What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-05 compared with 2020-08-06 · 196 added, 188 removed, 216 unchanged (64% 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 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 include any statements related to our expectations regarding future performance or market position, including statements regarding consumer demand, capital outflows, operating expense, our ability to manage credit risk, sales volumes, inventory production and fulfillment, marketing strategies, income from operations, 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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New factors emerge from time to time and it is not possible for us to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement.

As one of the largest outdoor and active lifestyle apparel and footwear companies in the world, we design, develop, market, and distribute outdoor and active lifestyle apparel, footwear, accessories, and equipment primarily under the Columbia, SOREL, Mountain Hardwear, and prAna brands.

Our products are sold through a mix of wholesale distribution channels, our own DTC businesses and independent international distributors.

As one of the largest outdoor, active and everyday lifestyle apparel and footwear companies in the world, we design, develop, market, and distribute outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment primarily under the Columbia, SOREL, Mountain Hardwear, and prAna brands.

Our products are sold through a mix of wholesale distribution channels, our own direct-to-consumer ("DTC") businesses and independent international distributors.

In addition, we license some of our trademarks across a range of apparel, footwear, accessories, equipment, and home products.

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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.

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.

In addition, many of our wholesale customers and international distributors experienced a similar timeline and 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.

The vast majority of our stores closed due to the pandemic and reopened in China and Korea by late April and in the U.S., Europe, Japan, and Canada predominantly within the May and June timeframe.

Throughout the third quarter 2020, while there were isolated temporary store closures from local regulations or safety concerns, the vast majority of our owned stores remained open.

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

We continue to restrict store capacity to accommodate social distancing measures, which is impacting the performance of our retail operations.

Stores in destination locations and tourist-dependent markets remain some of the most severely impacted stores within our fleet.

Throughout the first nine months of 2020, our global DTC e-commerce business remained operational, supported by the employees in our distribution centers and call centers.

During the third quarter, our DTC e-commerce business grew 55% year-over-year and represented 12%

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.

While work has been done throughout 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.

We received significant order cancellations during the first half of 2020, and, simultaneously, curtailed planned inventory purchases.

Our unsold inventory as of September 30, 2020 was slightly elevated compared to September 2019.

Nonetheless, it has declined sequentially compared to June 30, 2020.

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

We expect earlier holiday marketing and promotional activities as retailers seek to mitigate social distancing and shipping capacity constraints to encourage consumers to stretch holiday shopping over a longer time period.

The COVID-19 pandemic also impacted our distribution centers, call centers, retail stores, third-party manufacturing partners and other vendors, due to the effects of facility closures, reductions in operating hours, labor and equipment shortages, port congestion, and real time changes in operating procedures to comply with local government guidelines, while maintaining enhanced health and safety protocols.

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 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.

In response to the uncertainty of the pandemic described above, we enhanced our liquidity position during the year by taking various actions, including:

• increasing our total available committed and uncommitted credit lines and facilities to provide approximately $665 million of borrowing capacity, of which $530 million is committed and available;

• suspending the quarterly dividend and share repurchases;

• reducing planned capital expenditures.

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.

These measures reflect our effort to lower 2020 operating expenses by more than $100 million compared to last year, before expenses related to the COVID-19 pandemic.

We are executing cost reduction and resource allocation actions that will impact our cost structure for 2021 and beyond.

While certain of these cost containment actions will result in permanent expense reductions, a significant portion of these costs will likely return in 2021, including incentive compensation expense and certain discretionary expenses, such as travel costs.

We are executing these actions to ensure the business is structured for sustainable and profitable growth in the face of the evolving market landscape.

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.

Business Outlook

The ongoing business disruption and uncertainty surrounding the pandemic makes it difficult to predict our future results.

Although our financial performance has been impacted by the pandemic, we anticipate 2020 profitability to be heavily concentrated in the second half of the year.

Absent further deterioration in trends due to the pandemic, we anticipate continued sequential improvement in our fundamental operating and financial performance in the fourth quarter.

We anticipate sales volumes to remain below prior year levels in the fourth quarter.

We 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 costs associated with the COVID-19 pandemic.

Factors that could significantly affect our full year 2020 financial results include:

• lower consumer demand as a result of effects from the COVID-19 pandemic and/or related governmental actions and regulations;

• growth, performance and profitability of our global DTC operations, including depressed consumer traffic in our retail stores and recent elevated DTC e-commerce growth trends;

• our ability to staff and operate our distribution centers to fulfill DTC e-commerce demand while providing a safe working environment with adequate social distancing and other safety precautions;

• equipment and labor capacity of third-party logistics providers to service the demands of our business and the retail industry generally;

• increasing consumer expectations and competitive pressures related to various aspects of our e-commerce business, including speed of product delivery, shipping charges, return privileges and other evolving expectations;

• impairment of long-lived assets, operating lease right-of-use assets, intangible assets and/or goodwill;

• unseasonable weather conditions or other unforeseen factors affecting consumer demand and the resulting effect on cancellations of advance wholesale and distributor orders, sales returns, customer accommodations, replenishment orders and reorders, DTC sales, changes in mix and volume of full price sales in relation to promotional and closeout product sales, and suppressed customer and end-consumer demand in subsequent seasons;

• our ability to effectively manage our inventory, including liquidating excess inventory timely and profitably through closeout sales in our wholesale and DTC businesses, in a market with elevated inventory;

• the stability of our DTC e-commerce platforms and continued optimization of our North America retail information technology systems;

• difficult economic, geopolitical and competitive environments in certain key markets globally, coupled with increasing global economic uncertainty;

• economic and industry trends affecting consumer traffic and spending in brick and mortar retail channels, which have created uncertainty regarding the long-term financial health of certain of our wholesale customers, and, in certain cases, may require cancellation of customer shipments and/or increased credit exposure associated with any such shipments.

Strategic Priorities

Our immediate focus is on maintaining a strong balance sheet, financial flexibility and sufficient liquidity.

Our long-term commitment to driving sustainable and profitable growth has not changed and our strategic priorities remain to:

We are committed to driving sustainable and profitable long-term growth and investing in our strategic priorities to:

• drive brand awareness and sales growth through increased, focused demand creation investments;

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Capital Allocation

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.

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

In response to the COVID-19 pandemic, we immediately shifted our capital allocation strategies to reduce capital outflows.

As our business recovers from the pandemic and cash flows become more reliable and predictable, we will review our strategy to return value to shareholders.

This includes management's review of resuming our share repurchase program and our Board of Directors' review of reinstating quarterly dividends.

Experience First ("X1")

During 2018, we commenced investment in our X1 initiative, which is designed to enhance our e-commerce systems to take advantage of the changes in consumer browsing and purchasing behaviors towards mobile devices.

It encompasses re-implementation of our e-commerce platforms to offer improved search, browsing, checkout, mobile payment tenders, and customer care experiences for mobile shoppers.

In 2019, we implemented X1 across 10 countries in Europe-Direct and for the prAna brand in the U.S.

In the third quarter of 2020, we implemented X1 in North America for the Columbia, SOREL and Mountain Hardwear brands.

Going forward, we are focused on optimizing the X1 platform.

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 June 30 of the particular year.

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 September 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 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.

Highlights of the Third Quarter of 2020

Lower net sales and profitability in third quarter 2020 compared to third quarter 2019 primarily reflect the ongoing negative effects of the COVID-19 pandemic.

• Net sales decreased $205.7 million, or 23%, to $701.1 million from $906.8 million in the third quarter of 2019.

• Income from operations decreased $66.4 million , or 44%, to $85.6 million from $152.0 million in the third quarter of 2019.

• Net income decreased $56.5 million, or 47%, to $62.8 million, or $0.94 per diluted share, from $119.3 million, or $1.75 per diluted share, in the third 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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 2019 2020 2019

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Net licensing income 0.6 0.5 0.4 0.5

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

Income from operations 12.2 16.8 0.8 12.3

Interest income (expense), net — 0.2 0.1 0.4

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 %

Other non-operating income (expense), net (0.1) (0.1) 0.1 —

Income before income tax 12.1 16.9 1.0 12.7

Income tax expense (3.1) (3.7) (0.2) (2.3)

Net income 9.0 % 13.2 % 0.8 % 10.4 %

Results of Operations — Consolidated

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.

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

Consolidated net sales decreased $205.7 million, or 23%, to $701.1 million for the third quarter of 2020 from $906.8 million for the comparable period in 2019.

The overall decrease primarily reflects the negative impacts from the ongoing COVID-19 pandemic.

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

Three Months Ended June 30,

Three Months Ended September 30,

Net Sales Adjust for

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Gross Profit:

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 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.

Gross profit as a percentage of net sales contracted to 48.9% in the third quarter of 2020 from 49.3% for the comparable period in 2019, primarily due to lower DTC product margins reflecting elevated promotional activity and freight costs.

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 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;

SG&A expense decreased $38.1 million, or 13%, to $261.2 million, or 37.3% of net sales, for the third quarter of 2020, from $299.2 million, or 33.0% of net sales, for the comparable period in 2019, primarily reflecting:

• decreased demand creation;

• lower retail expenses, primarily resulting from lower personnel expenses;

• decreased information technology project-related expenses;

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.

• other expenses related to the COVID-19 pandemic.

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.

Income from Operations:

Income from operations was $85.6 million, or 12.2% of net sales, in the third quarter of 2020 compared to income from operations of $152.0 million, or 16.8% of net sales, in the comparable period in 2019.

Income Tax Expense:

Income tax expense was $22.1 million for the third quarter of 2020, compared to $33.6 million for the comparable period in 2019.

Our effective income tax rate was 26.1% for the third quarter of 2020, compared to 22.0% for the same period in 2019.

Our effective tax rate increased compared to prior year primarily due to the change in mix of book income or loss among jurisdictions.

Net income was $62.8 million, or $0.94 per diluted share, for the third quarter of 2020 compared to $119.3 million, or $1.75 per diluted share, for the comparable period in 2019.

Nine Months Ended September 30, 2020 Compared to the Nine Months Ended September 30, 2019

Consolidated net sales decreased $501.7 million, or 24%, to $1,585.9 million for the nine months ended September 30, 2020 from $2,087.6 million for the comparable period in 2019.

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

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

DTC and wholesale businesses.

wholesale, U.S.

DTC and LAAP businesses.

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

Six Months Ended June 30,

Nine Months Ended September 30,

Net Sales Adjust for

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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.

Gross profit as a percentage of net sales, decreased to 48.0% in the nine months ended September 30, 2020, from 49.7% for the comparable period in 2019, primarily reflecting:

• lower wholesale product margins resulting from higher close-out sales mix;

• lower DTC product margins, reflecting elevated promotional activity;

partially offset by

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

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;

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

• increased information technology expenses;

SG&A expense decreased $36.1 million, or 4.6%, to $755.7 million, or 47.6% of net sales, for the nine months ended September 30, 2020, from $791.8 million, or 37.9% of net sales, for the comparable period in 2019, primarily reflecting:

• lower retail expenses of $26.7 million, primarily resulting from lower personnel expenses due to store closures;

• decreased demand creation of $22.0 million;

• discretionary expenses associated with cost containment efforts;

• lower incentive compensation;

partially offset by

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

• decreased demand creation spending;

• decreased discretionary spending.

• increased bad debt expense of $24.7 million, reflecting heightened accounts receivable risk resulting from the ongoing COVID-19 pandemic;

• increased other expenses of $21.7 million related to the COVID-19 pandemic.

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 $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.

Income from Operations:

Income from operations was $13.4 million, or 0.8% of net sales, for the nine months ended September 30, 2020 compared to income from operations of $256.3 million, or 12.3% of net sales for the comparable period in 2019.

Income Tax Expense:

Income tax expense was $4.0 million for the nine months ended September 30, 2020 compared to $48.2 million for the comparable period in 2019.

Our effective income tax rate was 24.8% for the nine months ended September 30, 2020 compared to 18.2% for the same prior year in 2019.

Our effective income tax rate for the nine months ended September 30, 2020 increased compared to prior year primarily due to 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 was $12.3 million, or $0.18 per share, for the nine months ended September 30, 2020 compared to net income of $216.5 million, or $3.15 per diluted share, for the comparable period in 2019.

Results of Operations — Segment

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

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

Net Sales by Geographic Region:

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

Three Months Ended June 30,

Three Months Ended September 30,

Adjust for Constant- Constant-

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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.

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.

Unless otherwise noted below, lower net sales primarily reflects the ongoing negative effects of the COVID-19 pandemic compared to the same period in 2019.

net sales decreased $135.7 million, or 23%, to $445.6 million for the third quarter of 2020 from $581.3 million for the comparable period in 2019.

net sales decrease was driven primarily by lower net sales in the U.S.

wholesale business, and, to a lesser extent, lower net sales in the U.S.

DTC business.

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 $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.

• LAAP region net sales decreased $32.3 million, or 26% (27% constant-currency), to $90.9 million for the third quarter of 2020 from $123.2 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, Japan and LAAP distributor businesses, and to a lesser extent, decreased net sales in our Korea business.

• EMEA region net sales decreased $5.2 million, or 5% ( 8% constant-currency), to $99.2 million for the third quarter of 2020 from $104.4 million for the comparable period in 2019.

The net sales decrease in the EMEA region was driven by decreased net sales in our Europe-direct business, partially offset by increased net sales in our EMEA distributor business resulting from a greater portion of Fall 2020 shipments falling into the third quarter 2020 compared to Fall 2019 shipments in the prior year.

• Canada net sales decreased $32.5 million, or 33%, to $65.4 million for the third quarter of 2020 from $97.9 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:

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.

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.

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

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

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

Three Months Ended June 30,

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

Three Months Ended September 30,

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

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Canada 19.7 27.0 (7.3)

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

Total segment income from operations 140.0 218.5 (78.5)

Unallocated corporate expenses (54.4) (66.5) (12.1)

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

Income from operations $ 85.6 $ 152.0 $ (66.4)

Unless otherwise noted below, lower income from operations primarily reflects the ongoing negative effects of the COVID-19 pandemic compared to the same period in 2019.

income from operations of $96.6 million, or 21.7% of net sales, for the third quarter of 2020 decreased $59.6 million from $156.2 million, or 26.9% of net sales, for the comparable period in 2019.

The decrease in operating income primarily reflects the fixed cost base of our U.S.

operations coupled with a significant decline in sales due to the COVID-19 pandemic.

Gross margin contracted due to increased promotional activity to drive consumer demand in our U.S.

DTC business, primarily for U.S.

retail stores.

SG&A expense increased as a percentage of net sales to 28.5% for the third quarter of 2020, compared to 23.1% for the same period in 2019.

SG&A expense for the third quarter of 2020 included COVID-19 related expenses.

• LAAP income from operations of $4.7 million, or 5.2% of net sales, for the third quarter of 2020 decreased $12.4 million from $17.1 million, or 13.9% of net sales, for the comparable period in 2019.

The decrease resulted from a decline in net sales primarily reflecting the impact of the COVID-19 pandemic and lower gross margin due to increased promotions and discounts to drive consumer demand and liquidate excess inventories.

LAAP SG&A expense increased as a percentage of net sales to 46.6% for the third quarter of 2020 compared to 39.4% for the same period in 2019.

• EMEA income from operations of $19.0 million, or 19.1% of net sales, for the third quarter of 2020 increased $0.8 million from $18.2 million, or 17.4% of net sales, for the comparable period in 2019.

The increase was driven by increased gross margin due to favorable comparisons to last year and SG&A expense leverage.

EMEA SG&A expense decreased as a percentage of net sales to 26.3% for the third quarter of 2020 compared to 27.6% for the same period of 2019.

• Canada income from operations of $19.7 million, or 30.2% of net sales, for the third quarter of 2020 decreased $7.3 million from $27.0 million, or 27.6% of net sales, for the comparable period in 2019.

The decrease was primarily driven by decreased wholesale net sales from order cancellations received earlier in the year, partially offset by increased gross margin.

Canada SG&A expense increased as a percentage of net sales to 17.5% for the third quarter of 2020 compared to 16.9% for the same period of 2019.

Unallocated corporate expenses decreased by $12.1 million to $54.4 million for the third quarter of 2020 from $66.5 million for the comparable period in 2019.

Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019

Net Sales by Geographic Region:

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

Six Months Ended June 30,

Nine Months Ended September 30,

Adjust for Constant- Constant-

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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 $304.3 million, or 23%, to $1,004.7 million for the nine months ended September 30, 2020 from $1,309.0 million for the comparable period in 2019.

net sales decreased in our U.S.

DTC and wholesale businesses.

wholesale and DTC businesses primarily reflecting the ongoing impacts from the COVID-19 pandemic, including actions taken to curtail purchases of Fall 2020 inventory and rationalize our Fall 2020 order book.

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.

• LAAP region net sales decreased $96.8 million, or 27% (26% constant-currency), to $260.9 million for the nine months ended September 30, 2020 from $357.7 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.

• EMEA region net sales decreased $54.0 million , or 20% (21% constant-currency), to $213.3 million for the nine months ended September 30, 2020 from $267.3 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 our EMEA distributor business.

• Canada net sales decreased $46.6 million, or 30%, to $107.0 million for the nine months ended September 30, 2020 from $153.6 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,

Segment Income from Operations:

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

Nine Months Ended September 30,

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

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Unallocated corporate expenses (147.9) (163.2) (15.3)

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

Income from operations $ 13.4 $ 256.3 $ (242.9)

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.

income from operations decreased $179.9 million to $118.5 million, or 11.8% of net sales, for the nine months ended September 30, 2020 from $298.4 million, or 22.8% 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 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 37.3% for the nine months ended September 30, 2020 compared to 27.4% for the same period in 2019.

• LAAP income from operations decreased $45.1 million to $8.7 million, or 3.3% of net sales, for the nine months ended September 30, 2020 from $53.8 million, or 15.0% 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 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.

LAAP SG&A expense increased as a percentage of net sales to 48.5% for the nine months ended September 30, 2020 compared to 40.4% for the same period in 2019.

• EMEA income from operations of $19.0 million, or 8.9% of net sales, for the nine months ended September 30, 2020 decreased $17.9 million from $36.9 million, or 13.8% 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 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.

EMEA SG&A expense increased as a percentage of net sales to 33.6% for the nine months ended September 30, 2020 compared to 29.0% for the same period of 2019.

• Canada income from operations of $15.1 million, or 14.2% of net sales, for the nine months ended September 30, 2020 decreased $15.3 million from $30.4 million, or 19.8% of net sales, for the comparable period in 2019.

The decrease primarily resulted from decreased net sales partially offset by increased gross margin.

Canada SG&A expense increased as a percentage of net sales to 32.6% for the nine months ended September 30, 2020 compared to 24.4% for the same period of 2019.

Unallocated corporate expenses decreased by $15.3 million to $147.9 million for the nine months ended September 30, 2020 from $163.2 million for the comparable period in 2019.

Liquidity and Capital Resources

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.

At September 30, 2020, we had total cash and cash equivalents of $313.4 million, compared to $686.0 million at December 31, 2019 and $239.3 million at September 30, 2019.

At September 30, 2020, we had approximately $530.2 million in committed borrowing availability.

Including cash, cash equivalents, short-term investments and available committed and uncommitted credit lines, we had nearly $1 billion in total liquidity at September 30, 2020.

As part of a broader capital preservation effort during the ongoing COVID-19 pandemic, in March 2020,

we suspended quarterly cash dividend payments and further share repurchases.

Our Board of Directors will continue to evaluate when to reinstate future dividend distributions and management may resume share repurchases at any time, depending upon market conditions and our capital requirements.

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

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Short-term borrowings and credit lines

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.

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

At September 30, 2020, we had $525.0 million available domestically under our restated credit agreement and, internationally, our subsidiaries had approximately $140.3 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 September 30, 2020, there was no balance outstanding under these lines of credit and overdraft facilities.

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 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.

Net cash used in operating activities was $198.0 million for the nine months ended September 30, 2020, compared to net cash used in operating activities of $198.2 million for the same period in 2019.

The change in operating cash flow was driven by a $154.6 million decrease in operating cash flow provided by net income and non-cash adjustments, offset by a $154.8 million decrease in cash used in changes in assets and liabilities.

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

The decrease in cash used in Accounts receivable was primarily driven by lower wholesale net sales in the third quarter of 2020 .

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

The decrease in cash used in 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 $23.6 million for the nine months ended September 30, 2020, compared to net cash provided by investing activities of $159.7 million for the comparable period in 2019.

For the 2020 period, net cash used in investing activities consisted primarily of $25.2 million of capital expenditures, partially offset by $1.6 million of net sales and maturities of short-term investments.

For the same period in 2019, net cash provided by investing activities primarily consisted of $264.2 million of net sales and maturities of short-term investments, partially offset by $104.5 million of 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 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.

Net cash used in financing activities was $152.3 million for the nine months ended September 30, 2020, compared to net cash used in financing activities of $171.1 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.

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Contractual obligations

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

Our inventory purchase obligations decreased to $224.2 million at September 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.

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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 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.

In the third 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 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.

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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.

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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