What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-25 compared with 2020-02-27 · 184 added, 231 removed, 173 unchanged (71% of the section changed)

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In addition, refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2019 for our discussion and analysis comparing financial condition and results of operations from 2019 to 2018.

Forward-Looking Statements

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

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.

Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding anticipated sales, gross margins and operating margins across markets or segments, profitability and the effect of specified factors on profitability for 2020, expenses, sourcing costs, effects of unseasonable weather on our results of operations, inventory levels, investments in our business and strategic priorities and the expected timing of implementation and potential benefits of such investments, including investments in and implementation of our information technology ("IT") systems, intellectual property, other disputes, our DTC businesses, including planned store additions, access to raw materials and factory capacity, financing and working capital requirements and resources, planned capital expenditures and funding of such capital expenditures, ability to meet our liquidity needs, plans to pay future cash dividends to our shareholders or engage in share repurchases and the funding of such dividends and repurchases, the impact of the COVID-19 outbreak, effects of TCJA and the adoption of new accounting standards, income tax rates and pre-tax income, results and financial impact of any tax audit, and our exposure to market risk associated with interest rates and foreign currency exchange rates.

These forward-looking statements, and others we make from time to time expressed in good faith and are believed to have a reasonable basis;

however, each forward-looking statement involves risks and uncertainties.

Many factors may cause actual results to differ materially from projected results in forward-looking statements, including the risks described in Item 1A of this annual report.

Forward-looking statements are inherently less reliable than historical information.

Except as required by law, we do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or to reflect changes in events, circumstances or its expectations.

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.

We have grown to become a global leader in designing, sourcing, marketing, and distributing outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment products.

We connect active people with their passions primarily through our Columbia, SOREL, Mountain Hardwear, and prAna brands to meet the diverse needs of our customers and consumers.

We connect active people with their passions through our four well-known brands, Columbia, SOREL, Mountain Hardwear, and prAna, by designing, developing, marketing, and distributing our outdoor, active and everyday lifestyle apparel, footwear, accessories and equipment products to meet the diverse needs of our customers and consumers.

We sell our products in approximately 90 countries and operate in four geographic segments:

U.S., LAAP, EMEA, and Canada.

Our production cycle from the design to the delivery of our products requires significant inventory commitments.

Our production cycle from the design to the delivery of our products requires significant inventory commitment.

We begin designing and developing our seasonal product lines approximately 12 months prior to soliciting advance orders from our wholesale customers and approximately 18 months prior to the products' availability to consumers in retail stores.

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Subsequent to advance order placements, wholesale customers may request replenishment orders for various products as consumer demand increases.

We estimate the volumes of the season's products to be purchased from our global suppliers by utilizing our forecasted wholesale customers orders, cancellations, reorders, and replenishment orders, forecasted demand from our DTC businesses, market trends, historical data, customer and sales feedback, and other factors.

We also sell our products to consumers through our DTC businesses, which include our own network of branded and outlet retail stores, brand-specific e-commerce sites, and concession-based arrangements with third-parties at branded, outlet and shop-in-shop retail locations in the LAAP and EMEA regions.

Our business is affected by the general seasonal trends common to the industry, including discretionary consumer shopping and spending patterns, as well as seasonal weather.

Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns.

Our products are marketed on a seasonal basis, and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year.

In 2019, approximately 60% of our net sales and approximately 75% of our operating income were realized in the second half of the year.

This illustrates our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs.

In 2020, approximately 65% of our net sales and the majority of our operating income were realized in the second half of the year.

Although impacts from the ongoing COVID-19 pandemic exacerbated seasonal net sales and profitability patterns, this still illustrates our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs.

See Item 1 of this annual report for more information about our business.

Impacts of COVID-19

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.

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.

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

Government mandated lockdowns and restrictions impacted our store productivity in Europe throughout the fourth quarter 2020 and in Canada starting in December.

Store productivity in several markets continue to be impacted by lockdowns and restrictions in the first quarter of 2021.

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.

In addition, we permanently closed 13 stores in the U.S.

and one in Europe in 2020.

We continue to evaluate our portfolio of stores on an ongoing basis and may close additional stores.

We anticipate opening approximately 8 stores in the U.S.

in 2021, primarily consisting of outlet stores.

The number of store openings may increase as we finalize ongoing lease negotiations.

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

During 2020, our DTC e-commerce business grew 39% year-over-year and represented 19% of our global net sales, including fourth quarter 2020 growth of 41% year-over-year and represented of 23% of our global net sales.

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, including:

• increasing our total available committed and uncommitted credit lines and facilities to provide nearly $645 million of borrowing capacity, of which $505 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, combined with decreased variable operating expenses, lowered our 2020 SG&A expenses by more than $100 million compared to last year, before expenses related to the COVID-19 pandemic.

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 also have and continue to execute cost reduction and resource allocation actions that will impact our cost structure for 2021 and beyond.

These actions have included optimization of freight expenses within cost of goods sold, the closure of certain retail stores, improvements in our retail store labor model, reductions in headcount, and other targeted expense reductions.

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

Our expectations with regard to these cost containment and reduction actions are reflected in our business outlook.

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

Business Outlook

The global business climate presents us with a great deal of uncertainty, making it difficult to predict future results.

The ongoing business disruption and uncertainty surrounding the COVID-19 pandemic make it difficult to predict our future results.

Consistent with the seasonality and variability of our business, we anticipate 2021 profitability to be heavily concentrated in the second half of the year.

