COLUMBIA SPORTSWEAR CO 10-Q

Item 1. FINANCIAL STATEMENTS COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) June 30, 2020 December 31, 2019 June 30, 2019 ASSETS Current Assets: Cash and cash equivalents $ 474,793 $ 686,009 $ 386,150 Short-term investments 975 1,668 138,198 Accounts receivable, net of allowance of $ 28,783 , $ 8,925 , and $ 8,072 , respectively 217,536 488,233 280,641 Inventories 806,887 605,968 756,378 Prepaid expenses and other current assets 102,574 93,868 100,800 Total current assets 1,602,765 1,875,746 1,662,167 Property, plant and equipment, at cost, net of accumulated depreciation of $ 546,397 , $ 523,092 , and $ 510,267 , respectively 328,904 346,651 312,948 Operating lease right-of-use assets 365,521 394,501 368,856 Intangible assets, net 122,105 123,595 125,085 Goodwill 68,594 68,594 68,594 Deferred income taxes 73,395 78,849 82,418 Other non-current assets 61,113 43,655 42,379 Total assets $ 2,622,397 $ 2,931,591 $ 2,662,447 LIABILITIES AND EQUITY Current Liabilities: Short-term borrowings $ 2,789 $ — $ — Accounts payable 255,702 255,372 309,945 Accrued liabilities 203,827 295,723 200,816 Operating lease liabilities 70,916 64,019 60,804 Income taxes payable 2,594 15,801 6,416 Total current liabilities 535,828 630,915 577,981 Non-current operating lease liabilities 347,967 371,507 345,063 Income taxes payable 48,863 48,427 53,216 Deferred income taxes 7,942 6,361 8,518 Other long-term liabilities 28,968 24,934 22,475 Total liabilities 969,568 1,082,144 1,007,253 Commitments and contingencies (Note 7) Shareholders' Equity: Preferred stock; 10,000 shares authorized; none issued and outstanding — — — Common stock ( no par value); 250,000 shares authorized; 66,148 , 67,561 , and 67,586 , issued and outstanding, respectively 5,396 4,937 100 Retained earnings 1,653,293 1,848,935 1,656,392 Accumulated other comprehensive loss ( 5,860 ) ( 4,425 ) ( 1,298 ) Total shareholders' equity 1,652,829 1,849,447 1,655,194 Total liabilities and shareholders' equity $ 2,622,397 $ 2,931,591 $ 2,662,447 See accompanying notes to condensed consolidated financial statements. 1 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2020 2019 2020 2019 Net sales $ 316,611 $ 526,210 $ 884,839 $ 1,180,818 Cost of sales 170,381 272,619 466,895 590,498 Gross profit 146,230 253,591 417,944 590,320 Selling, general and administrative expenses 217,652 240,763 494,472 492,518 Net licensing income 1,122 3,537 4,241 6,521 Income (loss) from operations ( 70,300 ) 16,365 ( 72,287 ) 104,323 Interest income (expense), net ( 805 ) 2,571 1,008 5,971 Other non-operating income, net 935 1,032 2,673 1,478 Income (loss) before income tax ( 70,170 ) 19,968 ( 68,606 ) 111,772 Income tax benefit (expense) 19,463 3,061 18,112 ( 14,566 ) Net income (loss) $ ( 50,707 ) $ 23,029 $ ( 50,494 ) $ 97,206 Earnings (loss) per share: Basic $ ( 0.77 ) $ 0.34 $ ( 0.76 ) $ 1.43 Diluted $ ( 0.77 ) $ 0.34 $ ( 0.76 ) $ 1.41 Weighted average shares outstanding: Basic 66,135 67,930 66,553 68,109 Diluted 66,135 68,560 66,553 68,825 See accompanying notes to condensed consolidated financial statements. 2 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Net income (loss) $ ( 50,707 ) $ 23,029 $ ( 50,494 ) $ 97,206 Other comprehensive income (loss): Unrealized holding gains on available-for-sale securities, net — — — 56 Unrealized gains (losses) on derivative transactions (net of tax effects of $ 1,521 , $ 827 , $( 2,624 ) and $ 432 , respectively) ( 4,862 ) ( 1,881 ) 6,663 ( 548 ) Foreign currency translation adjustments (net of tax effects of $( 460 ), $ 224 , $ 37 and $ 887 respectively) 6,976 3,901 ( 8,098 ) 3,356 Other comprehensive income (loss) 2,114 2,020 ( 1,435 ) 2,864 Comprehensive income (loss) $ ( 48,593 ) $ 25,049 $ ( 51,929 ) $ 100,070 See accompanying notes to condensed consolidated financial statements. 3 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six Months Ended June 30, (in thousands) 2020 2019 Cash flows from operating activities: Net income (loss) $ ( 50,494 ) $ 97,206 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation, amortization, and non-cash lease expense 65,924 57,487 Provision for uncollectible accounts receivable 22,815 ( 2,146 ) Loss on disposal or impairment of property, plant and equipment, and right-of-use assets 8,800 1,599 Deferred income taxes 4,362 ( 4,338 ) Stock-based compensation 7,712 8,781 Changes in operating assets and liabilities: Accounts receivable 244,112 171,777 Inventories ( 202,646 ) ( 232,117 ) Prepaid expenses and other current assets ( 3,199 ) ( 21,815 ) Other assets ( 14,596 ) ( 4,830 ) Accounts payable 3,397 41,469 Accrued liabilities ( 89,323 ) ( 75,360 ) Income taxes payable ( 12,633 ) ( 13,967 ) Operating lease assets and liabilities ( 26,264 ) ( 27,068 ) Other liabilities 4,757 5,919 Net cash provided by (used in) operating activities ( 37,276 ) 2,597 Cash flows from investing activities: Purchases of short-term investments ( 35,045 ) ( 181,257 ) Sales and maturities of short-term investments 36,631 308,501 Capital expenditures ( 20,959 ) ( 50,800 ) Net cash provided by (used in) investing activities ( 19,373 ) 76,444 Cash flows from financing activities: Proceeds from credit facilities 375,759 23,208 Repayments on credit facilities ( 373,390 ) ( 23,208 ) Payment of line of credit issuance fees ( 1,674 ) — Proceeds from issuance of common stock related to stock-based compensation 1,987 11,286 Tax payments related to stock-based compensation ( 4,304 ) ( 5,589 ) Repurchase of common stock ( 132,889 ) ( 100,293 ) Purchase of non-controlling interest — ( 17,880 ) Cash dividends paid ( 17,195 ) ( 32,686 ) Net cash used in financing activities ( 151,706 ) ( 145,162 ) Net effect of exchange rate changes on cash ( 2,861 ) 476 Net decrease in cash and cash equivalents ( 211,216 ) ( 65,645 ) Cash and cash equivalents, beginning of period 686,009 451,795 Cash and cash equivalents, end of period $ 474,793 $ 386,150 Supplemental disclosures of cash flow information: Cash paid during the period for income taxes $ 13,294 $ 66,604 Supplemental disclosures of non-cash investing and financing activities : Property, plant and equipment acquired through increase in liabilities $ 2,414 $ 9,524 See accompanying notes to condensed consolidated financial statements. 4 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Three Months Ended June 30, 2020 (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shares Outstanding Amount BALANCE, MARCH 31, 2020 66,116 $ 565 $ 1,704,000 $ ( 7,974 ) $ 1,696,591 Net loss — — ( 50,707 ) — ( 50,707 ) Other comprehensive income (loss): Unrealized holding losses on derivative transactions, net — — — ( 4,862 ) ( 4,862 ) Foreign currency translation adjustment, net — — — 6,976 6,976 Issuance of common stock related to stock-based compensation, net 32 794 — — 794 Stock-based compensation expense — 4,037 — — 4,037 BALANCE, JUNE 30, 2020 66,148 $ 5,396 $ 1,653,293 $ ( 5,860 ) $ 1,652,829 Three Months Ended June 30, 2019 (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shares Outstanding Amount BALANCE, MARCH 31, 2019 68,346 $ 94 $ 1,723,873 $ ( 3,318 ) $ 1,720,649 Net income — — 23,029 — 23,029 Other comprehensive income (loss): Unrealized holding losses on derivative transactions, net — — — ( 1,881 ) ( 1,881 ) Foreign currency translation adjustment, net — — — 3,901 3,901 Cash dividends ($ 0.24 per share) — — ( 16,268 ) — ( 16,268 ) Issuance of common stock related to stock-based compensation, net 76 2,550 — — 2,550 Stock-based compensation expense — 4,566 — — 4,566 Repurchase of common stock ( 836 ) ( 7,110 ) ( 74,242 ) — ( 81,352 ) BALANCE, JUNE 30, 2019 67,586 $ 100 $ 1,656,392 $ ( 1,298 ) $ 1,655,194 See accompanying notes to condensed consolidated financial statements. 5 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Six months ended June 30, 2020 Common Stock Retained Earnings Accumulated Other Comprehensive Loss Total Shares Outstanding Amount BALANCE, DECEMBER 31, 2019 67,561 $ 4,937 $ 1,848,935 $ ( 4,425 ) $ 1,849,447 Net loss — — ( 50,494 ) — ( 50,494 ) Other comprehensive income (loss): Unrealized holding gains on derivative transactions, net — — — 6,663 6,663 Foreign currency translation adjustment, net — — — ( 8,098 ) ( 8,098 ) Cash dividends ($ 0.26 per share) — — ( 17,195 ) — ( 17,195 ) Issuance of common stock related to stock-based compensation, net 144 ( 2,317 ) — — ( 2,317 ) Stock-based compensation expense — 7,712 — — 7,712 Repurchase of common stock ( 1,557 ) ( 4,936 ) ( 127,953 ) — ( 132,889 ) BALANCE, JUNE 30, 2020 66,148 $ 5,396 $ 1,653,293 $ ( 5,860 ) $ 1,652,829 Six Months Ended June 30, 2019 Columbia Sportswear Company Shareholders' Equity Common Stock Retained Earnings Accumulated Other Comprehensive Loss Non-Controlling Interest Total Shares Outstanding Amount BALANCE, DECEMBER 31, 2018 68,246 $ — $ 1,677,920 $ ( 4,063 ) $ 16,456 $ 1,690,313 Net income — — 97,206 — — 97,206 Purchase of non-controlling interest — — — ( 99 ) ( 16,456 ) ( 16,555 ) Other comprehensive income (loss): Unrealized holding gains on available-for-sale securities, net — — — 56 — 56 Unrealized holding losses on derivative transactions, net — — — ( 548 ) — ( 548 ) Foreign currency translation adjustment, net — — — 3,356 — 3,356 Cash dividends ($ 0.48 per share) — — ( 32,686 ) — — ( 32,686 ) Issuance of common stock related to stock-based compensation, net 372 5,697 — — — 5,697 Stock-based compensation expense — 8,781 — — — 8,781 Repurchase of common stock ( 1,032 ) ( 14,378 ) ( 86,048 ) — — ( 100,426 ) BALANCE, JUNE 30, 2019 67,586 $ 100 $ 1,656,392 $ ( 1,298 ) $ — $ 1,655,194 See accompanying notes to condensed consolidated financial statements. 6 Table of Contents COLUMBIA SPORTSWEAR COMPANY INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE PAGE Note 1 Basis of Presentation and Organization 8 Note 2 Revenues 10 Note 3 Intangible Assets, Net 11 Note 4 Short-Term Borrowings and Credit Lines 12 Note 5 Income Taxes 13 Note 6 Product Warranty 13 Note 7 Commitments and Contingencies 13 Note 8 Shareholders' Equity 13 Note 9 Stock-Based Compensation 14 Note 10 Earnings (Loss) Per Share 14 Note 11 Accumulated Other Comprehensive Loss 15 Note 12 Segment Information 16 Note 13 Financial Instruments and Risk Management 17 Note 14 Fair Value Measures 19 Note 15 Subsequent Event 22 7 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION The accompanying unaudited condensed consolidated financial statements have been prepared by the management of Columbia Sportswear Company (together with its wholly owned subsidiaries, the "Company") and, in the opinion of management, include all normal recurring material adjustments necessary to present fairly the Company's financial position as of June 30, 2020, December 31, 2019 and June 30, 2019, and the results of operations for the three and six months ended June 30, 2020 and 2019, and cash flows for the six months ended June 30, 2020 and 2019. The December 31, 2019 financial information was derived from the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. A significant part of the Company's business is of a seasonal nature; therefore, results of operations for the three and six months ended June 30, 2020 are not necessarily indicative of results to be expected for other quarterly periods or for the full year. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company, however, believes that the disclosures contained in this report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. Principles of Consolidation The condensed consolidated financial statements include the accounts of Columbia Sportswear Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions. Some of the more significant estimates relate to revenue recognition, allowance for uncollectible accounts receivable, excess, close-out and slow moving inventory, product warranty, impairment of long-lived assets, intangible assets and goodwill, income taxes, and stock-based compensation. COVID-19 A novel strain of coronavirus ("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. The current environment of uncertainty significantly affected the June 30, 2020 estimates for allowance for uncollectible accounts receivable and excess, close-out and slow-moving inventory. These estimates involve assumptions about future events. The allowance for uncollectible accounts receivable includes assumptions about the future financial condition of the Company's customers and their ability to make required payments. The provision for excess, close-out and slow moving inventory includes assumptions about future demand for the Company’s products and the Company's ability to sell them at a profit. As a result of lower consumer demand related to the COVID-19 pandemic, the Company tested certain retail locations and their respective lease right-of-use assets for impairment. In the second quarter of 2020, impairment charges of $6.6 million for certain underperforming retail stores were recognized in Selling, general and administrative expenses (" SG&A expense") . Additionally, as a result of the COVID-19 pandemic and a significant decline in projected net sales, the prAna brand's trademark and goodwill were tested for impairment as of March 31, 2020. 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 the Company's 2019 impairment test. After performing both qualitative and quantitative analysis, including review of future long-term revenue and cash flow assumptions, the Company concluded a triggering event requiring measurement of the 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 the Company's first quarter 2020 impairment tests, it is possible that an impairment charge would be required. As of June 30, 2020, the Company had received or negotiated lease concessions related to the effects of COVID-19 on a portion of its stores. The Company expects continued lease concession negotiations to be finalized during the second half of 2020. In April 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Q&A, Topic 842 and 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. The Company elected to account for lease concessions related to the 8 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) effects of the COVID-19 pandemic in accordance with the Staff Q&A. For concessions that provide a deferral of payments with no substantive changes to the consideration in the original contract, the Company continues to recognize expense during the deferral period. For concessions in the form of lease abatements, the reduced lease payments are accounted for as reductions to variable lease expense. In the periods presented, lease concessions reducing variable lease expense were not material. In response to COVID-19, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was signed into law in the United States on March 27, 2020. The CARES Act provides payroll tax credits for employee retention, deferral of payroll tax payments and several income tax provision modifications. Additionally, there are other subsidies and incentives provided by foreign governments in the countries where the Company conducts business. In the second quarter of 2020, $4.3 million of government subsidies and incentives reduced SG&A expense . Recently Adopted Accounting Pronouncements Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) issued by the FASB in August 2018, which clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement ("CCA") that is a service contract. Under the ASU, an entity would expense costs incurred in the preliminary-project and post-implementation-operation stages. The entity would also capitalize certain costs incurred during the application-development stage, as well as certain costs related to enhancements. The ASU does not change the accounting for the service component of a CCA. The Company adopted the standard using the prospective method and anticipates an increase in cloud-specific implementation assets as specific cloud initiatives are executed by the Company. These assets will generally be included in Other non-current assets in the Condensed Consolidated Balance Sheets and will amortize over their assessed useful lives or the term of the underlying cloud computing hosting contract, whichever is shorter. Upon the adoption of the standard, there was no immediate impact to the Company's financial position, results of operations or cash flows. Effective January 1, 2020, the Company adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment issued by the FASB in January 2017, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Under this guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The impact of the new standard will depend on the specific facts and circumstances of future individual goodwill impairments, if any. Effective January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments issued by the FASB in June 2016, as well as the clarifying amendments subsequently issued. The pronouncement changes the impairment model for most financial assets and will require the use of an "expected loss" model for instruments measured at amortized cost. Under this model, entities will be required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. Upon adoption of the standard, there was no immediate impact to the Company's financial position, results of operations or cash flows. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost, such as the Company’s trade receivables and certain short-term investments. Summary of Significant Accounting Policies Except as disclosed below, there have been no significant changes to the Company's significant accounting policies as described in Note 2 in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. The following significant accounting policies have been updated since the Company’s 2019 Annual Report on Form 10-K as a result of the adoption of ASU No.2016-13 and ASU No. 2018-15, respectively: Accounts Receivable Accounts receivable have been reduced by an allowance for doubtful accounts. The Company maintains the allowance for estimated losses resulting from the inability of the Company's customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations. Write-off activity and recoveries for the periods presented were not material. Cloud Computing Arrangements The Company’s CCAs primarily relate to various enterprise resource planning systems, as well as other supporting systems. These assets are generally included in Other non-current assets in the Condensed Consolidated Balance Sheets and amortize on a straight-line basis over their assessed useful lives or the term of the underlying cloud computing hosting contract, whichever is shorter. As of June 30, 2020, one asset was placed in-service with a useful life of two years. As of June 30, 2020, the Company had a balance of capitalized implementation 9 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) costs of $19.2 million and associated accumulated amortization of $0.1 million. Changes in these assets are recorded in Other Assets within operating activities in the Condensed Consolidated Statements of Cash Flows. Recent Accounting Pronouncements Not Yet Adopted In December 2019, the FASB issued ASU No. 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which, among other things, removes specific exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods, as well as targeted impacts to the accounting for taxes under hybrid tax regimes. This standard is effective beginning in the first quarter of 2021 on a prospective basis, with early adoption permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows. NOTE 2—REVENUES Disaggregated Revenue As disclosed below in Note 12, the Company has four geographic reportable segments: United States ("U.S."), Latin America and Asia Pacific ("LAAP"), Europe, Middle East and Africa ("EMEA"), and Canada. The following tables disaggregate the Company's operating segment Net sales by product category and sales channel, which the Company believes provide a meaningful depiction of how the nature, timing, and uncertainty of Net sales are affected by economic factors: Three Months Ended June 30, 2020 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 151,456 $ 47,876 $ 39,010 $ 5,575 $ 243,917 Footwear 31,789 19,434 19,281 2,190 72,694 Total $ 183,245 $ 67,310 $ 58,291 $ 7,765 $ 316,611 Sales channel net sales Wholesale $ 73,334 $ 31,219 $ 53,086 $ 2,264 $ 159,903 Direct-to-consumer 109,911 36,091 5,205 5,501 156,708 Total $ 183,245 $ 67,310 $ 58,291 $ 7,765 $ 316,611 Three Months Ended June 30, 2019 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 277,604 $ 74,096 $ 66,409 $ 14,153 $ 432,262 Footwear 37,923 27,518 25,118 3,389 93,948 Total $ 315,527 $ 101,614 $ 91,527 $ 17,542 $ 526,210 Sales channel net sales Wholesale $ 151,714 $ 51,171 $ 83,521 $ 9,884 $ 296,290 Direct-to-consumer 163,813 50,443 8,006 7,658 229,920 Total $ 315,527 $ 101,614 $ 91,527 $ 17,542 $ 526,210 10 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Six months ended June 30, 2020 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 461,133 $ 123,789 $ 78,940 $ 32,224 $ 696,086 Footwear 97,980 46,172 35,199 9,402 188,753 Total $ 559,113 $ 169,961 $ 114,139 $ 41,626 $ 884,839 Sales channel net sales Wholesale $ 276,202 $ 88,593 $ 95,342 $ 25,726 $ 485,863 Direct-to-consumer 282,911 81,368 18,797 15,900 398,976 Total $ 559,113 $ 169,961 $ 114,139 $ 41,626 $ 884,839 Six Months Ended June 30, 2019 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 622,309 $ 174,433 $ 117,110 $ 44,377 $ 958,229 Footwear 105,442 60,040 45,765 11,342 222,589 Total $ 727,751 $ 234,473 $ 162,875 $ 55,719 $ 1,180,818 Sales channel net sales Wholesale $ 360,283 $ 122,149 $ 139,890 $ 37,126 $ 659,448 Direct-to-consumer 367,468 112,324 22,985 18,593 521,370 Total $ 727,751 $ 234,473 $ 162,875 $ 55,719 $ 1,180,818 Performance Obligations For the three and six months ended June 30, 2020 and 2019, Net sales recognized from performance obligations related to prior periods were not material. Net sales expected to be recognized in any future period related to remaining performance obligations is not material. Contract Balances As of June 30, 2020, December 31, 2019 and June 30, 2019, contract liabilities included in Accrued liabilities on the Condensed Consolidated Balance Sheets, which consisted of obligations associated with the Company's gift card and customer loyalty programs, were not material. NOTE 3—INTANGIBLE ASSETS, NET Intangible assets, net consisted of the following: (in thousands) June 30, 2020 December 31, 2019 June 30, 2019 Intangible assets subject to amortization: Patents and purchased technology $ 14,198 $ 14,198 $ 14,198 Customer relationships 23,000 23,000 23,000 Gross carrying amount 37,198 37,198 37,198 Accumulated amortization: Patents and purchased technology ( 13,976 ) ( 13,311 ) ( 12,646 ) Customer relationships ( 16,538 ) ( 15,713 ) ( 14,888 ) Total accumulated amortization ( 30,514 ) ( 29,024 ) ( 27,534 ) Net carrying amount 6,684 8,174 9,664 Intangible assets not subject to amortization 115,421 115,421 115,421 Intangible assets, net $ 122,105 $ 123,595 $ 125,085 11 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Amortization expense for intangible assets subject to amortization was $ 0.7 million for both the three months ended June 30, 2020 and 2019, and was $ 1.5 million for both the six months ended June 30, 2020 and 2019. Annual amortization expense is estimated to be as follows for the years 2020 through 2024: (in thousands) 2020 $ 2,537 2021 1,650 2022 1,650 2023 1,650 2024 688 NOTE 4—SHORT-TERM BORROWINGS AND CREDIT LINES At the beginning of the 2020, the Company had an unsecured, committed revolving line of credit agreement, maturing on August 1, 2023 with monthly variable commitments available for funding that averaged $ 50.0 million over the course of a calendar year. In March 2020, the Company entered into a first amendment to its unsecured, committed revolving line of credit agreement to remove the seasonality within the commitment levels and provide $ 125.0 million in committed borrowing availability through December 31, 2020. Effective April 15, 2020, the Company entered into a second amended and restated credit agreement (the “restated credit agreement”) which amended and restated the committed revolving line of credit agreement. The restated credit agreement provides for (i) a secured, committed revolving line of credit, maturing on August 1, 2023 with a commitment available for funding of $ 125.0 million (the "Revolving A Loan"), (ii) a secured, committed revolving line of credit, maturing April 13, 2021, with a commitment available for funding of $ 400.0 million (the "Revolving B Loan", together with the Revolving A Loan, the "Revolving Loans"), and (iii) an uncommitted $ 100.0 million incremental facility, which may be added to the Revolving B Loan if it is executed on, upon request by the Company to the administrative agent. Advances under the Revolving Loans can be either LIBOR loans or base rate loans. LIBOR loans bear interest on the outstanding principal amount thereof for each interest period at a rate per annum equal to LIBOR (subject to a LIBOR floor) plus a margin ranging from 2.00 % to 2.75 % (the "LIBOR Margin"). Base rate loans bear interest on the outstanding principal amount thereof at a rate per annum equal to the LIBOR Margin plus the greater of (i) daily reset one month LIBOR or (ii) in the case of Revolving A Loans, the LIBOR floor; provided that if the lenders are unable to price loans based on LIBOR, base rate loans will bear interest at an interest rate per annum equal to a margin ranging from 1 % to 1.75 % plus the higher of (A) the rate of interest most recently announced by the administrative agent as its prime rate or (B) the federal funds rate plus 1.50 %. During the second quarter, the LIBOR floor in the restated agreement was 0.75 % for advances under the Revolving A Loan and 1.00 % for advances under the Revolving B Loan. The restated credit agreement requires the Company to comply with certain financial covenants, and provides for certain restrictions on dividend payments and stock repurchases. During the second quarter, the obligations of the Company under the restated credit agreement are secured by all assets of the Company and Columbia Brands USA, LLC, except for intellectual property, real property, equity interests in foreign subsidiaries and certain other exclusions. If the Company is in default, it is required to comply with certain restrictions on dividend payments and stock repurchases. At June 30, 2020, the Company was in compliance with all associated covenants, and there was no balance outstanding under these lines and facility. As disclosed in Note 15, in July 2020, the Company amended its restated credit agreement. The Company’s Canadian subsidiary has available an unsecured and uncommitted line of credit, which is payable on demand, guaranteed by the Company, and provides for borrowings up to a maximum of CAD$ 30.0 million (approximately US$ 22.0 million) at June 30, 2020. The revolving line accrues interest at the Canadian Prime rate for CAD overdraft borrowings or Bankers' Acceptance rate plus 150 basis points for Bankers' Acceptance loans. As of June 30, 2020, there was no balance outstanding under this line of credit. At the beginning of 2020, the Company's European subsidiary had two separate unsecured and uncommitted lines of credit, guaranteed by the Company, and provides for borrowings up to a maximum of € 25.8 million and € 5.0 million. In June 2020, the Company's European subsidiary entered into an agreement which replaced the € 5.0 million line with a € 4.4 million secured, committed line of credit, and a € 0.6 million unsecured and uncommitted line of credit. The combined available borrowings of the three lines was approximately US$ 34.6 million at June 30, 2020. Borrowings under the € 25.8 million line accrues interest at a base rate of 185 basis points plus 275 basis points. Borrowings under the € 0.6 million and € 4.4 million lines accrue interest at 75 basis points. As of June 30, 2020, there was no balance outstanding under these facilities. The Company’s Japanese subsidiary has available two separate unsecured and uncommitted overdraft facilities guaranteed by the Company providing for borrowing up to a maximum of US$ 7.0 million and ¥ 300.0 million (combined approximately US$ 9.8 million) at June 30, 2020. Borrowings under these overdraft facilities accrue interest at 275.0 basis points and the Tokyo Interbank Offered Rate plus 0.50 basis points, respectively. As of June 30, 2020, the outstanding balance under the ¥ 300.0 million facility was ¥ 300.0 million (approximately US 12 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) $ 2.8 million), which was accruing interest at a rate of 0.54 % per annum. As of June 30, 2020, there was no balance was outstanding under the US$ 7.0 million facility. The Company’s Korea subsidiary has available an unsecured and uncommitted overdraft facility guaranteed by the Company providing for borrowing up to a maximum of US$ 20.0 million at June 30, 2020. Borrowings under the overdraft facility accrue interest at the Korea three month CD rate plus 275.0 basis points. As of June 30, 2020, there was no balance outstanding under this overdraft facility. The Company’s Chinese subsidiary has available an unsecured and uncommitted overdraft and clean advance facility guaranteed by the Company providing for borrowings of advances or overdrafts up to a maximum of US$ 20.0 million at June 30, 2020. Borrowings under the facility accrue interest on advances of RMB based on the People’s Bank of China (“PBOC”) base rate plus 0.85 %, advances of USD based on LIBOR plus 1.8 % per annum or overdrafts of RMB based on 110% of the PBOC rate. As of June 30, 2020, there was no balance outstanding under this facility. NOTE 5—INCOME TAXES For the three months ended June 30, 2020 and 2019, the Company's effective income tax rates were 27.7 % and negative 15.3 %, respectively. For the six months ended June 30, 2020 and 2019, the effective income tax rates were 26.4 % and 13.0 %, respectively. The increases in the effective income tax rate for both the three and six months ended June 30, 2020 compared to the three and six months ended June 30, 2019 were driven primarily by the change in mix of book income or loss among jurisdictions, and the recognition in 2019 of a one-time tax benefit related to the passage of a Swiss tax reform package. Income tax expense, deferred tax assets and related liabilities are based on estimates. In the three months ended March 31, 2020, a $ 1.5 million valuation allowance adjustment was recorded related to the expected portion of tax benefits that would not be realized in certain foreign jurisdictions based on available evidence. The likelihood of realizing the benefits of the deferred tax assets was assessed as of June 30, 2020 and no additional valuation allowance adjustment was recorded. The Company will continue to monitor the realizability of deferred tax assets, particularly in certain foreign jurisdictions where the economic impacts of the COVID-19 pandemic may result in net operating losses. The ability to recover these deferred tax assets depends on several factors, including results of operations and the ability to project future taxable income in those jurisdictions. If it is determined that some additional portion of the tax benefits will not be realized, valuation allowance would be recorded, which would increase income tax expense. Total deferred tax assets as of June 30, 2020 were approximately $ 73.4 million, of which approximately $ 7.5 million related to foreign jurisdictions where the Company expects to incur significant net operating losses in the near term, although the risks of failing to realize these benefits vary across jurisdictions. NOTE 6—PRODUCT WARRANTY Some of the Company's products carry life-time or limited warranty provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover estimated costs based on the Company's history of warranty repairs and replacements and is recorded in Cost of sales in the Condensed Consolidated Statements of Operations. The warranty reserve is included in Accrued liabilities in the Condensed Consolidated Balance Sheets. A reconciliation of product warranties is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Balance at beginning of period $ 13,122 $ 13,178 $ 14,466 $ 13,186 Provision for warranty claims 593 703 905 2,495 Warranty claims ( 517 ) ( 735 ) ( 1,885 ) ( 2,459 ) Other 136 40 ( 152 ) ( 36 ) Balance at end of period $ 13,334 $ 13,186 $ 13,334 $ 13,186 NOTE 7—COMMITMENTS AND CONTINGENCIES The Company is a party to various legal claims, actions and complaints from time to time. Although the ultimate resolution of legal proceedings cannot be predicted with certainty, management believes that disposition of these matters will not have a material adverse effect on the Company's condensed consolidated financial statements. NOTE 8—SHAREHOLDERS' EQUITY Since the inception of the Company's stock repurchase plan in 2004 through June 30, 2020, the Company's Board of Directors has authorized the purchase of $ 1.1 billion of the Company's common stock. As of June 30, 2020, the Company had repurchased 26.8 million 13 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) shares under this program at an aggregate purchase price of $ 1,017.8 million. Shares repurchased generally settle subsequent to the trade date. Shares of the Company's common stock may be repurchased in the open market or through privately negotiated transactions, subject to market conditions. The repurchase program does not obligate the Company to acquire any specific number of shares or to acquire shares over any specified period of time. During the three months ended March 31, 2020, the Company repurchased an aggregate of $ 132.9 million of common stock under the stock repurchase plan authorized by the Company's Board of Directors and a pre-established written trading plan. In mid-March 2020, to reduce capital outflows and preserve capital, the Company suspended share repurchases and the Company's Board of Directors suspended the quarterly dividend. NOTE 9—STOCK-BASED COMPENSATION At its Annual Meeting held on June 3, 2020, the Company’s shareholders approved the Company’s 2020 Stock Incentive Plan (the “2020 Plan”), and the 2020 Plan became effective on that date following such approval. The 2020 Plan replaced the Company’s 1997 Stock Incentive Plan (the "Prior Plan”) and no new awards will be granted under the Prior Plan. The terms and conditions of the awards granted under the Prior Plan will remain in effect with respect to awards granted under the Prior Plan. The Company has reserved 3 million