was driven by decreased net sales, partially offset by decreased gross margin.

Canada SG&A expense increased as a percentage of net sales to 147.7% for the second quarter of 2020 compared to 56.3% for the same period of 2019.

SG&A expense for the second quarter of 2020 included incremental COVID-19 related expenses, including catastrophic paid leave and furlough pay as well as severance and other pandemic related costs.

Unallocated corporate expenses decreased by $5.7 million to $41.3 million for the second quarter of 2020 from $47.0 million for the comparable period in 2019.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Net Sales by Geographic Region:

Net sales by geographic region are summarized in the following table:

Six Months Ended June 30,

Adjust for Constant- Constant-

Reported Foreign currency Reported Reported currency

Net Sales Currency Net Sales Net Sales Net Sales Net Sales

(In millions, except for percentage changes) 2020 Translation 2020 (1)

2019 % Change % Change (1)

$ 559.1 $ — $ 559.1 $ 727.7 (23)% (23)%

LAAP 170.0 3.3 173.3 234.5 (28)% (26)%

EMEA 114.1 1.9 116.0 162.9 (30)% (29)%

Canada 41.6 (0.1) 41.5 55.7 (25)% (25)%

$ 884.8 $ 5.1 $ 889.9 $ 1,180.8 (25)% (25)%

net sales decreased $168.6 million, or 23%, to $559.1 million for the six months ended June 30, 2020 from $727.7 million for the comparable period in 2019.

net sales decreased in our U.S.

DTC and wholesale businesses.

The net sales decrease in the U.S.

DTC business was driven by decreased net sales from retail stores, partially offset by increased net sales from our e-commerce business.

• LAAP region net sales decreased $64.5 million, or 28% (26% constant-currency), to $170.0 million for the six months ended June 30, 2020 from $234.5 million for the comparable period in 2019.

The net sales decrease in the LAAP region was primarily driven by decreased net sales in our China and Japan businesses, and to a lesser extent, decreased net sales in the LAAP distributors and Korea businesses.

• EMEA region net sales decreased $48.8 million , or 30% (29% constant-currency), to $114.1 million for the six months ended June 30, 2020 from $162.9 million for the comparable period in 2019.

The net sales decrease in the EMEA region was led by decreased net sales in our EMEA distributor business, followed by our Europe-direct business.

• Canada net sales decreased $14.1 million, or 25%, to $41.6 million for the six months ended June 30, 2020 from $55.7 million for the comparable period in 2019.

The net sales decrease in Canada was primarily driven by decreased net sales in our wholesale business.

Segment Income (Loss) from Operations:

The following table presents segment income (loss) from operations for each reportable segment:

Six Months Ended June 30,

(In millions, except for percentage changes) 2020 2019 Change ($)

$ 21.9 $ 142.2 $ (120.3)

LAAP 3.9 36.7 (32.8)

EMEA 0.1 18.8 (18.7)

Canada (4.6) 3.4 (8.0)

Total segment income from operations 21.3 201.1 (179.8)

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Income (loss) from operations $ (72.3) $ 104.3 $ (176.6)

Unless otherwise noted below, segment income from operations within all regions decreased due to lower consumer demand, higher inventory reserves and increased bad debt expenses primarily resulting from the ongoing COVID-19 pandemic, compared to strong sales performance for the comparable period in 2019.

income from operations decreased $55.7 million to $40.0 million, or 10.7% of net sales, for the first quarter of 2020 from $95.7 million, or 23.2% of net sales, for the comparable period in 2019.

The decrease was driven primarily by decreased net sales combined with decreased gross margin and increased provisions for uncollectible accounts receivable.

SG&A expense increased as a percentage of net sales to 37.8% for the first quarter of 2020 compared to 27.6% for the same period in 2019.

• LAAP income from operations decreased $20.7 million to $6.1 million, or 6.0% of net sales, for the first quarter of 2020 from $26.8 million, or 20.1% of net sales, for the comparable period in 2019.

Unless otherwise noted below, segment income from operations within all regions decreased due to the impact of temporary store closures, including our wholesale customers' stores, lower consumer demand, higher inventory reserves and increased bad debt expenses primarily resulting from the ongoing COVID-19 pandemic, compared to strong sales performance for the comparable period in 2019.

income from operations decreased $120.3 million to $21.9 million, or 3.9% of net sales, for the six months ended June 30, 2020 from $142.2 million, or 19.5% of net sales, for the comparable period in 2019.

