COLUMBIA SPORTSWEAR CO 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward Looking Statements This quarterly report contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements often use words such as "will", "anticipate", "estimate", "expect", "should", "may" and other words and terms of similar meaning or reference future dates. Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding 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; however, each forward-looking statement involves risks and uncertainties. Many factors may cause actual results to differ materially from projected results in forward-looking statements, including the risks described in Item 1A of this quarterly report. Forward-looking statements are inherently less reliable than historical information. Except as required by law, we do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or to reflect changes in events, circumstances or expectations. New factors emerge from time to time and it is not possible for us to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Our Business We connect active people with their passions through our four well-known brands, Columbia, SOREL, Mountain Hardwear, and prAna, by designing, developing, marketing, and distributing our outdoor, active and everyday lifestyle apparel, footwear, accessories and equipment products to meet the diverse needs of our customers and consumers. Our products are sold through a mix of wholesale distribution channels, our own direct-to-consumer ("DTC") businesses and independent international distributors. In addition, we license some of our trademarks across a range of apparel, footwear, accessories, equipment and home products. The popularity of outdoor activities, active and everyday lifestyles, changing design trends, consumer adoption of innovative performance technologies, variations in seasonal weather, and the availability and desirability of competitor alternatives affect consumer desire for our products. Therefore, we seek to drive, anticipate and respond to trends and shifts in consumer preferences by developing new products and innovative performance features and designs, creating persuasive and memorable marketing communications to generate consumer awareness, demand and retention, and adjusting the mix, price points and selling channels of available product offerings. Our production cycle from the design to the delivery of our products requires significant inventory commitment. We generally solicit orders from wholesale customers and independent international distributors for the fall and spring seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance spring season orders to customers beginning in January and continuing through June. Similarly, we typically ship the majority of our advance fall season orders to customers beginning in July and continuing through December. Subsequent to advance order placements, wholesale customers may request replenishment orders for various products as consumer demand increases. Generally, orders are subject to cancellation prior to the date of shipment. Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis, and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. In 2020, approximately 65% of our net sales and the majority of our operating income were realized in the second half of the year. Although impacts from the ongoing COVID-19 pandemic exacerbated seasonal net sales and profitability patterns, this still illustrates our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs. Results of operations in any period should not be considered indicative of the results to be expected for any future period. COVID-19 Update The COVID-19 pandemic continues to impact the global economy. 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. 19 Table of Contents 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. 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 weighted toward the second half of the year. Business uncertainties and risks surrounding the ongoing pandemic may further exacerbate this seasonality. 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, 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, 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; • unseasonable weather conditions or other unforeseen factors affecting consumer demand and the resulting effect on cancellations of advance wholesale and distributor orders, sales returns, customer accommodations, replenishment orders and reorders, DTC sales, changes in mix and volume of full price sales in relation to promotional and close-out product sales, and suppressed customer and end-consumer demand in subsequent seasons; • our ability to effectively manage our inventory, including liquidating excess inventory timely and profitably through close-out sales in our wholesale and DTC businesses; • difficult economic, geopolitical and competitive environments in certain key markets globally, coupled with global economic uncertainty; and • 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. 20 Table of Contents Strategic Priorities We are committed to driving sustainable and profitable long-term growth and investing in our strategic priorities to : • 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; • expand and improve global DTC operations with supporting processes and systems; and • invest in our people and optimize our organization across our portfolio of brands. Ultimately, we expect our investments to enable market share capture across our brand portfolio, expand gross margin, improve selling, general and administrative expense efficiency, and drive improved operating margin over the long-term. Results of Operations The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and accompanying Notes that appear in Part 1, Item 1, Financial Statements in this quarterly report. 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. Management believes that this non-GAAP financial measure reflects an additional and useful way of viewing an aspect of our operations that, when viewed in conjunction with our GAAP results, provides a more comprehensive understanding of our business and operations. In particular, investors may find the non-GAAP measure useful by reviewing our net sales results without the volatility in foreign currency exchange rates. This non-GAAP financial measure also facilitates management's internal comparisons to our historical net sales results and comparisons to competitors' net sales results. Constant-currency financial measures should be viewed in addition to, and not in lieu of or superior to, our financial measures calculated in accordance with GAAP. The following discussion includes references to constant-currency net sales, and we provide a reconciliation of this non-GAAP measure to the most directly comparable financial measure calculated in accordance with GAAP below. Highlights of the Second Quarter of 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. 21 Table of Contents The following table presents the items in our Condensed Consolidated Statements of Operations as a percentage of net sales: Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 48.4 53.8 48.5 52.8 Gross profit 51.6 46.2 51.5 47.2 Selling, general and administrative expenses 46.2 68.7 43.3 55.9 Net licensing income 0.8 0.3 0.6 0.5 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 (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) % 22 Table of Contents Results of Operations — Consolidated Quarter Ended June 30, 2021 Compared to Quarter Ended June 30, 2020 Net Sales: 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 June 30, (in millions, except for percentage changes) Reported Net Sales 2021 Adjust for Foreign Currency Translation Constant-currency Net Sales 2021 (1) Reported Net Sales 2020 Reported Net Sales % Change Constant-currency Net Sales % Change (1) Brand Net Sales: Columbia $ 484.3 $ (8.3) $ 476.0 $ 265.8 82% 79% SOREL 23.1 (0.3) 22.8 13.3 74% 71% prAna 39.7 — 39.7 27.7 43% 43% Mountain Hardwear 19.3 (0.2) 19.1 9.8 97% 95% Total $ 566.4 $ (8.8) $ 557.6 $ 316.6 79% 76% Product Category Net Sales: Apparel, Accessories and Equipment $ 453.1 $ (6.0) $ 447.1 $ 243.8 86% 83% Footwear 113.3 (2.8) 110.5 72.8 56% 52% Total $ 566.4 $ (8.8) $ 557.6 $ 316.6 79% 76% Channel Net Sales: Wholesale $ 302.3 $ (4.7) $ 297.6 $ 159.9 89% 86% DTC 264.1 (4.1) 260.0 156.7 69% 66% Total $ 566.4 $ (8.8) $ 557.6 $ 316.6 79% 76% (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 51.6% 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; and • 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 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; and 23 Table of Contents • 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; and • 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 Net Sales: 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 Net Sales 2021 Adjust for Foreign Currency Translation Constant-currency Net Sales 2021 (1) Reported Net Sales 2020 Reported Net Sales % Change Constant-currency Net Sales % Change (1) 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; and 24 Table of Contents • 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; and • higher incentive compensation; partially offset by • lower bad debt expenses of $32.6 million; and • 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. 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. 25 Table of Contents Results of Operations — Segment 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 June 30, (in millions, except for percentage changes) Reported Net Sales 2021 Adjust for Foreign Currency Translation Constant-currency Net Sales 2021 (1) Reported Net Sales 2020 Reported Net Sales % Change Constant-currency Net Sales % Change (1) U.S. $ 379.1 $ — $ 379.1 $ 183.2 107% 107% LAAP 78.0 (3.3) 74.7 67.4 16% 11% EMEA 88.5 (3.2) 85.3 58.3 52% 46% Canada 20.8 (2.3) 18.5 7.7 170% 140% $ 566.4 $ (8.8) $ 557.6 $ 316.6 79% 76% (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. 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 ($) U.S. $ 82.1 $ (18.2) $ 100.3 LAAP (1.0) (2.1) 1.1 EMEA 11.5 0.1 11.4 Canada 0.6 (8.8) 9.4 Total segment operating income (loss) $ 93.2 $ (29.0) 122.2 Unallocated corporate expenses (58.2) (41.3) (16.9) 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. U.S. U.S. 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. U.S. 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. U.S. 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. U.S. 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 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. 26 Table of Contents EMEA 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 $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 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 $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 Net Sales 2021 Adjust for Foreign Currency Translation Constant-currency Net Sales 2021 (1) Reported Net Sales 2020 Reported Net Sales % Change Constant-currency Net Sales % Change (1) U.S. $ 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% (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. 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 ($) U.S. $ 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 27 Table of Contents 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. U.S. U.S. 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. U.S. 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 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 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 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 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 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 28 Table of Contents 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 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 $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 $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 $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. Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make various estimates and judgments that affect reported amounts of assets, liabilities, sales, cost of sales, and expenses and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies referred to in Part II, Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2020 have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results may differ from the estimates we use in applying these critical accounting policies. We base our ongoing estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances. Our critical accounting policies relate to revenue recognition; allowance for uncollectible accounts receivable; obsolescence reserves for excess, close-out and slow-moving inventory; impairment of long-lived assets, intangible assets and goodwill; and income taxes. Management regularly discusses with our audit committee each of our critical accounting estimates, the development and selection of these accounting estimates, and the disclosure about each estimate in this quarterly report. These discussions typically occur at our 29 Table of Contents 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. Recent Accounting Pronouncements None. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has not been any material change in the market risk disclosure contained in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2020.