Business uncertainties and risks surrounding the ongoing pandemic may further exacerbate this seasonality.

Factors that could significantly affect our full year 2021 financial results include:

• Growth, performance and profitability of our global DTC operations;

• lower consumer demand as a result of ongoing 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 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;

• port congestion and 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 pressure related to various aspects of our e-commerce business, including speed of product delivery, shipping charges, return privileges and other evolving expectations;

• Shifts in our distribution and logistics capabilities to support the growth of our business and increasing expectations of our customer and consumers;

• 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;

• 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 close-out 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 close-out sales in our wholesale and DTC businesses;

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

• Impacts of recent changes to, further changes to, and uncertainty surrounding tariffs or international trade policy;

• The implementation and stability of our DTC e-commerce platforms and continued optimization of our North America retail IT systems;

• Execution of our strategic initiatives and related business process and system changes across our business, including our supply chain, as well as other capability development;

• 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.

• The effects of changes in foreign currency exchange rates on net sales, gross margin, operating income, and net income;

• Net sales growth and profitability contributed by our LAAP businesses, in particular, Korea and China, which have softened due to competitive pressures and elevated dealer inventory levels;

• Performance of our Mountain Hardwear brand as we work to re-invigorate that brand in the marketplace;

• Performance of our prAna brand as we work to maintain the brand's premium positioning and raise brand awareness in order to drive long-term profitable sales growth;

• Impacts resulting from additional guidance about and implementation of the TCJA enacted in 2017;

• Accelerated investment in and execution of demand creation, DTC infrastructure and other strategic priorities and initiatives.

These factors and others may have a material effect on our financial condition, results of operations or cash flows, particularly with respect to quarterly comparisons.

Additionally, the impacts of the COVID-19 outbreak are broad reaching, including impacts to our DTC and wholesale businesses.

The outbreak has had an impact on our business in China, including the effects of temporary store closures and lower store traffic at stores that are open in China.

In 2019, China accounted for approximately 5% of our consolidated net sales.

There has also been an impact of the COVID-19 outbreak in regions and stores outside of China, especially Japan and Korea, but also globally in stores that have historically benefited from tourism.

The COVID-19 outbreak is also impacting our supply chain.

Temporary factory closures and the pace of workers returning to work have impacted our contract manufacturers’ ability to source certain raw materials and to produce and fulfill finished goods in a timely manner.

The outbreak is also impacting distribution and logistics providers' ability to operate in the normal course of business.

These supply chain impacts will likely affect our ability to timely fulfill orders and meet consumer demand.

Given we have already received substantially all of our Spring 2020 product, potential order fulfillment delays would impact future seasons.

Financial impacts associated with the COVID-19 outbreak include, but are not limited to, lower net sales in markets affected by the outbreak, the delay of inventory production and fulfillment, potentially impacting net sales globally, and potential incremental costs associated with mitigating the effects of the outbreak, including increased freight and logistics costs and other expenses.

The COVID-19 outbreak is ongoing, and its dynamic nature, including uncertainties relating to the ultimate geographic spread of the virus, the severity of the disease, the duration of the outbreak, and actions that may be taken by governmental authorities to contain the outbreak or to treat its impact, makes it difficult to forecast any effects on our 2020 results.

However, as of the date of this filing we expect our results for 2020 to be significantly affected.

Strategic Priorities

As part of our commitment to driving sustainable and profitable growth and relentless improvement, we remain focused on investment in our strategic priorities, including :

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

• enhancing consumer experience and digital capabilities in all of our channels and geographies;

• expanding and improving global DTC operations with supporting processes and systems;

• investing in our people and optimizing our organization across our portfolio of brands.

Ultimately, we expect our investments to enable market share capture across our brand portfolio, expand gross margin, improve selling, general and administrative ("SG&A") expense efficiency, and drive improved operating margin over the long-term.

Consumer-First Platform ("C1")

In 2017, we commenced investment in our C1 initiative, which encompasses retail platforms and IT systems to support the growth and continued development of our omnichannel capabilities.

The objective of this initiative is consistent with our strategic priorities to deliver an enhanced consumer experience and to modernize and standardize our processes and systems to enable us to better anticipate and deliver against the needs of our consumers.

In 2019, we rolled out the C1 platform to our North America stores for the Columbia, SOREL and Mountain Hardwear brands.

In 2020, we are focused on optimizing the C1 platform to further streamline our administrative and retail operations now on the platform.

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;

• enhance consumer experience and digital capabilities in all of our channels and geographies;

• expand and improve global DTC operations with supporting processes and systems;

• invest in our people and optimize our organization across our portfolio of brands.

Ultimately, we expect our investments to enable market share capture across our brand portfolio, expand gross margin, improve selling, general and administrative expense efficiency, and drive improved operating margin over the long-term.

Experience First ("X1")

In 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 behavior towards mobile devices.

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

We are working toward a phased implementation of X1.

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.

We expect the North America implementation to continue in 2020, and intend the platform to go live for the Columbia, SOREL and Mountain Hardwear brands prior to the peak holiday sales period.

Project CONNECT

In 2017, we initiated Project CONNECT, aimed at aligning our resources to accelerate execution on our strategic priorities, including initiatives to drive net sales, capture cost of sales efficiencies, generate SG&A expense savings, and improve our marketing effectiveness.

Efficiencies within cost of sales have created meaningful benefit to product margin driven by assortment optimization, design-to-value initiatives and DTC pricing and markdown optimization.

The financial benefits from these initiatives are reflected in our 2019 financial results.

As we realized these benefits, we have reallocated resources to our strategic priorities, including incremental demand creation spending, and other investments to drive growth across our brands and distribution channels.

We expect to sustain the financial benefits from this project in 2020 and beyond.

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

Results of Operations

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Constant-currency financial measures should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP.

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

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

Highlights of the Year Ended December 31, 2020

• Net sales increased $240.2 million, or 9%, to $3,042.5 million, from $2,802.3 million in 2018.

• Gross profit as a percentage of net sales increased to 49.8% from 49.5% in 2018.

• Income from operations increased $44.0 million, or 13%, to $395.0 million from $351.0 million in 2018.

• Net sales decreased $540.9 million, or 18%, to $2,501.6 million, from $3,042.5 million in 2019.

• Gross profit as a percentage of net sales contracted to 48.9% from 49.8% in 2019.

• Income from operations decreased $258.0 million, or 65%, to $137.0 million from $395.0 million in 2019.

• Income tax expense decreased to $31.5 million from $74.9 million in 2019.

• Net income attributable to Columbia Sportswear Company increased $62.2 million, or 23%, to $330.5 million, or $4.83 per diluted share from net income of $268.3 million, or $3.81 per diluted share, in 2018.

• Net income decreased $222.5 million, or 67%, to $108.0 million, or $1.62 per diluted share from net income of $330.5 million, or $4.83 per diluted share, in 2019.

• Operating cash flow decreased $9.4 million, or 3%, to $276.1 million, compared to $285.5 million in 2019.

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Net income 4.3 % 10.9 %

Net income attributable to non-controlling interest — 0.2

Net income attributable to Columbia Sportswear Company 10.9 % 9.6 %

Results of Operations — Consolidated

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Consolidated net sales increased $240.2 million, or 9%, to $3,042.5 million in 2019 from $2,802.3 million in 2018.

Sales by Brand

Net sales by brand are summarized in the following table:

Consolidated net sales decreased $540.9 million, or 18%, to $2,501.6 million in 2020 from $3,042.5 million in 2019.

The decrease primarily reflects the negative impacts from the ongoing COVID-19 pandemic, resulting in temporary stores 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.

wholesale, U.S.

DTC and LAAP businesses.

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

Year Ended December 31,

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Adjust for Foreign Currency Translation Constant-currency

2018 Reported

% Change Constant-currency

Brand Net Sales:

Columbia $ 1,996.9 $ (7.0) $ 1,989.9 $ 2,487.7 (20)% (20)%

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Mountain Hardwear 79.6 (0.1) 79.5 89.1 (11)% (11)%

Other — — — 3.2 (100)% (100)%

$ 3,042.5 $ 28.4 $ 3,070.9 $ 2,802.3 9% 10%

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

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

This measure is also presented in the following Net Sales tables.

Columbia brand net sales increased $195.4 million, or 9% (10% constant-currency), to $2,487.7 million, led by increased net sales in U.S.

wholesale and DTC businesses, reflecting increased net sales across all product categories.

SOREL brand net sales increased $53.9 million, or 21% (22% constant-currency), to $314.2 million, primarily driven by net sales growth in U.S.

wholesale and DTC businesses.

prAna brand net sales decreased $5.5 million, or 4% (3% constant-currency), to $151.5 million.

Mountain Hardwear brand net sales decreased $0.4 million to $89.1 million.

Sales by Product Category

Net sales by product category are summarized in the following table:

Year Ended December 31,

(In millions, except for percentage changes) Reported

2019 Adjust for Foreign Currency Translation Constant-currency

2018 Reported

% Change Constant-currency

Total $ 2,501.6 $ (8.7) $ 2,492.9 $ 3,042.5 (18)% (18)%

Product Category Net Sales:

Apparel, Accessories and Equipment $ 1,867.6 $ (6.2) $ 1,861.4 $ 2,341.2 (20)% (20)%

Footwear 634.0 (2.5) 631.5 701.3 (10)% (10)%

$ 3,042.5 $ 28.4 $ 3,070.9 $ 2,802.3 9% 10%

Apparel, accessories and equipment net sales increased $150.2 million, or 7% (8% constant-currency), to $2,341.2 million.

Increased apparel, accessories and equipment net sales were led by sales growth from U.S.

wholesale and DTC businesses, followed by EMEA distributor, Japan, and Europe-direct businesses, partially offset by decreased net sales in Korea.

The increase in apparel, accessories and equipment net sales was concentrated in the Columbia brand.

Footwear net sales increased $90.0 million, or 15% (16% constant-currency), to $701.3 million.

Increased footwear net sales were primarily led by sales growth in U.S.

wholesale and DTC businesses.

The increase in footwear net sales was led by the SOREL brand, followed by the Columbia brand.

Sales by Channel

Net sales by channel are summarized in the following table:

Year Ended December 31,

(In millions, except for percentage changes) Reported

2019 Adjust for Foreign Currency Translation Constant-currency

2018 Reported

% Change Constant-currency

Total $ 2,501.6 $ (8.7) $ 2,492.9 $ 3,042.5 (18)% (18)%

Channel Net Sales:

Wholesale $ 1,403.3 $ (5.2) $ 1,398.1 $ 1,782.8 (21)% (22)%

DTC 1,098.3 (3.5) 1,094.8 1,259.7 (13)% (13)%

$ 3,042.5 $ 28.4 $ 3,070.9 $ 2,802.3 9% 10%

Wholesale channel net sales increased $170.8 million, or 11% (12% constant-currency), to $1,782.8 million, driven by increased net sales across all regions, led by U.S.

DTC channel net sales increased $69.4 million, or 6% (7% constant currency), to $1,259.7 million, primarily due to increased net sales in the U.S.

We operated more than 450 retail stores globally at December 31, 2019 compared to approximately 420 retail stores at December 31, 2018.

Our e-commence business represented 11.1% of net sales in 2019 compared to 10.9% in 2018.

Total $ 2,501.6 $ (8.7) $ 2,492.9 $ 3,042.5 (18)% (18)%

Gross Profit:

Gross profit as a percentage of net sales increased to 49.8% in 2019 from 49.5% in 2018, primarily due to:

• A favorable impact from Project CONNECT benefits, including our design-to-value, assortment optimization and manufacturing efficiency initiatives;

Our gross profit may not be comparable to other companies in our industry as some companies may include all costs related to their distribution network in Cost of sales, while we include these expenses in SG&A expense .

Gross profit as a percentage of net sales contracted to 48.9% in 2020 from 49.8% in 2019, primarily reflecting:

• higher DTC freight costs;

partially offset by

• A higher proportion of promotional and closeout product net sales;

• A lower DTC net sales mix, which generally carries a higher gross margin.

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

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

• higher DTC product margins, reflecting lower promotional activity.

Selling, General and Administrative Expenses:

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

SG&A expense increased $85.0 million, or 8%, to $1,136.2 million, or 37.3% of net sales, in 2019, from $1,051.2 million, or 37.5% of net sales, in 2018.

SG&A expense decreased $37.3 million, or 3%, to $1,098.9 million, or 43.9% of net sales, in 2020, from $1,136.2 million, or 37.3% of net sales, in 2019.

During 2020, we spent approximately 5.7% of our net sales in demand creation, compared to 5.5% in 2019.

The SG&A expense increase was primarily due to:

• Increased expenses to support our expanding global DTC businesses;

• Increased personnel costs to support business growth and strategic projects;

• Increased IT spending, including our C1 and X1 initiatives;

• Increased demand creation spending;

partially offset by

• The non-recurrence of Project CONNECT program expenses and discrete costs and

• The impact of weakening foreign currencies relative to the United States dollar.

Depreciation and amortization included in SG&A expense totaled $63.0 million in 2020, compared to $59.2 million in 2019.

The SG&A expense decrease was primarily due to:

• lower DTC expenses of $35.4 million, primarily resulting from lower personnel expenses due to store closures;

• decreased demand creation spend of $25.7 million;

• discretionary expenses associated with cost containment efforts;

• lower incentive compensation;

partially offset by

• retail impairments and store closure charges of $28.8 million;

• increased bad debt expense of $19.7 million, reflecting heightened accounts receivable risk resulting from the ongoing COVID-19 pandemic;

• prAna brand trademark impairment charge of $17.5 million.

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

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

The $28.8 million of retail impairments and store closure charges discussed above include $16.5 million of accelerated amortization of lease right-of-use assets for stores that permanently closed during 2020 for which the related lease liabilities have not been extinguished as of December 31, 2020 due to ongoing negotiations with the landlords.

We anticipate SG&A expense will benefit in 2021 as store closure negotiations are finalized and the related lease liabilities are settled, which we anticipate to partially offset the related store closure charges incurred in 2020.

Income from Operations:

Income from operations increased $44.0 million, or 13%, to $395.0 million, or 13.0% of net sales, in 2019, from $351.0 million, or 12.5% of net sales, in 2018.

Income from operations decreased $258.0 million, or 65%, to $137.0 million, or 5.5% of net sales, in 2020, from $395.0 million, or 13.0% of net sales, in 2019.

Income Tax Expense :

Income tax expense decreased to $31.5 million in 2020 from $74.9 million in 2019.

Our effective income tax rate decreased to 18.5% from 23.8% in 2018.

The effective income tax rate for 2019 reflects discrete tax items including a one-time $6.6 million tax benefit related to the passage of a Swiss tax reform package, favorable foreign tax audit resolutions and a reduction in our U.S.

minimum foreign tax liability.

Net Income Attributable to Columbia Sportswear Company:

Net income attributable to Columbia Sportswear Company increased $62.2 million, or 23%, to $330.5 million, or $4.83 per diluted share, in 2019, from $268.3 million, or $3.81 per diluted share, in 2018, which included $12.0 million, net of tax, of Project CONNECT program expense and discrete costs, $5.1 million of incremental income tax expense related to the TCJA, and $3.3 million, net of tax, of benefit in connection with an insurance claim.

The 2019 net income includes the benefit of full ownership of our China business, which became a wholly owned subsidiary effective January 2019.

In 2018, the non-controlling interest share of net income was $6.7 million, or $0.10 per diluted share.

Our effective income tax rate was 22.6% compared to 18.5% in 2019.

Our effective income tax rate for 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 impacts of the passage of a Swiss tax reform package on our effective income tax rate for the comparable period in 2019.

Net income decreased $222.5 million, or 67%, to $108.0 million, or $1.62 per diluted share, in 2020, from $330.5 million, or $4.83 per diluted share, in 2019.

Results of Operations — Segment

Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Net Sales by Geographic Segment:

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

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

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

and incremental licensing income compared to other segments.

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

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

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Adjust for Foreign Currency Translation Constant-currency

2018 Reported

% Change Constant-currency

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net sales increased $214.5 million, or 12%, to $1,943.0 million in 2019 from $1,728.5 million in 2018.

net sales increased in both our wholesale and DTC businesses.

The net sales increase in U.S.

wholesale business was led by growth in our Columbia brand, followed by our SOREL and Mountain Hardwear brands.

The net sales increase in U.S.

wholesale business was driven by increased advanced orders for Spring 2019 and Fall 2019 product, as well as increased reorders, replenishments, and closeout sales.

The net sales increase in U.S.

DTC business was led by increased net sales from retail stores, followed by increased net sales from e-commerce business.

At December 31, 2019, U.S.

business operated 143 retail stores, compared with 136 stores at December 31, 2018.

LAAP net sales decreased $0.8 million (increased 2% constant-currency) to $529.3 million in 2019 from $530.1 million in 2018.

LAAP net sales reflect unfavorable impacts of foreign currency rates, partially offset by growth in our Japan business.

EMEA net sales increased $16.3 million, or 5% (9% constant-currency), to $367.1 million in 2019 from $350.8 million in 2018.

Net sales increased in our Europe-direct business, primarily driven by increased wholesale sales and, to a lesser extent, DTC sales growth, partially offset by the unfavorable impacts of foreign currency rates.

Net sales increased in our EMEA distributor business, primarily driven by sales growth to our Russia-based distributor.

Canada net sales increased $10.2 million, or 5% (8% constant-currency), to $203.1 million in 2019 from $192.9 million in 2018.

The increase was primarily driven by a net sales increase in Canada wholesale business, resulting from increased advanced orders for Fall 2019 products.

Segment Income from Operations:

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

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

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

and incremental licensing income compared to other segments.

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

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

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

The following table presents segment income from operations for each reportable segments and unallocated corporate expenses:

Income from operations for each reportable segments and unallocated corporate expenses are summarized in the following table:

Year Ended December 31,

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Income from operations $ 137.0 $ 395.0 $ (258.0)

income from operations increased $46.0 million to $456.7 million, or 23.5% of net sales, in 2019 from $410.7 million, or 23.8% of net sales, in 2018.

The increase in operating income was largely driven by net sales growth from both U.S.

wholesale and DTC businesses.

Relatively flat gross margin in 2019 compared to 2018 was driven by financial benefits from Project CONNECT, offset by higher wholesale closeout sales and lower DTC product margins due to increased promotional activity and product mix shifts in 2019 compared to 2018.

SG&A expenses deleveraged slightly to 27.4% of net sales for 2019 from 27.2% of net sales for 2018 driven primarily by increased expenses to support our expanding U.S.

DTC businesses.

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, and increased bad debt expenses primarily resulting from the ongoing COVID-19 pandemic, compared to strong sales performance in 2019.

income from operations decreased $206.2 million to $250.5 million, or 15.6% of net sales, in 2020 from $456.7 million, or 23.5% of net sales, in 2019.

The decrease was driven primarily by decreased net sales combined with decreased gross margins, the majority of $28.8 million of retail impairments and other store closure charges, and COVID-19 related expenses, including catastrophic paid leave and furlough pay as well as severance and other pandemic related costs.

net sales decreased $339.2 million, or 17% in 2020 compared to 2019.

net sales decreased in our U.S.

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

At December 31, 2020, U.S.

business operated 132 retail stores, compared to 143 stores at December 31, 2019.

SG&A expenses increased as a percentage of net sales to 33.8% in 2020 compared to 27.4% for 2019 largely due to the impact of revenue declines and the unfavorable impact of our fixed cost structure.

• LAAP income from operations decreased $44.2 million to $35.9 million, or 8.5% of net sales, in 2020 from $80.1 million, or 15.1% of net sales, in 2019.

EMEA income from operations increased $12.1 million to $45.4 million, or 12.4% of net sales, in 2019 from $33.3 million, or 9.5% of net sales, in 2018.

The increase in income from operations resulted from increases in net sales in our Europe-direct and EMEA distributor businesses, combined with improved gross margin, reflecting financial benefits from Project CONNECT.

Canada income from operations increased $8.3 million to $39.6 million, or 19.5% of net sales, in 2019 from $31.3 million, or 16.2% of net sales, in 2018.

The increase in income from operations resulted from increased net sales in both Canada wholesale and DTC businesses, combined with improved gross margin, reflecting financial benefits from Project CONNECT.

Unallocated corporate expenses increased by $21.5 million to $226.8 million in 2019, from $205.3 million in 2018, primarily driven by increased personnel costs and project-related expenses to support ongoing IT systems implementations.

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

LAAP net sales decreased $104.8 million, or 20% in 2020 compared to 2019, primarily driven by decreased net sales in our China, Japan and Korea businesses, and to a lesser extent, our LAAP distributor business.

LAAP SG&A expense increased as a percentage of net sales to 45.7% in 2020 compared to 40.7% for 2019 largely due to the impact of revenue declines and the unfavorable impact of our fixed cost structure.

• EMEA income from operations decreased $14.2 million to $31.2 million, or 10.4% of net sales, in 2020 from $45.4 million, or 12.4% of net sales, in 2019.

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

EMEA net sales decreased $68.2 million, or 19% (20% constant-currency) in 2020 compared to 2019.

EMEA net sales decreased primarily in our EMEA distributor business, followed by our Europe-direct business.

EMEA SG&A expense increased as a percentage of net sales to 33.4% in 2020 compared to 29.9% for 2019 largely due to the impact of revenue declines and the unfavorable impact of our fixed cost structure.

• Canada income from operations decreased $2.0 million to $37.6 million, or 21.6% of net sales, in 2020 from $39.6 million, or 19.5% of net sales, in 2019.

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

Canada net sales decreased $28.7 million, or 14% in 2020 compared to 2019, primarily driven by a net sales decrease in our wholesale business.

Canada SG&A expense were relatively flat as a percentage of net sales of 25.6% in 2020 compared to 25.5% for 2019.

Unallocated corporate expenses decreased by $8.6 million to $218.2 million in 2020, from $226.8 million in 2019.

The decrease reflected cost containment actions implemented to mitigate unfavorable financial impacts resulting from the ongoing COVID-19 pandemic, partially offset by a prAna brand trademark impairment charge of $17.5 million

Liquidity and Capital Resources

At December 31, 2020, we had total cash and cash equivalents of $790.7 million, compared to $686.0 million at December 31, 2019.

In addition, we had short-term investments of $1.7 million at December 31, 2019, compared to $262.8 million at December 31, 2018.

2019 compared to 2018

Net cash provided by operating activities was $285.5 million in 2019, compared to $289.6 million in 2018.

The decrease in cash provided by operating activities was primarily driven by an increase in Accounts receivable, net due to shipments occurring later in the fourth quarter relative to the same period in 2018 and a decrease in Accounts payable compared to the same period in 2018 due to the timing of payments.

Net cash provided by investing activities was $140.7 million in 2019, compared to net cash used in investing activities of $232.2 million in 2018.

For 2019, net cash provided by investing activities primarily consisted of $264.2 million in net sales and maturities of short-term investments, partially offset by $123.5 million for capital expenditures.

For 2018, net cash used in investing activities primarily consisted of $166.6 million in net purchases of short-term investments and $65.6 million for capital expenditures.

The increase in cash used for capital expenditures in 2019 was primarily related to the expansion of our corporate headquarters and investments in our global DTC operations and technology systems.

Net cash used in financing activities was $190.7 million in 2019, compared to $270.0 million in 2018.

For 2019, net cash used in financing activities primarily consisted of the repurchase of common stock of $121.7 million and dividend payments to Company shareholders of $65.1 million, and $17.9 million related to the purchase of the non-controlling interest in our China joint venture, partially offset by net proceeds of $14.0 million from the issuance of stock-based compensation.

For 2018, net cash used in financing activities primarily consisted of the repurchase of common stock of $201.6 million and dividend payments to Company shareholders of $62.7 million and to the non-controlling interest in our China joint venture of RMB136.5 million (approximately US$19.9 million), partially offset by net proceeds of $14.2 million from the issuance of stock-based compensation.

Short-term borrowings and credit lines

We have an unsecured, committed revolving line of credit available to fund our domestic working capital requirements.

Monthly variable commitments available for funding average $50.0 million over the course of a calendar year.

We had no balance outstanding under this line of credit, and we were in compliance with all associated covenants at December 31, 2019.

Internationally, our subsidiaries have operating lines of credit in place guaranteed by the parent company with a combined limit of approximately $107.2 million at December 31, 2019.

At December 31, 2019, no balance was outstanding under these lines of credit.

Refer to Note 8 in Item 8 of this annual report for additional information.

Our primary ongoing funding requirements are for working capital and capital expenditures, including facilities expansions at our corporate headquarters, investment in our DTC operations, including new stores and remodels, and investment in IT systems and other enabling capabilities to support our strategic priorities.

We anticipate 2020 capital expenditures of approximately $90 million to $110 million.

We expect to fund our future capital expenditures with existing cash, operating cash flows and credit facilities.

If the need arises, we may seek additional funding.

Our ability to obtain additional financing will depend on many factors, including prevailing market conditions, our financial condition and our ability to negotiate favorable terms and conditions.

Financing may not be available on terms that are acceptable or favorable to us, if at all.

At December 31, 2020, we had approximately $505.4 million in committed borrowing availability.

Including cash, cash equivalents, short-term investments and available committed and uncommitted credit lines, we had more than $1 billion in total liquidity at December 31, 2020.

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

We expect to meet our cash needs for the next twelve months with cash and cash equivalents, short-term investments, borrowings under our committed and uncommitted lines of credit and facilities, additional borrowing capacity, access to capital markets, and cash

flows from operations.

Our business is affected by the general seasonal trends common to the industry.

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

We believe that our liquidity requirements for at least the next 12 months will be adequately covered by existing cash, cash provided by operations and existing short-term borrowing arrangements.

We plan to fund future cash dividends and share repurchases with cash generated from operating activities.

Short-term borrowings and credit lines

Refer to Note 7 in Item 8 of this annual report for additional information regarding our lines of credit and overdraft facilities in place.

At December 31, 2020, we had a $500.0 million committed revolving line of credit available domestically under our credit agreement and, internationally, our subsidiaries had approximately $144.4 million in committed and uncommitted lines of credit and overdraft facilities in place, some of which were guaranteed by Columbia Sportswear Company.

At December 31, 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 domestic credit agreement.

Cash flow activities

Net cash provided by operating activities was $276.1 million in 2020, compared to net cash provided by operating activities of $285.5 million in 2019.

The change in operating cash flow was driven by a $161.9 million decrease in operating cash flow provided by net income and non-cash adjustments, partially offset by a $152.6 million decrease in cash used in changes in assets and liabilities.

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

The increase in cash provided by Inventories, net reflects the effect of lower inventory receipts.

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

The increase in cash provided by Accounts Receivable was primarily driven by lower wholesale net sales in the fourth quarter of 2020.

Net cash used in investing activities was $27.2 million in 2020, compared to net cash provided by investing activities of $140.7 million in 2019.

For 2020, net cash used in investing activities consisted $28.8 million for capital expenditures.

The decrease in cash used for capital expenditures in 2020 was primarily due to capital preservation measures taken in light of the ongoing COVID-19 pandemic.

Net cash used in financing activities was $151.7 million in 2020, compared to net cash used in financing activities of $190.7 million in 2019.

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

For 2019, net cash used in financing activities primarily consisted of the repurchase of common stock of $121.7 million and dividend payments to our shareholders of $65.1 million and $17.9 million related to the purchase of the non-controlling interest in our China joint venture, partially offset by net proceeds of $14.0 million from the issuance of stock-based compensation.

The decrease in dividend payments to our shareholders resulted from our Board of Directors suspension of quarterly dividends after the March 2020 dividend was paid as a part of a broader capital preservation effort during the ongoing COVID-19 pandemic.

Contractual obligations

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1,352 4,250 7,969 10,625 13,282 — 37,478

(1) Refer to Inventory Purchase Obligations in Note 13 in Item 8 of this annual report.

(1) Refer to Operating Leases in Note 9 in Item 8 of this annual report.

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We base our ongoing estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances.

Some of these critical accounting policies affect working capital account balances, including the policy for revenue recognition and related sales returns, and claims from customers, the allowance for doubtful accounts, the provision for potential excess, slow-moving and closeout inventories, product warranty, income taxes, and stock-based compensation.

Our critical accounting policies relate to revenue recognition, allowance for uncollectible accounts receivable, excess, close-out and slow-moving inventory, impairment of long-lived assets, intangible assets and goodwill, and income taxes.

Management regularly discusses with our audit committee each of our critical accounting estimates, the development and selection of these accounting estimates, and the disclosure about each estimate in this annual report.

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Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.

Allowance for Uncollectable Accounts Receivable

Allowance for Uncollectible Accounts Receivable

We make ongoing estimates of the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments.

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.

In determining the amount of the allowance, we consider our historical level of credit losses, and we make judgments about the creditworthiness of customers based on ongoing credit evaluations.

We analyze specific customer accounts, customer concentrations, credit insurance coverage, standby letters of credit, and other forms of collateral, current economic trends, and changes in customer payment terms.

We analyze specific customer

accounts, customer concentrations, credit insurance coverage, standby letters of credit, and other forms of collateral, current economic trends, and changes in customer payment terms.

As a result of the COVID-19 pandemic, our allowance for uncollectible accounts receivable increased to $21.8 million as of December 31, 2020 from $8.9 million as of December 31, 2019.

The balance as of December 31, 2020 reflects the ongoing risk in the retail sector as the COVID-19 pandemic continues to impact the global economy.

Continued uncertainty in credit and market conditions may slow our collection efforts if customers experience difficulty accessing credit and paying their obligations, leading to higher than normal accounts receivable and increased bad debt expense.

Because we cannot predict future changes in the financial stability of our customers, actual future losses from uncollectable accounts may differ from our estimates and may have a material effect on our consolidated financial position, results of operations or cash flows.

Because future changes in the financial stability of our customers is difficult to estimate, actual future losses from uncollectible accounts may differ from our estimates and may have a material effect on our consolidated financial position, results of operations or cash flows.

If the financial condition of our customers deteriorates and results in their inability to make payments, a larger allowance may be required.

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We evaluate our inventory on hand considering our purchase commitments, sales forecasts and historical liquidation experience to identify excess, close-out or slow moving inventory and make provisions as necessary to properly reflect inventory value at the lower of cost or net realizable value.

If we determine that a smaller or larger reserve is appropriate, we will record a credit or a charge to Cost of sales in the period in which we make such a determination.

Product Warranty

We make ongoing estimates of potential future product warranty costs.

When we evaluate our reserve for warranty costs, we consider our product warranty policies, historical claim rates by season, product category and mix, current warranty claim trends, and the historical cost to repair, replace or refund the original sale.

If we determine that a smaller or larger reserve is appropriate, we will record an adjustment to Cost of sales in the period in which we make such a determination.

Provisions are taken when necessary in the period in which we make such a determination.

Impairment of Long-Lived Assets, Intangible Assets and Goodwill

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

In these cases, we estimate the future undiscounted cash flows to be derived from the asset or asset group to determine whether a potential impairment exists.

If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset, we recognize an impairment loss, measured as the amount by which the carrying value exceeds the estimated fair value of the asset.

Long-lived assets, which include property, plant and equipment, lease right-of-use assets, capitalized implementation costs for cloud computing arrangements, and intangible assets with finite lives are measured for impairment only when events or circumstances indicate the carrying value may be impaired.

We evaluate retail location long ‐ lived assets for impairment when events or changes in circumstances exist that may indicate that the carrying amounts of retail location long ‐ lived assets are no longer recoverable.

Events that result in an impairment review include plans to close a retail location or a significant decrease in the operating results of the retail location.

When such an indicator occurs, we evaluate retail location long ‐ lived assets for impairment by comparing the undiscounted future cash flow expected to be generated by the location to the location long ‐ lived asset’s carrying amount.

If the carrying amount of an asset exceeds the estimated undiscounted future cash flow, an analysis is performed to estimate the fair value of the asset.

An impairment is recorded if the fair value of the retail location long ‐ lived asset is less than the carrying amount.

During 2020, as a result of lower consumer demand related to the COVID-19 pandemic, we tested certain retail location long-lived assets consisting of property, plant and equipment and lease right-of-use assets for impairment.

For the year ended December 31, 2020, impairment charges from underperforming retail stores were $7.0 million for lease right-of-use assets and $4.5 million for property, plant and equipment.

Further declines in projected future performance may adversely affect the recovery of retail locations assets.

We review and test our intangible assets with indefinite useful lives and goodwill for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying amount of such assets may be impaired.

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segment and impairment testing for goodwill is performed at the reporting unit level.

In the impairment test for goodwill, the two-step process first compares the estimated fair value of the reporting unit with the carrying amount of that reporting unit.

In the impairment test for goodwill, we compare the estimated fair value of the reporting unit with the carrying amount of that reporting unit.

If the carrying amount of the reporting unit exceeds its estimated fair value, we calculate an impairment as the excess of carrying amount over the estimate of fair value.

We estimate the fair value of our reporting units using a combination of discounted cash flow analysis and market-based valuation methods, as appropriate.

If step one indicates impairment, step two compares the estimated fair value of the reporting unit to the estimated fair value of all reporting unit assets and liabilities, except goodwill, to determine the implied fair value of goodwill.

We calculate impairment as the excess of carrying amount of goodwill over the implied fair value of goodwill.

In the impairment tests for trademarks and trade names, we compare the estimated fair value of each asset to its carrying amount.

The fair values of trademarks and trade names are generally estimated using a relief from royalty method under the income approach.

The fair values of trademarks and trade names are estimated using a relief from royalty method under the income approach.

If the carrying amount of a trademark or trade name exceeds its estimated fair value, we calculate impairment as the excess of carrying amount over the estimate of fair value.

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The discount rate is the estimated weighted-average costs of capital of the reporting unit from a market-participant perspective.

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

In the prAna impairment analysis, the estimated fair value of the trademark exceeded its carrying value by approximately 20% and, as such, the reporting unit’s trademark balance of $88.0 million was not impaired.

As part of our evaluation, we performed sensitivity analysis on the trademark impairment model.

A 100 basis point increase in the assumed discount rate did not cause the fair value of the trademark to decline below its carrying value.

Separately, a 10% decrease in estimated net sales for each of the next five years did not cause the fair value of the trademark to decline below its carrying value.

Additionally, the estimated

fair value of the prAna reporting unit exceeded its carrying value by more than 30%, and as such the reporting unit’s goodwill balance of $54.2 million was not impaired.

While no impairment was indicated during the 2019 tests, if the prAna brand's actual or projected future performance deteriorates from the projections considered in our 2019 tests, it is possible that an impairment charge would be required.

Our impairment tests and related fair value estimates are based on a number of factors, including assumptions and estimates for projected sales, income, cash flows, discount rates, market-based multiples, remaining useful lives, and other operating performance measures.

In the market-based valuation methods used to estimate the fair value of our reporting units, we utilize market multiples for guideline public companies.

In our 2020 impairment test, it was determined that the estimated fair value of the prAna brand’s trademark was impaired and we recognized a $17.5 million impairment charge for the year ended December 31, 2020 reducing the carrying value to $70.5 million.

The decline in estimated fair value from the fourth-quarter 2019 impairment test reflects a lower estimated royalty rate and a decline in forecasted revenues.

In the prAna reporting unit’s goodwill impairment test, the estimated fair value of the prAna reporting unit exceeded its carrying value by approximately 10%, and as such the reporting unit’s goodwill balance of $54.2 million was not impaired.

As part of our evaluation, we performed sensitivity analysis on the goodwill impairment model.

A 100 basis point increase in the assumed discount rate did not cause the fair value of the reporting unit to decline below its carrying value.

Separately, 10% lower estimated net sales in each of the next five years did not cause the fair value of the reporting unit to decline below its carrying value.

the prAna brand's actual or projected future performance deteriorates from the projections considered in our 2020 tests, it is possible that further impairment charges would be required.

Our 2020 impairment tests of goodwill and intangible assets with indefinite lives indicated that the fair value of all other reporting units and intangible assets with indefinite lives exceeded their respective carrying values by at least 25%.

Changes in estimates or the application of alternative assumptions could produce significantly different results.

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When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that our year-to-date provision equals our expected annual effective tax rate.

Stock-Based Compensation

Stock-based compensation cost is estimated at the grant date based on the award's fair value and is recognized as expense over the requisite service period using the straight-line attribution method.

We estimate stock-based compensation for stock awards granted using the Black-Scholes option pricing model, which requires various subjective assumptions, including volatility and expected option life.

Further, we estimate forfeitures for stock-based awards granted, but which are not expected to vest.

If any of these inputs or assumptions changes significantly, stock-based compensation expense may differ materially in the future from that recorded in the current period.

Recent Accounting Pronouncements

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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-K

Item 7. Management’s Discussion and Analysis