The decrease was driven primarily by decreased net sales combined with decreased gross margin, increased provisions for uncollectible accounts receivable, and incremental COVID-19 related expenses, including catastrophic paid leave and furlough pay as well as severance and other pandemic related costs.

SG&A expense increased as a percentage of net sales to 44.3% for the six months ended June 30, 2020 compared to 30.8% for the same period in 2019.

• LAAP income from operations decreased $32.8 million to $3.9 million, or 2.3% of net sales, for the six months ended June 30, 2020 from $36.7 million, or 15.7% of net sales, for the comparable period in 2019.

The decrease primarily resulted from decreased net sales combined with decreased gross margin.

LAAP SG&A expense increased as a percentage of net sales to 44.1% for the first quarter of 2020 compared to 36.9% for the same period in 2019.

• EMEA loss from operations of $0.1 million, or (0.1)% of net sales, for the first quarter of 2020 decreased $9.3 million from income from operations of $9.2 million, or 12.9% of net sales, for the comparable period in 2019.

LAAP SG&A expense increased as a percentage of net sales to 49.6% for the six months ended June 30, 2020 compared to 40.9% for the same period in 2019.

• EMEA income from operations of $0.1 million, or 0.1% of net sales, for the six months ended June 30, 2020 decreased $18.7 million from $18.8 million, or 11.5% of net sales, for the comparable period in 2019.

The decrease was driven by decreased net sales combined with decreased gross margin.

EMEA SG&A expense increased as a percentage of net sales to 45.3% for the first quarter of 2020 compared to 35.3% for the same period of 2019.

• Canada income from operations decreased $1.8 million to $4.2 million, or 12.3% of net sales, for the first quarter of 2020 from $6.0 million, or 15.7% of net sales, for the comparable period in 2019.

The decrease resulted from decreases in net sales, partially offset by increased gross margin.

Canada SG&A expense increased as a percentage of net sales to 35.3% for the first quarter of 2020 compared to 28.9% for the same period of 2019.

Unallocated corporate expenses increased by $2.5 million to $52.2 million for the first quarter of 2020 from $49.7 million for the comparable period in 2019.

EMEA SG&A expense increased as a percentage of net sales to 39.9% for the six months ended June 30, 2020 compared to 29.9% for the same period of 2019.

• Canada loss from operations of $4.6 million, or (11.1)% of net sales, for the six months ended June 30, 2020 decreased $8.0 million from income from operations of $3.4 million, or 6.1% of net sales, for the comparable period in 2019.

The decrease primarily resulted from decreased net sales combined with decreased gross margin.

Canada SG&A expense increased as a percentage of net sales to 56.3% for the six months ended June 30, 2020 compared to 37.6% for the same period of 2019.

Unallocated corporate expenses decreased by $3.2 million to $93.6 million for the six months ended June 30, 2020 from $96.7 million for the comparable period in 2019.

Liquidity and Capital Resources

At March 31, 2020, we had total cash and cash equivalents of $671.1 million, compared to $686.0 million at December 31, 2019 and $430.4 million at March 31, 2019.

In addition, we had short-term investments of $35.8 million at March 31, 2020, compared to $1.7 million at December 31, 2019 and $272.6 million at March 31, 2019.

At March 31, 2020, we had no remaining committed borrowing availability under our domestic credit agreement;

however, we have since amended and restated the agreement to provide $525.0 million in committed borrowing availability.

We expect our outstanding indebtedness levels to fluctuate as we deem appropriate.

At June 30, 2020, we had total cash and cash equivalents of $474.8 million, compared to $686.0 million at December 31, 2019 and $386.2 million at June 30, 2019.

In addition, we had short-term investments of $1.0 million at June 30, 2020, compared to $1.7 million at December 31, 2019 and $138.2 million at June 30, 2019.

At June 30, 2020, we had approximately $530.0 million in committed borrowing availability.

We have suspended quarterly cash dividend payments and further share repurchases.

Our Board of Directors will continue to evaluate the potential for future dividend distributions and management may resume share repurchases in the future at any time, depending upon market conditions, our capital needs and other factors.

Our primary ongoing funding requirements are for working capital and capital expenditures.

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Our cash, cash equivalents and short-term investments balances generally are at their lowest level at the end of the third quarter and increase during the fourth quarter from collection of wholesale business receivables and fourth quarter DTC sales.

Table of Conten t s

Short-term borrowings and credit lines

On April 17, 2019, we entered into a domestic committed credit facility agreement with Wells Fargo Bank, National Association, as the administrative agent for the lenders and as a lender, and Bank of America, N.A., as a lender (the “Prior Credit Agreement”).

