COLUMBIA SPORTSWEAR CO 10-K

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Our management is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which we consider appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements. Our accounting systems include controls designed to reasonably ensure that assets are safeguarded from unauthorized use or disposition and which provide for the preparation of financial statements in conformity with GAAP. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties. The audit committee is responsible for appointing the independent registered public accounting firm and reviews with the independent registered public accounting firm and management the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to our financial affairs as they deem appropriate. 34 Table of Contents Report of Independent Registered Public Accounting Firm To the Shareholders and the Board of Directors of Columbia Sportswear Company Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Columbia Sportswear Company and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate. Goodwill – prAna Reporting Unit – Refer to Notes 2 and 6 to the Consolidated Financial Statements Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company uses a combination of discounted cash flow analysis and market-based valuation methods, which requires management to make significant estimates and assumptions related to projected cash flow, discount rates, market-based multiples, and other operating performance measures. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, if any, or both. The goodwill balance was $68.6 million as of December 31, 2020, of which $54.2 million was allocated to the prAna Reporting Unit (“prAna”). The fair value of prAna exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized. Auditing management’s estimates and assumptions related to projected cash flow, discount rates, market-based multiples, and other operating performance measures for prAna involved especially subjective judgment. 35 Table of Contents How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates and assumptions related to projected cash flow, discount rates, market-based multiples, and other operating performance measures for the prAna goodwill impairment analysis included the following, among others: • We tested the effectiveness of internal controls over the prAna goodwill impairment analysis, including those over the forecasts for cash flow and other operating performance measures, and the selection of the discount rate and market-based multiples. • We evaluated management’s ability to accurately forecast cash flow and other operating performance measures by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s cash flow forecasts by comparing the forecasts to: ◦ Historical cash flow. ◦ Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies. • We evaluated the impact of changes in management’s cash flow forecasts from the October 31, 2020 annual measurement date to December 31, 2020. • To evaluate the reasonableness of the discount rate, with the assistance of our fair value specialists, we: ◦ Developed a range of independent estimates of the discount rate and compared those to the discount rate selected by management to assess the appropriateness of the discount rate assumption. ◦ Tested the inputs and source information underlying the determination of the discount rate by comparing to reputable third-party data or industry information and tested the mathematical accuracy of the calculation. • With the assistance of our fair value specialists, we evaluated the reasonableness of the selection and application of valuation multiples management applied in i market-based valuation method through comparison to valuation multiples for guideline public companies. Intangible Assets, Net – prAna Trademark– Refer to Notes 2 and 6 to the Consolidated Financial Statements Critical Audit Matter Description The Company has trademarks and trade names (“trademarks”) that are indefinite-lived intangible assets. As of December 31, 2020, the carrying value of the intangible assets was $103.6 million, of which $70.5 million was attributed to prAna’s trademark, after recognizing $17.5 million of impairment loss in the year ended December 31, 2020. The Company used the relief from royalty method to estimate fair value, which requires management to make significant estimates and assumptions related to projected sales, royalty rates and discount rates to estimate the net present value of future cash flows relating to the prAna trademark. Auditing management’s estimates and assumptions related to projected sales, royalty rates, and discount rates for prAna involved especially subjective judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to management’s estimates and assumptions related to projected sales, royalty rates, and discount rates for the prAna trademark valuation included the following, among others: • We tested the effectiveness of controls over intangible assets, including those over the forecasts of future sales, and the selection of the discount rate and royalty rate. • We evaluated management’s ability to accurately forecast future sales by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s sales forecasts by comparing the forecasts to: ◦ Historical sales. ◦ Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies. 36 Table of Contents • We evaluated the impact of changes in management’s forecasts from the October 31, 2020 annual measurement date to December 31, 2020. • To evaluate the reasonableness of the (1) discount rate and (2) royalty rate, with the assistance of our fair value specialists, we: ◦ Developed a range of independent estimates of the discount rate and compared those to the discount rate selected by management to assess the appropriateness of the discount rate assumption. ◦ Tested the inputs and source information underlying the determination of the discount rate by comparing to reputable third-party data or industry information and tested the mathematical accuracy of the calculation. ◦ Compared the royalty rate selected by management to rates from royalty agreements in the outdoor apparel industry for comparable companies and the Company’s own contract royalty rates. Long-lived Asset Valuation – Refer to Notes 2, 5 and 9 to the Consolidated Financial Statements Critical Audit Matter Description The Company evaluates 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, the Company evaluates its retail location long-lived assets for impairment by comparing the undiscounted future cash flow expected to be generated by the location to the retail 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. The Company makes significant assumptions to evaluate retail location long-lived assets for possible indications of impairment. Changes in these assumptions could have a significant impact on the retail location long-lived assets identified for further analysis. For the year ended December 31, 2020, impairment charges from underperforming retail location long-lived assets were $7.0 million for lease right-of-use assets and $4.5 million for property, plant, and equipment. Given the Company’s evaluation of possible indications of impairment of retail location long-lived assets requires management to make significant assumptions, performing audit procedures to evaluate whether management appropriately identified events or changes in circumstances indicating that the carrying amounts of retail location long-lived assets may not be recoverable involved especially subjective judgment. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the evaluation of retail location long-lived assets for possible indications of impairment included the following, among others: • We tested the effectiveness of controls over management's identification of possible circumstances that may indicate that the carrying amounts of retail location long-lived assets are no longer recoverable. • We evaluated management's analysis of long-lived assets for indications of impairment analysis by: ◦ Testing retail location long-lived assets for possible indications of impairment, including searching for locations with a history of losses, current period loss, or projected losses. ◦ Performing inquiries of management regarding the process and assumptions used to identify potential indicators of impairment and evaluating the consistency of the assumptions with evidence obtained in other areas of the audit. /s/ DELOITTE & TOUCHE LLP Portland, Oregon February 25, 2021 We have served as the Company’s auditor since at least 1994; however, an earlier year could not be reliably determined. 37 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Shareholders and the Board of Directors of Columbia Sportswear Company Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Columbia Sportswear Company and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 25, 2021, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Portland, Oregon February 25, 2021 38 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED BALANCE SHEETS December 31, (in thousands) 2020 2019 ASSETS Current Assets: Cash and cash equivalents $ 790,725 $ 686,009 Short-term investments 1,224 1,668 Accounts receivable, net of allowance of $ 21,810 and $ 8,925 , respectively 452,945 488,233 Inventories, net 556,530 605,968 Prepaid expenses and other current assets 54,197 93,868 Total current assets 1,855,621 1,875,746 Property, plant and equipment, net 309,792 346,651 Operating lease right-of-use assets 339,244 394,501 Intangible assets, net 103,558 123,595 Goodwill 68,594 68,594 Deferred income taxes 96,126 78,849 Other non-current assets 63,636 43,655 Total assets $ 2,836,571 $ 2,931,591 LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 206,697 $ 255,372 Accrued liabilities 257,278 295,723 Operating lease liabilities 65,466 64,019 Income taxes payable 23,181 15,801 Total current liabilities 552,622 630,915 Non-current operating lease liabilities 353,181 371,507 Income taxes payable 49,922 48,427 Deferred income taxes 5,205 6,361 Other long-term liabilities 42,870 24,934 Total liabilities 1,003,800 1,082,144 Commitments and contingencies (Note 12) Shareholders' Equity: Preferred stock; 10,000 shares authorized; none issued and outstanding — — Common stock (no par value); 250,000 shares authorized; 66,252 and 67,561 issued and outstanding, respectively 20,165 4,937 Retained earnings 1,811,800 1,848,935 Accumulated other comprehensive income (loss) 806 ( 4,425 ) Total shareholders' equity 1,832,771 1,849,447 Total liabilities and shareholders' equity $ 2,836,571 $ 2,931,591 See accompanying notes to consolidated financial statements 39 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS Year Ended December 31, (in thousands, except per share amounts) 2020 2019 2018 Net sales $ 2,501,554 $ 3,042,478 $ 2,802,326 Cost of sales 1,277,665 1,526,808 1,415,978 Gross profit 1,223,889 1,515,670 1,386,348 Selling, general and administrative expenses 1,098,948 1,136,186 1,051,152 Net licensing income 12,108 15,487 15,786 Income from operations 137,049 394,971 350,982 Interest income, net 435 8,302 9,876 Other non-operating income (expense), net 2,039 2,156 ( 141 ) Income before income tax 139,523 405,429 360,717 Income tax expense ( 31,510 ) ( 74,940 ) ( 85,769 ) Net income 108,013 330,489 274,948 Net income attributable to non-controlling interest — — 6,692 Net income attributable to Columbia Sportswear Company $ 108,013 $ 330,489 $ 268,256 Earnings per share attributable to Columbia Sportswear Company: Basic $ 1.63 $ 4.87 $ 3.85 Diluted $ 1.62 $ 4.83 $ 3.81 Weighted average shares outstanding: Basic 66,376 67,837 69,614 Diluted 66,772 68,493 70,401 See accompanying notes to consolidated financial statements 40 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Year Ended December 31, (in thousands) 2020 2019 2018 Net income $ 108,013 $ 330,489 $ 274,948 Other comprehensive income (loss): Unrealized holding gains (losses) on available-for-sale securities, net 4 56 ( 56 ) Unrealized holding gains (losses) on derivative transactions (net of tax effects of $ 6,271 , $ 830 , and $( 7,782 ), respectively) ( 18,851 ) ( 2,383 ) 24,262 Foreign currency translation adjustments (net of tax effects of $( 388 ), $ 2,188 , and $ 1,557 , respectively) 24,078 2,064 ( 18,079 ) Other comprehensive income (loss) 5,231 ( 263 ) 6,127 Comprehensive income 113,244 330,226 281,075 Comprehensive income attributable to non-controlling interest — — 7,480 Comprehensive income attributable to Columbia Sportswear Company $ 113,244 $ 330,226 $ 273,595 See accompanying notes to consolidated financial statements 41 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended December 31, (in thousands) 2020 2019 2018 Cash flows from operating activities: Net income $ 108,013 $ 330,489 $ 274,948 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation, amortization, and non-cash lease expense 146,601 121,725 58,230 Provision for uncollectible accounts receivable 19,156 ( 108 ) 3,908 Loss on disposal or impairment of intangible assets, property, plant and equipment, and right-of-use assets 31,342 5,442 4,208 Deferred income taxes ( 11,263 ) ( 1,808 ) 1,462 Stock-based compensation 17,778 17,832 14,291 Changes in operating assets and liabilities: Accounts receivable 22,885 ( 37,429 ) ( 29,509 ) Inventories, net 64,884 ( 84,058 ) ( 94,716 ) Prepaid expenses and other current assets 33,712 ( 15,068 ) ( 9,771 ) Other assets ( 21,224 ) ( 3,547 ) ( 12,421 ) Accounts payable ( 49,275 ) ( 10,419 ) 19,384 Accrued liabilities ( 52,115 ) 18,863 66,900 Income taxes payable 9,082 ( 9,402 ) ( 3,958 ) Operating lease assets and liabilities ( 52,112 ) ( 54,197 ) — Other liabilities 8,613 7,137 ( 3,387 ) Net cash provided by operating activities 276,077 285,452 289,569 Cash flows from investing activities: Purchases of short-term investments ( 35,044 ) ( 136,257 ) ( 518,755 ) Sales and maturities of short-term investments 36,631 400,501 352,127 Capital expenditures ( 28,758 ) ( 123,516 ) ( 65,622 ) Proceeds from sale of property, plant and equipment — — 19 Net cash provided by (used in) investing activities ( 27,171 ) 140,728 ( 232,231 ) Cash flows from financing activities: Proceeds from credit facilities 402,422 78,186 70,576 Repayments on credit facilities ( 403,146 ) ( 78,186 ) ( 70,576 ) Payment of line of credit issuance fees ( 3,278 ) — — Proceeds from issuance of common stock related to stock-based compensation 6,919 19,793 18,484 Tax payments related to stock-based compensation ( 4,533 ) ( 5,806 ) ( 4,285 ) Repurchase of common stock ( 132,889 ) ( 121,702 ) ( 201,600 ) Purchase of non-controlling interest — ( 17,880 ) — Cash dividends paid (17,195) ( 65,127 ) ( 62,664 ) Cash dividends paid to non-controlling interest — — ( 19,949 ) Net cash used in financing activities ( 151,700 ) ( 190,722 ) ( 270,014 ) Net effect of exchange rate changes on cash 7,510 ( 1,244 ) ( 8,695 ) Net increase (decrease) in cash and cash equivalents 104,716 234,214 ( 221,371 ) Cash and cash equivalents, beginning of period 686,009 451,795 673,166 Cash and cash equivalents, end of period $ 790,725 $ 686,009 $ 451,795 Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 14,687 $ 99,062 $ 77,408 Supplemental disclosures of non-cash investing and financing activities: Property, plant and equipment acquired through increase in liabilities $ 3,831 $ 9,543 $ 11,831 See accompanying notes to consolidated financial statements 42 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONSOLIDATED STATEMENTS OF EQUITY Columbia Sportswear Company Shareholders' Equity (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Non-Controlling Interest Total Shares Outstanding Amount BALANCE, JANUARY 1, 2018 69,995 $ 45,829 $ 1,585,009 $ ( 8,887 ) $ 30,308 $ 1,652,259 Net income — — 268,256 — 6,692 274,948 Other comprehensive income (loss): Unrealized holding losses on available-for-sale securities, net — — — ( 56 ) — ( 56 ) Unrealized holding gains on derivative transactions, net — — — 23,195 1,067 24,262 Foreign currency translation adjustment, net — — — ( 17,800 ) ( 279 ) ( 18,079 ) Cash dividends ($ 0.90 per share) — — ( 62,664 ) — — ( 62,664 ) Dividends to non-controlling interest — — — — ( 21,332 ) ( 21,332 ) Adoption of new accounting standards — — 14,600 ( 515 ) — 14,085 Issuance of common stock related to stock-based compensation, net 600 14,199 — — — 14,199 Stock-based compensation expense — 14,291 — — — 14,291 Repurchase of common stock ( 2,349 ) ( 74,319 ) ( 127,281 ) — — ( 201,600 ) BALANCE, DECEMBER 31, 2018 68,246 — 1,677,920 ( 4,063 ) 16,456 1,690,313 Net income — — 330,489 — — 330,489 Purchase of non-controlling interest — — — ( 99 ) ( 16,456 ) ( 16,555 ) Other comprehensive income (loss): Unrealized holding gains on available-for-sale securities, net — — — 56 — 56 Unrealized holding losses on derivative transactions, net — — — ( 2,383 ) — ( 2,383 ) Foreign currency translation adjustment, net — — — 2,064 — 2,064 Cash dividends ($ 0.96 per share) — — ( 65,127 ) — — ( 65,127 ) Issuance of common stock related to stock-based compensation, net 558 13,987 — — — 13,987 Stock-based compensation expense — 17,832 — — — 17,832 Repurchase of common stock ( 1,243 ) ( 26,882 ) ( 94,347 ) — — ( 121,229 ) BALANCE, DECEMBER 31, 2019 67,561 4,937 1,848,935 ( 4,425 ) — 1,849,447 Net income — — 108,013 — — 108,013 Other comprehensive income (loss): Unrealized holding gains on available-for-sale securities, net — — — 4 — 4 Unrealized holding losses on derivative transactions, net — — — ( 18,851 ) — ( 18,851 ) Foreign currency translation adjustment, net — — — 24,078 — 24,078 Cash dividends ($ 0.26 per share) — — ( 17,195 ) — — ( 17,195 ) Issuance of common stock related to stock-based compensation, net 248 2,386 — — — 2,386 Stock-based compensation expense — 17,778 — — — 17,778 Repurchase of common stock ( 1,557 ) ( 4,936 ) ( 127,953 ) — — ( 132,889 ) BALANCE, DECEMBER 31, 2020 66,252 20,165 1,811,800 806 — 1,832,771 See accompanying notes to consolidated financial statements 43 Table of Contents COLUMBIA SPORTSWEAR COMPANY INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE PAGE Note 1 Basis of Presentation and Organization 45 Note 2 Summary of Significant Accounting Policies 45 Note 3 Revenues 50 Note 4 Concentrations 51 Note 5 Property, Plant and Equipment, Net 51 Note 6 Intangible Assets, Net and Goodwill 52 Note 7 Short-Term Borrowings and Credit Lines 52 Note 8 Accrued Liabilities 53 Note 9 Leases 54 Note 10 Income Taxes 55 Note 11 Retirement Savings Plans 57 Note 12 Commitments and Contingencies 58 Note 13 Shareholders' Equity 58 Note 14 Stock-Based Compensation 59 Note 15 Earnings Per Share 61 Note 16 Accumulated Other Comprehensive Income (Loss) 62 Note 17 Segment Information 62 Note 18 Financial Instruments and Risk Management 64 Note 19 Fair Value Measures 66 44 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION Nature of the Business Columbia Sportswear Company connects active people with their passions through its four well-known brands, Columbia, SOREL, Mountain Hardwear, and prAna, by designing, developing, marketing, and distributing its outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment products to meet the diverse needs of its customers and consumers. Principles of Consolidation The consolidated financial statements include the accounts of Columbia Sportswear Company, its wholly owned subsidiaries and entities in which it maintained a controlling financial interest (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation. Estimates and Assumptions The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions. Some of the more significant estimates relate to revenue recognition, allowance for uncollectible accounts receivable, excess, close-out and slow moving inventory, impairment of long-lived assets, intangible assets and goodwill, and income taxes. Recently Adopted Accounting Pronouncements Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) issued by the Financial Accounting Standards Board ("FASB") in August 2018, which clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement ("CCA") that is a service contract. Under the ASU, an entity would expense costs incurred in the preliminary-project and post-implementation-operation stages. The entity would also capitalize certain costs incurred during the application-development stage, as well as certain costs related to enhancements. The ASU does not change the accounting for the service component of a CCA. The Company adopted the standard using the prospective method and anticipates an increase in cloud-specific implementation assets as specific cloud initiatives are executed by the Company. These assets will generally be included in Other non-current assets in the Consolidated Balance Sheets and will amortize over their assessed useful lives or the term of the underlying cloud computing hosting contract, whichever is shorter. Upon the adoption of the standard, there was no immediate impact to the Company's financial position, results of operations or cash flows. Effective January 1, 2020, the Company adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment issued by the FASB in January 2017, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Under this guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The impact of the new standard will depend on the specific facts and circumstances of future individual goodwill impairments, if any. Effective January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments issued by the FASB in June 2016, as well as the clarifying amendments subsequently issued. The pronouncement changes the impairment model for most financial assets and requires the use of an "expected loss" model for instruments measured at amortized cost. Under this model, entities are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. Upon adoption of the standard, there was no immediate impact to the Company's financial position, results of operations or cash flows. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost, such as the Company’s trade receivables and certain short-term investments. NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Cash and cash equivalents Cash and cash equivalents are stated at fair value or at cost, which approximates fair value, and include investments with original maturities of 90 days or less at the date of acquisition. At December 31, 2020, Cash and cash equivalents consisted of cash, money 45 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) market funds, and United States government treasury bills. At December 31, 2019, Cash and cash equivalents consisted of cash, money market funds, United States government treasury bills, and commercial paper. Investments At December 31, 2020, Short-term investments consisted of money market funds and mutual fund shares held as part of the Company's deferred compensation plan expected to be distributed in the next twelve months. At December 31, 2019, Short-term investments consisted of mutual fund shares held as part of the Company's deferred compensation plan expected to be distributed in the next twelve months. Investments held as part of the Company's deferred compensation plan are classified as trading securities and are recorded at fair value with any unrealized gains and losses included in SG&A expense . Realized gains or losses from these trading securities are determined based on the specific identification method and are included in SG&A expense . At December 31, 2020 and 2019, long-term investments included in Other non-current assets consisted of money market funds and mutual fund shares held to offset liabilities to participants in the Company's deferred compensation plan. The investments are classified as long-term because the related deferred compensation liabilities are not expected to be paid within the next year. These investments are classified as trading securities and are recorded at fair value with unrealized gains and losses reported as a component of operating income. Accounts receivable Accounts receivable have been reduced by an allowance for doubtful accounts. The Company maintains the allowance for estimated losses resulting from the inability of the Company's customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations. Write-offs of accounts receivable were $ 8.0 million and $ 1.2 million for the years ended December 31, 2020 and 2019, respectively. Inventories Inventories consist primarily of finished goods and are carried at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company periodically reviews its inventories for excess, close-out or slow moving items and makes provisions as necessary to properly reflect inventory value. Property, plant and equipment Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The principal estimated useful lives are: land improvements, 15 years; buildings and building improvements, 15 - 30 years; furniture and fixtures, 3 - 10 years; and machinery, software and equipment, 3 - 10 years. Leasehold improvements are depreciated over the lesser of the estimated useful life of the improvement, which is most commonly 7 years, or the remaining term of the underlying lease. Improvements to property, plant and equipment that substantially extend the useful life of the asset are capitalized. Repair and maintenance costs are expensed as incurred. Internal and external costs directly related to the development of internal-use software during the application development stage, including costs incurred for third party contractors and employee compensation, are capitalized and depreciated over a 3 - 10 year estimated useful life. I ntangible assets and goodwill Intangible assets with indefinite useful lives and goodwill are not amortized but are periodically evaluated for impairment. Intangible assets that are determined to have finite lives are amortized using the straight-line method over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. Intangible assets with finite lives include patents, purchased technology and customer relationships and have estimated useful lives which range from approximately 3 to 10 years. Cloud computing arrangements The Company’s CCAs primarily relate to various enterprise resource planning systems, as well as other supporting systems. These assets are generally included in Other non-current assets in the Consolidated Balance Sheets and amortize on a straight-line basis over their assessed useful lives or the term of the underlying cloud computing hosting contract, whichever is shorter. As of December 31, 2020, CCAs in-service have useful lives which range from approximately ten months to five years. As of December 31, 2020, CCA assets consisted of capitalized implementation costs of $ 24.3 million and associated accumulated amortization of $ 1.9 46 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) million. Changes in these assets are recorded in Other assets within operating activities in the Consolidated Statements of Cash Flows. Leases The Company leases, among other things, retail space, office space, warehouse facilities, storage space, vehicles, and equipment. Generally, the base lease terms are between five and 10 years. Certain lease agreements contain scheduled rent escalation clauses and others include rental payments adjusted periodically depending on an index or rate. Certain retail space lease agreements provide for additional rents based on a percentage of annual sales in excess of stipulated minimums ("percentage rent"). Certain lease agreements require the Company to pay real estate taxes, insurance, common area maintenance, and other costs, collectively referred to as operating costs, in addition to base rent. Certain lease agreements also contain lease incentives, such as tenant improvement allowances and rent holidays. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of lease renewal options is generally at the Company's sole discretion. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants. The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a ROU asset and a lease liability at the lease commencement date. The lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term and (3) lease payments. ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor's estimated residual value or the amount of the lessor's deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because the Company does not generally borrow on a collateralized basis, it uses market-based rates as an input to derive an appropriate incremental borrowing rate, adjusted for the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease. The Company also contemplates adjusting the discount rate for the amount of the lease payments. The Company's lease contracts may include options to extend the lease following the initial term or terminate the lease prior to the end of the initial term. In most instances, at the commencement of the leases, the Company has determined that it is not reasonably certain to exercise either of these options; accordingly, these options are generally not considered in determining the initial lease term. At the renewal of an expiring lease, the Company reassesses options in the contract that it is reasonably certain to exercise in its measurement of lease term. For lease agreements entered into or reassessed after the adoption of ASC 842, the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component. Therefore, for those leases, the lease payments used to measure the lease liability include all of the fixed consideration in the contract. Variable lease payments associated with the Company's leases are recognized upon occurrence of the event, activity, or circumstance in the lease agreement on which those payments are assessed. Variable lease payments are presented in the Company's Consolidated Statements of Operations in the same line item as expense arising from fixed lease payments. Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term. Concessions In April 2020, the FASB issued a Staff Q&A, Topic 842 and 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. The Company elected to account for lease concessions related to the effects of the COVID-19 pandemic in accordance with the Staff Q&A. For concessions that provide a deferral of payments with no substantive changes to the consideration in the original contract, the Company continues to recognize expense during the deferral period. For concessions in the form of lease abatements, the reduced lease payments are accounted for as reductions to variable lease expense. 47 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Impairment of long-lived assets, intangible assets and goodwill 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. In these cases, the Company estimates 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, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the estimated fair value of the asset. The Company reviews and tests its 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. The Company's intangible assets with indefinite lives consist of trademarks and trade names. In the impairment test for goodwill, the estimated fair value of the reporting unit is compared with the carrying amount of that reporting unit. In the impairment tests for trademarks and trade names, the Company compares the estimated fair value of each asset to its carrying amount. For goodwill and trademarks and trade names, if the carrying amount exceeds its estimated fair value, the Company calculates an impairment as the excess of carrying amount over the estimate of fair value. Impairment charges, if any, are classified as a component of SG&A expense . Income taxes Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pre-tax financial statement income and taxable income and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net capital loss carryforwards, based on tax rates expected to be in effect for years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered likely to be realized. Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits relating to uncertain tax positions, including related interest and penalties, appropriately classified as current or noncurrent. The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. In making this determination, the Company assumes that the taxing authority will examine the position and that it will have full knowledge of all relevant information. The provision for income taxes also includes estimates of interest and penalties related to uncertain tax positions. Derivatives The effective portion of changes in fair values of outstanding cash flow hedges is recorded in Other comprehensive income (loss) until earnings are affected by the hedged transaction, and any ineffective portion is included in current income. In most cases, amounts recorded in Other comprehensive income (loss) will be released to earnings after maturity of the related derivative. The Consolidated Statements of Operations classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of product costs are recorded in Cost of sales when the underlying hedged transactions affect earnings. Results of hedges of revenue are recorded in Net sales when the underlying hedged transactions affect earnings. Unrealized derivative gains and losses, which are recorded in assets and liabilities, respectively, are non-cash items and therefore are taken into account in the preparation of the Consolidated Statements of Cash Flows based on their respective balance sheet classifications. Foreign currency translation The assets and liabilities of the Company's foreign subsidiaries have been translated into United States dollars using the exchange rates in effect at period end, and the sales and expenses have been translated into United States dollars using average exchange rates in effect during the period. The foreign currency translation adjustments are included as a separate component of Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets. Revenue recognition 48 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Revenues are recognized when the Company's performance obligations are satisfied as evidenced by transfer of control of promised goods to customers or consumers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Within the Company's wholesale channel, control generally transfers to the customer upon shipment to, or upon receipt by, the customer depending on the terms of sale with the customer. Within the Company's direct-to-consumer ("DTC") channel, control generally transfers to the consumer at the time of sale within retail stores and concession-based arrangements and upon shipment to the consumer with respect to e-commerce transactions. The amount of consideration the Company expects to be entitled to receive and recognize as Net sales across both wholesale and DTC channels varies with changes in sales returns and other accommodations and incentives offered. The Company estimates expected sales returns and other accommodations, such as chargebacks and markdowns and records a sales reserve to reduce Net sales. These estimates are based on historical rates of product returns and claims, as well as events and circumstances that indicate changes to such historical rates. However, actual returns and claims in any future period are inherently uncertain and thus may differ from the estimates. As a result, the Company adjusts estimates of revenue at the earlier of when the most likely amount of consideration the Company expects to receive changes or when the amount of consideration becomes fixed. If actual or expected future returns and claims are significantly greater or lower than the sales reserves established, the Company records an adjustment to Net sales in the period in which it made such determination. Licensing income, which is presented separately as Net licensing income on the Consolidated Statements of Operations and represents less than 1 % of total revenue, is recognized over time based on the greater of contractual minimum royalty guarantees and actual, or estimated, sales of licensed products by the Company's licensees. The Company expenses sales commissions when incurred, which is generally at the time of sale, because the amortization period would have been one year or less. These costs are recorded within SG&A expenses . 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. Shipping and handling costs The Company treats shipping and handling activities as fulfillment costs, and as such recognize the costs for these activities at the time related revenue is recognized. The majority of these costs are recorded as SG&A expenses , and the direct costs associated with shipping goods to customers and consumers are recorded as Costs of sales . Shipping and handling fees billed to customers are recorded as Net sales . Shipping and handling costs recorded as a component of SG&A expenses and were $ 98.0 million, $ 89.2 million and $ 82.7 million for the years ended December 31, 2020, 2019 and 2018, respectively. Cost of sales Cost of sales consists of all direct product costs, including shipping, duties and importation costs, as well as specific provisions for excess, close-out or slow moving inventory. In addition, certain products carry life-time or limited warranty provisions for defects in quality and workmanship. Cost of sales includes a warranty reserve established for these provisions at the time of sale to cover estimated costs based on the Company's history of warranty repairs and replacements. Selling, general and administrative expenses SG&A expenses consists of personnel-related costs, advertising, depreciation and amortization, occupancy, and other selling and general operating expenses related to the Company's business functions. Stock-based compensation Stock-based compensation cost is estimated at the grant date based on the award's fair value and is recorded as expense when recognized. For stock options and service-based restricted units, stock-based compensation cost is recognized over the expected requisite service period using the straight-line attribution method. For performance-based restricted stock units, stock-based compensation cost is recognized based on the Company's assessment of the probability of achieving performance targets in the reporting period. The Company estimates forfeitures for stock-based awards granted, but which are not expected to vest. Advertising costs Advertising costs, including marketing and demand creation spending, are expensed in the period incurred and are included in SG&A expenses . Total advertising expense, including cooperative advertising costs, were $ 141.3 million, $ 166.4 million and $ 150.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Cooperative advertising costs are expensed when the related revenues are recognized and included in SG&A expenses when the Company receives an identifiable benefit in exchange for the 49 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) cost, the advertising may be obtained from a party other than the customer, and the fair value of the advertising benefit can be reasonably estimated. Recently issued accounting pronouncements Effective January 1, 2021, the Company adopted ASU No. 2019-12 , Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which, among other things, removes specific exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods, as well as targeted impacts to the accounting for taxes under hybrid tax regimes. At adoption, there was not a material impact to the Company's financial position, results of operations or cash flows. NOTE 3—REVENUES Disaggregated revenue As disclosed below in Note 17, the Company has four geographic reportable segments: United States ("U.S."), Latin America and Asia Pacific ("LAAP"), Europe, Middle East and Africa ("EMEA") and Canada. The following tables disaggregate our operating segment Net sales by product category and channel, which the Company believes provides a meaningful depiction how the nature, timing, and uncertainty of Net sales are affected by economic factors: Year Ended December 31, 2020 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 1,231,835 $ 320,616 $ 197,052 $ 118,116 $ 1,867,619 Footwear 371,948 103,873 101,855 56,259 633,935 Total $ 1,603,783 $ 424,489 $ 298,907 $ 174,375 $ 2,501,554 Channel net sales Wholesale $ 838,388 $ 198,083 $ 249,161 $ 117,628 $ 1,403,260 DTC 765,395 226,406 49,746 56,747 1,098,294 Total $ 1,603,783 $ 424,489 $ 298,907 $ 174,375 $ 2,501,554 Year Ended December 31, 2019 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 1,562,487 $ 395,002 $ 245,381 $ 138,292 $ 2,341,162 Footwear 380,520 134,280 121,691 64,825 701,316 Total $ 1,943,007 $ 529,282 $ 367,072 $ 203,117 $ 3,042,478 Channel net sales Wholesale $ 1,049,300 $ 272,389 $ 312,347 $ 148,760 $ 1,782,796 DTC 893,707 256,893 54,725 54,357 1,259,682 Total $ 1,943,007 $ 529,282 $ 367,072 $ 203,117 $ 3,042,478 50 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Year Ended December 31, 2018 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 1,432,711 $ 400,240 $ 226,324 $ 131,783 $ 2,191,058 Footwear 295,765 129,912 124,430 61,161 611,268 Total $ 1,728,476 $ 530,152 $ 350,754 $ 192,944 $ 2,802,326 Channel net sales Wholesale $ 902,928 $ 267,002 $ 300,626 $ 141,467 $ 1,612,023 DTC 825,548 263,150 50,128 51,477 1,190,303 Total $ 1,728,476 $ 530,152 $ 350,754 $ 192,944 $ 2,802,326 Performance obligations For the years ended December 31, 2020 and 2019, Net sales recognized from performance obligations related to prior periods were not material. Net sales expected to be recognized in any future period related to remaining performance obligations is not material. Contract balances As of December 31, 2020 and 2019, contract liabilities included in Accrued Liabilities on the Consolidated Balance Sheets, which consisted of obligations associated with the Company's gift card and customer loyalty programs, were not material. NOTE 4—CONCENTRATIONS Trade receivables The Company had one customer that accounted for approximately 14.3 % and 13.9 % of Accounts receivable, net at December 31, 2020 and 2019, respectively. No single customer accounted for 10% or more of Net sales for any of the years ended December 31, 2020, 2019 or 2018. NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net consisted of the following: December 31, (in thousands) 2020 2019 Land and improvements $ 33,231 $ 26,951 Buildings and improvements 209,251 204,077 Machinery, software and equipment 388,808 383,881 Furniture and fixtures 96,521 96,303 Leasehold improvements 152,852 147,760 Construction in progress 3,376 10,771 884,039 869,743 Less accumulated depreciation ( 574,247 ) ( 523,092 ) $ 309,792 $ 346,651 Depreciation expense for property, plant and equipment, net was $ 60.9 million, $ 59.8 million, and $ 58.2 million for the years ended December 31, 2020, 2019 and 2018, respectively. Impairment charges for property, plant and equipment are included in SG&A expense and were $ 5.0 million, $ 0.4 million and $ 2.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Charges during the years ended December 31, 2020, 2019 and 2018 were recorded primarily for certain underperforming retail stores in the U.S., EMEA and LAAP regions. 51 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 6—INTANGIBLE ASSETS, NET AND GOODWILL Intangible assets, net consisted of the following: December 31, (in thousands) 2020 2019 Intangible assets subject to amortization: Patents and purchased technology $ 14,198 $ 14,198 Customer relationships 23,000 23,000 Gross carrying amount 37,198 37,198 Accumulated amortization: Patents and purchased technology ( 14,198 ) ( 13,311 ) Customer relationships ( 17,363 ) ( 15,713 ) Accumulated amortization ( 31,561 ) ( 29,024 ) Net carrying amount 5,637 8,174 Intangible assets not subject to amortization 97,921 115,421 Intangible assets, net $ 103,558 $ 123,595 Amortization expense for intangible assets subject to amortization was $ 2.5 million for the year ended December 31, 2020, and $ 3.0 million for the years ended December 31, 2020 and 2019. Impairment charges for the intangible assets not subject to amortization are included in SG&A expense and were $ 17.5 million for the year ended December 31, 2020. The impairment of the prAna trademark and trade name intangible asset was determined as part of the annual impairment test. The fair value was estimated using a relief from royalty method under the income approach. Cash flow projections were developed in part from the Company's annual planning process. The discount rate is the estimated weighted-average costs of capital of the reporting unit from a market-participant perspective. 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. There was no impairment recorded for intangible assets not subject to amortization for the years ended December 31, 2019 and 2018. Substantially all of the Company's goodwill is recorded in the U.S. segment. The Company determined that goodwill was no t impaired for the years ended December 31, 2020, 2019, and 2018. The following table presents the estimated annual amortization expense for the years 2021 through 2025: (in thousands) 2021 $ 1,650 2022 1,650 2023 1,650 2024 688 2025 — NOTE 7—SHORT-TERM BORROWINGS AND CREDIT LINES Columbia Sportswear Company Credit Lines In 2020, the Company entered into a credit agreement, maturing on December 30, 2025, which provides an unsecured, committed revolving credit facility that provides for funding up to $ 500.0 million. Interest, payable monthly, is based on the Company's option of either LIBOR plus an applicable margin or a base rate. Base rate is defined as the highest of the following, plus an applicable margin: • the administrative agent's prime rate; • the higher of the federal funds rate or the overnight bank funding rate set by the Federal Reserve Bank of New York, plus 0.50%; or • the one-month LIBOR plus 1.00%. 52 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) This credit agreement requires the Company to comply with certain financial covenants covering the Company's funded debt ratio and asset coverage ratio. The credit agreement also includes customary covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness and liens, engage in mergers, acquisitions and dispositions, and engage in transactions with affiliates, as well as restrict certain payments, including dividends and share buybacks. At December 31, 2020, the Company was in compliance with all associated covenants and there was no balance outstanding. At December 31, 2019, there was no balance outstanding under the credit agreement in effect for such period. Columbia Sportswear Company's Subsidiary Credit Lines At December 21, 2020 and 2019, there was no balance outstanding under the Company's subsidiary credit lines. The Company's Canadian subsidiary has available an unsecured and uncommitted line of credit, which is payable on demand, guaranteed by the Company, and provides for borrowing up to a maximum of CAD$ 30.0 million (approximately US$ 23.5 million) at December 31, 2020. The revolving line accrues interest at the Canadian prime rate for CAD overdraft borrowings or Bankers' Acceptance rate plus 150 basis points for Bankers' Acceptance loans. The Company's European subsidiary has available two separate unsecured and uncommitted lines of credit, and an unsecured, committed line of credit, which are guaranteed by the Company, and provide for borrowing up to a maximum of € 25.8 million, € 0.6 million, and € 4.4 million, respectively (combined approximately US$ 37.9 million), at December 31, 2020. Borrowings under the € 25.8 million line accrue interest at a base rate of 185 basis points plus 175 basis points. Borrowings under the € 4.4 million and € 0.6 million lines each accrue interest at 75 basis points. The Company's Japanese subsidiary has available two separate unsecured and uncommitted overdraft facilities guaranteed by the Company providing for borrowing up to a maximum of ¥ 1.5 billion and US$ 7.0 million, respectively (combined approximately US$ 21.5 million) at December 31, 2020. Borrowings under the ¥ 1.5 billion overdraft facility accrue interest at the Tokyo Interbank Offered Rate plus 0.50 basis points and borrowings under the US$ 7.0 million overdraft facility accrue interest at 175 basis points. The Company's Korean subsidiary has available an unsecured and uncommitted overdraft facility guaranteed by the Company providing for borrowing up to a maximum of US$ 20.0 million at December 31, 2020. Borrowings under the overdraft facility accrue interest at the Korea three month CD rate plus 175 basis points. The Company's Chinese subsidiary has available an unsecured and uncommitted line of credit providing for borrowings up to a maximum of RMB 140.0 million at December 31, 2020. The Company's Chinese subsidiary also has an unsecured and uncommitted overdraft and clean advance facility, guaranteed by the Company that provides for borrowings of advances or overdrafts up to a maximum of US$ 20.0 million at December 31, 2020. Borrowings under the RMB 140.0 million line of credit accrue interest at the one year loan prime rate less 10 basis points. Borrowings under the US$ 20.0 million facility accrue interest on advances of RMB at 4.15%, advances of USD based on LIBOR plus 1.75% per annum or overdrafts of RMB based on 110% of the People's Bank of China rate. The combined available borrowings of the two facilities were approximately US$ 41.5 million at December 31, 2020. NOTE 8—ACCRUED LIABILITIES Accrued liabilities consisted of the following: December 31, (in thousands) 2020 2019 Sales reserves $ 83,175 $ 110,758 Accrued salaries, bonus, paid time off and other benefits 80,074 93,887 Accrued import duties 18,522 20,922 Taxes other than income taxes payable 15,002 15,496 Product warranties 14,745 14,466 Other 45,760 40,194 $ 257,278 $ 295,723 53 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) A reconciliation of product warranties is as follows: Year Ended December 31, (in thousands) 2020 2019 2018 Balance at beginning of year $ 14,466 $ 13,186 $ 12,339 Provision for warranty claims 3,033 5,152 5,054 Warranty claims ( 3,128 ) ( 3,810 ) ( 3,942 ) Other 374 ( 62 ) ( 265 ) Balance at end of year $ 14,745 $ 14,466 $ 13,186 NOTE 9—LEASES The components of lease cost consisted of the following: Year Ended December 31, (in thousands) 2020 2019 Operating lease cost (1) $ 104,906 $ 78,609 Variable lease cost (1) 58,391 60,085 Short term lease cost (1) 9,600 9,013 $ 172,897 $ 147,707 (1) For the year ended December 31, 2018, prior to the adoption of ASC 842 on January 1, 2019, rent expenses of $ 143.9 million and $ 1.6 million was included in SG&A expense and Cost of sales, respectively . For the year ended December 31, 2020, operating lease cost included $ 16.5 million of accelerated amortization for retail locations 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. In addition, for the year ended December 31, 2020, operating lease cost included $ 7.0 million of right-of-use asset impairment charges related to underperforming retail locations primarily in the U.S. segment for the year ended December 31, 2020. There was no impairment recorded for the year ended December 31, 2019. In the periods presented, lease concessions reducing variable lease expense were not material. The following table presents supplemental cash flow information: Year Ended December 31, (in thousands) 2020 2019 Cash paid for amounts included in the measurement of operating lease liabilities $ 82,083 $ 77,350 Operating lease liabilities arising from obtaining ROU assets (1)(2) 22,416 471,396 Reductions to ROU assets resulting from reductions to operating lease liabilities 6,400 783 (1) The year ended December 31, 2019 reflects the impact from amount initially capitalized in conjunction with the adoption of ASC 842. (2) Includes amounts added to the carrying amount of lease liabilities resulting from lease modifications and reassessments. The following table presents supplemental balance sheet information related to leases: Year Ended December 31, 2020 2019 Weighted average remaining lease term 6.16 years 6.79 years Weighted average discount rate 3.72 % 3.82 % 54 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table presents the future maturities of liabilities as of December 31, 2020: (in thousands) 2021 $ 92,756 2022 73,936 2023 66,328 2024 58,726 2025 51,134 Thereafter 130,429 Total lease payments 473,309 Less: imputed interest ( 54,662 ) Total lease liabilities 418,647 Less: current obligations ( 65,466 ) Long-term lease obligations $ 353,181 As of December 31, 2020, the Company has additional operating lease commitments that have not yet commenced of $ 3.9 million. These leases will commence in 2021 with lease terms of approximately two to 10 years. NOTE 10—INCOME TAXES Income Tax Provision Consolidated income from continuing operations before income taxes consisted of the following: Year Ended December 31, (in thousands) 2020 2019 2018 United States operations $ 29,154 $ 247,642 $ 224,430 Foreign operations 110,369 157,787 136,287 Income before income tax $ 139,523 $ 405,429 $ 360,717 The components of the provision for income taxes consisted of the following: Year Ended December 31, (in thousands) 2020 2019 2018 Current: Federal $ 18,435 $ 41,148 $ 59,213 State and local 4,929 7,458 9,959 Non-United States 26,897 30,930 28,700 50,261 79,536 97,872 Deferred: Federal ( 14,728 ) ( 7,887 ) ( 10,961 ) State and local ( 5,097 ) ( 999 ) ( 1,910 ) Non-United States 1,074 4,290 768 ( 18,751 ) ( 4,596 ) ( 12,103 ) Income tax expense $ 31,510 $ 74,940 $ 85,769 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements: Year Ended December 31, (percent of income before tax) 2020 2019 2018 Provision for federal income taxes at the statutory rate 21.0 % 21.0 % 21.0 % State and local income taxes, net of federal benefit 1.5 1.7 2.0 Non-United States income taxed at different rates 2.1 ( 0.1 ) ( 0.1 ) Foreign tax credits ( 0.9 ) ( 0.1 ) — Adjustment to deferred taxes ( 1.2 ) ( 2.1 ) — Global Intangible Low-Taxed Income 0.1 — 0.4 Research credits ( 1.4 ) ( 0.5 ) ( 0.6 ) Withholding taxes 0.5 0.3 0.4 Excess tax benefits from stock plans ( 0.8 ) ( 1.6 ) ( 1.4 ) Provision for income taxes related to tax reform — — 1.4 Other 1.7 ( 0.1 ) 0.7 Actual provision for income taxes 22.6 % 18.5 % 23.8 % Deferred Income Tax Balances Significant components of the Company's deferred taxes consisted of the following: December 31, (in thousands) 2020 2019 Deferred tax assets: Accruals and allowances $ 47,667 $ 38,532 Capitalized inventory costs 38,832 34,389 Stock compensation 6,078 5,013 Net operating loss carryforwards 24,253 23,660 Depreciation and amortization 29,358 32,293 Tax credits 844 2,329 Foreign currency 2,418 — Other 2,304 2,258 Gross deferred tax assets 151,754 138,474 Valuation allowance ( 23,534 ) ( 24,130 ) Net deferred tax assets 128,220 114,344 Deferred tax liabilities: Depreciation and amortization ( 16,206 ) ( 15,738 ) Prepaid expenses ( 2,085 ) ( 2,661 ) Deferred tax liability associated with future repatriations ( 19,008 ) ( 19,847 ) Foreign currency — ( 3,610 ) Gross deferred tax liabilities ( 37,299 ) ( 41,856 ) Total net deferred taxes $ 90,921 $ 72,488 The Company has foreign net operating loss carryforwards of $ 89.1 million as of December 31, 2020, of which $ 72.7 million have an unlimited carryforward period and $ 16.5 million expire between 2025 and 2040. The net operating losses result in deferred tax assets of $ 24.3 million and $ 23.7 million and were subject to a valuation allowance of $ 21.2 million and $ 21.9 million at December 31, 2020 and 2019, respectively. At December 31, 2020, the Company has accumulated undistributed earnings generated by the Company's foreign subsidiaries of 56 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) $ 320.8 million. As $ 100.0 million of such earnings have previously been subject to the one-time transition tax on foreign earnings by the Tax Cuts and Jobs Act, any additional taxes due with respect to such earnings would generally be limited to foreign and state taxes and have been recorded as a deferred tax liability. However, the Company intends to indefinitely reinvest the earnings generated after January 1, 2018 and expects future domestic cash generation to be sufficient to meet future domestic cash needs. Unrecognized Tax Benefits The Company conducts business globally, and, as a result, the Company or one or more of its subsidiaries file income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. The Company is subject to examination by taxing authorities throughout the world, including such major jurisdictions as Canada, China, France, Japan, South Korea, Switzerland, and the United States. The Company has effectively settled Canadian tax examinations of all years through 2012, United States tax examinations of all years through 2013, Japanese tax examinations of all years through 2014, France tax examinations of all years through 2014, Swiss tax examinations of all years through 2014, Italy tax examinations of all years through 2016, and China tax examinations of all years through 2018. The Korean National Tax Service concluded an audit of the Company's 2009 through 2013 corporate income tax returns in 2014, and an audit of the Company's 2014 corporate income tax return in 2016. Due to the nature of the findings in both of these audits, the Company has invoked the Mutual Agreement Procedures outlined in the United States-Korean income tax treaty. The Company does not anticipate that adjustments relative to these findings, or any other ongoing tax audits, will result in material changes to its financial condition, results of operations or cash flows. Other than the findings previously noted, the Company is not currently under examination in any major jurisdiction. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows: December 31, (in thousands) 2020 2019 2018 Balance at beginning of year $ 12,478 $ 11,064 $ 10,512 Increases related to prior year tax positions 1,903 4,374 490 Decreases related to prior year tax positions ( 162 ) ( 5,423 ) ( 1,093 ) Increases related to current year tax positions 906 4,991 1,818 Settlements — ( 1,464 ) 319 Expiration of statute of limitations ( 632 ) ( 1,064 ) ( 982 ) Balance at end of year $ 14,493 $ 12,478 $ 11,064 Due to the potential for resolution of income tax audits currently in progress, and the expiration of various statutes of limitation, it is reasonably possible that the unrecognized tax benefits balance may change within the twelve months following December 31, 2020 by a range of zero to $ 5.4 million. Open tax years, including those previously mentioned, contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing, or inclusion of revenue and expenses or the sustainability of income tax credits for a given examination cycle. Unrecognized tax benefits of $ 13.6 million, $ 11.5 million and $ 9.1 million would affect the effective tax rate if recognized at December 31, 2020, 2019 and 2018, respectively. The Company recognizes interest expense and penalties related to income tax matters in Income tax expense . The Company recognized a net increase of accrued interest and penalties of $ 0.8 million in 2020, and a net reversal of accrued interest and penalties of $ 0.5 million in 2019 and a net increase of accrued interest and penalties of $ 0.4 million in 2018, all of which related to uncertain tax positions. The Company had $ 2.3 million and $ 1.5 million of accrued interest and penalties related to uncertain tax positions at December 31, 2020 and 2019, respectively. NOTE 11—RETIREMENT SAVINGS PLANS 401(k) Profit-Sharing Plan The Company has a 401(k) profit-sharing plan, which covers substantially all United States employees. Participation begins the first day of the quarter following completion of 30 days of service. The Company, with approval of the Board of Directors, may elect to make discretionary matching or non-matching contributions. Costs recognized for Company contributions to the plan were $ 10.1 million, $ 9.4 million and $ 8.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. 57 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Deferred Compensation Plan The Company sponsors a nonqualified retirement savings plan for certain senior management employees whose contributions to the tax qualified 401(k) plan would be limited by provisions of the Internal Revenue Code. This plan allows participants to defer receipt of a portion of their salary and incentive compensation and to receive matching contributions for a portion of the deferred amounts. Costs recognized for Company matching contributions to the plan totaled $ 0.4 million, $ 0.5 million and $ 0.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Participants earn a return on their deferred compensation ba sed on investment earnings of participant-selected investments. Deferred compensation, including accumulated earnings on the participant-directed investment selections, is distributable in cash at participant-specified dates or upon retirement, death, disability, or termination of employment. The Company has purchased specific money market and mutual funds in the same amounts as the participant-directed investment selections underlying the deferred compensation liabilities. These investment securities and earnings thereon, held in an irrevocable trust, are intended to provide a source of funds to meet the deferred compensation obligations, subject to claims of creditors in the event of the Company's insolvency. Changes in the market value of the participants' investment selections are recorded as an adjustment to the investments and as unrealized gains and losses in SG&A expense . A corresponding adjustment of an equal amount is made to the deferred compensation liabilities and compensation expense, which is included in SG&A expense . At December 31, 2020, and 2019 , the long-term portion of the liability to participants under this plan was $ 18.7 million and $ 14.0 million, respectively, and was recorded in Other long-term liabilities . At December 31, 2020 and 2019, the current portion of the participant liability was $ 1.2 million and $ 1.7 million, respectively, and was recorded in Accrued liabilities . At December 31, 2020 and 2019, the fair value of the long-term portion of the investments related to this plan was $ 18.7 million and $ 14.0 million, respectively, and was recorded in Other non-current assets . At December 31, 2020 and 2019, the current portion of the investments related to this plan was $ 1.2 million and $ 1.7 million, respectively, and was recorded in Short-term investments . NOTE 12—COMMITMENTS AND CONTINGENCIES Litigation The Company is involved in litigation and various legal matters arising in the normal course of business, including matters related to employment, retail, intellectual property, contractual agreements, and various regulatory compliance activities. Management has considered facts related to legal and regulatory matters and opinions of counsel handling these matters, and does not believe the ultimate resolution of these proceedings will have a material adverse effect on the Company's financial position, results of operations or cash flows. Indemnities and Guarantees During its normal course of business, the Company has made certain indemnities, commitments and guarantees under which it may be required to make payments in relation to certain transactions. These include (i) intellectual property indemnities to the Company's customers and licensees in connection with the use, sale or license of Company products, (ii) indemnities to various lessors in connection with facility leases for certain claims arising from such facility or lease, (iii) indemnities to customers, vendors and service providers pertaining to claims based on the negligence or willful misconduct of the Company, (iv) executive severance arrangements, and (v) indemnities involving the accuracy of representations and warranties in certain contracts. The duration of these indemnities, commitments and guarantees varies, and in certain cases, may be indefinite. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments the Company could be obligated to make. The Company has not recorded any liability for these indemnities, commitments and guarantees in the accompanying Consolidated Balance Sheets. NOTE 13—SHAREHOLDERS' EQUITY Since the inception of the Company's stock repurchase plan in 2004 through December 31, 2020, the Company's Board of Directors has authorized the repurchase of $ 1.1 billion of the Company's common stock. Shares of the Company's common stock may be purchased in the open market or through privately negotiated transactions, subject to market conditions, and generally settle subsequent to the trade date. The repurchase program does not obligate the Company to acquire any specific number of shares or to acquire shares over any specified period of time. Under this program as of December 31, 2020, the Company had repurchased 26.8 million shares at an aggregate purchase price of $ 1,017.8 million and have $ 82.2 million remaining available. During the year ended December 31, 2020, the Company purchased an aggregate of $ 132.9 million of common stock under this program. 58 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) In January 2021, the Company's Board of Directors approved a $ 400.0 million increase in share repurchase authorization. NOTE 14—STOCK-BASED COMPENSATION At its Annual Meeting held on June 3, 2020, the Company’s shareholders approved the Company’s 2020 Stock Incentive Plan (the “2020 Plan”), and the 2020 Plan became effective on that date following such approval. The 2020 Plan replaced the Company’s 1997 Stock Incentive Plan (the "Prior Plan”) and no new awards will be granted under the Prior Plan. The terms and conditions of the awards granted under the Prior Plan will remain in effect with respect to awards granted under the Prior Plan. The Company has reserved 3.0 million shares of common stock for issuance under the 2020 Plan, plus up to an aggregate of 1.5 million shares of the Company’s common stock that were previously authorized and available for issuance under the Prior Plan. At December 31, 2020, 4,169,642 shares were available for future grants under the 2020 Plan and up to 328,486 additional shares that were previously authorized and available for issuance under the Prior Plan may become available for future grants under the 2020 Plan. The 2020 Plan allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, and other stock-based or cash-based awards. The Company uses original issuance shares to satisfy share-based payments. Stock Compensation Stock-based compensation expense consisted of the following: Year Ended December 31, (in thousands) 2020 2019 2018 Cost of sales $ 303 $ 278 $ 250 SG&A expense 17,475 17,554 14,041 Pre-tax stock-based compensation expense 17,778 17,832 14,291 Income tax benefits ( 4,015 ) ( 4,009 ) ( 3,218 ) Total stock-based compensation expense, net of tax $ 13,763 $ 13,823 $ 11,073 The Company realized a tax benefit for the deduction from stock-based award transactions of $ 4.1 million, $ 9.9 million and $ 7.9 million for the years ended December 31, 2020, 2019 and 2018, respectively. Stock Options Options to purchase the Company's common stock are granted at exercise prices equal to or greater than the fair market value of the Company's common stock on the date of grant. Options generally vest and become exercisable ratably on an annual basis over a period of four years and expire ten years from the date of the grant. The fair value of stock options is determined using the Black-Scholes model. Key inputs and assumptions used in the model include the exercise price of the award, the expected option term, the expected stock price volatility of the Company's stock over the option's expected term, the risk-free interest rate over the option's expected term, and the Company's expected annual dividend yield. The option's expected term is derived from historical option exercise behavior and the option's terms and conditions, which the Company believes provide a reasonable basis for estimating an expected term. The expected volatility is estimated based on observations of the Company's historical volatility over the most recent term commensurate with the expected term. The risk-free interest rate is based on the United States Treasury yield approximating the expected term. The dividend yield is based on the expected cash dividend payouts. The weighted average assumptions for stock options granted and resulting fair value is as follows: Year Ended December 31, 2020 2019 2018 Expected option term 4.39 years 4.50 years 4.50 years Expected stock price volatility 21.19 % 27.14 % 28.39 % Risk-free interest rate 1.14 % 2.49 % 2.47 % Expected annual dividend yield 1.13 % 1.03 % 1.15 % Weighted average grant date fair value per share $ 14.67 $ 22.51 $ 18.86 59 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table summarizes stock option activity under the Plan: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life Aggregate Intrinsic Value (1) (in thousands) Options outstanding at January 1, 2018 1,769,887 $ 44.22 6.69 $ 48,962 Granted 402,010 76.48 Cancelled ( 67,440 ) 60.75 Exercised ( 499,836 ) 36.98 Options outstanding at December 31, 2018 1,604,621 53.86 6.95 48,703 Granted 395,653 93.98 Cancelled ( 68,275 ) 74.10 Exercised ( 452,325 ) 43.76 Options outstanding at December 31, 2019 1,479,674 66.74 7.11 49,930 Granted 660,071 87.25 Cancelled ( 78,163 ) 83.76 Exercised ( 142,419 ) 48.58 Options outstanding at December 31, 2020 1,919,163 $ 74.45 7.19 $ 29,489 Options vested and expected to vest at December 31, 2020 1,839,590 $ 73.88 7.12 $ 29,185 Options exercisable at December 31, 2020 806,320 $ 60.31 5.53 $ 22,620 (1) The aggregate intrinsic value above represents pre-tax intrinsic value that would have been realized if all options had been exercised on the last business day of the period indicated, based on the Company's closing stock price on that day. Stock option compensation expense for the years ended December 31, 2020, 2019 and 2018 was $ 7.0 million, $ 6.2 million and $ 4.9 million, respectively. At December 31, 2020, unrecognized costs related to outstanding stock options totaled $ 11.5 million, before any related tax benefit. The unrecognized costs related to stock options are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs related to stock options are being amortized over a weighted average period of 2.33 years. The aggregate intrinsic value of stock options exercised was $ 4.9 million, $ 26.8 million and $ 22.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total cash received as a result of stock option exercises for the years ended December 31, 2020, 2019 and 2018 was $ 6.9 million, $ 19.8 million and $ 18.5 million, respectively. Restricted Stock Units Service-based restricted stock units are granted at no cost to key employees and generally vest over a period of four years . Performance-based restricted stock units are granted at no cost to certain members of the Company's senior executive team, excluding the Chief Executive Officer. Performance-based restricted stock units granted after 2009 generally vest over a performance period of between two and three years . Restricted stock units vest in accordance with the terms and conditions established by the Compensation Committee of the Board of Directors, and are based on continued service and, in some instances, on individual performance or Company performance or both. The fair value of service-based and performance-based restricted stock units is determined using the Black-Scholes model. Key inputs and assumptions used in the model include the vesting period, the Company's expected annual dividend yield and the closing price of the Company's common stock on the date of grant. The weighted average assumptions for restricted stock units granted and resulting fair value are as follows: Year Ended December 31, 2020 2019 2018 Vesting period 3.79 years 3.76 years 3.77 years Expected annual dividend yield 1.18 % 0.97 % 1.15 % Weighted average grant date fair value per restricted stock unit granted $ 78.90 $ 94.58 $ 73.74 60 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table summarizes the restricted stock unit activity under the Plan: Number of Shares Weighted Average Grant Date Fair Value Per Share Restricted stock units outstanding at January 1, 2018 449,475 $ 52.07 Granted 197,299 73.74 Vested (1) ( 155,847 ) 50.97 Forfeited ( 66,926 ) 53.19 Restricted stock units outstanding at December 31, 2018 424,001 62.38 Granted 177,618 94.58 Vested (1) ( 163,195 ) 60.45 Forfeited ( 33,320 ) 72.35 Restricted stock units outstanding at December 31, 2019 405,104 76.45 Granted 216,318 78.90 Vested (1) ( 160,229 ) 68.72 Forfeited ( 35,918 ) 79.36 Restricted stock units outstanding at December 31, 2020 425,275 $ 80.37 (1) The number of vested units includes shares withheld by the Company to pay up to maximum statutory requirements to taxing authorities on behalf of the employee. For the years ended December 31, 2020, 2019 and 2018, the Company withheld 54,543 , 56,843 and 55,907 shares, respectively, to satisfy $ 4.5 million, $ 5.8 million and $ 4.3 million of employees' tax obligations, respectively. Restricted stock unit compensation expense for the years ended December 31, 2020, 2019 and 2018 was $ 10.8 million, $ 11.6 million and $ 9.4 million, respectively. At December 31, 2020, unrecognized costs related to restricted stock units totaled $ 18.6 million, before any related tax benefit. The unrecognized costs related to restricted stock units are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs at December 31, 2020 are expected to be recognized over a weighted average period of 2.08 years. The total grant date fair value of restricted stock units vested during the years ended December 31, 2020, 2019 and 2018 was $ 11.0 million, $ 9.9 million and $ 7.9 million, respectively. NOTE 15—EARNINGS PER SHARE Earnings per share ("EPS") is presented on both a basic and diluted basis. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the common shares used in the denominator for computing basic and diluted EPS is as follows: Year Ended December 31, (in thousands, except per share amounts) 2020 2019 2018 Weighted average common shares outstanding, used in computing basic earnings per share 66,376 67,837 69,614 Effect of dilutive stock options and restricted stock units 396 656 787 Weighted average common shares outstanding, used in computing diluted earnings per share 66,772 68,493 70,401 Earnings per share of common stock attributable to Columbia Sportswear Company: Basic $ 1.63 $ 4.87 $ 3.85 Diluted $ 1.62 $ 4.83 $ 3.81 Stock options and service-based restricted stock units, and performance-based restricted stock representing 1,122,935 , 405,928 and 372,516 shares of common stock for the years ended December 31, 2020, 2019 and 2018, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive under the treasury stock method or because the shares were subject to performance conditions that had not been met. 61 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 16—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) on the Consolidated Balance Sheets is net of applicable taxes, and consists of unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses on certain derivative transactions and foreign currency translation adjustments. The following table sets forth the changes in Accumulated other comprehensive income (loss) attributable to the Company: (in thousands) Unrealized gains (losses) on available for sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at January 1, 2018 $ ( 4 ) $ ( 10,716 ) $ 1,833 $ ( 8,887 ) Other comprehensive income (loss) before reclassifications ( 56 ) 23,065 ( 17,800 ) 5,209 Amounts reclassified from accumulated other comprehensive loss (1) — 130 — 130 Net other comprehensive income (loss) during the year ( 56 ) 23,195 ( 17,800 ) 5,339 Adoption of ASU 2017-12 — ( 515 ) — ( 515 ) Balance at December 31, 2018 ( 60 ) 11,964 ( 15,967 ) ( 4,063 ) Other comprehensive income before reclassifications 56 6,669 2,064 8,789 Amounts reclassified from accumulated other comprehensive loss (1) — ( 9,052 ) — ( 9,052 ) Net other comprehensive income (loss) during the year 56 ( 2,383 ) 2,064 ( 263 ) Purchase of non-controlling interest — ( 99 ) — ( 99 ) Balance at December 31, 2019 ( 4 ) 9,482 ( 13,903 ) ( 4,425 ) Other comprehensive income (loss) before reclassifications 4 ( 7,218 ) 24,078 16,864 Amounts reclassified from accumulated other comprehensive income (1) — ( 11,633 ) — ( 11,633 ) Net other comprehensive income (loss) during the year 4 ( 18,851 ) 24,078 5,231 Balance at December 31, 2020 $ — $ ( 9,369 ) $ 10,175 $ 806 (1) Amounts reclassified are recorded in Net sales, Cost of sales, or Other operating income (expense), net on the Consolidated Statements of Operations. Refer to Note 18 for further information regarding reclassifications. NOTE 17—SEGMENT INFORMATION The Company has four reportable geographic segments: U.S., LAAP, EMEA, and Canada, which are reflective of the Company's internal organization, management and oversight structure. Each geographic segment operates predominantly in one industry: the design, development, marketing, and distribution of outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment products. Intersegment net sales and intersegment profits, which are recorded at a negotiated mark-up and eliminated in consolidation, are not material. Unallocated corporate expenses consist of expenses incurred by centrally-managed departments, including global information services, finance, human resources and legal, as well as executive compensation, unallocated benefit program expense, trademark impairment charges, and other miscellaneous costs. 