shares of common stock for issuance under the 2020 Plan, plus up to an aggregate of 1.5 million shares of the Company’s common stock that were previously authorized and available for issuance under the Prior Plan. The 2020 Plan allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, and other stock-based or cash-based awards. Stock-based compensation expense Stock-based compensation expense consisted of the following: Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Stock options $ 1,755 $ 1,602 $ 3,459 $ 3,091 Restricted stock units 2,282 2,964 4,253 5,690 Total $ 4,037 $ 4,566 $ 7,712 $ 8,781 Stock Options During the six months ended June 30, 2020, the Company granted a total of 660,071 stock options at a weighted average grant date fair value of $ 14.67 . As of June 30, 2020, unrecognized costs related to outstanding stock options totaled $ 15.1 million, before any related tax benefit. As of June 30, 2020, unrecognized costs related to stock options are expected to be recognized over a weighted average period of 2.83 years. Restricted Stock Units During the six months ended June 30, 2020, the Company granted 209,708 restricted stock units at an estimated average grant date fair value of $ 79.43 . As of June 30, 2020, unrecognized costs related to outstanding restricted stock units totaled $ 24.5 million, before any related tax benefit. As of June 30, 2020, unrecognized costs related to restricted stock units are expected to be recognized over a weighted average period of 2.59 years. NOTE 10—EARNINGS (LOSS) PER SHARE Earnings (loss) per share ("EPS") is presented on both a basic and diluted basis. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock. 14 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) A reconciliation of common shares used in the denominator for computing basic and diluted EPS is as follows: Three Months Ended June 30, Six Months Ended June 30, (in thousands, except per share amounts) 2020 2019 2020 2019 Weighted average shares of common stock outstanding, used in computing basic earnings (loss) per share 66,135 67,930 66,553 68,109 Effect of dilutive stock options and restricted stock units — 630 — 716 Weighted average shares of common stock outstanding, used in computing diluted earnings (loss) per share 66,135 68,560 66,553 68,825 Earnings (loss) per share of common stock: Basic $ ( 0.77 ) $ 0.34 $ ( 0.76 ) $ 1.43 Diluted $ ( 0.77 ) $ 0.34 $ ( 0.76 ) $ 1.41 Stock options, service-based restricted stock units, and performance-based restricted stock units representing 2,468,516 and 2,334,223 shares of common stock for the three and six months ended June 30, 2020, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would have been anti-dilutive due to a net loss in the period or because the shares were subject to performance conditions that had not been met. Stock options, service-based restricted stock units, and performance-based restricted stock units representing 431,712 and 356,167 shares of common stock for the three and six months ended June 30, 2019, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method or because the shares were subject to performance conditions that had not been met. NOTE 11—ACCUMULATED OTHER COMPREHENSIVE LOSS Accumulated other comprehensive loss on the Company's Condensed Consolidated Balance Sheets is net of applicable taxes, and consists of unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses on certain derivative transactions and foreign currency translation adjustments. The following table sets forth the changes in Accumulated other comprehensive loss for the three months ended June 30, 2020: (in thousands) Unrealized losses on available-for-sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at March 31, 2020 $ ( 4 ) $ 21,007 $ ( 28,977 ) $ ( 7,974 ) Other comprehensive income (loss) before reclassifications — ( 3,347 ) 6,976 3,629 Amounts reclassified from accumulated other comprehensive loss (1) — ( 1,515 ) — ( 1,515 ) Net other comprehensive income (loss) during the period — ( 4,862 ) 6,976 2,114 Balance at June 30, 2020 $ ( 4 ) $ 16,145 $ ( 22,001 ) $ ( 5,860 ) (1) Amounts reclassified are recorded in Net sales, Cost of sales, or Other non-operating income on the Condensed Consolidated Statements of Operations. Refer to Note 13 for further information regarding classifications. The following table sets forth the changes in Accumulated other comprehensive loss for three months ended June 30, 2019: (in thousands) Unrealized losses on available-for-sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at March 31, 2019 $ ( 4 ) $ 13,198 $ ( 16,512 ) $ ( 3,318 ) Other comprehensive income (loss) before reclassifications — ( 464 ) 3,901 3,437 Amounts reclassified from accumulated other comprehensive loss (1) — ( 1,417 ) — ( 1,417 ) Net other comprehensive income (loss) during the period — ( 1,881 ) 3,901 2,020 Balance at June 30, 2019 $ ( 4 ) $ 11,317 $ ( 12,611 ) $ ( 1,298 ) 15 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) (1) Amounts reclassified are recorded in Net Sales or Cost of sales on the Condensed Consolidated Statements of Operations. Refer to Note 13 for further information regarding classifications. The following table sets forth the changes in Accumulated other comprehensive loss for the six months ended June 30, 2020: (in thousands) Unrealized gains (losses) on available-for-sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at December 31, 2019 $ ( 4 ) $ 9,482 $ ( 13,903 ) $ ( 4,425 ) Other comprehensive income (loss) before reclassifications — 11,015 ( 8,098 ) 2,917 Amounts reclassified from accumulated other comprehensive loss (1) — ( 4,352 ) — ( 4,352 ) Net other comprehensive income (loss) during the period — 6,663 ( 8,098 ) ( 1,435 ) Balance at June 30, 2020 $ ( 4 ) $ 16,145 $ ( 22,001 ) $ ( 5,860 ) (1) Amounts reclassified are recorded in Net Sales, Cost of sales, or Other non-operating income on the Condensed Consolidated Statements of Operations. Refer to Note 13 for further information regarding classifications. The following table sets forth the changes in Accumulated other comprehensive loss for the six months ended June 30, 2019: (in thousands) Unrealized gains (losses) on available-for-sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at December 31, 2018 $ ( 60 ) $ 11,964 $ ( 15,967 ) $ ( 4,063 ) Other comprehensive income before reclassifications 56 2,804 3,356 6,216 Amounts reclassified from accumulated other comprehensive loss (1) — ( 3,352 ) — ( 3,352 ) Net other comprehensive income (loss) during the period 56 ( 548 ) 3,356 2,864 Purchase of non-controlling interest — ( 99 ) — ( 99 ) Balance at June 30, 2019 $ ( 4 ) $ 11,317 $ ( 12,611 ) $ ( 1,298 ) (1) Amounts reclassified are recorded in Net Sales or Cost of sales on the Condensed Consolidated Statements of Operations. Refer to Note 13 for further information regarding classifications. NOTE 12—SEGMENT INFORMATION The Company has four reportable geographic segments: U.S., LAAP, EMEA, and Canada, which are reflective of the Company's internal organization, management and oversight structure. Each geographic segment operates predominantly in one industry: the design, development, marketing, and distribution of outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment products. Intersegment net sales and intersegment profits, which are recorded at a negotiated mark-up and eliminated in consolidation, are not material. Unallocated corporate expenses consist of expenses incurred by centrally-managed departments, including global information systems, finance, human resources and legal, as well as executive compensation, unallocated benefit program expense, and other miscellaneous costs. 16 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The geographic distribution of the Company's Net sales and Income (loss) from operations in the Condensed Consolidated Statements of Operations are summarized in the following table for the three and six months ended June 30, 2020 and 2019. Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Net sales to unrelated entities: U.S. $ 183,245 $ 315,527 $ 559,113 $ 727,751 LAAP 67,310 101,614 169,961 234,473 EMEA 58,291 91,527 114,139 162,875 Canada 7,765 17,542 41,626 55,719 $ 316,611 $ 526,210 $ 884,839 $ 1,180,818 Segment income (loss) from operations: U.S. $ ( 18,155 ) $ 46,453 $ 21,877 $ 142,176 LAAP ( 2,184 ) 9,991 3,954 36,741 EMEA 139 9,557 73 18,743 Canada ( 8,776 ) ( 2,618 ) ( 4,625 ) 3,393 Total segment income (loss) from operations ( 28,976 ) 63,383 21,279 201,053 Unallocated corporate expenses ( 41,324 ) ( 47,018 ) ( 93,566 ) ( 96,730 ) Interest income (expense), net ( 805 ) 2,571 1,008 5,971 Other non-operating income, net 935 1,032 2,673 1,478 Income (loss) before income tax $ ( 70,170 ) $ 19,968 $ ( 68,606 ) $ 111,772 Concentrations The Company had two customers that accounted for 13.3 % and 12.9 %, respectively, of Accounts receivable, net of allowance on the Condensed Consolidated Balance Sheets as of June 30, 2020. The Company had one customer that accounted for 13.9 % of Accounts receivable, net of allowance as of December 31, 2019. The Company had one customer that accounted for 10.7 % of Accounts receivable, net of allowance as of June 30, 2019. No single customer accounted for 10 % or more of Net sales in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 or 2019. NOTE 13—FINANCIAL INSTRUMENTS AND RISK MANAGEMENT In the normal course of business, the Company's financial position, results of operations and cash flows are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market. The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. Subsidiaries that use European euros, Canadian dollars, Japanese yen, Chinese renminbi, or Korean won as their functional currency are primarily exposed to changes in functional currency equivalent cash flows from anticipated United States dollar inventory purchases. Subsidiaries that use United States dollars and euros as their functional currency also have non-functional currency denominated sales for which the Company hedges the Canadian dollar and Great British pound. The Company manages these risks by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, prior to June 2019, the time value components ("forward points") were excluded from the determination of hedge effectiveness and included in current period Cost of sales for hedges of anticipated United States dollar inventory purchases and in Net sales for hedges of anticipated non-functional currency denominated sales on a straight-line basis over the life of the contract. Effective June 2019, the forward points are included in the fair value of the cash flow hedge on a prospective basis. These costs or benefits will be included in Accumulated other comprehensive loss until the underlying hedge transaction is recognized in either Net sales or Cost of sales , at which time, the forward points will also be recognized as a component of Net income (loss) . The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use United States dollars, euros, Canadian dollars, yen, won, or renminbi as their functional currency. Non-functional currency denominated 17 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, receivables, payables, deferred income taxes, and intercompany loans. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in Other non-operating income by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities. The following table presents the gross notional amount of outstanding derivative instruments: (in thousands) June 30, 2020 December 31, 2019 June 30, 2019 Derivative instruments designated as cash flow hedges: Currency forward contracts $ 381,599 $ 471,822 $ 353,975 Derivative instruments not designated as cash flow hedges: Currency forward contracts 223,500 214,086 359,179 At June 30, 2020, $ 14.9 million of deferred net gains on both outstanding and matured derivatives recorded in O ther comprehensive income are expected to be reclassified to Net income (loss) during the next twelve months as a result of underlying hedged transactions also being recorded in Net sales or Cost of sales in the Condensed Consolidated Statements of Operations. Actual amounts ultimately reclassified to Net sales or Cost of sales in the Condensed Consolidated Statements of Comprehensive Income are dependent on United States dollar exchange rates in effect against the euro, pound sterling, renminbi, Canadian dollar, and yen when outstanding derivative contracts mature. At June 30, 2020, the Company's derivative contracts had a remaining maturity of less than approximately four years . The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was $ 6.0 million at June 30, 2020. All of the Company's derivative counterparties have credit ratings that are investment grade or higher. The Company is a party to master netting arrangements that contain features that allow counterparties to net settle amounts arising from multiple separate derivative transactions or net settle amounts arising from multiple separate derivative transactions or net settle in the case of certain triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. The Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions. The following table presents the balance sheet classification and fair value of derivative instruments: (in thousands) Balance Sheet Classification June 30, 2020 December 31, 2019 June 30, 2019 Derivative instruments designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets $ 10,839 $ 11,855 $ 11,392 Currency forward contracts Other non-current assets 6,775 4,159 6,776 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 80 1,313 170 Currency forward contracts Other long-term liabilities — 768 140 Derivative instruments not designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets 4,641 2,146 2,181 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 524 953 1,920 18 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) The following table presents the statement of operations effect and classification of derivative instruments: Statement of Operations Classification Three Months Ended June 30, Six Months Ended June 30, (in thousands) 2020 2019 2020 2019 Currency Forward and Option Contracts: Derivative instruments designated as cash flow hedges: Gain (loss) recognized in other comprehensive income (loss), net of tax — $ ( 3,347 ) $ ( 464 ) $ 11,015 $ 2,804 Gain reclassified from accumulated other comprehensive income or loss to income for the effective portion Net sales 165 75 43 110 Gain reclassified from accumulated other comprehensive income or loss to income for the effective portion Cost of sales 1,826 925 4,621 2,121 Gain reclassified from accumulated other comprehensive income or loss to income as a result of cash flow hedge discontinuance Other non-operating income 6 — 1,117 — Loss recognized in income for amount excluded from effectiveness testing and for the ineffective portion Net sales — ( 26 ) — ( 31 ) Gain recognized in income for amount excluded from effectiveness testing and for the ineffective portion Cost of sales — 931 — 2,380 Derivative instruments not designated as cash flow hedges: Gain (loss) recognized in income Other non-operating income ( 319 ) ( 1,137 ) 1,330 ( 574 ) 19 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) NOTE 14—FAIR VALUE MEASURES Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows: Level 1 — observable inputs such as quoted prices for identical assets or liabilities in active liquid markets; Level 2 — inputs, other than the quoted market prices in active markets, that are observable, either directly or indirectly; or observable market prices in markets with insufficient volume or infrequent transactions; and Level 3 — unobservable inputs for which there is little or no market data available, that require the reporting entity to develop its own assumptions. The Company's assets and liabilities measured at fair value are categorized as Level 1 or Level 2 instruments. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from inputs, other than quoted market prices in active markets, that are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions. Assets and liabilities measured at fair value on a recurring basis as of June 30, 2020 were as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 151,823 $ — $ — $ 151,823 Other short-term investments: Money market funds 51 — — 51 Mutual fund shares 924 — — 924 Other current assets: Derivative financial instruments — 15,480 — 15,480 Other non-current assets: Money market funds 4,173 — — 4,173 Mutual fund shares 11,425 — — 11,425 Derivative financial instruments — 6,775 — 6,775 Total assets measured at fair value $ 168,396 $ 22,255 $ — $ 190,651 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 604 $ — $ 604 Total liabilities measured at fair value $ — $ 604 $ — $ 604 20 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) Assets and liabilities measured at fair value on a recurring basis as of December 31, 2019 were as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 288,926 $ — $ — $ 288,926 United States government treasury bills — 34,928 — 34,928 Commercial paper — 33,587 — 33,587 Other short-term investments: Mutual fund shares 1,668 — — 1,668 Other current assets: Derivative financial instruments — 14,001 — 14,001 Non-current assets: Money market funds 1,792 — — 1,792 Mutual fund shares 12,172 — — 12,172 Derivative financial instruments — 4,159 — 4,159 Total assets measured at fair value $ 304,558 $ 86,675 $ — $ 391,233 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 2,266 $ — $ 2,266 Other long-term liabilities: Derivative financial instruments — 768 — 768 Total liabilities measured at fair value $ — $ 3,034 $ — $ 3,034 Assets and liabilities measured at fair value on a recurring basis as of June 30, 2019 were as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 130,097 $ — $ — $ 130,097 Available-for-sale short-term investments: (1) United States government treasury bills — 136,721 — 136,721 Other short-term investments: Mutual funds shares 1,477 — — 1,477 Other current assets: Derivative financial instruments — 13,573 — 13,573 Other non-current assets: Money market funds 1,312 — — 1,312 Mutual fund shares 10,954 — — 10,954 Derivative financial instruments — 6,776 — 6,776 Total assets measured at fair value $ 143,840 $ 157,070 $ — $ 300,910 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 2,090 $ — $ 2,090 Other long-term liabilities: Derivative financial instruments — 140 — 140 Total liabilities measured at fair value $ — $ 2,230 $ — $ 2,230 21 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) (Unaudited) (1) Investments have remaining maturities of less than one year. Non-recurring Fair Value Measurements Certain non-financial assets are measured at fair value on a non-recurring basis, primarily long-lived assets, intangible assets, goodwill, and lease right-of-use assets. In connection with periodic evaluations for potential impairment, the inputs used to measure the fair value of these assets are primarily unobservable inputs and, as such, considered Level 3 fair value measurements. For impairment charges for the quarter ended June 30, 2020, see Note 1. NOTE 15—SUBSEQUENT EVENT On July 10, 2020 the Company entered into a first amendment (the "first amendment") to its restated credit agreement that was in effect as of June 30, 2020 and disclosed in Note 4. The first amendment provides for suspensions of and adjustments to the financial covenants beginning on July 1, 2020 through December 31, 2020 (the "covenant suspension period") as follows: (i) the funded debt ratio no longer needs to be maintained during the covenant suspension period, (ii) the interest coverage ratio no longer needs to be maintained during the covenant suspension period, and (iii) the Company must maintain liquidity (inclusive of unrestricted and unencumbered cash-on-hand of the Company and its subsidiaries and, with certain limitations, availability under the revolving credit facilities provided for in the revolving credit facilities provided for in the restated credit agreement) of not less than $ 200.0 million as of each calendar month end during the covenant suspension period. In addition, the minimum LIBOR floors were revised to be 0.50 % in the case of both Revolving A and Revolving B loans. The first amendment also provides for a letter of credit facility and contains modifications to certain other negative covenants. This includes a change to the negative indebtedness covenant to allow for up to $ 350 million in additional unsecured indebtedness. In connection with the first amendment, the Company amended and restated the collateral agreement, originally dated April 15, 2020 to provide for a pledge by the Company and Columbia Brands USA, LLC of 65% of their equity interests in foreign subsidiaries. 22 Table of Contents