The Prior Credit Agreement provided for between $25 million and $125 million in commitment depending on the season.

The Prior Credit Agreement was amended on March 27, 2020 to remove the seasonality within the commitment levels and provide $125.0 million in committed borrowing availability through December 31, 2020, as well as certain other modifications.

At March 31, 2020, we had $125 million outstanding under the Prior Credit Agreement and were in compliance with the covenants contained therein.

On April 15, 2020, we amended and restated the Prior Credit Agreement (the “Restated Credit Agreement”).

The Restated Credit Agreement provides (i) a committed $125.0 million revolving A loan through August 1, 2023, (ii) a committed $400.0 million revolving B loan through April 13, 2021 (the “Revolving B Loan”) and (iii) an uncommitted $100.0 million incremental facility, which will be added to the Revolving B Loan if it is executed on, upon request by us to the administrative agent.

The Restated Credit Agreement requires us to maintain, as of the end of each fiscal quarter, a funded debt ratio not to exceed 3.25 to 1.00, a minimum interest coverage ratio of 3.00 to 1.00, and an asset coverage ratio of not less than 1.00 to 1.00.

For purposes of compliance with the funded debt ratio, $200 million in domestic cash is permitted to be netted from our obligations.

Additionally, $50.0 million in expenses related to the COVID-19 pandemic are permitted to be added back to net income for purposes of calculating EBITDA for covenant calculations.

Our obligations under the Restated Credit Agreement are secured by all assets of Columbia Sportswear Company and Columbia Brands USA LLC, except for intellectual property, real property, equity interests in foreign subsidiaries and various other exclusions.

We believe we are currently in compliance with all financial covenants necessary as a condition for borrowing under the Restated Credit Agreement, but we cannot assure that we will be able to comply with all of these financial covenants in the future.

On April 15, 2020, we borrowed $200.0 million under the Revolving B Loan, which supplemented $125.0 million that we had previously borrowed under the Prior Credit Agreement.

Those amounts have been subsequently repaid and, at the time of this filing, there is no outstanding balance under the Restated Credit Agreement.

At March 31, 2020, internationally, our subsidiaries had approximately $106.0 million in uncommitted lines of credit and overdraft facilities in place, which could be terminated at any time by either the applicable subsidiary or the banks, some of which were guaranteed by Columbia Sportswear Company.

At March 31, 2020, approximately $49.4 million was outstanding under these lines of credit and overdraft facilities.

Except for our Japanese subsidiary's overdraft facility with a maximum borrowing of ¥300.0 million (approximately US$2.8 million), amounts outstanding under our international subsidiaries' lines of credit and overdraft facilities as of March 31, 2020 have been subsequently been repaid.

Refer to Note 4 and Note 15 in Item 1 to the condensed consolidated financial statements for additional information.

Refer to Note 4 and Note 15 in Item 1 of this quarterly report for additional information regarding our lines of credit and overdraft facilities in place.

At June 30, 2020, we had $525.0 million available domestically under our restated credit agreement and, internationally, our subsidiaries had approximately $106.4 million in committed and uncommitted lines of credit and overdraft facilities in place, which could be terminated at any time by either the applicable subsidiary or the banks, some of which were guaranteed by Columbia Sportswear Company.

At June 30, 2020, approximately $2.8 million was outstanding on our Japanese subsidiary's overdraft facility.

At the time of this filing, we are in compliance with all financial covenants necessary as a condition for borrowing under the restated credit agreement, as amended.

Cash Flow Activities

Net cash provided by operating activities was $12.8 million for the three months ended March 31, 2020, compared to $58.6 million for the same period in 2019.

The decrease in net cash provided by operating activities was primarily driven by a $44.2 million decrease in operating cash flow provided by net income and non-cash adjustments and a $1.7 million increase in cash used by changes in assets and liabilities.

The most significant comparative changes included Accounts receivable, Accrued liabilities and Inventories.

The increase in cash used by Accrued liabilities was primarily driven by decreases in accruals for retail refund liabilities and incentive compensation.

The increase in cash provided by Inventories includes the effect of an increase in the provision for excess, close-out or slow moving inventory.

Net cash used in investing activities was $42.9 million for the three months ended March 31, 2020, compared to $33.5 million for the comparable period in 2019.

For the 2020 period, net cash used in investing activities consisted primarily of $33.4 million of net purchases of short-term investments, partially offset by $9.5 million for capital expenditures.

For the same period in 2019, net cash used in investing activities primarily consisted of $25.2 million for capital expenditures and $8.3 million of net purchases of short-term investments.