62 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table presents financial information for the Company's reportable segments: Year Ended December 31, (in thousands) 2020 2019 2018 Net sales to unrelated entities: U.S. $ 1,603,783 $ 1,943,007 $ 1,728,476 LAAP 424,489 529,282 530,152 EMEA 298,907 367,072 350,754 Canada 174,375 203,117 192,944 $ 2,501,554 $ 3,042,478 $ 2,802,326 Segment income from operations: U.S. $ 250,485 $ 456,656 $ 410,750 LAAP 35,875 80,138 80,967 EMEA 31,235 45,419 33,314 Canada 37,620 39,576 31,304 Total segment income from operations 355,215 621,789 556,335 Unallocated corporate expenses ( 218,166 ) ( 226,818 ) ( 205,353 ) Interest income, net 435 8,302 9,876 Other non-operating income (expense), net 2,039 2,156 ( 141 ) Income before income tax $ 139,523 $ 405,429 $ 360,717 Depreciation and amortization expense: U.S. $ 25,852 $ 23,388 $ 21,938 LAAP 5,756 5,956 5,721 EMEA 3,739 4,036 4,260 Canada 2,825 3,009 3,076 Unallocated corporate expense 25,244 23,367 23,235 $ 63,416 $ 59,756 $ 58,230 Accounts receivable, net: U.S. $ 244,236 $ 248,211 LAAP 83,671 101,995 EMEA 66,780 82,500 Canada 58,258 55,527 $ 452,945 $ 488,233 Inventories, net: U.S. $ 362,061 $ 398,192 LAAP 94,448 105,978 EMEA 60,124 58,731 Canada 39,897 43,067 $ 556,530 $ 605,968 Property, plant and equipment, net: U.S. $ 245,690 $ 280,178 Canada 25,992 27,800 All other countries 38,110 38,673 $ 309,792 $ 346,651 63 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 18—FINANCIAL INSTRUMENTS AND RISK MANAGEMENT In the normal course of business, the Company's financial position, results of operations and cash flows are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market. The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. Subsidiaries that use European euros, Canadian dollars, Japanese yen, Chinese renminbi, or Korean won as their functional currency are primarily exposed to changes in functional currency equivalent cash flows from anticipated United States dollar inventory purchases. Subsidiaries that use United States dollars and euros as their functional currency also have non-functional currency denominated sales for which the Company hedges the Canadian dollar and British pound. The Company manages these risks by using currency forward contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, prior to June 2019, the time value components ("forward points") were excluded from the determination of hedge effectiveness and included in current period Cost of sales for hedges of anticipated United States dollar inventory purchases and in Net sales for hedges of anticipated non-functional currency denominated sales on a straight-line basis over the life of the contract. Effective June 2019, the forward points are now included in the fair value of the cash flow hedge on a prospective basis. These costs or benefits will be included in Accumulated other comprehensive income (loss) until the underlying hedge transaction is recognized in either Net sales or Cost of sales , at which time, the forward points will also be recognized as a component of Net income . The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use United States dollars, euros, Canadian dollars, yen, won, or renminbi as their functional currency. Non-functional currency denominated monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, receivables, payables, deferred income taxes, and intercompany loans. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in Other non-operating income (expense), net by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities. The following table presents the gross notional amount of outstanding derivative instruments: December 31, (in thousands) 2020 2019 Derivative instruments designated as cash flow hedges: Currency forward contracts $ 417,707 $ 471,822 Derivative instruments not designated as hedges: Currency forward contracts 326,280 214,086 At December 31, 2020, $ 4.3 million of deferred net loss on both outstanding and matured derivatives recorded in Other comprehensive income (loss) are expected to be reclassified to Net income during the next twelve months as a result of underlying hedged transactions also being recorded in Net sa les or Cost of sales in the Consolidated Statements of Operations. Actual amounts ultimately reclassified to Net sa les or Cost of sales in the Consolidated Statements of Comprehensive Income are dependent on United States dollar exchange rates in effect against the euro, pound sterling, renminbi, Canadian dollar, and yen when outstanding derivative contracts mature. At December 31, 2020, the Company's derivative contracts had a remaining maturity of less than four years . The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was less than $ 1.4 million at December 31, 2020. All of the Company's derivative counterparties have credit ratings that are investment grade or higher. The Company is a party to master netting arrangements that contain features that allow counterparties to net settle amounts arising from multiple separate derivative transactions or net settle in the case of certain triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. The Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions. 64 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table presents the balance sheet classification and fair value of derivative instruments: December 31, (in thousands) Balance Sheet Classification 2020 2019 Derivative instruments designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets $ 947 $ 11,855 Currency forward contracts Other non-current assets 1,126 4,159 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 7,573 1,313 Currency forward contracts Other long-term liabilities 6,590 768 Derivative instruments not designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets 1,650 2,146 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 2,268 953 The following table presents the statement of operations effect and classification of derivative instruments: Year Ended December 31, (in thousands) Statement Of Operations Classification 2020 2019 2018 Currency Forward Contracts: Derivative instruments designated as cash flow hedges: Gain (loss) recognized in other comprehensive income (loss), net of tax — $ ( 7,218 ) $ 6,669 $ 23,503 Gain reclassified from accumulated other comprehensive income (loss) to income for the effective portion Net sales 191 338 62 Gain (loss) reclassified from accumulated other comprehensive income (loss) to income for the effective portion Cost of sales 14,495 9,558 ( 7,604 ) Gain reclassified from accumulated other comprehensive income (loss) to income as a result of cash flow hedge discontinuance Other non-operating income (expense), net 817 — — Gain (loss) recognized in income for amount excluded from effectiveness testing and for the ineffective portion Net sales — ( 43 ) 19 Gain recognized in income for amount excluded from effectiveness testing and for the ineffective portion Cost of sales — 2,380 7,009 Derivative instruments not designated as cash flow hedges: Gain (loss) recognized in income Other non-operating income (expense), net ( 2,865 ) 411 3,334 65 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 19—FAIR VALUE MEASURES Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows: Level 1 — observable inputs such as quoted prices for identical assets or liabilities in active liquid markets; Level 2 — inputs, other than the quoted market prices in active markets, that are observable, either directly or indirectly; or observable market prices in markets with insufficient volume or infrequent transactions; and Level 3 — unobservable inputs for which there is little or no market data available, that require the reporting entity to develop its own assumptions. The Company's assets and liabilities measured at fair value are categorized as Level 1 or Level 2 instruments. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from inputs, other than quoted market prices in active markets, that are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions. Assets and liabilities measured at fair value on a recurring basis as of December 31, 2020 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 119,378 $ — $ — $ 119,378 United States government treasury bills — 234,982 — 234,982 Short-term investments: Money market funds 105 — — 105 Mutual fund shares 1,119 — — 1,119 Other current assets: Derivative financial instruments — 2,597 — 2,597 Non-current assets: Money market funds 4,059 — — 4,059 Mutual fund shares 14,657 — — 14,657 Derivative financial instruments — 1,126 — 1,126 Total assets measured at fair value $ 139,318 $ 238,705 $ — $ 378,023 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 9,841 $ — $ 9,841 Other long-term liabilities Derivative financial instruments — 6,590 — 6,590 Total liabilities measured at fair value $ — $ 16,431 $ — $ 16,431 66 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Assets and liabilities measured at fair value on a recurring basis at December 31, 2019 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 288,926 $ — $ — $ 288,926 United States government treasury bills — 34,928 — 34,928 Commercial paper — 33,587 — 33,587 Short-term investments: Mutual fund shares 1,668 — — 1,668 Other current assets: Derivative financial instruments — 14,001 — 14,001 Non-current assets: Money market funds 1,792 — — 1,792 Mutual fund shares 12,172 — — 12,172 Derivative financial instruments — 4,159 — 4,159 Total assets measured at fair value $ 304,558 $ 86,675 $ — $ 391,233 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 2,266 $ — $ 2,266 Other long-term liabilities: Derivative financial instruments — 768 — 768 Total liabilities measured at fair value $ — $ 3,034 $ — $ 3,034 Non-recurring Fair Value Measurements The Company measured the fair value of certain trademark and trade name intangible assets and certain retail store long-lived assets consisting of property, plant and equipment, and lease right-of-use assets as part of impairment testing for the year ending December 31, 2020. The inputs used to measure the fair value of these assets are primarily unobservable inputs and, as such, considered Level 3 fair value measurements. See Notes 5, 6 and 9 for discussion of 2020 impairment charges. 67 Table of Contents SUPPLEMENTARY DATA—QUARTERLY FINANCIAL DATA (Unaudited) The following table summarizes the Company's quarterly financial data for the past two years ended December 31: 2020 (in thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 568,228 $ 316,611 $ 701,092 $ 915,623 Gross profit 271,714 146,230 342,908 463,037 Net income (loss) 213 ( 50,707 ) 62,751 95,756 Earnings (loss) per share: Basic $ 0.00 $ ( 0.77 ) $ 0.95 $ 1.45 Diluted 0.00 ( 0.77 ) 0.94 1.44 2019 (in thousands, except per share amounts) First Quarter Second Quarter Third Quarter Fourth Quarter Net sales $ 654,608 $ 526,210 $ 906,793 $ 954,867 Gross profit 336,729 253,591 446,695 478,655 Net income 74,177 23,029 119,258 114,025 Earnings per share: Basic $ 1.09 $ 0.34 $ 1.76 $ 1.69 Diluted 1.07 0.34 1.75 1.67 68 Table of Contents Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.