COLUMBIA SPORTSWEAR CO 10-Q

Item 1. FINANCIAL STATEMENTS COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) September 30, 2021 December 31, 2020 September 30, 2020 ASSETS Current Assets: Cash and cash equivalents $ 599,479 $ 790,725 $ 313,429 Short-term investments 1,132 1,224 1,095 Accounts receivable, net of allowance of $ 10,847 , $ 21,810 , and $ 29,760 , respectively 500,451 452,945 479,376 Inventories, net 720,865 556,530 771,724 Prepaid expenses and other current assets 98,146 54,197 82,175 Total current assets 1,920,073 1,855,621 1,647,799 Property, plant and equipment, at cost, net of accumulated depreciation of $ 591,795 , $ 574,247 , and $ 550,097 , respectively 293,725 309,792 322,167 Operating lease right-of-use assets 344,876 339,244 351,277 Intangible assets, net 102,321 103,558 121,471 Goodwill 68,594 68,594 68,594 Deferred income taxes 92,493 96,126 77,055 Other non-current assets 67,277 63,636 63,951 Total assets $ 2,889,359 $ 2,836,571 $ 2,652,314 LIABILITIES AND EQUITY Current Liabilities: Accounts payable 241,119 206,697 164,332 Accrued liabilities 273,590 257,278 257,040 Operating lease liabilities 67,055 65,466 73,409 Income taxes payable 8,955 23,181 4,813 Total current liabilities 590,719 552,622 499,594 Non-current operating lease liabilities 330,765 353,181 337,108 Income taxes payable 49,392 49,922 49,195 Deferred income taxes 1 5,205 7,149 Other long-term liabilities 38,165 42,870 36,452 Total liabilities 1,009,042 1,003,800 929,498 Commitments and contingencies (Note 6) Shareholders' Equity: Preferred stock; 10,000 shares authorized; no ne issued and outstanding — — — Common stock (no par value); 250,000 shares authorized; 65,501 , 66,252 , and 66,210 , issued and outstanding, respectively — 20,165 13,142 Retained earnings 1,883,343 1,811,800 1,716,044 Accumulated other comprehensive income (loss) ( 3,026 ) 806 ( 6,370 ) Total shareholders' equity 1,880,317 1,832,771 1,722,816 Total liabilities and shareholders' equity $ 2,889,359 $ 2,836,571 $ 2,652,314 See accompanying notes to condensed consolidated financial statements 1 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share amounts) 2021 2020 2021 2020 Net sales $ 804,706 $ 701,092 $ 1,996,682 $ 1,585,931 Cost of sales 396,346 358,184 974,403 825,079 Gross profit 408,360 342,908 1,022,279 760,852 Selling, general and administrative expenses 280,121 261,192 796,276 755,664 Net licensing income 5,222 3,927 12,933 8,168 Operating income 133,461 85,643 238,936 13,356 Interest income (expense), net 196 ( 280 ) 1,072 728 Other non-operating income (expense), net 201 ( 465 ) ( 397 ) 2,208 Income before income tax 133,858 84,898 239,611 16,292 Income tax expense ( 33,295 ) ( 22,147 ) ( 42,464 ) ( 4,035 ) Net income $ 100,563 $ 62,751 $ 197,147 $ 12,257 Earnings per share: Basic $ 1.53 $ 0.95 $ 2.98 $ 0.18 Diluted $ 1.52 $ 0.94 $ 2.96 $ 0.18 Weighted average shares outstanding: Basic 65,862 66,179 66,182 66,427 Diluted 66,266 66,537 66,673 66,807 See accompanying notes to condensed consolidated financial statements 2 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Net income $ 100,563 $ 62,751 $ 197,147 $ 12,257 Other comprehensive income (loss): Unrealized gains (losses) on derivative transactions (net of tax effects of $( 3,602 ), $ 3,995 , $( 5,787 ) and $ 1,371 , respectively) 10,552 ( 11,685 ) 15,564 ( 5,022 ) Foreign currency translation adjustments (net of tax effects of $ 66 , $( 290 ), $ 215 and $( 253 ), respectively) ( 11,422 ) 11,175 ( 19,396 ) 3,077 Other comprehensive loss ( 870 ) ( 510 ) ( 3,832 ) ( 1,945 ) Comprehensive income $ 99,693 $ 62,241 $ 193,315 $ 10,312 See accompanying notes to condensed consolidated financial statements 3 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, (in thousands) 2021 2020 Cash flows from operating activities: Net income $ 197,147 $ 12,257 Adjustments to reconcile net income to net cash used in operating activities: Depreciation, amortization, and non-cash lease expense 84,509 102,283 Provision for uncollectible accounts receivable ( 9,088 ) 24,684 Loss on disposal or impairment of property, plant and equipment and right-of-use assets 366 8,981 Deferred income taxes ( 8,731 ) 4,306 Stock-based compensation 14,487 12,802 Changes in operating assets and liabilities: Accounts receivable ( 44,500 ) ( 17,130 ) Inventories, net ( 173,761 ) ( 160,090 ) Prepaid expenses and other current assets ( 40,957 ) 9,098 Other assets 148 ( 20,786 ) Accounts payable 22,014 ( 89,790 ) Accrued liabilities 24,813 ( 41,182 ) Income taxes payable ( 14,621 ) ( 10,011 ) Operating lease assets and liabilities ( 68,823 ) ( 41,459 ) Other liabilities 1,359 8,077 Net cash used in operating activities ( 15,638 ) ( 197,960 ) Cash flows from investing activities: Purchases of short-term investments — ( 35,044 ) Sales and maturities of short-term investments 1,184 36,630 Capital expenditures ( 20,413 ) ( 25,164 ) Net cash used in investing activities ( 19,229 ) ( 23,578 ) Cash flows from financing activities: Proceeds from credit facilities 29,508 387,992 Repayments on credit facilities ( 29,313 ) ( 388,465 ) Payment of line of credit issuance fees — ( 2,096 ) Proceeds from issuance of common stock related to stock-based compensation 24,329 4,793 Tax payments related to stock-based compensation ( 5,715 ) ( 4,454 ) Repurchase of common stock ( 118,580 ) ( 132,889 ) Cash dividends paid ( 51,662 ) ( 17,195 ) Net cash used in financing activities ( 151,433 ) ( 152,314 ) Net effect of exchange rate changes on cash ( 4,946 ) 1,272 Net decrease in cash and cash equivalents ( 191,246 ) ( 372,580 ) Cash and cash equivalents, beginning of period 790,725 686,009 Cash and cash equivalents, end of period $ 599,479 $ 313,429 Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 87,709 $ 18,385 Supplemental disclosures of non-cash investing and financing activities: Property, plant and equipment acquired through increase in liabilities $ 8,277 $ 4,774 Repurchases of common stock not settled $ 8,628 $ — See accompanying notes to condensed consolidated financial statements 4 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Three Months Ended September 30, 2021 (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Outstanding Amount BALANCE, JUNE 30, 2021 66,148 $ — $ 1,863,813 $ ( 2,156 ) $ 1,861,657 Net income — — 100,563 — 100,563 Other comprehensive income (loss): Unrealized gains on derivative transactions, net — — — 10,552 10,552 Foreign currency translation adjustment, net — — — ( 11,422 ) ( 11,422 ) Cash dividends ($ 0.26 per share) — — ( 17,122 ) — ( 17,122 ) Issuance of common stock related to stock-based compensation, net 79 3,767 — — 3,767 Stock-based compensation expense — 4,664 — — 4,664 Repurchase of common stock ( 726 ) ( 8,431 ) ( 63,911 ) — ( 72,342 ) BALANCE, SEPTEMBER 30, 2021 65,501 $ — $ 1,883,343 $ ( 3,026 ) $ 1,880,317 Three Months Ended September 30, 2020 (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Outstanding Amount BALANCE, JUNE 30, 2020 66,148 $ 5,396 $ 1,653,293 $ ( 5,860 ) $ 1,652,829 Net income — — 62,751 — 62,751 Other comprehensive income (loss): Unrealized losses on derivative transactions, net — — — ( 11,685 ) ( 11,685 ) Foreign currency translation adjustment, net — — — 11,175 11,175 Issuance of common stock related to stock-based compensation, net 62 2,656 — — 2,656 Stock-based compensation expense — 5,090 — — 5,090 BALANCE, SEPTEMBER 30, 2020 66,210 $ 13,142 $ 1,716,044 $ ( 6,370 ) $ 1,722,816 See accompanying notes to condensed consolidated financial statements 5 Table of Contents COLUMBIA SPORTSWEAR COMPANY CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) Nine Months Ended September 30, 2021 (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Outstanding Amount BALANCE, DECEMBER 31, 2020 66,252 $ 20,165 $ 1,811,800 $ 806 $ 1,832,771 Net income — — 197,147 — 197,147 Other comprehensive income (loss): Unrealized gains on derivative transactions, net — — — 15,564 15,564 Foreign currency translation adjustment, net — — — ( 19,396 ) ( 19,396 ) Cash dividends ($ 0.78 per share) — — ( 51,662 ) — ( 51,662 ) Issuance of common stock related to stock-based compensation, net 503 18,614 — — 18,614 Stock-based compensation expense 14,487 — — 14,487 Repurchase of common stock ( 1,254 ) ( 53,266 ) ( 73,942 ) — ( 127,208 ) BALANCE, SEPTEMBER 30, 2021 65,501 $ — $ 1,883,343 $ ( 3,026 ) $ 1,880,317 Nine Months Ended September 30, 2020 (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Outstanding Amount BALANCE, DECEMBER 31, 2019 67,561 $ 4,937 $ 1,848,935 $ ( 4,425 ) $ 1,849,447 Net income — — 12,257 — 12,257 Other comprehensive income (loss): Unrealized losses on derivative transactions, net — — — ( 5,022 ) ( 5,022 ) Foreign currency translation adjustment, net — — — 3,077 3,077 Cash dividends ($ 0.26 per share) — — ( 17,195 ) — ( 17,195 ) Issuance of common stock related to stock-based compensation, net 206 339 — — 339 Stock-based compensation expense — 12,802 — — 12,802 Repurchase of common stock ( 1,557 ) ( 4,936 ) ( 127,953 ) — ( 132,889 ) BALANCE, SEPTEMBER 30, 2020 66,210 $ 13,142 $ 1,716,044 $ ( 6,370 ) $ 1,722,816 See accompanying notes to condensed consolidated financial statements 6 Table of Contents COLUMBIA SPORTSWEAR COMPANY INDEX TO NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE PAGE Note 1 Basis of Presentation and Organization 8 Note 2 Revenues 9 Note 3 Intangible Assets, Net 10 Note 4 Short-Term Borrowings and Credit Lines 11 Note 5 Income Taxes 11 Note 6 Commitments and Contingencies 11 Note 7 Shareholders' Equity 11 Note 8 Stock-Based Compensation 11 Note 9 Earnings Per Share 12 Note 10 Accumulated Other Comprehensive Income (Loss) 13 Note 11 Segment Information 14 Note 12 Financial Instruments and Risk Management 15 Note 13 Fair Value Measures 17 7 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION The accompanying unaudited condensed consolidated financial statements have been prepared by the management of Columbia Sportswear Company (together with its wholly owned subsidiaries, the "Company") and, in the opinion of management, include all normal recurring material adjustments necessary to present fairly the Company's financial position as of September 30, 2021, December 31, 2020 and September 30, 2020, the results of operations for the three and nine months ended September 30, 2021 and 2020, and cash flows for the nine months ended September 30, 2021 and 2020. The December 31, 2020 financial information was derived from the Company's audited consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. A significant part of the Company's business is of a seasonal nature; therefore, results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of results to be expected for other quarterly periods or for the full year. Certain information and disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company, however, believes that the disclosures contained in this report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended, for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. Principles of Consolidation The condensed consolidated financial statements include the accounts of Columbia Sportswear Company and its wholly owned subsidiaries. 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 condensed 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; obsolescence reserves for 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, 2021, the Company adopted Accounting Standards Update 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. Recent Accounting Pronouncements Not Yet Adopted None. 8 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 2—REVENUES Disaggregated Revenue As disclosed in Note 11, 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 the Company's operating segment Net sales by product category and channel, which the Company believes provides a meaningful depiction of how the nature, timing, and uncertainty of Net sales are affected by economic factors: Three Months Ended September 30, 2021 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 406,187 $ 78,160 $ 75,399 $ 61,409 $ 621,155 Footwear 104,299 24,594 33,751 20,907 183,551 Total $ 510,486 $ 102,754 $ 109,150 $ 82,316 $ 804,706 Channel net sales Wholesale $ 292,357 $ 66,070 $ 93,899 $ 65,810 $ 518,136 Direct-to-consumer 218,129 36,684 15,251 16,506 286,570 Total $ 510,486 $ 102,754 $ 109,150 $ 82,316 $ 804,706 Three Months Ended September 30, 2020 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 332,713 $ 70,026 $ 66,160 $ 41,221 $ 510,120 Footwear 112,907 20,925 32,999 24,141 190,972 Total $ 445,620 $ 90,951 $ 99,159 $ 65,362 $ 701,092 Channel net sales Wholesale $ 282,850 $ 50,723 $ 85,074 $ 52,820 $ 471,467 Direct-to-consumer 162,770 40,228 14,085 12,542 229,625 Total $ 445,620 $ 90,951 $ 99,159 $ 65,362 $ 701,092 Nine Months Ended September 30, 2021 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 1,040,432 $ 212,921 $ 186,213 $ 103,549 $ 1,543,115 Footwear 257,781 79,785 82,276 33,725 453,567 Total $ 1,298,213 $ 292,706 $ 268,489 $ 137,274 $ 1,996,682 Channel net sales Wholesale $ 669,425 $ 153,689 $ 232,215 $ 100,523 $ 1,155,852 Direct-to-consumer 628,788 139,017 36,274 36,751 840,830 Total $ 1,298,213 $ 292,706 $ 268,489 $ 137,274 $ 1,996,682 9 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Nine Months Ended September 30, 2020 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 793,846 $ 193,815 $ 145,100 $ 73,445 $ 1,206,206 Footwear 210,887 67,097 68,198 33,543 379,725 Total $ 1,004,733 $ 260,912 $ 213,298 $ 106,988 $ 1,585,931 Channel net sales Wholesale $ 559,052 $ 139,316 $ 180,416 $ 78,546 $ 957,330 Direct-to-consumer 445,681 121,596 32,882 28,442 628,601 Total $ 1,004,733 $ 260,912 $ 213,298 $ 106,988 $ 1,585,931 Performance Obligations For the three and nine months ended September 30, 2021 and 2020, 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 are not material. Contract Balances As of September 30, 2021, December 31, 2020 and September 30, 2020, contract liabilities included in Accrued liabilities on the Condensed Consolidated Balance Sheets, which consisted of obligations associated with the Company's gift card and customer loyalty programs, were not material. NOTE 3—INTANGIBLE ASSETS, NET Intangible assets, net consisted of the following: (in thousands) September 30, 2021 December 31, 2020 September 30, 2020 Intangible assets subject to amortization: Patents and purchased technology $ 14,198 $ 14,198 $ 14,198 Customer relationships 23,000 23,000 23,000 Gross carrying amount 37,198 37,198 37,198 Accumulated amortization: Patents and purchased technology ( 14,198 ) ( 14,198 ) ( 14,198 ) Customer relationships ( 18,600 ) ( 17,363 ) ( 16,950 ) Accumulated amortization ( 32,798 ) ( 31,561 ) ( 31,148 ) Net carrying amount 4,400 5,637 6,050 Intangible assets not subject to amortization 97,921 97,921 115,421 Intangible assets, net $ 102,321 $ 103,558 $ 121,471 Amortization expense for intangible assets subject to amortization was $ 0.4 million and $ 0.6 million for the three months ended September 30, 2021 and 2020, respectively, and was $ 1.2 million and $ 2.1 million for the nine months ended September 30, 2021, and 2020, respectively. The following table presents the estimated annual amortization expense for the years ending 2021 through 2025: (in thousands) 2021 $ 1,650 2022 1,650 2023 1,650 2024 688 2025 — 10 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 4—SHORT-TERM BORROWINGS AND CREDIT LINES Except as disclosed below, there have been no significant changes to the Company's short-term borrowings and credit lines as described in Note 7 in the Company's Annual Report on Form 10-K for the year ended December 31, 2020. At the beginning of 2021, the Company's Japanese subsidiary had two separate unsecured and uncommitted overdraft facilities guaranteed by the Company providing for borrowings up to a maximum of ¥ 1.5 billion and ¥ 700.0 million. In March 2021, the Company's Japanese subsidiary entered into an agreement to establish an unsecured and uncommitted overdraft facility providing for borrowings up to a maximum of ¥ 400.0 million. In September 2021, the Company's Japanese subsidiary entered into an agreement which replaced the ¥ 1.5 billion overdraft facility with a ¥ 1.0 billion overdraft facility. At September 30, 2021, the combined available borrowings of the three lines was approximately US$ 18.8 million. Borrowings under the ¥ 1.0 billion and ¥ 400.0 million overdraft facilities accrue interest at the Tokyo Interbank Offered Rate plus 50 basis points and borrowings under the ¥ 700.0 million overdraft facility accrue interest at 150 basis points. As of September 30, 2021, there was no balance outstanding under these facilities. At the beginning of 2021, the Company's Chinese subsidiary had available an unsecured and uncommitted line of credit providing for borrowings up to a maximum of RMB 140.0 million and an unsecured and uncommitted overdraft and clean advance facility, guaranteed by the Company, that provided for borrowings of advances or overdrafts up to a maximum of US$ 20.0 million. In September 2021, the Company's Chinese subsidiary did not renew the agreement for the RMB 140.0 million line of credit. At September 30, 2021, the available borrowings of the remaining facility was US$ 20.0 million. Borrowings under this facility accrue interest on advances of RMB at 4% or advances of USD at 1.62% per annum. As of September 30, 2021, there was no balance outstanding under the facility. NOTE 5—INCOME TAXES For the three months ended September 30, 2021 and 2020, the Company's effective income tax rates were 24.9 % and 26.1 %, respectively. The decrease in the effective income tax rate for the three months ended September 30, 2021 was primarily due to the mix of book income or loss among jurisdictions. For the nine months ended September 30, 2021 and 2020, the Company's effective income tax rates were 17.7 % and 24.8 %, respectively. The decrease in the effective income tax rate for the nine months ended September 30, 2021 was primarily due to the non-recurring decrease in accrued foreign withholding taxes and the mix of book income or loss among jurisdictions. NOTE 6—COMMITMENTS AND CONTINGENCIES 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, lease 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. NOTE 7—SHAREHOLDERS' EQUITY Since the inception of the Company's stock repurchase plan in 2004 through September 30, 2021, the Company's Board of Directors has authorized the repurchase of $ 1.5 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 September 30, 2021, the Company had repurchased 28.1 million shares at an aggregate purchase price of $ 1,145.0 million and has $ 355.0 million remaining available. During the three and nine months ended September 30, 2021, the Company purchased an aggregate of $ 72.3 million and $ 127.2 million, respectively, of the Company's common stock under this program. NOTE 8—STOCK-BASED COMPENSATION The Company's Stock Incentive 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. 11 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Stock-Based Compensation Expense Stock-based compensation expense consisted of the following: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Stock options $ 1,500 $ 1,775 $ 5,271 $ 5,234 Restricted stock units 3,164 3,315 9,216 7,568 Total $ 4,664 $ 5,090 $ 14,487 $ 12,802 Stock Options During the nine months ended September 30, 2021, the Company granted a total of 545,976 stock options at a weighted average grant date fair value of $ 17.55 per share. As of September 30, 2021, unrecognized costs related to outstanding stock options totaled $ 13.0 million, before any related tax benefit. As of September 30, 2021, unrecognized costs related to stock options are expected to be recognized over a weighted average period of 2.56 years. Restricted Stock Units During the nine months ended September 30, 2021, the Company granted 175,556 restricted stock units at a weighted average grant date fair value of $ 96.06 per share. As of September 30, 2021, unrecognized costs related to outstanding restricted stock units totaled $ 22.8 million, before any related tax benefit. As of September 30, 2021, unrecognized costs related to restricted stock units are expected to be recognized over a weighted average period of 2.33 years. NOTE 9—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: Three Months Ended September 30, Nine Months Ended September 30, (in thousands, except per share amounts) 2021 2020 2021 2020 Weighted average common shares outstanding, used in computing basic earnings per share 65,862 66,179 66,182 66,427 Effect of dilutive stock options and restricted stock units 404 358 491 380 Weighted average common shares outstanding, used in computing diluted earnings per share 66,266 66,537 66,673 66,807 Earnings per share of common stock: Basic $ 1.53 $ 0.95 $ 2.98 $ 0.18 Diluted $ 1.52 $ 0.94 $ 2.96 $ 0.18 Stock options, service-based restricted stock units, and performance-based restricted stock representing 652,317 and 810,092 shares of common stock for the three and nine months ended September 30, 2021, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would have been anti-dilutive under the treasury stock method, or because the shares were subject to performance conditions that had not been met. Stock options, service-based restricted stock units, and performance-based restricted stock representing 1,156,073 and 1,282,086 shares of common stock for the three and nine months ended September 30, 2020, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would have been anti-dilutive due to a net loss in the period or because the shares were subject to performance conditions that had not been met. 12 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) NOTE 10—ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) on the Condensed 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) for the three months ended September 30, 2021: (in thousands) Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at June 30, 2021 $ ( 4,357 ) $ 2,201 $ ( 2,156 ) Other comprehensive income (loss) before reclassifications 8,170 ( 11,422 ) ( 3,252 ) Amounts reclassified from accumulated other comprehensive income (loss) (1) 2,382 — 2,382 Net other comprehensive income (loss) during the year 10,552 ( 11,422 ) ( 870 ) Balance at September 30, 2021 $ 6,195 $ ( 9,221 ) $ ( 3,026 ) (1) Amounts reclassified are recorded in Net sales, Cost of sales, or Other non-operating income (expense) on the Condensed Consolidated Statements of Operations. Refer to Note 12 for further information regarding reclassifications. The following table sets forth the changes in Accumulated other comprehensive income (loss) for the three months ended September 30, 2020: (in thousands) Unrealized gains (losses) on available for sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at June 30, 2020 $ ( 4 ) $ 16,145 $ ( 22,001 ) $ ( 5,860 ) Other comprehensive income (loss) before reclassifications — ( 6,398 ) 11,175 4,777 Amounts reclassified from accumulated other comprehensive income (loss) (1) — ( 5,287 ) — ( 5,287 ) Net other comprehensive income (loss) during the year — ( 11,685 ) 11,175 ( 510 ) Balance at September 30, 2020 $ ( 4 ) $ 4,460 $ ( 10,826 ) $ ( 6,370 ) (1) Amounts reclassified are recorded in Net sales, Cost of sales, or Other non-operating income (expense), net on the Condensed Consolidated Statements of Operations. Refer to Note 12 for further information regarding reclassifications. The following table sets forth the changes in Accumulated other comprehensive income (loss) for the nine months ended September 30, 2021: (in thousands) Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at December 31, 2020 $ ( 9,369 ) $ 10,175 $ 806 Other comprehensive income (loss) before reclassifications 13,547 ( 19,396 ) ( 5,849 ) Amounts reclassified from accumulated other comprehensive income (loss) (1) 2,017 — 2,017 Net other comprehensive income (loss) during the year 15,564 ( 19,396 ) ( 3,832 ) Balance at September 30, 2021 $ 6,195 $ ( 9,221 ) $ ( 3,026 ) (1) Amounts reclassified are recorded in Net sales, Cost of sales, or Other non-operating income (expense), net on the Condensed Consolidated Statements of Operations. Refer to Note 12 for further information regarding reclassifications. 13 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table sets forth the changes in Accumulated other comprehensive income (loss) for the nine months ended September 30, 2020: (in thousands) Unrealized gains (losses) on available for sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance at December 31, 2019 $ ( 4 ) $ 9,482 $ ( 13,903 ) $ ( 4,425 ) Other comprehensive income before reclassifications — 4,617 3,077 7,694 Amounts reclassified from accumulated other comprehensive income (loss) (1) — ( 9,639 ) — ( 9,639 ) Net other comprehensive income (loss) during the year — ( 5,022 ) 3,077 ( 1,945 ) Balance at September 30, 2020 $ ( 4 ) $ 4,460 $ ( 10,826 ) $ ( 6,370 ) (1) Amounts reclassified are recorded in Net sales, Cost of sales, or Other non-operating income (expense), net on the Condensed Consolidated Statements of Operations. Refer to Note 12 for further information regarding reclassifications. NOTE 11—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, and other miscellaneous costs. The following table presents financial information for the Company's reportable segments: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2021 2020 2021 2020 Net sales to unrelated entities: U.S. $ 510,486 $ 445,620 $ 1,298,213 $ 1,004,733 LAAP 102,754 90,951 292,706 260,912 EMEA 109,150 99,159 268,489 213,298 Canada 82,316 65,362 137,274 106,988 $ 804,706 $ 701,092 $ 1,996,682 $ 1,585,931 Segment operating income: U.S. $ 139,101 $ 96,577 $ 320,819 $ 118,454 LAAP 7,628 4,736 16,347 8,690 EMEA 26,215 18,959 47,809 19,032 Canada 22,849 19,767 29,710 15,142 Total segment operating income 195,793 140,039 414,685 161,318 Unallocated corporate expenses ( 62,332 ) ( 54,396 ) ( 175,749 ) ( 147,962 ) Interest income (expense), net 196 ( 280 ) 1,072 728 Other non-operating income (expense), net 201 ( 465 ) ( 397 ) 2,208 Income before income tax $ 133,858 $ 84,898 $ 239,611 $ 16,292 Concentrations The Company had one customer that accounted for 10.4 %, 14.3 % and 11.4 % of Accounts receivable, net on the Condensed Consolidated Balance Sheets as of September 30, 2021, December 31, 2020, and September 30, 2020, respectively. No single 14 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) customer accounted for 10% or more of Net sales in the Condensed Consolidated Statement of Operations for the three and nine months ended September 30, 2021 and 2020. NOTE 12—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, forward points are included in the fair value of the cash flow hedge. These costs or benefits are 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: (in thousands) September 30, 2021 December 31, 2020 September 30, 2020 Derivative instruments designated as cash flow hedges: Currency forward contracts $ 471,250 $ 417,707 $ 419,402 Derivative instruments not designated as cash flow hedges: Currency forward contracts 247,134 326,280 224,573 At September 30, 2021, $ 0.3 million of deferred net losses on both outstanding and matured derivatives recorded in Other comprehensive 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 Condensed Consolidated Statements of Operations. Actual amounts ultimately reclassified to Net sa les or Cost of sales in the Condensed 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 September 30, 2021, 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 $ 3.5 million at September 30, 2021. 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. 15 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table presents the balance sheet classification and fair value of derivative instruments: (in thousands) Balance Sheet Classification September 30, 2021 December 31, 2020 September 30, 2020 Derivative instruments designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets $ 5,500 $ 947 $ 4,729 Currency forward contracts Other non-current assets 8,723 1,126 3,454 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 2,164 7,573 2,034 Currency forward contracts Other long-term liabilities 449 6,590 1,186 Derivative instruments not designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets 1,633 1,650 2,211 Currency forward contracts Other non-current assets 109 — — Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 251 2,268 381 Currency forward contracts Other long-term liabilities 17 — — 16 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) The following table presents the statement of operations effect and classification of derivative instruments: Three Months Ended September 30, Nine Months Ended September 30, (in thousands) Statement Of Operations Classification 2021 2020 2021 2020 Currency Forward Contracts: Derivative instruments designated as cash flow hedges: Gain (loss) recognized in other comprehensive loss, net of tax — $ 8,170 $ ( 6,398 ) $ 13,547 $ 4,617 Gain (loss) reclassified from accumulated other comprehensive income (loss) to income for the effective portion Net sales ( 170 ) 80 ( 182 ) 123 Gain (loss) reclassified from accumulated other comprehensive income (loss) to income for the effective portion Cost of sales ( 3,257 ) 6,906 ( 2,833 ) 11,527 Gain reclassified from accumulated other comprehensive income (loss) to income as a result of cash flow hedge discontinuance Other non-operating income (expense), net 345 60 451 1,177 Derivative instruments not designated as cash flow hedges: Gain (loss) recognized in income Other non-operating income (expense), net 1,077 ( 1,795 ) 355 ( 465 ) NOTE 13—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. 17 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Assets and liabilities measured at fair value on a recurring basis as of September 30, 2021 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 2,903 $ — $ — $ 2,903 Short-term investments: Money market funds 67 — — 67 Mutual fund shares 1,065 — — 1,065 Other current assets: Derivative financial instruments — 7,133 — 7,133 Non-current assets: Money market funds 3,397 — — 3,397 Mutual fund shares 17,209 — — 17,209 Derivative financial instruments — 8,832 — 8,832 Total assets measured at fair value $ 24,641 $ 15,965 $ — $ 40,606 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 2,415 $ — $ 2,415 Other long-term liabilities: Derivative financial instruments — 466 — 466 Total liabilities measured at fair value $ — $ 2,881 $ — $ 2,881 18 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Assets and liabilities measured at fair value on a recurring basis at 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 19 Table of Contents Index to Notes to Consolidated Financial Statements COLUMBIA SPORTSWEAR COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued) Assets and liabilities measured at fair value on a recurring basis at September 30, 2020 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 56,337 $ — $ — $ 56,337 Short-term investments: Money market funds 70 — — 70 Mutual fund shares 1,025 — — 1,025 Other current assets: Derivative financial instruments — 6,940 — 6,940 Non-current assets: Money market funds 4,621 — — 4,621 Mutual fund shares 11,974 — — 11,974 Derivative financial instruments — 3,454 — 3,454 Total assets measured at fair value $ 74,027 $ 10,394 $ — $ 84,421 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 2,415 $ — $ 2,415 Other long-term liabilities: Derivative financial instruments — 1,186 — 1,186 Total liabilities measured at fair value $ — $ 3,601 $ — $ 3,601 20 Table of Contents