COLUMBIA SPORTSWEAR CO 10-Q

ITEM 1. FINANCIAL STATEMENTS CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited) (in thousands) March 31, 2022 December 31, 2021 March 31, 2021 ASSETS Current Assets: Cash and cash equivalents $ 435,240 $ 763,404 $ 873,641 Short-term investments 175,024 131,145 920 Accounts receivable, net of allowance of $ 5,412 , $ 8,893 and $ 13,480 , respectively 408,186 487,803 338,787 Inventories, net 714,415 645,379 525,704 Prepaid expenses and other current assets 105,261 86,306 66,173 Total current assets 1,838,126 2,114,037 1,805,225 Property, plant and equipment, net of accumulated depreciation of $ 603,229 , $ 602,660 and $ 576,597 , respectively 290,070 291,088 300,063 Operating lease right-of-use assets 333,356 330,928 363,652 Intangible assets, net 101,496 101,908 103,146 Goodwill 68,594 68,594 68,594 Deferred income taxes 89,613 92,121 86,825 Other non-current assets 66,724 68,452 66,401 Total assets $ 2,787,979 $ 3,067,128 $ 2,793,906 LIABILITIES AND EQUITY Current Liabilities: Accounts payable $ 262,255 $ 283,349 $ 165,555 Accrued liabilities 234,326 316,485 224,674 Operating lease liabilities 68,136 67,429 81,308 Income taxes payable 6,297 13,127 3,431 Total current liabilities 571,014 680,390 474,968 Non-current operating lease liabilities 321,250 317,666 356,766 Income taxes payable 40,299 44,541 50,285 Deferred income taxes — — 4,406 Other long-term liabilities 36,516 35,279 38,671 Total liabilities 969,079 1,077,876 925,096 Commitments and contingencies (Note 4) Shareholders' Equity: Preferred stock; 10,000 shares authorized; none issued and outstanding — — — Common stock (no par value); 250,000 shares authorized; 62,948 , 65,164 and 66,457 issued and outstanding, respectively — — 22,230 Retained earnings 1,828,074 1,993,628 1,850,415 Accumulated other comprehensive income (loss) ( 9,174 ) ( 4,376 ) ( 3,835 ) Total shareholders' equity 1,818,900 1,989,252 1,868,810 Total liabilities and shareholders' equity $ 2,787,979 $ 3,067,128 $ 2,793,906 See accompanying notes to condensed consolidated financial statements. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 1 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended March 31, (in thousands, except per share amounts) 2022 2021 Net sales $ 761,510 $ 625,606 Cost of sales 383,063 304,204 Gross profit 378,447 321,402 Selling, general and administrative expenses 299,086 254,389 Net licensing income 4,305 3,467 Operating income 83,666 70,480 Interest income, net 395 278 Other non-operating income (expense), net 44 ( 304 ) Income before income tax 84,105 70,454 Income tax expense ( 17,268 ) ( 14,554 ) Net income $ 66,837 $ 55,900 Earnings per share: Basic $ 1.04 $ 0.84 Diluted $ 1.03 $ 0.84 Weighted average shares outstanding: Basic 64,273 66,363 Diluted 64,591 66,885 See accompanying notes to condensed consolidated financial statements. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 2 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited) Three Months Ended March 31, (in thousands) 2022 2021 Net income $ 66,837 $ 55,900 Other comprehensive income (loss): Unrealized holding losses on available-for-sale securities (net of tax effects of $ 146 ) ( 451 ) — Unrealized holding gains (losses) on derivative transactions (net of tax effects of $ 656 and $( 3,368 ), respectively) ( 2,091 ) 8,563 Foreign currency translation adjustments (net of tax effects of $ 850 and $ 414 , respectively) ( 2,256 ) ( 13,204 ) Other comprehensive income (loss) ( 4,798 ) ( 4,641 ) Comprehensive income $ 62,039 $ 51,259 See accompanying notes to condensed consolidated financial statements. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 3 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three Months Ended March 31, (in thousands) 2022 2021 Cash flows from operating activities: Net income $ 66,837 $ 55,900 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation, amortization, and non-cash lease expense 30,577 30,459 Provision for uncollectible accounts receivable ( 3,377 ) ( 7,849 ) Loss on disposal or impairment of intangible assets, property, plant and equipment, and right-of-use assets 1,598 131 Deferred income taxes 2,746 4,577 Stock-based compensation 5,503 4,874 Changes in operating assets and liabilities: Accounts receivable 81,220 117,818 Inventories, net ( 71,108 ) 25,117 Prepaid expenses and other current assets ( 17,604 ) ( 11,150 ) Other assets ( 1,443 ) 51 Accounts payable ( 20,823 ) ( 41,194 ) Accrued liabilities ( 81,371 ) ( 27,253 ) Income taxes payable ( 11,004 ) ( 19,291 ) Operating lease assets and liabilities ( 15,979 ) ( 21,273 ) Other liabilities 440 ( 18 ) Net cash provided by (used in) operating activities ( 33,788 ) 110,899 Cash flows from investing activities: Purchases of short-term investments ( 44,877 ) — Sales and maturities of short-term investments 984 1,054 Capital expenditures ( 12,885 ) ( 3,896 ) Net cash used in investing activities ( 56,778 ) ( 2,842 ) Cash flows from financing activities: Proceeds from credit facilities — 7,753 Repayments on credit facilities — ( 7,532 ) Proceeds from issuance of common stock related to stock-based compensation 2,512 13,772 Tax payments related to stock-based compensation ( 3,959 ) ( 5,358 ) Repurchase of common stock ( 217,317 ) ( 11,223 ) Cash dividends paid ( 19,151 ) ( 17,285 ) Net cash used in financing activities ( 237,915 ) ( 19,873 ) Net effect of exchange rate changes on cash 317 ( 5,268 ) Net increase (decrease) in cash and cash equivalents ( 328,164 ) 82,916 Cash and cash equivalents, beginning of period 763,404 790,725 Cash and cash equivalents, end of period $ 435,240 $ 873,641 Supplemental disclosures of cash flow information: Cash paid during the year for income taxes $ 18,205 $ 37,534 Supplemental disclosures of non-cash investing and financing activities: Property, plant and equipment acquired through increase in liabilities $ 6,702 $ 2,832 See accompanying notes to condensed consolidated financial statements. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 4 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (Unaudited) (in thousands, except per share amounts) Common Stock Retained Earnings Accumulated Other Comprehensive Income (Loss) Total Shares Outstanding Amount Balance, December 31, 2021 65,164 $ — $ 1,993,628 $ ( 4,376 ) $ 1,989,252 Net income — — 66,837 — 66,837 Other comprehensive income (loss): Unrealized holding losses on available-for-sale securities, net — — — ( 451 ) ( 451 ) Unrealized holding losses on derivative transactions, net — — — ( 2,091 ) ( 2,091 ) Foreign currency translation adjustment, net — — — ( 2,256 ) ( 2,256 ) Cash dividends ($ 0.30 per share) — — ( 19,151 ) — ( 19,151 ) Issuance of common stock related to stock-based compensation, net 113 ( 1,446 ) — — ( 1,446 ) Stock-based compensation expense — 5,503 — — 5,503 Repurchase of common stock ( 2,329 ) ( 4,057 ) ( 213,240 ) — ( 217,297 ) Balance, March 31, 2022 62,948 $ — $ 1,828,074 $ ( 9,174 ) $ 1,818,900 (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 — — 55,900 — 55,900 Other comprehensive income (loss): Unrealized holding gains on derivative transactions, net — — — 8,563 8,563 Foreign currency translation adjustment, net — — — ( 13,204 ) ( 13,204 ) Cash dividends ($ 0.26 per share) — — ( 17,285 ) — ( 17,285 ) Issuance of common stock related to stock-based compensation, net 314 8,414 — — 8,414 Stock-based compensation expense — 4,874 — — 4,874 Repurchase of common stock ( 109 ) ( 11,223 ) — — ( 11,223 ) Balance, March 31, 2021 66,457 $ 22,230 $ 1,850,415 $ ( 3,835 ) $ 1,868,810 See accompanying notes to condensed consolidated financial statements. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 5 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE PAGE Note 1 Basis of Presentation and Organization 7 Note 2 Revenues 8 Note 3 Intangible Assets, Net and Goodwill 9 Note 4 Commitments and Contingencies 9 Note 5 Shareholders' Equity 10 Note 6 Stock-Based Compensation 10 Note 7 Earnings Per Share 11 Note 8 Accumulated Other Comprehensive Income (Loss) 11 Note 9 Segment Information 12 Note 10 Financial Instruments and Risk Management 13 Note 11 Fair Value Measures 15 COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 6 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) 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 March 31, 2022, December 31, 2021 and March 31, 2021, the results of operations for the three months ended March 31, 2022 and 2021, and cash flows for the three months ended March 31, 2022 and 2021. The December 31, 2021 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, 2021. A significant part of the Company's business is of a seasonal nature; therefore, results of operations for the three months ended March 31, 2022 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, 2021. PRINCIPLES OF CONSOLIDATION The unaudited condensed consolidated financial statements include the accounts of the Company. All significant intercompany balances and transactions have been eliminated in consolidation. ESTIMATES AND ASSUMPTIONS The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited 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. The Company's significant estimates relate to sales reserves, allowance for uncollectible accounts receivable, excess, close-out and slow-moving inventory, impairment of long-lived assets, intangible assets and goodwill, and income taxes. RECENTLY ADOPTED ACCOUNTING PRONOUNCEMENTS None. RECENT ACCOUNTING PRONOUNCEMENTS NOT YET ADOPTED In November 2021, the FASB issued ASU No. 2021-10 (“ASU 2021-10”), Government Assistance (Topic 832): Disclosures by Business Entities about Government Assistance, to increase transparency of government assistance including the disclosure of (1) the types of assistance, (2) an entity’s accounting for the assistance, and (3) the effect of the assistance on an entity’s financial statements. ASU 2021-10 is effective for annual periods beginning after December 15, 2021. Early adoption is permitted. The impact of this new standard will depend on the amount of future government assistance received, if any. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 7 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 2 — REVENUES DISAGGREGATED REVENUE As disclosed below in Note 9, 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 March 31, 2022 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 385,228 $ 85,925 $ 63,269 $ 31,521 $ 565,943 Footwear 116,666 35,818 31,448 11,635 195,567 Total $ 501,894 $ 121,743 $ 94,717 $ 43,156 $ 761,510 Channel net sales Wholesale $ 247,509 $ 59,938 $ 75,294 $ 25,483 $ 408,224 DTC 254,385 61,805 19,423 17,673 353,286 Total $ 501,894 $ 121,743 $ 94,717 $ 43,156 $ 761,510 Three Months Ended March 31, 2021 (in thousands) U.S. LAAP EMEA Canada Total Product category net sales Apparel, Accessories and Equipment $ 317,349 $ 78,723 $ 46,296 $ 26,542 $ 468,910 Footwear 91,313 33,254 24,469 7,660 156,696 Total $ 408,662 $ 111,977 $ 70,765 $ 34,202 $ 625,606 Channel net sales Wholesale $ 200,881 $ 55,550 $ 57,764 $ 21,218 $ 335,413 DTC 207,781 56,427 13,001 12,984 290,193 Total $ 408,662 $ 111,977 $ 70,765 $ 34,202 $ 625,606 PERFORMANCE OBLIGATIONS For the three months ended March 31, 2022 and 2021, Net sales recognized from performance obligations related to prior periods were not material. Net sales expected to be recognized in any future period related to remaining performance obligations is not material. CONTRACT BALANCES As of March 31, 2022, December 31, 2021 and March 31, 2021, contract liabilities included in Accrued liabilities on the unaudited Condensed Consolidated Balance Sheets, which consisted of obligations associated with the Company's gift card and customer loyalty programs, were not material. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 8 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 3 — INTANGIBLE ASSETS, NET AND GOODWILL Intangible assets, net consisted of the following: (in thousands) March 31, 2022 December 31, 2021 March 31, 2021 Intangible assets with definite lives: 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 ( 19,425 ) ( 19,013 ) ( 17,775 ) Accumulated amortization ( 33,623 ) ( 33,211 ) ( 31,973 ) Net carrying amount 3,575 3,987 5,225 Intangible assets with indefinite lives 97,921 97,921 97,921 Intangible assets, net $ 101,496 $ 101,908 $ 103,146 Amortization expense for intangible assets subject to amortization was $ 0.4 million for the three months ended March 31, 2022 and 2021. The following table presents the remaining estimated annual amortization expense for the years 2022 through 2027: (in thousands) 2022 $ 1,237 2023 1,650 2024 688 2025 — 2026 — 2027 — NOTE 4 — COMMITMENTS AND CONTINGENCIES LITIGATION The Company is involved in litigation and various legal matters arising in the normal course of business, including matters related to employment, retail, intellectual property, contractual agreements, and various regulatory compliance activities. Management has considered facts related to legal and regulatory matters and opinions of counsel handling these matters, and does not believe the ultimate resolution of these proceedings will have a material adverse effect on the Company's financial position, results of operations or cash flows. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 9 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 5 — SHAREHOLDERS' EQUITY Since the inception of the Company's stock repurchase plan in 2004 through March 31, 2022, 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 March 31, 2022, the Company had repurchased 30.8 million shares at an aggregate purchase price of $ 1,401.0 million and had $ 99.0 million remaining available. During the three months ended March 31, 2022, the Company repurchased an aggregate of $ 217.3 million of common stock under this program. In April 2022, the Company's Board of Directors approved a $ 500.0 million increase in share repurchase authorization. NOTE 6 — 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. The Company uses original issuance shares to satisfy share-based payments. STOCK-BASED COMPENSATION EXPENSE Stock-based compensation expense consisted of the following: Three Months Ended March 31, (in thousands) 2022 2021 Stock options $ 1,896 $ 1,910 Restricted stock units 3,607 2,964 Total $ 5,503 $ 4,874 STOCK OPTIONS During the three months ended March 31, 2022, the Company granted a total of 536,436 stock options at a weighted average grant date fair value of $ 18.36 per option. As of March 31, 2022, unrecognized costs related to outstanding stock options totaled $ 19.2 million, before any related tax benefit. These unrecognized costs related to stock options are expected to be recognized over a weighted average remaining period of 2.89 years. RESTRICTED STOCK UNITS During the three months ended March 31, 2022, the Company granted 206,787 restricted stock units at a weighted average grant date fair value of $ 86.74 per restricted stock unit. As of March 31, 2022, unrecognized costs related to outstanding restricted stock units totaled $ 30.6 million, before any related tax benefit. These unrecognized costs related to restricted stock units are expected to be recognized over a weighted average remaining period of 2.95 years. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 10 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 7 — 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 March 31, (in thousands, except per share amounts) 2022 2021 Weighted average common shares outstanding, used in computing basic earnings per share 64,273 66,363 Effect of dilutive stock options and restricted stock units 318 522 Weighted average common shares outstanding, used in computing diluted earnings per share 64,591 66,885 Earnings per share: Basic $ 1.04 $ 0.84 Diluted $ 1.03 $ 0.84 Stock options, service-based restricted stock units, and performance-based restricted stock representing 1,230,716 and 693,403 shares of common stock for the three months ended March 31, 2022 and 2021, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive under the treasury stock method or because the shares were subject to performance conditions that had not been met. NOTE 8 — ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Accumulated other comprehensive income (loss) on the unaudited 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) attributable to the Company: (in thousands) Unrealized holding losses on available-for-sale securities Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance as of December 31, 2021 $ — $ 9,914 $ ( 14,290 ) $ ( 4,376 ) Other comprehensive income (loss) before reclassifications ( 451 ) ( 1,864 ) ( 2,256 ) ( 4,571 ) Amounts reclassified from accumulated other comprehensive income (loss) (1) — ( 227 ) — ( 227 ) Net other comprehensive income (loss) during the year ( 451 ) ( 2,091 ) ( 2,256 ) ( 4,798 ) Balance as of March 31, 2022 $ ( 451 ) $ 7,823 $ ( 16,546 ) $ ( 9,174 ) (1) Amounts reclassified are recorded in Net sales , Cost of sales , or Other non-operating income (expense), net on the unaudited Condensed Consolidated Statements of Operations. Refer to Note 10 for further information regarding reclassifications. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 11 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) (in thousands) Unrealized holding gains (losses) on derivative transactions Foreign currency translation adjustments Total Balance as of December 31, 2020 $ ( 9,369 ) $ 10,175 $ 806 Other comprehensive income (loss) before reclassifications 9,279 ( 13,204 ) ( 3,925 ) Amounts reclassified from accumulated other comprehensive income (loss) (1) ( 716 ) — ( 716 ) Net other comprehensive income (loss) during the year 8,563 ( 13,204 ) ( 4,641 ) Balance as of March 31, 2021 $ ( 806 ) $ ( 3,029 ) $ ( 3,835 ) (1) Amounts reclassified are recorded in Net sales , Cost of sales , or Other non-operating income (expense), net on the unaudited Condensed Consolidated Statements of Operations. Refer to Note 10 for further information regarding reclassifications. NOTE 9 — 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 March 31, (in thousands) 2022 2021 Net sales to unrelated entities: U.S. $ 501,894 $ 408,662 LAAP 121,743 111,977 EMEA 94,717 70,765 Canada 43,156 34,202 $ 761,510 $ 625,606 Segment operating income: U.S. $ 113,176 $ 99,661 LAAP 13,002 9,718 EMEA 16,499 10,062 Canada 8,141 6,228 Total segment operating income 150,818 125,669 Unallocated corporate expenses ( 67,152 ) ( 55,189 ) Interest income, net 395 278 Other non-operating income (expense), net 44 ( 304 ) Income before income tax $ 84,105 $ 70,454 CONCENTRATIONS The Company had one customer that accounted for approximately 13.0 %, 14.3 % and 10.2 % of Accounts receivable, net as of March 31, 2022, December 31, 2021, and March 31, 2021, respectively. No single customer accounted for 10% or more of Net sales for any of the three months ended March 31, 2022 and March 31, 2021, respectively. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 12 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 10 — 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 European 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. Time value components ("forward points") for forward contracts are included in the fair value of the cash flow hedge. These costs or benefits will be included in Accumulated other comprehensive income (loss) until the underlying hedge transaction is recognized in either Net sales or Cost of sales , at which time, the forward points will also be recognized as a component of Net income . The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use United States dollars, euros, Canadian dollars, yen, won, or renminbi as their functional currency. Non-functional currency denominated monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, receivables, payables, deferred income taxes, and intercompany loans. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in Other non-operating income (expense), net by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities. The following table presents the gross notional amount of outstanding derivative instruments: (in thousands) March 31, 2022 December 31, 2021 March 31, 2021 Derivative instruments designated as cash flow hedges: Currency forward contracts $ 536,790 $ 485,083 $ 484,176 Derivative instruments not designated as hedges: Currency forward contracts 230,968 267,982 219,961 As of March 31, 2022, $ 5.1 million of deferred net gains on both outstanding and matured derivatives recorded in Accumulated other comprehensive income (loss) are expected to be reclassified to Net income during the next twelve months as a result of underlying hedged transactions also being recorded in Net sa les, Cost of sales, or Other non-operating income (expense) in the unaudited Condensed Consolidated Statements of Operations. When outstanding derivative contracts mature, actual amounts ultimately reclassified to Net sa les, Cost of sales, or Other non-operating income (expense) in the unaudited Condensed Consolidated Statements of Operations are dependent on United States dollar exchange rates in effect against the euro, pound sterling, renminbi, Canadian dollar, and yen as well as the euro exchange rate in effect against the pound sterling. As of March 31, 2022, the Company's derivative contracts had a remaining maturity of less than three 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 $ 5.3 million as of March 31, 2022. 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. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 13 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) The following table presents the balance sheet classification and fair value of derivative instruments: (in thousands) Balance Sheet Classification March 31, 2022 December 31, 2021 March 31, 2021 Derivative instruments designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets $ 9,184 $ 7,927 $ 2,438 Currency forward contracts Other non-current assets 7,351 10,142 6,159 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 3,411 2,545 4,908 Currency forward contracts Other long-term liabilities 1,383 318 2,337 Derivative instruments not designated as cash flow hedges: Derivative instruments in asset positions: Currency forward contracts Prepaid expenses and other current assets 1,888 1,470 1,759 Derivative instruments in liability positions: Currency forward contracts Accrued liabilities 902 1,027 1,793 The following table presents the statement of operations effect and classification of derivative instruments: Statement Of Operations Classification Three Months Ended March 31, (in thousands) 2022 2021 Currency Forward Contracts: Derivative instruments designated as cash flow hedges: Gain (loss) recognized in other comprehensive income (loss), net of tax — $ ( 1,864 ) $ 9,279 Gain (loss) reclassified from accumulated other comprehensive income (loss) to income for the effective portion Net sales ( 136 ) 100 Gain reclassified from accumulated other comprehensive income (loss) to income for the effective portion Cost of sales 311 772 Gain reclassified from accumulated other comprehensive income (loss) to income as a result of cash flow hedge discontinuance Other non-operating income (expense), net 222 106 Derivative instruments not designated as cash flow hedges: Gain recognized in income Other non-operating income (expense), net 590 897 COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 14 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) NOTE 11 — FAIR VALUE MEASURES Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that the Company would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows: Level 1 — observable inputs such as quoted prices for identical assets or liabilities in active liquid markets; Level 2 — inputs, other than the quoted market prices in active markets, that are observable, either directly or indirectly; or observable market prices in markets with insufficient volume or infrequent transactions; and Level 3 — unobservable inputs for which there is little or no market data available, that require the reporting entity to develop its own assumptions. The Company's assets and liabilities measured at fair value are categorized as Level 1 or Level 2 instruments. Level 1 instrument valuations are obtained from real-time quotes for transactions in active exchange markets involving identical assets. Level 2 instrument valuations are obtained from inputs, other than quoted market prices in active markets, that are directly or indirectly observable in the marketplace and quoted prices in markets with limited volume or infrequent transactions. Assets and liabilities measured at fair value on a recurring basis as of March 31, 2022 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 142 $ — $ — $ 142 Available-for-sale short-term investments: (1) U.S. Government treasury bills — 174,435 — 174,435 Other short-term investments: Money market funds 145 — — 145 Mutual fund shares 444 — — 444 Other current assets: Derivative financial instruments — 11,072 — 11,072 Non-current assets: Money market funds 1,383 — — 1,383 Mutual fund shares 20,730 — — 20,730 Derivative financial instruments — 7,351 — 7,351 Total assets measured at fair value $ 22,844 $ 192,858 $ — $ 215,702 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 4,313 $ — $ 4,313 Other long-term liabilities: Derivative financial instruments — 1,383 — 1,383 Total liabilities measured at fair value $ — $ 5,696 $ — $ 5,696 (1) Available-for-sale short-term investments have remaining maturities of less than one year. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 15 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) Assets and liabilities measured at fair value on a recurring basis as of December 31, 2021 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 2,677 $ — $ — $ 2,677 Available-for-sale short-term investments: (1) U.S. Government treasury bills — 130,168 — 130,168 Short-term investments: Money market funds 73 — — 73 Mutual fund shares 904 — — 904 Other current assets: Derivative financial instruments — 9,397 — 9,397 Non-current assets: Money market funds 2,219 — — 2,219 Mutual fund shares 19,606 — — 19,606 Derivative financial instruments — 10,142 — 10,142 Total assets measured at fair value $ 25,479 $ 149,707 $ — $ 175,186 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 3,572 $ — $ 3,572 Other long-term liabilities: Derivative financial instruments — 318 — 318 Total liabilities measured at fair value $ — $ 3,890 $ — $ 3,890 (1) Available-for-sale short-term investments have remaining maturities of less than one year. COLUMBIA SPORTSWEAR COMPANY | 2022 FORM 10-Q | 16 Table of Contents Notes to Condensed Consolidated Financial Statements (Unaudited) Assets and liabilities measured at fair value on a recurring basis as of March 31, 2021 are as follows: (in thousands) Level 1 Level 2 Level 3 Total Assets: Cash equivalents: Money market funds $ 344,886 $ — $ — $ 344,886 United States government treasury bills — 45,000 — 45,000 Short-term investments: Money market funds 99 — — 99 Mutual fund shares 821 — — 821 Other current assets: Derivative financial instruments — 4,197 — 4,197 Non-current assets: Money market funds 3,667 — — 3,667 Mutual fund shares 15,376 — — 15,376 Derivative financial instruments — 6,159 — 6,159 Total assets measured at fair value $ 364,849 $ 55,356 $ — $ 420,205 Liabilities: Accrued liabilities: Derivative financial instruments $ — $ 6,701 $ — $ 6,701 Other long-term liabilities: Derivative financial instruments — 2,337 — 2,337 Total liabilities measured at fair value $ — $ 9,038 $ — $ 9,038