Net cash used in operating activities was $37.3 million for the six months ended June 30, 2020, compared to net cash provided by operating activities of $2.6 million for the same period in 2019.

The change in operating cash flow was primarily driven by a $99.5 million decrease in operating cash flow provided by net income (loss) and non-cash adjustments, partially offset by a $59.6 million decrease in cash used by changes in assets and liabilities.

The most significant comparative changes included Accounts receivable , Accounts payable , and Inventories .

The increase in cash provided by Accounts receivable was primarily driven by lower wholesale second quarter net sales .

The decrease in cash provided by Accounts payable was primarily driven primarily by lower second quarter inventory receipts as a result of less inbound products and order cancellations due to the COVID-19 pandemic.

The decrease in cash used by Inventories reflects lower inventory receipts and the effect of an increase in the provision for excess, close-out or slow moving inventory.

Net cash used in investing activities was $19.4 million for the six months ended June 30, 2020, compared to net cash provided by investing activities of $76.4 million for the comparable period in 2019.

For the 2020 period, net cash used in investing activities consisted primarily of $21.0 million for capital expenditures, partially offset by $1.6 million of net sales of short-term investments.

For the same period in 2019, net cash provided by investing activities primarily consisted of $127.2 million of net sales of short-term investments, partially offset by $50.8 million for capital expenditures.

The decrease in capital expenditures for the 2020 period compared to the same period in 2019 was due to lower planned 2020 capital expenditures as well as capital preservation measures taken in light of the ongoing COVID-19 pandemic.

Net cash provided by financing activities was $21.5 million for the three months ended March 31, 2020, compared to net cash used in financing activities of $46.1 million for the comparable period in 2019.

For the 2020 period, net cash provided by financing activities primarily consisted of net proceeds from credit facilities of $174.7 million, partially offset by repurchases of common stock of $132.9 million and dividend payments to Company shareholders of $17.2 million.

For the same period in 2019, net cash used in financing activities primarily consisted of repurchases of common stock of $18.8 million and dividend payments to Company shareholders of $16.4 million, and $14.0 million related to the purchase of the non-controlling interest in our China joint venture.

Net cash used in financing activities was $151.7 million for the six months ended June 30, 2020, compared to net cash used in financing activities of $145.2 million for the comparable period in 2019.

For the 2020 period, net cash used in financing activities primarily consisted of repurchases of common stock of $132.9 million, and dividend payments to our shareholders of $17.2 million.

For the same period in 2019, net cash used in financing activities primarily consisted of repurchases of common stock of $100.3 million, dividend payments to our shareholders of $32.7 million, and $17.9 million related to the purchase of the non-controlling interest in our China joint venture.

Contractual obligations

Our inventory purchase obligations increased to $505 million at March 31, 2020 compared to $337 million at December 31, 2019.

Our inventory purchase obligations decreased to $232.9 million at June 30, 2020 compared to $337.2 million at December 31, 2019.

There have been no other material changes to the estimated contractual commitments contained in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019.

Table of Conten t s

Critical Accounting Policies and Estimates

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Long-lived assets, which include property, plant and equipment and intangible assets with finite lives, are amortized over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired.

In the first quarter of 2020, we tested certain retail locations and their respective lease right-of-use assets for impairment.

While no significant impairments were identified, further declines in projected future performance or significant declines in market rents for retail spaces may adversely affect the recovery of these retail locations assets.

In the second quarter of 2020, we tested certain retail locations and their respective lease right-of-use assets for impairment.

See Note 1 in Item 1 of this quarterly report for impairment charges recognized in the second quarter of 2020.

Further declines in projected future performance or significant declines in market rents for retail spaces may adversely affect the recovery of retail locations assets.

Our 2019 impairment tests of goodwill and intangible assets with indefinite lives indicated that the fair value of all reporting units and intangible assets with indefinite lives exceeded their respective carry values by more than 20%, except for the prAna brand's trademark.

3 unchanged sentences

While no impairment was indicated during the first quarter 2020 tests, the degree by which the fair value of the prAna reporting unit and trademark exceeded their respective carrying values declined from our 2019 impairment test.

After performing both qualitative and quantitative analysis, including review of future long-term revenue and cash flow assumptions, we concluded a triggering event requiring the measurement of prAna brand's trademark and goodwill for impairment as of June 30, 2020 did not occur.

If, due to the current level of uncertainty relating to the COVID-19 pandemic, the prAna brand's actual or projected future performance deteriorates from the projections considered in our first quarter 2020 tests, it is possible that an impairment charge would be required.

7 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis