What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-08-05 compared with 2021-05-06 · 211 added, 103 removed, 136 unchanged (70% of the section changed)

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

Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding the impacts of the COVID-19 pandemic, store traffic, supply chain disruptions, inventory receipts, net sales and gross margin, profitability, return on investments, performance obligations, unrecognized costs, derivatives, inventory purchase obligations, income tax rates, our ability to meet our liquidity needs, amortization expenses and maturities of liabilities.

Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding the impacts of the COVID-19 pandemic, store traffic, supply chain disruptions, constraints and costs, inventory receipts and deliveries, net sales and gross margin, profitability, return on investments, inflationary pressures and related price increases, performance obligations, unrecognized costs, derivative instruments, inventory purchase obligations, income tax rates, materiality of legal matters, our ability to meet our liquidity needs, amortization expenses and maturities of liabilities.

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

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

In the first quarter of 2021, consumer demand increased year-over-year, but remained below pre-pandemic levels.

Throughout the first quarter of 2021, the majority of our stores remained open, however government mandated lockdowns impacted our stores in

Europe, Canada and Japan for most of the first quarter of 2021.

Overall, our store retail traffic trends remain below pre-pandemic levels.

In the first half of 2021, the majority of our stores remained open.

For most of the first quarter of 2021, government mandated lockdowns impacted our stores in Europe, Canada and Japan.

At varying times during the second quarter of 2021, government mandated lockdowns, including pandemic-related temporary store closures or reduced store operating hours, impacted stores in Japan, China, Europe and Canada at varying times.

Overall, our store retail traffic trends improved in the second quarter of 2021, but remained below pre-pandemic levels.

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

We anticipate gradual fundamental improvement in store traffic over the course of the year.

In addition, certain of our wholesale customers and international distributors experienced closed stores or reduced operating hours.

Despite these impacts, consumer demand accelerated in the first quarter of 2021 and we did not realize significant wholesale order cancellations or customer accommodations.

The COVID-19 pandemic continues to impact our distribution centers, third-party manufacturing partners and logistics partners.

We expect these supply chain disruptions to continue through our fourth quarter of 2021.

As a result of these impacts, we anticipate later than expected spring and fall season inventory receipts and deliveries to our wholesale customers and inventory availability for our DTC businesses, resulting in impacts to our future net sales and gross margin.

In addition, certain of our wholesale customers and international distributors experienced a similar timeline and closed stores or reduced operating hours.

Despite these impacts, consumer demand accelerated in the first half of 2021 and we did not realize significant wholesale order cancellations or customer accommodations.

The COVID-19 pandemic continues to impact our distribution centers, third-party manufacturing partners and logistics partners, including freight capacity, port congestion, production closures, and other logistics constraints.

In the first half of 2021, these disruptions and constraints resulted in later timing of Spring 2021 inventory receipts and deliveries, as well as higher freight, distribution and other supply chain costs.

We expect these supply chain disruptions, constraints and increases in costs to continue through the balance of this year and into 2022.

As a result of these impacts, we anticipate later than expected fall season inventory receipts and deliveries to our wholesale customers and inventory availability for our DTC businesses, resulting in impacts to our future net sales and gross margin.

Business Outlook

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

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

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

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

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

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

Our full year 2021 financial results are being, or could be, significantly impacted by the following factors:

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

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

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

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

• increasing operating costs associated with a constrained supply chain, including incremental ocean freight surcharges and other logistics related costs;

• our ability to staff and operate our distribution centers, including our ability to receive inventory, to fulfill demand while providing a safe working environment with adequate social distancing and other safety precautions;

• port congestion and equipment capacity (including ocean vessels, containers and trucks) and the ability of third-party logistics providers to service the demands of our business and the retail industry generally;

• increasing operating costs associated with a constrained supply chain, including increasing ocean freight and other logistics related costs;

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

• our ability to secure production capacity with our contract manufacturers;

• our ability to secure production capacity with our contract manufacturers, and their ability to maintain operations as pandemic-related outbreaks impact less vaccinated countries/regions;

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

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

In addition, we expect inflationary pressures to continue to build across our business beyond 2021.

We anticipate implementing price increases to help mitigate these higher costs.

Strategic Priorities

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

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

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

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

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

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

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

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

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

Highlights of the First Quarter of 2021

• Net sales increased $57.4 million, or 10%, to $625.6 million, from $568.2 million in the first quarter of 2020.

• Gross profit as a percentage of net sales expanded to 51.4% from 47.8% in the first quarter of 2020.

• Income from operations increased $72.5 million to $70.5 million from a loss from operations of $2.0 million in the first quarter of 2020.

• Income tax expense increased to $14.6 million from $1.4 million in the first quarter of 2020.

• Net income increased $55.7 million to $55.9 million, or $0.84 per diluted share from net income of $0.2 million, or $0.00 per diluted share in the first quarter of 2020.

• Operating cash flow increased $98.1 million to $110.9 million, compared to $12.8 million in 2020.

Highlights of the Second Quarter of 2021

• Net sales increased $249.8 million, or 79%, to $566.4 million, from $316.6 million in the second quarter of 2020.

• Gross profit as a percentage of net sales expanded to 51.6% from 46.2% in the second quarter of 2020.

• Operating income increased $105.3 million to $35.0 million from an operating loss of $70.3 million in the second quarter of 2020.

• Income tax benefit decreased to $5.4 million from a benefit of $19.5 million in the second quarter of 2020.

• Net income increased $91.4 million to $40.7 million, or $0.61 per diluted share, from a loss of $50.7 million, or $(0.77) per share, in the second quarter of 2020.

• Net cash provided by operating activities for the six months ended June 30, 2021 increased $154.4 million to $117.2 million, compared net cash used in operating activities of $37.3 million for the comparable period in 2020.

• We paid cash dividends to shareholders totaling $17.3 million, or $0.26 per share.

The following table presents the items in our Condensed Consolidated Statements of Operations as a percentage of net sales:

Three Months Ended March 31,

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

2021 2020 2021 2020

Net sales 100.0 % 100.0 % 100.0 % 100.0 %

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Net licensing income 0.8 0.3 0.6 0.5

Income (loss) from operations 11.3 (0.3)

Interest income, net — 0.3

Operating income (loss) 6.2 (22.2) 8.8 (8.2)

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

Other non-operating income (expense), net (0.1) 0.3 (0.1) 0.3

Income before income tax 11.3 0.3

Income tax expense (2.4) (0.3)

Net income 8.9 % — %

Income (loss) before income tax 6.2 (22.1) 8.9 (7.8)

Income tax benefit (expense) 1.0 6.1 (0.8) 2.1

Net income (loss) 7.2 % (16.0) % 8.1 % (5.7) %

Results of Operations — Consolidated

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

Consolidated net sales increased $57.4 million, or 10%, to $625.6 million for the first quarter 2021 from $568.2 million for the comparable period in 2020.

The increase primarily reflects higher consumer demand and economic recovery from the ongoing COVID-19 pandemic, which during the comparable period in 2020 resulted in wholesale order cancellations, temporary store closures and lower consumer demand.

Net sales increased across all regions and product categories, and primarily for the Columbia brand in the U.S.

DTC and China businesses.

In addition, our DTC e-commerce business grew 35% and represented 20% of our global net sales for the first quarter 2021, compared to 16% of our global net sales for the same period in 2020.

Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020

Consolidated net sales increased $249.8 million, or 79%, to $566.4 million for the second quarter 2021 from $316.6 million for the comparable period in 2020.

The increase primarily reflects higher consumer demand and economic recovery from the ongoing COVID-19 pandemic.

Net sales increased across all regions, product categories, and brands, primarily driven by increased Columbia brand nets sales in our U.S.

DTC and wholesale businesses.

In addition, our global DTC e-commerce business grew 5% and represented 16% of our global net sales for the second quarter 2021, compared to 28% of our global net sales for the same period in 2020.

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

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except for percentage changes) Reported

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Gross Profit:

Gross profit as a percentage of net sales expanded to 51.4% for the first quarter 2021 from 47.8% for the comparable period in 2020, primarily reflecting:

• an approximate 250 basis points increase primarily resulting from decreased reserve provisions related to less excess inventory;

• an increase in product margin, primarily driven by lower promotional activity and lower wholesale customer accommodations, partially offset by a higher proportion of wholesale closeout product sales mix;

• an increase driven by a favorable sales mix impact due to a lower proportion of lower margin international distributor sales and a higher proportion of DTC sales which generally carries higher gross margin.

Gross profit as a percentage of net sales expanded to 51.6% for the second quarter 2021 from 46.2% for the comparable period in 2020, primarily reflecting:

• an approximate 400 basis points increase resulting from decreased inventory reserve provisions;

• an approximate 270 basis points increase in product margin, primarily driven by lower DTC promotional levels and favorable wholesale product margins;

partially offset by

• a decrease driven by an unfavorable channel sales mix due to a lower proportion of higher margin e-commerce net sales.

Selling, General and Administrative Expense:

SG&A expense decreased $22.4 million, or 8%, to $254.4 million, or 40.7% of net sales, for the first quarter of 2021, from $276.8 million, or 48.7% of net sales, for the comparable period in 2020.

The SG&A expense decrease was primarily due to:

• lower bad debt expenses of $27.1 million;

SG&A expense increased $44.1 million, or 20%, to $261.8 million, or 46.2% of net sales, for the second quarter of 2021, from $217.7 million, or 68.7% of net sales, for the comparable period in 2020.

The increase in SG&A expenses primarily reflects the variable component of our SG&A expense structure, which correlates with changes in sales volume.

The SG&A expense increase was primarily due to:

• higher global retail expenses relative to prior year temporary store closures;

• increased demand creation spending driven by higher variable spending with sales growth and incremental strategic investment;

• higher personnel expenses to support business growth and annual merit increases;

• higher incentive compensation;

partially offset by

• the non-recurrence of prior year COVID-19 related expenses of $15.1 million, including catastrophic leave and furlough pay, severance and other pandemic costs that were partially offset by government subsidies and incentives;

• lower bad debt expenses.

Operating Income (Loss):

Operating income increased $105.3 million to $35.0 million, or 6.2% of net sales, for the second quarter of 2021, from an operating loss of $70.3 million, or (22.2)% of net sales, for the comparable period in 2020.

Income Tax Benefit (Expense) :

Income tax benefit decreased to $5.4 million for the second quarter of 2021 from a benefit of $19.5 million for the comparable period in 2020.

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

Our effective income tax rate for the second quarter of 2021 decreased compared to the second quarter of 2020 primarily driven by a non-recurring decrease in accrued foreign withholding taxes.

Net Income (Loss):

Net income increased $91.4 million to $40.7 million, or $0.61 per diluted share, for the second quarter of 2021, from a loss of $50.7 million, or $(0.77) per share, for the comparable period in 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

Consolidated net sales increased $307.2 million, or 35%, to $1,192.0 million for the six months ended June 30, 2021 from $884.8 million for the comparable period in 2020.

The increase primarily reflects higher consumer demand and an accelerated economic recovery compared to the same period in 2020, which was impacted by wholesale order cancellations, temporary store closures and lower consumer demand.

Net sales increased across all regions, product categories, and brands, primarily driven by increased Columbia brand nets sales in the U.S.

DTC and wholesale businesses.

In addition, our DTC e-commerce business grew 21% and represented 18% of our global net sales for the six months ended June 30, 2021, compared to 20% of our global net sales for the same period in 2020.

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

Six Months Ended June 30,

(in millions, except for percentage changes) Reported

Adjust for Foreign Currency Translation Constant-currency

% Change Constant-currency

Brand Net Sales:

Columbia $ 1,011.7 $ (20.2) $ 991.5 $ 737.5 37% 34%

SOREL 69.4 (0.9) 68.5 52.0 33% 32%

prAna 71.2 — 71.2 64.2 11% 11%

Mountain Hardwear 39.7 (0.5) 39.2 31.1 28% 26%

Total $ 1,192.0 $ (21.6) $ 1,170.4 $ 884.8 35% 32%

Product Category Net Sales:

Apparel, Accessories and Equipment $ 922.0 $ (14.7) $ 907.3 $ 696.0 32% 30%

Footwear 270.0 (6.9) 263.1 188.8 43% 39%

Total $ 1,192.0 $ (21.6) $ 1,170.4 $ 884.8 35% 32%

Channel Net Sales:

Wholesale $ 637.7 $ (12.5) $ 625.2 $ 485.8 31% 29%

DTC 554.3 (9.1) 545.2 399.0 39% 37%

Total $ 1,192.0 $ (21.6) $ 1,170.4 $ 884.8 35% 32%

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

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

Gross Profit:

Gross profit as a percentage of net sales expanded to 51.5% for the six months ended June 30, 2021 from 47.2% for the comparable period in 2020, primarily reflecting:

• an approximate 250 basis points increase primarily resulting from decreased inventory reserve provisions;

• an increase in product margin, primarily driven by lower DTC promotional levels.

Selling, General and Administrative Expense:

SG&A expense increased $21.7 million, or 4%, to $516.2 million, or 43.3% of net sales, for the six months ended June 30, 2021, from $494.5 million, or 55.9% of net sales, for the comparable period in 2020.

The increase in SG&A expenses primarily reflects the variable component of our SG&A expense structure, which correlates with changes in sales volume.

The SG&A expense increase was primarily due to:

• higher personnel expenses to support business growth and annual merit increases;

• higher global retail expenses relative to prior year temporary store closures;

• increased demand creation spending, driven by higher variable spending with sales growth and incremental strategic investment;

• higher incentive compensation;

• higher personnel expenses to support business growth.

The decrease in bad debt expenses was driven by incremental COVID-19 pandemic related bad debt reserve provisions in the first quarter of 2020, compared to a reduction in bad debt reserves in the first quarter of 2021 reflecting the continued recovery of the market and a healthier wholesale customer base.

Income (Loss) from Operations:

Income from operations increased $72.5 million to $70.5 million, or 11.3% of net sales, for the first quarter of 2021, from a loss from operations of $2.0 million, or (0.3)% of net sales, for the comparable period in 2020.

Income Tax Expense :

Income tax expense increased to $14.6 million for the first quarter of 2021 from $1.4 million for the comparable period in 2020.

Our effective income tax rate was 20.7% compared to 86.4% for the first quarter of 2020.

Our effective income tax rate for the first quarter of 2021 decreased compared to the first quarter of 2020 primarily due to the change in mix of book income or loss among jurisdictions, as well as the recording of a foreign jurisdiction valuation allowance during the prior period.

Net income increased $55.7 million to $55.9 million, or $0.84 per diluted share, for the first quarter of 2021, from $0.2 million, or $0.00 per diluted share, for the comparable period in 2020.

partially offset by

• lower bad debt expenses of $32.6 million;

The decrease in bad debt expenses was driven by incremental COVID-19 pandemic related bad debt reserve provisions in the first half of 2020, compared to a reduction in bad debt reserves in the first half of 2021 reflecting the continued recovery of the market and a healthier wholesale customer base.

Operating Income (Loss):

Operating income increased $177.8 million to $105.5 million, or 8.8% of net sales, for the six months ended June 30, 2021, from an operating loss of $72.3 million, or (8.2)% of net sales, for the comparable period in 2020.

Income Tax Benefit (Expense) :

Income tax expense was $9.2 million for the six months ended June 30, 2021, compared to an income tax benefit of $18.1 million for the comparable period in 2020.

Our effective income tax rate was 8.7% for the six months ended June 30, 2021 compared to 26.4% for the comparable period in 2020.

The change in our effective income tax rate for the six months ended June 30, 2021, compared to the same period in 2020, was primarily driven by a non-recurring decrease in accrued foreign withholding taxes.

Net Income (Loss):

Net income increased $147.1 million to $96.6 million, or $1.44 per diluted share, for the six months ended June 30, 2021, from net loss of $50.5 million, or $(0.76) per share, for the comparable period in 2020.

Results of Operations — Segment

Quarter Ended March 31, 2021 Compared to Quarter Ended March 31, 2020

Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020

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

Three Months Ended March 31,

Three Months Ended June 30,

(in millions, except for percentage changes) Reported

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

Three Months Ended March 31,

Operating income (loss) for each reportable segments and unallocated corporate expenses are summarized in the following table:

Three Months Ended June 30,

(in millions) 2021 2020 Change ($)

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Canada 0.6 (8.8) 9.4

Total segment income from operations $ 125.7 $ 50.2 75.5

Total segment operating income (loss) $ 93.2 $ (29.0) 122.2

Unallocated corporate expenses (58.2) (41.3) (16.9)

Income (loss) from operations $ 70.5 $ (2.0) $ 72.5

income from operations increased $59.7 million to $99.7 million, or 24.4% of net sales, for the first quarter of 2021 from $40.0 million, or 10.7% of net sales, for the comparable period in 2020.

The increase was driven primarily by increased net sales at improved gross margin, as well as a reduction in bad debt expense.

net sales increased $32.7 million, or 9%, for the first quarter of 2021 compared to same period in 2020, driven by increased net sales in our U.S.

DTC businesses, partially offset by decreased net sales in our U.S.

wholesale business.

The net sales increase in our U.S.

DTC businesses was led by increased e-commerce net sales as consumers continued to shift to online shopping, followed by increased retail store net sales as we lapped prior year temporary store closures and heightened COVID-19 pandemic related disruptions.

wholesale net sales declined due to a shift in the timing of Spring 2021 inventory receipts and deliveries from the first quarter into the second quarter of 2021.

The reduction in bad

debt reserves in the first quarter of 2021 reflected the continued recovery of the market and a healthier wholesale customer base.

SG&A expenses decreased as a percentage of net sales to 27.7% for the three months ended March 31, 2021 compared to 37.8% for the comparable period in 2020.

LAAP income from operations increased $3.6 million to $9.7 million, or 8.7% of net sales, for the first quarter of 2021 from $6.1 million, or 6.0% of net sales, for the comparable period in 2020.

Operating income (loss) $ 35.0 $ (70.3) $ 105.3

Unless otherwise noted below, segment net sales and operating income within all regions increased due to the result of unfavorable COVID-19 pandemic impacts realized in the comparable period in 2020, which led to economic lockdowns, including temporary store closures and lower consumer demand.

operating income increased $100.3 million to $82.1 million, or 21.6% of net sales, for the second quarter of 2021 from an operating loss of $18.2 million, or (9.9)% of net sales, for the comparable period in 2020.

The increase was driven primarily by increased net sales combined with increased gross margin.

LAAP net sales increased $9.4 million, or 9% (3% constant-currency) for the first quarter of 2021 compared to the same period in 2020, primarily driven by increased net sales in our China and Korea businesses, partially offset by decreased net sales in our LAAP distributor and Japan businesses.

LAAP SG&A expense increased as a percentage of net sales to 47.7% for the first quarter of 2021 compared to 44.1% for the comparable period in 2020, driven by fixed expenses in our LAAP distributor and Japan businesses coupled with decreased net sales.

EMEA income from operations increased $10.2 million to $10.1 million, or 14.2% of net sales, for the first quarter of 2021 from a loss from operations of $0.1 million, or (0.1)% of net sales, for the comparable period in 2020.

net sales increased $195.9 million, or 107%, for the second quarter of 2021 compared to same period in 2020, driven by increased net sales in our U.S.

wholesale and DTC businesses.

wholesale net sales increased primarily due to a shift in the timing of Spring 2021 inventory receipts and deliveries from the first quarter into the second quarter of 2021.

SG&A expense decreased as a percentage of net sales to 32.7% for the three months ended June 30, 2021 compared to 57.7% for the comparable period in 2020.

The SG&A expense decrease reflected the fixed nature of our expense structure relative to the decline in net sales.

In addition, U.S.

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

LAAP operating loss of $1.0 million, or (1.3)% of net sales, for the second quarter of 2021 decreased $1.1 million from an operating loss of $2.1 million, or (3.2)% of net sales, for the comparable period in 2020.

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

LAAP net sales increased $10.6 million, or 16% (11% constant-currency) for the second quarter of 2021 compared to the same period in 2020, primarily driven by increased net sales in our Japan business.

LAAP SG&A expense increased as a percentage of net sales to 58.4% for the second quarter of 2021 compared to 57.9% for the comparable period in 2020.

EMEA operating income increased $11.4 million to $11.5 million, or 13.0% of net sales, for the second quarter of 2021 from $0.1 million, or 0.2% of net sales, for the comparable period in 2020.

The increase was driven primarily by increased net sales combined with increased gross margin.

EMEA net sales increased $15.0 million, or 27% (18% constant-currency), for the first quarter of 2021 compared to the same period in 2020.

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

EMEA SG&A expense decreased as a percentage of net sales to 31.1% for the first quarter of 2021 compared to 45.3% for the same period in 2020 driven by leveraging of fixed operating expenses and lower reserve provisions for bad debt.

Canada income from operations increased $2.0 million to $6.2 million, or 18.2% of net sales, for the first quarter of 2021 from $4.2 million, or 12.3% of net sales, for the comparable period in 2020.

EMEA net sales increased $30.2 million, or 52% (46% constant-currency), for the second quarter of 2021 compared to the same period in 2020.

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

EMEA SG&A expense decreased as a percentage of net sales to 27.9% for the second quarter of 2021 compared to 34.7% for the same period in 2020 driven by leveraging of fixed operating expenses.

Canada operating income of $0.6 million, or 3.0% of net sales, for the second quarter of 2021 increased $9.4 million from an operating loss of $8.8 million, or (113.0)% of net sales, for the comparable period in 2020.

The increase primarily resulted from increased net sales combined with increased gross margin.

Canada net sales increased $0.3 million, or 1% (a decrease of 3% constant-currency), for the first quarter of 2021 compared to the same period in 2020.

Canada SG&A expense decreased as a percentage of net sales to 30.6% for the first quarter of 2021 compared to 35.3% for the comparable period in 2020 driven by lower reserve provisions for bad debt.

Unallocated corporate expenses increased by $3.0 million to $55.2 million for the first quarter of 2021, from $52.2 million for the comparable period in 2020.

Canada net sales increased $13.1 million, or 170% (140% constant-currency), for the second quarter of 2021 compared to the same period in 2020.

Canada SG&A expense decreased as a percentage of net sales to 44.2% for the second quarter of 2021 compared to 147.7% for the comparable period in 2020, driven by leveraging of fixed operating expenses.

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

Unallocated corporate expenses increased by $16.9 million to $58.2 million for the second quarter of 2021, from $41.3 million for the comparable period in 2020, primarily driven by higher incentive compensation and personnel expenses.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

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

Six Months Ended June 30,

(in millions, except for percentage changes) Reported

Adjust for Foreign Currency Translation Constant-currency

% Change Constant-currency

$ 787.7 $ — $ 787.7 $ 559.1 41% 41%

LAAP 190.0 (9.6) 180.4 170.0 12% 6%

EMEA 159.3 (8.3) 151.0 114.1 40% 32%

Canada 55.0 (3.7) 51.3 41.6 32% 23%

$ 1,192.0 $ (21.6) $ 1,170.4 $ 884.8 35% 32%

Operating income (loss) for each reportable segments and unallocated corporate expenses are summarized in the following table:

Six Months Ended June 30,

(in millions) 2021 2020 Change ($)

$ 181.7 $ 21.9 $ 159.8

LAAP 8.7 3.9 4.8

EMEA 21.6 0.1 21.5

Canada 6.9 (4.6) 11.5

Total segment operating income $ 218.9 $ 21.3 197.6

Unallocated corporate expenses (113.4) (93.6) (19.8)

Operating income (loss) $ 105.5 $ (72.3) $ 177.8

operating income increased $159.8 million to $181.7 million, or 23.1% of net sales, for the six months ended June 30, 2021 from $21.9 million, or 3.9% of net sales, for the comparable period in 2020.

The increase was driven primarily by increased net sales combined with increased gross margin, as well as a reduction in bad debt expense.

net sales increased $228.6 million, or 41%, for the six months ended June 30, 2021 compared to same period in 2020, driven by increased net sales in our U.S.

DTC retail stores, wholesale and DTC e-commerce businesses.

The reduction in bad debt reserves reflected the continued recovery of the market and a healthier wholesale customer base.

SG&A expenses decreased as a percentage of net sales to 30.1% for the six months ended June 30, 2021 compared to 44.3% for the comparable period in 2020, primarily driven by leveraging of fixed operating expenses, a reduction in bad debt expense, and the non-recurrence of prior year COVID-19 related expenses.

LAAP operating income increased $4.8 million to $8.7 million, or 4.6% of net sales, for the six months ended June 30, 2021 from $3.9 million, or 2.3% of net sales, for the comparable period in 2020.

The increase was driven primarily by increased net sales combined with increased gross margin.

LAAP net sales increased $20.0 million, or 12% (6% constant-currency) for the six months ended June 30, 2021 compared to the same period in 2020, primarily driven by increased net sales in our China business, partially offset by decreased net sales in our LAAP distributor businesses.

LAAP SG&A expense increased as a percentage of net sales to 52.1% for the six months ended June 30, 2021 compared to 49.6% for the comparable period in 2020, driven by the non-recurrence of prior year COVID-19 government subsidies received.

EMEA operating income increased $21.5 million to $21.6 million, or 13.6% of net sales, for the six months ended June 30, 2021 from $0.1 million, or 0.1% of net sales, for the comparable period in 2020.

The increase was driven primarily by increased net sales combined with increased gross margin.

EMEA net sales increased $45.2 million to $159.3 million, or 40% (32% constant-currency), for the six months ended June 30, 2021 compared to the same period in 2020.

EMEA net sales increased in both our EMEA distributors and Europe-direct business.

SG&A expense decreased as a percentage of net sales to 29.3% for the six months ended June 30, 2021 compared to 39.9% for the same period in 2020 driven by leveraging of fixed operating expenses and lower reserve provisions for bad debt.

Canada operating income increased $11.5 million to $6.9 million, or 12.5% of net sales, for the six months ended June 30, 2021 from an operating loss of $4.6 million, or (11.1)% of net sales, for the comparable period in 2020.

The increase primarily resulted from increased net sales combined with increased gross margin.

Canada net sales increased $13.4 million, or 32% (23% constant-currency), for the six months ended June 30, 2021 compared to the same period in 2020.

Canada SG&A expense decreased as a percentage of net sales to 35.7% for the six months ended June 30, 2021 compared to 56.3% for the comparable period in 2020, primarily driven by leveraging of fixed operating expenses, the non-recurrence of prior year COVID-19 related expenses and a reduction in bad debt expense.

Unallocated corporate expenses increased by $19.8 million to $113.4 million for the six months ended June 30, 2021, from $93.6 million for the comparable period in 2020, primarily driven by higher personnel expenses and incentive compensation.

Liquidity and Capital Resources

At March 31, 2021, we had total cash and cash equivalents of $873.6 million, compared to $790.7 million at December 31, 2020 and $671.1 million at March 31, 2020.

At March 31, 2021, we had approximately $505.2 million in committed borrowing availability.

At June 30, 2021, we had total cash and cash equivalents of $819.8 million, compared to $790.7 million at December 31, 2020 and $474.8 million at June 30, 2020.

At June 30, 2021, we had approximately $505.2 million in committed borrowing availability.

Our primary ongoing cash needs are for working capital and capital expenditures, including investment in our DTC operations, including new stores, investment in digital and supply chain capabilities to support our strategic priorities, and facilities remodels at our corporate headquarters.

We have planned 2021 capital expenditures of approximately $45 to $60 million.

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

We expect to meet our cash needs for the next twelve months with cash flows from operations.

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

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

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

Our cash and cash equivalents and short-term investments balances generally are at their lowest level at the end

of the third quarter and increase during the fourth quarter from collection of wholesale business receivables and fourth quarter DTC sales.

Short-term borrowings and credit lines

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

At March 31, 2021, we had a $500.0 million committed revolving line of credit available domestically under our credit agreement and, internationally, our subsidiaries had approximately $145.4 million in committed and uncommitted lines of credit and overdraft facilities in place, some of which were guaranteed by Columbia Sportswear Company.

At March 31, 2021, there was no balance outstanding under these lines of credit and overdraft facilities.

At June 30, 2021, we had a $500.0 million committed revolving line of credit available domestically under our credit agreement and, internationally, our subsidiaries had approximately $146.7 million in committed and uncommitted lines of credit and overdraft facilities in place, some of which were guaranteed by Columbia Sportswear Company.

At June 30, 2021, there was no balance outstanding under these lines of credit and overdraft facilities.

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

Cash flow activities

Net cash provided by operating activities was $110.9 million for the three months ended March 31, 2021 compared to net cash provided by operating activities of $12.8 million for the comparable period in 2020.

The change in operating cash flow was driven by a $26.0 million increase in operating cash flow provided by net income and non-cash adjustments, and a $72.1 million increase in cash provided by changes in assets and liabilities.

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

The decrease in cash used in Accounts payable primarily reflects the effects of higher receipts of Spring 2021 inventory in the first quarter of 2021 compared to Spring 2020 inventory due to the timing of shipments.

The decrease in cash used in Accrued liabilities was primarily driven by changes in accruals for incentive compensation, wholesale refund liabilities and demand creation.

The decrease in cash provided by Accounts receivable was driven by lower collections of accounts receivable and higher wholesale net sales in the first quarter of 2021.

Net cash used in investing activities was $2.8 million for the three months ended March 31, 2021 compared to net cash used in investing activities of $42.9 million for the comparable period in 2020.

Net cash provided by operating activities was $117.2 million for the six months ended June 30, 2021 compared to net cash used in operating activities of $37.3 million for the comparable period in 2020.

The change in operating cash flow was driven by a $89.0 million increase in operating cash flow provided by net income (loss) and non-cash adjustments, and a $65.4 million decrease in cash used in changes in assets and liabilities.

The most significant comparative changes included Inventories, net , Accounts receivable , Accrued liabilities, Accounts payable, and Prepaid expenses and other assets .

The decrease in cash used in Inventories, net primarily reflects higher sales during 2021 compared to 2020.

The decrease in cash provided by Accounts receivable was driven by higher wholesale net sales, partially offset by higher collections of accounts receivable in 2021.

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

The increase in cash provided by Accounts payable primarily reflects the effects of higher receipts of inventory in the second quarter of 2021 compared to the second quarter of 2020.

The increase in cash used in Prepaid expenses and other assets was primarily driven by changes in U.S.

inventory prepayments and US prepaid income taxes.

Net cash used in investing activities was $11.2 million for the six months ended June 30, 2021 compared to net cash used in investing activities of $19.4 million for the comparable period in 2020.

For the 2021 period, net cash used in investing activities primarily consisted of $12.4 million for capital expenditures, partially offset by $1.2 million in sales and maturities of short-term investments.

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

Net cash used in financing activities was $19.9 million for the three months ended March 31, 2021 compared to net cash provided by financing activities of $21.5 million for the comparable period in 2020.

For the 2021 period, net cash used in financing activities primarily consisted of dividend payments to our shareholders of $17.3 million and the repurchase of common stock of $11.2 million, partially offset by proceeds from the issuance of common stock related to stock-based compensation of $13.8 million.

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

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

Net cash used in financing activities was $74.0 million for the six months ended June 30, 2021 compared to net cash used in financing activities of $151.7 million for the comparable period in 2020.

For the 2021 period, net cash used in financing activities primarily consisted of repurchases of common stock of $54.5 million and dividend payments to our shareholders of $34.5 million, partially offset by proceeds from the issuance of common stock related to stock-based compensation of $20.3 million.

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

Contractual obligations

Our inventory purchase obligations increased to $635.8 million at March 31, 2021 compared to $305.7 million at December 31, 2020.

Our inventory purchase obligations increased to $538.8 million at June 30, 2021 compared to $305.7 million at December 31, 2020.

There have been no other material changes to the estimated contractual commitments contained in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2020.

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

These discussions typically occur at our quarterly audit committee meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation.

These discussions typically occur at our

quarterly audit committee meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation.

Except as disclosed in Note 1 in Item 1 of this quarterly report, pertaining to our adoption of new accounting pronouncements, there have been no significant changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the year ended December 31, 2020.

3 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis