Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with Item 6 and Item 8 of this annual report. In addition, refer to Item 7 in our Annual Report on Form 10-K for the year ended December 31, 2019 for our discussion and analysis comparing financial condition and results of operations from 2019 to 2018.
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. We sell our products in approximately 90 countries and operate in four geographic segments: U.S., LAAP, EMEA, and Canada.
Our production cycle from the design to the delivery of our products requires significant inventory commitment. We begin designing and developing our seasonal product lines approximately 12 months prior to soliciting advance orders from our wholesale customers and approximately 18 months prior to the products' availability to consumers in retail stores. The majority of our advance orders are shipped to wholesale customers for spring season products beginning in January and continuing through June, and for fall season products to wholesale 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. We estimate the volumes of the season's products to be purchased from our global suppliers by utilizing our forecasted wholesale customers orders, cancellations, reorders, and replenishment orders, forecasted demand from our DTC businesses, market trends, historical data, customer and sales feedback, and other factors. We also sell our products to consumers through our DTC businesses, which include our own network of branded and outlet retail stores, brand-specific e-commerce sites, and concession-based arrangements with third-parties at branded, outlet and shop-in-shop retail locations in the LAAP and EMEA regions.
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.
See Item 1 of this annual report for more information about our business.
Impacts of COVID-19
COVID-19 was first identified in China in December 2019 and a global pandemic of respiratory disease caused by COVID-19 was declared by the World Health Organization in March 2020. In response to this pandemic, many regional and local governments worldwide implemented travel restrictions, business shutdowns or slowdowns, and shelter-in-place or stay-at-home orders.
Lower consumer demand related to the COVID-19 pandemic began to impact our financial performance in China in late January, Korea and Japan in early February and North America and Europe in March, due to store closures, reduced operating hours and decreased retail traffic. In addition, many of our wholesale customers and international distributors experienced a similar timeline and closed stores or reduced operating hours, resulting in lower than expected sales, cancellation of orders and a slowing of receipt of shipments of our products.
The vast majority of our stores closed due to the pandemic and reopened in China and Korea by late April and in the U.S., Europe, Japan, and Canada predominantly within the May and June timeframe. Throughout the third and fourth quarter of 2020, while there were isolated temporary store closures from local regulations or safety concerns, the majority of our owned stores remained open. Government mandated lockdowns and restrictions impacted our store productivity in Europe throughout the fourth quarter 2020 and in Canada starting in December. Store productivity in several markets continue to be impacted by lockdowns and restrictions in the first quarter of 2021. Overall, our store retail traffic trends remain well below prior year levels. We continue to restrict store capacity to accommodate social distancing measures, which is impacting the performance of our retail operations. Stores in destination locations and tourist-dependent markets remain some of the most severely impacted stores within our fleet.
In addition, we permanently closed 13 stores in the U.S. and one in Europe in 2020. We continue to evaluate our portfolio of stores on an ongoing basis and may close additional stores. We anticipate opening approximately 8 stores in the U.S. in 2021, primarily consisting of outlet stores. The number of store openings may increase as we finalize ongoing lease negotiations.
22
Table of Contents
Throughout 2020, our global DTC e-commerce business remained operational, supported by the employees in our distribution centers and call centers. During 2020, our DTC e-commerce business grew 39% year-over-year and represented 19% of our global net sales, including fourth quarter 2020 growth of 41% year-over-year and represented of 23% of our global net sales.
The COVID-19 pandemic also impacted our distribution centers, call centers, retail stores, third-party manufacturing partners and other vendors, due to the effects of facility closures, reductions in operating hours, labor and equipment shortages, port congestion, and real time changes in operating procedures to comply with local government guidelines, while maintaining enhanced health and safety protocols. Our work-from-home policies continue in many regions, including the United States.
In response to the uncertainty of the pandemic described above, we enhanced our liquidity position during the year by taking various actions, including:
•increasing our total available committed and uncommitted credit lines and facilities to provide nearly $645 million of borrowing capacity, of which $505 million is committed and available;
•suspending the quarterly dividend and share repurchases; and
•reducing planned capital expenditures.
We have initiated numerous cost containment measures across the organization, including lowering personnel related expenses, reducing demand creation spend, and minimizing discretionary expenditures. These measures, combined with decreased variable operating expenses, lowered our 2020 SG&A expenses by more than $100 million compared to last year, before expenses related to the COVID-19 pandemic. While certain of these cost containment actions will result in permanent expense reductions, a significant portion of these costs will likely return in 2021, including incentive compensation expense and certain discretionary expenses, such as travel costs.
We also have and continue to execute cost reduction and resource allocation actions that will impact our cost structure for 2021 and beyond. These actions have included optimization of freight expenses within cost of goods sold, the closure of certain retail stores, improvements in our retail store labor model, reductions in headcount, and other targeted expense reductions. We have and continue to execute these actions to ensure the business is structured for sustainable and profitable growth in the face of the evolving market landscape. Our expectations with regard to these cost containment and reduction actions are reflected in our business outlook.
See the Liquidity and Capital Resources section below for additional information.
Business Outlook
The ongoing business disruption and uncertainty surrounding the COVID-19 pandemic make it difficult to predict our future results. Consistent with the seasonality and variability of our business, we anticipate 2021 profitability to be heavily concentrated in the second half of the year. Business uncertainties and risks surrounding the ongoing pandemic may further exacerbate this seasonality.
Factors that could significantly affect our full year 2021 financial results include:
•lower consumer demand as a result of ongoing effects from the COVID-19 pandemic and/or related governmental actions and regulations;
•growth, performance and profitability of our global DTC operations, including depressed consumer traffic in our retail stores and elevated DTC e-commerce growth trends;
•our ability to staff and operate our distribution centers to fulfill DTC e-commerce demand while providing a safe working environment with adequate social distancing and other safety precautions;
•port congestion and equipment and labor capacity of third-party logistics providers to service the demands of our business and the retail industry generally;
•increasing 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;
•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 increasing global economic uncertainty; and
23
Table of Contents
•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.
Strategic Priorities
We are committed to driving sustainable and profitable long-term growth and investing in our strategic priorities to:
•drive brand awareness and sales growth through increased, focused demand creation investments;
•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.
Experience First ("X1")
In 2018, we commenced investment in our X1 initiative, which is designed to enhance our e-commerce systems to take advantage of the changes in consumer browsing and purchasing behavior towards mobile devices. It encompasses re-implementation of our e-commerce platforms to offer improved search, browsing, checkout, mobile payment tenders, and customer care experiences for mobile shoppers. In 2019, we implemented X1 across 10 countries in Europe-Direct and for the prAna brand in the U.S. In the third quarter of 2020, we implemented X1 in North America for the Columbia, SOREL and Mountain Hardwear brands.
24
Table of Contents
Results of Operations
The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with Item 8 of this annual report. All references to years relate to the fiscal year ended December 31.
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 Year Ended December 31, 2020
•Net sales decreased $540.9 million, or 18%, to $2,501.6 million, from $3,042.5 million in 2019.
•Gross profit as a percentage of net sales contracted to 48.9% from 49.8% in 2019.
•Income from operations decreased $258.0 million, or 65%, to $137.0 million from $395.0 million in 2019.
•Income tax expense decreased to $31.5 million from $74.9 million in 2019.
•Net income decreased $222.5 million, or 67%, to $108.0 million, or $1.62 per diluted share from net income of $330.5 million, or $4.83 per diluted share, in 2019.
•Operating cash flow decreased $9.4 million, or 3%, to $276.1 million, compared to $285.5 million in 2019.
•We paid cash dividends to shareholders totaling $17.2 million, or $0.26 per share.
The following table presents the items in our Consolidated Statements of Operations as a percentage of net sales:
Year Ended December 31,
Selling, general and administrative expenses 43.9 37.3
Net licensing income 0.5 0.5
Income from operations 5.5 13.0
Interest income, net — 0.2
Other non-operating income (expense), net 0.1 0.1
Income before income tax 5.6 13.3
Income tax expense (1.3) (2.4)
25
Table of Contents
Results of Operations — Consolidated
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Net Sales: Consolidated net sales decreased $540.9 million, or 18%, to $2,501.6 million in 2020 from $3,042.5 million in 2019. The decrease primarily reflects the negative impacts from the ongoing COVID-19 pandemic, resulting in temporary stores closures, including our wholesale customers' stores, and lower consumer demand. Net sales decreased across all regions, brands and product categories, primarily in the U.S. wholesale, U.S. DTC and LAAP businesses.
Net sales by brand, product category and channel are summarized in the following table:
Year Ended December 31,
Brand Net Sales:
Product Category Net Sales:
Channel Net Sales:
(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: Our gross profit may not be comparable to other companies in our industry as some companies may include all costs related to their distribution network in Cost of sales, while we include these expenses in SG&A expense.
Gross profit as a percentage of net sales contracted to 48.9% in 2020 from 49.8% in 2019, primarily reflecting:
•higher DTC freight costs; partially offset by
•favorable sales mix, resulting from a higher proportion of DTC e-commerce sales, which generally carry a higher gross margins; and
•higher DTC product margins, reflecting lower promotional activity.
Selling, General and Administrative Expenses: SG&A expense includes all costs associated with our design, merchandising, marketing, distribution, and corporate functions, including related depreciation and amortization.
SG&A expense decreased $37.3 million, or 3%, to $1,098.9 million, or 43.9% of net sales, in 2020, from $1,136.2 million, or 37.3% of net sales, in 2019. During 2020, we spent approximately 5.7% of our net sales in demand creation, compared to 5.5% in 2019. Depreciation and amortization included in SG&A expense totaled $63.0 million in 2020, compared to $59.2 million in 2019.
The SG&A expense decrease was primarily due to:
•lower DTC expenses of $35.4 million, primarily resulting from lower personnel expenses due to store closures;
•decreased demand creation spend of $25.7 million;
•discretionary expenses associated with cost containment efforts; and
26
Table of Contents
•lower incentive compensation; partially offset by
•retail impairments and store closure charges of $28.8 million;
•increased bad debt expense of $19.7 million, reflecting heightened accounts receivable risk resulting from the ongoing COVID-19 pandemic; and
•prAna brand trademark impairment charge of $17.5 million.
In March 2020, we initiated numerous cost containment measures across the organization to mitigate the impacts of the COVID-19 pandemic on our business. See additional discussion of these measures in the Impacts of COVID-19 discussion above.
The $28.8 million of retail impairments and store closure charges discussed above include $16.5 million of accelerated amortization of lease right-of-use assets for stores that permanently closed during 2020 for which the related lease liabilities have not been extinguished as of December 31, 2020 due to ongoing negotiations with the landlords. We anticipate SG&A expense will benefit in 2021 as store closure negotiations are finalized and the related lease liabilities are settled, which we anticipate to partially offset the related store closure charges incurred in 2020.
Income from Operations: Income from operations decreased $258.0 million, or 65%, to $137.0 million, or 5.5% of net sales, in 2020, from $395.0 million, or 13.0% of net sales, in 2019.
Income Tax Expense: Income tax expense decreased to $31.5 million in 2020 from $74.9 million in 2019. Our effective income tax rate was 22.6% compared to 18.5% in 2019. Our effective income tax rate for 2020 increased compared to prior year primarily due to the change in mix of book income or loss among jurisdictions, as well as the favorable impacts of the passage of a Swiss tax reform package on our effective income tax rate for the comparable period in 2019.
Net Income: Net income decreased $222.5 million, or 67%, to $108.0 million, or $1.62 per diluted share, in 2020, from $330.5 million, or $4.83 per diluted share, in 2019.
Results of Operations — Segment
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Segment income from operations includes net sales, cost of sales, SG&A expense, and net licensing income for each of our four reportable geographic segments. Income from operations as a percentage of net sales in the U.S. is typically higher than the other segments due to scale efficiencies associated with the larger base of net sales in the U.S. and incremental licensing income compared to other segments.
We anticipate this trend to continue until other segments achieve scale efficiencies from higher levels of net sales volume relative to the fixed cost structure necessary to operate the business.
Net sales by geographic segment are summarized in the following table:
Year Ended December 31,
27
Table of Contents
Income from operations for each reportable segments and unallocated corporate expenses are summarized in the following table:
Year Ended December 31,
Unless otherwise noted below, segment income from operations within all regions decreased due to the impact of temporary store closures, including our wholesale customers' stores, lower consumer demand, and increased bad debt expenses primarily resulting from the ongoing COVID-19 pandemic, compared to strong sales performance in 2019.
•U.S. income from operations decreased $206.2 million to $250.5 million, or 15.6% of net sales, in 2020 from $456.7 million, or 23.5% of net sales, in 2019. The decrease was driven primarily by decreased net sales combined with decreased gross margins, the majority of $28.8 million of retail impairments and other store closure charges, and COVID-19 related expenses, including catastrophic paid leave and furlough pay as well as severance and other pandemic related costs. U.S. net sales decreased $339.2 million, or 17% in 2020 compared to 2019. U.S. net sales decreased in our U.S. wholesale and DTC businesses, driven by decreased net sales from retail stores, partially offset by increased net sales from our e-commerce business. At December 31, 2020, U.S. business operated 132 retail stores, compared to 143 stores at December 31, 2019. SG&A expenses increased as a percentage of net sales to 33.8% in 2020 compared to 27.4% for 2019 largely due to the impact of revenue declines and the unfavorable impact of our fixed cost structure.
•LAAP income from operations decreased $44.2 million to $35.9 million, or 8.5% of net sales, in 2020 from $80.1 million, or 15.1% of net sales, in 2019. The decrease was driven primarily by decreased net sales combined with decreased gross margin. LAAP net sales decreased $104.8 million, or 20% in 2020 compared to 2019, primarily driven by decreased net sales in our China, Japan and Korea businesses, and to a lesser extent, our LAAP distributor business. LAAP SG&A expense increased as a percentage of net sales to 45.7% in 2020 compared to 40.7% for 2019 largely due to the impact of revenue declines and the unfavorable impact of our fixed cost structure.
•EMEA income from operations decreased $14.2 million to $31.2 million, or 10.4% of net sales, in 2020 from $45.4 million, or 12.4% of net sales, in 2019. The decrease was driven primarily by decreased net sales combined with decreased gross margin. EMEA net sales decreased $68.2 million, or 19% (20% constant-currency) in 2020 compared to 2019. EMEA net sales decreased primarily in our EMEA distributor business, followed by our Europe-direct business. EMEA SG&A expense increased as a percentage of net sales to 33.4% in 2020 compared to 29.9% for 2019 largely due to the impact of revenue declines and the unfavorable impact of our fixed cost structure.
•Canada income from operations decreased $2.0 million to $37.6 million, or 21.6% of net sales, in 2020 from $39.6 million, or 19.5% of net sales, in 2019. The decrease primarily resulted from decreased net sales partially offset by increased gross margin. Canada net sales decreased $28.7 million, or 14% in 2020 compared to 2019, primarily driven by a net sales decrease in our wholesale business. Canada SG&A expense were relatively flat as a percentage of net sales of 25.6% in 2020 compared to 25.5% for 2019.
Unallocated corporate expenses decreased by $8.6 million to $218.2 million in 2020, from $226.8 million in 2019. The decrease reflected cost containment actions implemented to mitigate unfavorable financial impacts resulting from the ongoing COVID-19 pandemic, partially offset by a prAna brand trademark impairment charge of $17.5 million
Liquidity and Capital Resources
At December 31, 2020, we had total cash and cash equivalents of $790.7 million, compared to $686.0 million at December 31, 2019. At December 31, 2020, we had approximately $505.4 million in committed borrowing availability. Including cash, cash equivalents, short-term investments and available committed and uncommitted credit lines, we had more than $1 billion in total liquidity at December 31, 2020. Our primary ongoing funding requirements are for working capital and capital expenditures.
We expect to meet our cash needs for the next twelve months with cash and cash equivalents, short-term investments, borrowings under our committed and uncommitted lines of credit and facilities, additional borrowing capacity, access to capital markets, and cash
28
Table of Contents
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, cash equivalents and short-term investments balances generally are at their lowest level at the end of the third quarter and increase during the fourth quarter from collection of wholesale business receivables and fourth quarter DTC sales.
Short-term borrowings and credit lines
Refer to Note 7 in Item 8 of this annual report for additional information regarding our lines of credit and overdraft facilities in place. At December 31, 2020, we had a $500.0 million committed revolving line of credit available domestically under our credit agreement and, internationally, our subsidiaries had approximately $144.4 million in committed and uncommitted lines of credit and overdraft facilities in place, some of which were guaranteed by Columbia Sportswear Company. At December 31, 2020, 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 $276.1 million in 2020, compared to net cash provided by operating activities of $285.5 million in 2019. The change in operating cash flow was driven by a $161.9 million decrease in operating cash flow provided by net income and non-cash adjustments, partially offset by a $152.6 million decrease in cash used in changes in assets and liabilities. The most significant comparative changes included Inventories, net, Accrued liabilities, and Accounts receivable. The increase in cash provided by Inventories, net reflects the effect of lower inventory receipts. The increase in cash used by Accrued Liabilities was primarily driven by decreases in accruals for wholesale refund liabilities, wholesale and retail return liabilities, and incentive compensation. The increase in cash provided by Accounts Receivable was primarily driven by lower wholesale net sales in the fourth quarter of 2020.
Net cash used in investing activities was $27.2 million in 2020, compared to net cash provided by investing activities of $140.7 million in 2019. For 2020, net cash used in investing activities consisted $28.8 million for capital expenditures. For 2019, net cash provided by investing activities primarily consisted of $264.2 million in net sales and maturities of short-term investments, partially offset by $123.5 million for capital expenditures. The decrease in cash used for capital expenditures in 2020 was primarily due to capital preservation measures taken in light of the ongoing COVID-19 pandemic.
Net cash used in financing activities was $151.7 million in 2020, compared to net cash used in financing activities of $190.7 million in 2019. For 2020, net cash used in financing activities primarily consisted of the repurchase of common stock of $132.9 million and dividend payments to our shareholders of $17.2 million. For 2019, net cash used in financing activities primarily consisted of the repurchase of common stock of $121.7 million and dividend payments to our shareholders of $65.1 million and $17.9 million related to the purchase of the non-controlling interest in our China joint venture, partially offset by net proceeds of $14.0 million from the issuance of stock-based compensation. The decrease in dividend payments to our shareholders resulted from our Board of Directors suspension of quarterly dividends after the March 2020 dividend was paid as a part of a broader capital preservation effort during the ongoing COVID-19 pandemic.
Contractual obligations
The following table presents our estimated significant contractual commitments:
Year ended December 31,
Inventory purchase obligations $ 305,716 $ — $ — $ — $ — $ — $ 305,716
(1) Refer to Operating Leases in Note 9 in Item 8 of this annual report.
(2) Refer to Income Taxes in Note 10 in Item 8 of this annual report.
In addition, our non-current Income taxes payable on the Consolidated Balance Sheet at December 31, 2020 includes approximately $13.8 million of net unrecognized tax benefits; however, these are excluded from the table above because we are uncertain about whether or when these amounts may be settled. Refer to Note 10 in Item 8 of this annual report for additional information.
29
Table of Contents
Critical Accounting Policies and Estimates
Management's discussion and analysis of our financial condition and results of operations are based on our 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 described below 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, 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 annual report. These discussions typically occur at our quarterly audit committee meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation.
Revenue Recognition
Revenues are recognized when our performance obligations are satisfied as evidenced by transfer of control of promised goods to our customers, in an amount that reflects the consideration we expect to be entitled to receive in exchange for those goods or services. Within our wholesale channel, control generally transfers to the customer upon shipment to, or upon receipt by, the customer depending on the terms of sale with the customer. Within our DTC channel, control generally transfers to the customer at the time of sale within our retail stores and concession-based arrangements and upon shipment to the customer with respect to e-commerce transactions.
The amount of consideration we receive and recognize as Net sales across both wholesale and DTC channels varies with changes in sales returns and other accommodations and incentives we offer to our customers. When we give our customers the right to return products or provide other accommodations such as chargebacks and markdowns, we estimate the expected sales returns and miscellaneous claims from customers and record a sales reserve to reduce Net sales. These estimates are based on historical rates of product returns and claims, as well as events and circumstances that indicate changes to such historical rates. However, actual returns and claims in any future period are inherently uncertain and thus may differ from the estimates. As a result, we adjust our estimates of revenue at the earlier of when the most likely amount of consideration we expect to receive changes or when the amount of consideration becomes fixed. If actual or expected future returns and claims are significantly greater or lower than the sales reserve established, the Company records an adjustment to Net sales in the period in which it made such determination.
Licensing income, which is presented separately as Net licensing income on the Consolidated Statements of Operations and represents less than 1% of total revenue, is recognized over time based on the greater of contractual minimum royalty guarantees and actual, or estimated, sales of licensed products by our licensees.
We expense sales commissions when incurred, which is generally at the time of sale, because the amortization period would have been one year or less. These costs are recorded within SG&A expenses.
We treat shipping and handling activities as fulfillment costs, and as such, recognize the costs for these activities at the time related revenue is recognized. The majority of these costs are recorded as SG&A expenses, and the direct costs associated with shipping goods to customers and consumers are recorded as Costs of goods sold. Shipping and handling fees billed to customers are recorded as Net sales.
Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.
Allowance for Uncollectible Accounts Receivable
We make ongoing estimates of the collectability of our accounts receivable and maintain an allowance for estimated losses resulting from the inability of our customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. In determining the amount of the allowance, we consider our historical level of credit losses, and we make judgments about the creditworthiness of customers based on ongoing credit evaluations. We analyze specific customer
30
Table of Contents
accounts, customer concentrations, credit insurance coverage, standby letters of credit, and other forms of collateral, current economic trends, and changes in customer payment terms. As a result of the COVID-19 pandemic, our allowance for uncollectible accounts receivable increased to $21.8 million as of December 31, 2020 from $8.9 million as of December 31, 2019.The balance as of December 31, 2020 reflects the ongoing risk in the retail sector as the COVID-19 pandemic continues to impact the global economy. Continued uncertainty in credit and market conditions may slow our collection efforts if customers experience difficulty accessing credit and paying their obligations, leading to higher than normal accounts receivable and increased bad debt expense. Because future changes in the financial stability of our customers is difficult to estimate, actual future losses from uncollectible accounts may differ from our estimates and may have a material effect on our consolidated financial position, results of operations or cash flows. If the financial condition of our customers deteriorates and results in their inability to make payments, a larger allowance may be required. If we determine that a smaller or larger allowance is appropriate, we will record an adjustment to SG&A expense in the period in which we make such a determination.
Excess, Close-Out and Slow Moving Inventory
We make ongoing estimates of potential excess, close-out or slow moving inventory. We evaluate our inventory on hand considering our purchase commitments, sales forecasts and historical liquidation experience to identify excess, close-out or slow moving inventory and make provisions as necessary to properly reflect inventory value at the lower of cost or net realizable value. Provisions are taken when necessary in the period in which we make such a determination.
Impairment of Long-Lived Assets, Intangible Assets and Goodwill
Long-lived assets, which include property, plant and equipment, lease right-of-use assets, capitalized implementation costs for cloud computing arrangements, and intangible assets with finite lives are measured for impairment only when events or circumstances indicate the carrying value may be impaired. We evaluate retail location long‐lived assets for impairment when events or changes in circumstances exist that may indicate that the carrying amounts of retail location long‐lived assets are no longer recoverable. Events that result in an impairment review include plans to close a retail location or a significant decrease in the operating results of the retail location. When such an indicator occurs, we evaluate retail location long‐lived assets for impairment by comparing the undiscounted future cash flow expected to be generated by the location to the location long‐lived asset’s carrying amount. If the carrying amount of an asset exceeds the estimated undiscounted future cash flow, an analysis is performed to estimate the fair value of the asset. An impairment is recorded if the fair value of the retail location long‐lived asset is less than the carrying amount. During 2020, as a result of lower consumer demand related to the COVID-19 pandemic, we tested certain retail location long-lived assets consisting of property, plant and equipment and lease right-of-use assets for impairment. For the year ended December 31, 2020, impairment charges from underperforming retail stores were $7.0 million for lease right-of-use assets and $4.5 million for property, plant and equipment. Further declines in projected future performance may adversely affect the recovery of retail locations assets.
We review and test our intangible assets with indefinite useful lives and goodwill for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying amount of such assets may be impaired. Our intangible assets with indefinite lives consist of trademarks and trade names. Substantially all of our goodwill is recorded in the U.S. segment and impairment testing for goodwill is performed at the reporting unit level. In the impairment test for goodwill, we compare the estimated fair value of the reporting unit with the carrying amount of that reporting unit. If the carrying amount of the reporting unit exceeds its estimated fair value, we calculate an impairment as the excess of carrying amount over the estimate of fair value. We estimate the fair value of our reporting units using a combination of discounted cash flow analysis and market-based valuation methods, as appropriate. In the impairment tests for trademarks and trade names, we compare the estimated fair value of each asset to its carrying amount. The fair values of trademarks and trade names are estimated using a relief from royalty method under the income approach. If the carrying amount of a trademark or trade name exceeds its estimated fair value, we calculate impairment as the excess of carrying amount over the estimate of fair value. Key assumptions used in the discounted cash flow models are cash flow projections and the discount rate. Cash flow projections are developed in part from our annual planning process. The discount rate is the estimated weighted-average costs of capital of the reporting unit from a market-participant perspective. In the market-based valuation methods used to estimate the fair value of our reporting units, we utilize market multiples for guideline public companies.
In our 2020 impairment test, it was determined that the estimated fair value of the prAna brand’s trademark was impaired and we recognized a $17.5 million impairment charge for the year ended December 31, 2020 reducing the carrying value to $70.5 million. The decline in estimated fair value from the fourth-quarter 2019 impairment test reflects a lower estimated royalty rate and a decline in forecasted revenues. In the prAna reporting unit’s goodwill impairment test, the estimated fair value of the prAna reporting unit exceeded its carrying value by approximately 10%, and as such the reporting unit’s goodwill balance of $54.2 million was not impaired. As part of our evaluation, we performed sensitivity analysis on the goodwill impairment model. A 100 basis point increase in the assumed discount rate did not cause the fair value of the reporting unit to decline below its carrying value. Separately, 10% lower estimated net sales in each of the next five years did not cause the fair value of the reporting unit to decline below its carrying value. If
31
Table of Contents
the prAna brand's actual or projected future performance deteriorates from the projections considered in our 2020 tests, it is possible that further impairment charges would be required.
Our 2020 impairment tests of goodwill and intangible assets with indefinite lives indicated that the fair value of all other reporting units and intangible assets with indefinite lives exceeded their respective carrying values by at least 25%.
Our impairment tests and related fair value estimates are based on a number of factors, including assumptions and estimates for projected sales, income, cash flows, discount rates, market-based multiples, and other operating performance measures. Changes in estimates or the application of alternative assumptions could produce significantly different results. These assumptions and estimates may change in the future due to changes in economic conditions, changes in our ability to meet sales and profitability objectives or changes in our business operations or strategic direction.
Income Taxes
We use the asset and liability method of accounting for income taxes. Under this method, we recognize Income tax expense for the amount of taxes payable or refundable for the current year and for the amount of deferred tax liabilities and assets for the future tax consequences of events that have been recognized in our financial statements or tax returns. We make assumptions, judgments and estimates to determine our current provision for income taxes, our deferred tax assets and liabilities and our uncertain tax positions. Our judgments, assumptions and estimates relative to the current provision for income tax take into account current tax laws, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. Changes in tax law or our interpretation of tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for Income tax expense in our Consolidated Statements of Operations. Our assumptions, judgments and estimates relative to the value of a deferred tax asset take into account predictions of the amount and category of future taxable income. Actual operating results and the underlying amount and category of income in future years could cause our current assumptions, judgments and estimates of recoverable net deferred tax assets to be inaccurate. Changes in any of the assumptions, judgments and estimates mentioned above could cause our actual income tax obligations to differ from our estimates, which could materially affect our financial position, results of operations or cash flows.
Our tax provision for interim periods is determined using an estimate of our annual effective tax rate, adjusted for discrete items, if any, that are taken into account in the relevant period. As the calendar year progresses, we periodically refine our estimate based on actual events and earnings by jurisdiction. This ongoing estimation process can result in changes to our expected effective tax rate for the full calendar year. When this occurs, we adjust the income tax provision during the quarter in which the change in estimate occurs so that our year-to-date provision equals our expected annual effective tax rate.
Recent Accounting Pronouncements
Refer to Note 2 in Item 8 of this annual report.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our financial position and results of operations are subject to a variety of risks, including risks associated with global financial and capital markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk. We regularly assess these risks and have established policies and business practices designed to mitigate their effects. We do not engage in speculative trading in any financial or capital market.
Foreign Exchange Risk
Our primary currency exchange rate risk management objective is to mitigate the uncertainty of anticipated cash flows attributable to changes in exchange rates. We focus on mitigating changes in functional currency equivalent cash flows resulting from anticipated United States dollar denominated inventory purchases by subsidiaries that use European euros, Canadian dollars, Japanese yen, Chinese renminbi, or Korean won as their functional currency. We also mitigate changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated sales for subsidiaries that use United States dollars and euros as their functional currency. We manage this risk primarily by using currency forward contracts. Additionally, we hedge net balance sheet exposures related primarily to non-functional currency denominated monetary assets and liabilities using foreign currency forward contracts in European euros, Japanese yen, Canadian dollars, Swiss francs, Chinese renminbi, Korean won, British pound, Danish krone, Norwegian kroner, Polish zloty, Swedish krona and Czech koruna. 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 and dividends.
The net fair value of our derivative contracts was unfavorable by approximately $12.7 million at December 31, 2020. A 10% unfavorable exchange rate change in the euro, franc, Canadian dollar, yen, renminbi, won, pound, and koruna against the United
32
Table of Contents
States dollar would have resulted in the net fair value declining by approximately $54.0 million at December 31, 2020. Changes in fair value of derivative contracts resulting from foreign exchange rate fluctuations would be substantially offset by the change in value of the underlying hedged transactions.
Interest Rate Risk
Our negotiated credit facilities generally charge interest based on a benchmark rate such as the London Interbank Offered Rate ("LIBOR"). Fluctuations in short-term interest rates cause interest payments on drawn amounts to increase or decrease. At December 31, 2020, no balance was outstanding under our credit facilities.
33
Table of Contents
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our management is responsible for the information and representations contained in this report. The financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP"), which we consider appropriate in the circumstances and include some amounts based on our best estimates and judgments. Other financial information in this report is consistent with these financial statements.
Our accounting systems include controls designed to reasonably ensure that assets are safeguarded from unauthorized use or disposition and which provide for the preparation of financial statements in conformity with GAAP. These systems are supplemented by the selection and training of qualified financial personnel and an organizational structure providing for appropriate segregation of duties.
The audit committee is responsible for appointing the independent registered public accounting firm and reviews with the independent registered public accounting firm and management the scope and the results of the annual examination, the effectiveness of the accounting control system and other matters relating to our financial affairs as they deem appropriate.
34
Table of Contents
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Columbia Sportswear Company
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Columbia Sportswear Company and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income, equity, and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Goodwill – prAna Reporting Unit – Refer to Notes 2 and 6 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company uses a combination of discounted cash flow analysis and market-based valuation methods, which requires management to make significant estimates and assumptions related to projected cash flow, discount rates, market-based multiples, and other operating performance measures. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, if any, or both. The goodwill balance was $68.6 million as of December 31, 2020, of which $54.2 million was allocated to the prAna Reporting Unit (“prAna”). The fair value of prAna exceeded its carrying value as of the measurement date and, therefore, no impairment was recognized.
Auditing management’s estimates and assumptions related to projected cash flow, discount rates, market-based multiples, and other operating performance measures for prAna involved especially subjective judgment.
35
Table of Contents
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates and assumptions related to projected cash flow, discount rates, market-based multiples, and other operating performance measures for the prAna goodwill impairment analysis included the following, among others:
•We tested the effectiveness of internal controls over the prAna goodwill impairment analysis, including those over the forecasts for cash flow and other operating performance measures, and the selection of the discount rate and market-based multiples.
•We evaluated management’s ability to accurately forecast cash flow and other operating performance measures by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s cash flow forecasts by comparing the forecasts to:
◦Historical cash flow.
◦Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.
•We evaluated the impact of changes in management’s cash flow forecasts from the October 31, 2020 annual measurement date to December 31, 2020.
•To evaluate the reasonableness of the discount rate, with the assistance of our fair value specialists, we:
◦Developed a range of independent estimates of the discount rate and compared those to the discount rate selected by management to assess the appropriateness of the discount rate assumption.
◦Tested the inputs and source information underlying the determination of the discount rate by comparing to reputable third-party data or industry information and tested the mathematical accuracy of the calculation.
•With the assistance of our fair value specialists, we evaluated the reasonableness of the selection and application of valuation multiples management applied in i market-based valuation method through comparison to valuation multiples for guideline public companies.
Intangible Assets, Net – prAna Trademark– Refer to Notes 2 and 6 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company has trademarks and trade names (“trademarks”) that are indefinite-lived intangible assets. As of December 31, 2020, the carrying value of the intangible assets was $103.6 million, of which $70.5 million was attributed to prAna’s trademark, after recognizing $17.5 million of impairment loss in the year ended December 31, 2020. The Company used the relief from royalty method to estimate fair value, which requires management to make significant estimates and assumptions related to projected sales, royalty rates and discount rates to estimate the net present value of future cash flows relating to the prAna trademark.
Auditing management’s estimates and assumptions related to projected sales, royalty rates, and discount rates for prAna involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to management’s estimates and assumptions related to projected sales, royalty rates, and discount rates for the prAna trademark valuation included the following, among others:
•We tested the effectiveness of controls over intangible assets, including those over the forecasts of future sales, and the selection of the discount rate and royalty rate.
•We evaluated management’s ability to accurately forecast future sales by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s sales forecasts by comparing the forecasts to:
◦Historical sales.
◦Forecasted information included in Company press releases as well as in analyst and industry reports for the Company and certain of its peer companies.
36
Table of Contents
•We evaluated the impact of changes in management’s forecasts from the October 31, 2020 annual measurement date to December 31, 2020.
•To evaluate the reasonableness of the (1) discount rate and (2) royalty rate, with the assistance of our fair value specialists, we:
◦Developed a range of independent estimates of the discount rate and compared those to the discount rate selected by management to assess the appropriateness of the discount rate assumption.
◦Tested the inputs and source information underlying the determination of the discount rate by comparing to reputable third-party data or industry information and tested the mathematical accuracy of the calculation.
◦Compared the royalty rate selected by management to rates from royalty agreements in the outdoor apparel industry for comparable companies and the Company’s own contract royalty rates.
Long-lived Asset Valuation – Refer to Notes 2, 5 and 9 to the Consolidated Financial Statements
Critical Audit Matter Description
The Company evaluates retail location long-lived assets for impairment when events or changes in circumstances exist that may indicate that the carrying amounts of retail location long-lived assets are no longer recoverable. Events that result in an impairment review include plans to close a retail location or a significant decrease in the operating results of the retail location. When such an indicator occurs, the Company evaluates its retail location long-lived assets for impairment by comparing the undiscounted future cash flow expected to be generated by the location to the retail location long-lived asset’s carrying amount. If the carrying amount of an asset exceeds the estimated undiscounted future cash flow, an analysis is performed to estimate the fair value of the asset. An impairment is recorded if the fair value of the retail location long-lived asset is less than the carrying amount.
The Company makes significant assumptions to evaluate retail location long-lived assets for possible indications of impairment. Changes in these assumptions could have a significant impact on the retail location long-lived assets identified for further analysis. For the year ended December 31, 2020, impairment charges from underperforming retail location long-lived assets were $7.0 million for lease right-of-use assets and $4.5 million for property, plant, and equipment.
Given the Company’s evaluation of possible indications of impairment of retail location long-lived assets requires management to make significant assumptions, performing audit procedures to evaluate whether management appropriately identified events or changes in circumstances indicating that the carrying amounts of retail location long-lived assets may not be recoverable involved especially subjective judgment.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the evaluation of retail location long-lived assets for possible indications of impairment included the following, among others:
•We tested the effectiveness of controls over management's identification of possible circumstances that may indicate that the carrying amounts of retail location long-lived assets are no longer recoverable.
•We evaluated management's analysis of long-lived assets for indications of impairment analysis by:
◦Testing retail location long-lived assets for possible indications of impairment, including searching for locations with a history of losses, current period loss, or projected losses.
◦Performing inquiries of management regarding the process and assumptions used to identify potential indicators of impairment and evaluating the consistency of the assumptions with evidence obtained in other areas of the audit.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
February 25, 2021
We have served as the Company’s auditor since at least 1994; however, an earlier year could not be reliably determined.
37
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Columbia Sportswear Company
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Columbia Sportswear Company and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 25, 2021, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Portland, Oregon
February 25, 2021
38
Table of Contents
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED BALANCE SHEETS
December 31,
ASSETS
Current Assets:
Prepaid expenses and other current assets 54,197 93,868
LIABILITIES AND EQUITY
Current Liabilities:
Commitments and contingencies (Note 12)
Shareholders' Equity:
Preferred stock; 10,000 shares authorized; none issued and outstanding — —
Accumulated other comprehensive income (loss) 806 (4,425)
See accompanying notes to consolidated financial statements
39
Table of Contents
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
Other non-operating income (expense), net 2,039 2,156 (141)
Net income attributable to non-controlling interest — — 6,692
Earnings per share attributable to Columbia Sportswear Company:
Weighted average shares outstanding:
See accompanying notes to consolidated financial statements
40
Table of Contents
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended December 31,
Other comprehensive income (loss):
Comprehensive income attributable to non-controlling interest — — 7,480
See accompanying notes to consolidated financial statements
41
Table of Contents
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
Cash flows from operating activities:
Provision for uncollectible accounts receivable 19,156 (108) 3,908
Changes in operating assets and liabilities:
Operating lease assets and liabilities (52,112) (54,197) —
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment — — 19
Cash flows from financing activities:
Payment of line of credit issuance fees (3,278) — —
Tax payments related to stock-based compensation (4,533) (5,806) (4,285)
Purchase of non-controlling interest — (17,880) —
Cash dividends paid to non-controlling interest — — (19,949)
Net effect of exchange rate changes on cash 7,510 (1,244) (8,695)
Supplemental disclosures of cash flow information:
Supplemental disclosures of non-cash investing and financing activities:
See accompanying notes to consolidated financial statements
42
Table of Contents
COLUMBIA SPORTSWEAR COMPANY
CONSOLIDATED STATEMENTS OF EQUITY
Columbia Sportswear Company Shareholders' Equity
Shares Outstanding Amount
Other comprehensive income (loss):
Foreign currency translation adjustment, net — — — (17,800) (279) (18,079)
Dividends to non-controlling interest — — — — (21,332) (21,332)
Stock-based compensation expense — 14,291 — — — 14,291
Purchase of non-controlling interest — — — (99) (16,456) (16,555)
Other comprehensive income (loss):
Unrealized holding gains on available-for-sale securities, net — — — 56 — 56
Foreign currency translation adjustment, net — — — 2,064 — 2,064
Stock-based compensation expense — 17,832 — — — 17,832
Other comprehensive income (loss):
Unrealized holding gains on available-for-sale securities, net — — — 4 — 4
Foreign currency translation adjustment, net — — — 24,078 — 24,078
Stock-based compensation expense — 17,778 — — — 17,778
See accompanying notes to consolidated financial statements
43
Table of Contents
COLUMBIA SPORTSWEAR COMPANY
INDEX TO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE PAGE
Note 1 Basis of Presentation and Organization 45
Note 2 Summary of Significant Accounting Policies 45
Note 3 Revenues 50
Note 4 Concentrations 51
Note 5 Property, Plant and Equipment, Net 51
Note 6 Intangible Assets, Net and Goodwill 52
Note 7 Short-Term Borrowings and Credit Lines 52
Note 8 Accrued Liabilities 53
Note 9 Leases 54
Note 10 Income Taxes 55
Note 11 Retirement Savings Plans 57
Note 12 Commitments and Contingencies 58
Note 13 Shareholders' Equity 58
Note 14 Stock-Based Compensation 59
Note 15 Earnings Per Share 61
Note 16 Accumulated Other Comprehensive Income (Loss) 62
Note 17 Segment Information 62
Note 18 Financial Instruments and Risk Management 64
Note 19 Fair Value Measures 66
44
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION
Nature of the Business
Columbia Sportswear Company connects active people with their passions through its four well-known brands, Columbia, SOREL, Mountain Hardwear, and prAna, by designing, developing, marketing, and distributing its outdoor, active and everyday lifestyle apparel, footwear, accessories, and equipment products to meet the diverse needs of its customers and consumers.
Principles of Consolidation
The consolidated financial statements include the accounts of Columbia Sportswear Company, its wholly owned subsidiaries and entities in which it maintained a controlling financial interest (the "Company"). All significant intercompany balances and transactions have been eliminated in consolidation.
Estimates and Assumptions
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions. Some of the more significant estimates relate to revenue recognition, allowance for uncollectible accounts receivable, excess, close-out and slow moving inventory, impairment of long-lived assets, intangible assets and goodwill, and income taxes.
Recently Adopted Accounting Pronouncements
Effective January 1, 2020, the Company adopted Accounting Standards Update ("ASU") No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40) issued by the Financial Accounting Standards Board ("FASB") in August 2018, which clarifies certain aspects of accounting for implementation costs incurred in a cloud computing arrangement ("CCA") that is a service contract. Under the ASU, an entity would expense costs incurred in the preliminary-project and post-implementation-operation stages. The entity would also capitalize certain costs incurred during the application-development stage, as well as certain costs related to enhancements. The ASU does not change the accounting for the service component of a CCA. The Company adopted the standard using the prospective method and anticipates an increase in cloud-specific implementation assets as specific cloud initiatives are executed by the Company. These assets will generally be included in Other non-current assets in the Consolidated Balance Sheets and will amortize over their assessed useful lives or the term of the underlying cloud computing hosting contract, whichever is shorter. Upon the adoption of the standard, there was no immediate impact to the Company's financial position, results of operations or cash flows.
Effective January 1, 2020, the Company adopted ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment issued by the FASB in January 2017, which simplifies the accounting for goodwill impairments by eliminating step two from the goodwill impairment test. Under this guidance, if the carrying amount of a reporting unit exceeds its estimated fair value, an impairment charge shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. The impact of the new standard will depend on the specific facts and circumstances of future individual goodwill impairments, if any.
Effective January 1, 2020, the Company adopted ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments issued by the FASB in June 2016, as well as the clarifying amendments subsequently issued. The pronouncement changes the impairment model for most financial assets and requires the use of an "expected loss" model for instruments measured at amortized cost. Under this model, entities are required to estimate the lifetime expected credit loss on such instruments and record an allowance to offset the amortized cost basis of the financial asset, resulting in a net presentation of the amount expected to be collected on the financial asset. Upon adoption of the standard, there was no immediate impact to the Company's financial position, results of operations or cash flows. On an ongoing basis, the Company will contemplate forward-looking economic conditions in recording lifetime expected credit losses for the Company’s financial assets measured at cost, such as the Company’s trade receivables and certain short-term investments.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash and cash equivalents are stated at fair value or at cost, which approximates fair value, and include investments with original maturities of 90 days or less at the date of acquisition. At December 31, 2020, Cash and cash equivalents consisted of cash, money
45
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
market funds, and United States government treasury bills. At December 31, 2019, Cash and cash equivalents consisted of cash, money market funds, United States government treasury bills, and commercial paper.
Investments
At December 31, 2020, Short-term investments consisted of money market funds and mutual fund shares held as part of the Company's deferred compensation plan expected to be distributed in the next twelve months. At December 31, 2019, Short-term investments consisted of mutual fund shares held as part of the Company's deferred compensation plan expected to be distributed in the next twelve months. Investments held as part of the Company's deferred compensation plan are classified as trading securities and are recorded at fair value with any unrealized gains and losses included in SG&A expense. Realized gains or losses from these trading securities are determined based on the specific identification method and are included in SG&A expense.
At December 31, 2020 and 2019, long-term investments included in Other non-current assets consisted of money market funds and mutual fund shares held to offset liabilities to participants in the Company's deferred compensation plan. The investments are classified as long-term because the related deferred compensation liabilities are not expected to be paid within the next year. These investments are classified as trading securities and are recorded at fair value with unrealized gains and losses reported as a component of operating income.
Accounts receivable
Accounts receivable have been reduced by an allowance for doubtful accounts. The Company maintains the allowance for estimated losses resulting from the inability of the Company's customers to make required payments. The allowance represents the current estimate of lifetime expected credit losses over the remaining duration of existing accounts receivable considering current market conditions and supportable forecasts when appropriate. The estimate is a result of the Company’s ongoing evaluation of collectability, customer creditworthiness, historical levels of credit losses, and future expectations. Write-offs of accounts receivable were $8.0 million and $1.2 million for the years ended December 31, 2020 and 2019, respectively.
Inventories
Inventories consist primarily of finished goods and are carried at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. The Company periodically reviews its inventories for excess, close-out or slow moving items and makes provisions as necessary to properly reflect inventory value.
Property, plant and equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. The principal estimated useful lives are: land improvements, 15 years; buildings and building improvements, 15-30 years; furniture and fixtures, 3-10 years; and machinery, software and equipment, 3-10 years. Leasehold improvements are depreciated over the lesser of the estimated useful life of the improvement, which is most commonly 7 years, or the remaining term of the underlying lease.
Improvements to property, plant and equipment that substantially extend the useful life of the asset are capitalized. Repair and maintenance costs are expensed as incurred. Internal and external costs directly related to the development of internal-use software during the application development stage, including costs incurred for third party contractors and employee compensation, are capitalized and depreciated over a 3-10 year estimated useful life.
Intangible assets and goodwill
Intangible assets with indefinite useful lives and goodwill are not amortized but are periodically evaluated for impairment. Intangible assets that are determined to have finite lives are amortized using the straight-line method over their estimated useful lives and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. Intangible assets with finite lives include patents, purchased technology and customer relationships and have estimated useful lives which range from approximately 3 to 10 years.
Cloud computing arrangements
The Company’s CCAs primarily relate to various enterprise resource planning systems, as well as other supporting systems. These assets are generally included in Other non-current assets in the Consolidated Balance Sheets and amortize on a straight-line basis over their assessed useful lives or the term of the underlying cloud computing hosting contract, whichever is shorter. As of December 31, 2020, CCAs in-service have useful lives which range from approximately ten months to five years. As of December 31, 2020, CCA assets consisted of capitalized implementation costs of $24.3 million and associated accumulated amortization of $1.9
46
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
million. Changes in these assets are recorded in Other assets within operating activitiesin the Consolidated Statements of Cash Flows.
Leases
The Company leases, among other things, retail space, office space, warehouse facilities, storage space, vehicles, and equipment. Generally, the base lease terms are between five and 10 years. Certain lease agreements contain scheduled rent escalation clauses and others include rental payments adjusted periodically depending on an index or rate. Certain retail space lease agreements provide for additional rents based on a percentage of annual sales in excess of stipulated minimums ("percentage rent"). Certain lease agreements require the Company to pay real estate taxes, insurance, common area maintenance, and other costs, collectively referred to as operating costs, in addition to base rent.
Certain lease agreements also contain lease incentives, such as tenant improvement allowances and rent holidays. Most leases include one or more options to renew, with renewal terms that can extend the lease term from one to 10 years or more. The exercise of lease renewal options is generally at the Company's sole discretion. The Company's lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The Company determines if an arrangement is or contains a lease at contract inception. The Company recognizes a ROU asset and a lease liability at the lease commencement date. The lease liability is initially measured at the present value of the unpaid lease payments at the lease commencement date. Key estimates and judgments include how the Company determines (1) the discount rate it uses to discount the unpaid lease payments to present value, (2) the lease term and (3) lease payments.
ASC 842 requires a lessee to discount its unpaid lease payments using the interest rate implicit in the lease or, if that rate cannot be readily determined, its incremental borrowing rate. Generally, the Company cannot determine the interest rate implicit in the lease because it does not have access to the lessor's estimated residual value or the amount of the lessor's deferred initial direct costs. Therefore, the Company generally uses its incremental borrowing rate as the discount rate for the lease. The Company's incremental borrowing rate for a lease is the rate of interest it would have to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. Because the Company does not generally borrow on a collateralized basis, it uses market-based rates as an input to derive an appropriate incremental borrowing rate, adjusted for the lease term and the effect on that rate of designating specific collateral with a value equal to the unpaid lease payments for that lease. The Company also contemplates adjusting the discount rate for the amount of the lease payments.
The Company's lease contracts may include options to extend the lease following the initial term or terminate the lease prior to the end of the initial term. In most instances, at the commencement of the leases, the Company has determined that it is not reasonably certain to exercise either of these options; accordingly, these options are generally not considered in determining the initial lease term. At the renewal of an expiring lease, the Company reassesses options in the contract that it is reasonably certain to exercise in its measurement of lease term.
For lease agreements entered into or reassessed after the adoption of ASC 842, the Company has elected the practical expedient to account for the lease and non-lease components as a single lease component. Therefore, for those leases, the lease payments used to measure the lease liability include all of the fixed consideration in the contract.
Variable lease payments associated with the Company's leases are recognized upon occurrence of the event, activity, or circumstance in the lease agreement on which those payments are assessed. Variable lease payments are presented in the Company's Consolidated Statements of Operations in the same line item as expense arising from fixed lease payments.
Leases with an initial term of 12 months or less are not recorded on the balance sheet; the Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Concessions
In April 2020, the FASB issued a Staff Q&A, Topic 842 and 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic. The FASB staff indicated that it would be acceptable for entities to make an election to account for lease concessions related to the effects of the COVID-19 pandemic consistent with how they would be accounted for as though enforceable rights and obligations for those concessions existed in the original contract. The Company elected to account for lease concessions related to the effects of the COVID-19 pandemic in accordance with the Staff Q&A. For concessions that provide a deferral of payments with no substantive changes to the consideration in the original contract, the Company continues to recognize expense during the deferral period. For concessions in the form of lease abatements, the reduced lease payments are accounted for as reductions to variable lease expense.
47
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Impairment of long-lived assets, intangible assets and goodwill
Long-lived assets, which include property, plant and equipment, lease right-of-use assets, capitalized implementation costs for cloud computing arrangements, and intangible assets with finite lives, are measured for impairment only when events or circumstances indicate the carrying value may be impaired. In these cases, the Company estimates the future undiscounted cash flows to be derived from the asset or asset group to determine whether a potential impairment exists. If the sum of the estimated undiscounted cash flows is less than the carrying value of the asset, the Company recognizes an impairment loss, measured as the amount by which the carrying value exceeds the estimated fair value of the asset.
The Company reviews and tests its intangible assets with indefinite useful lives and goodwill for impairment in the fourth quarter of each year and when events or changes in circumstances indicate that the carrying amount of such assets may be impaired. The Company's intangible assets with indefinite lives consist of trademarks and trade names. In the impairment test for goodwill, the estimated fair value of the reporting unit is compared with the carrying amount of that reporting unit. In the impairment tests for trademarks and trade names, the Company compares the estimated fair value of each asset to its carrying amount. For goodwill and trademarks and trade names, if the carrying amount exceeds its estimated fair value, the Company calculates an impairment as the excess of carrying amount over the estimate of fair value.
Impairment charges, if any, are classified as a component of SG&A expense.
Income taxes
Income taxes are based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of events that are recognized in the financial statements in different periods than they are recognized in tax returns. As a result of timing of recognition and measurement differences between financial accounting standards and income tax laws, temporary differences arise between amounts of pre-tax financial statement income and taxable income and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their respective tax bases. Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net capital loss carryforwards, based on tax rates expected to be in effect for years in which the differences are expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered likely to be realized.
Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits relating to uncertain tax positions, including related interest and penalties, appropriately classified as current or noncurrent. The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the relevant taxing authority based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. In making this determination, the Company assumes that the taxing authority will examine the position and that it will have full knowledge of all relevant information. The provision for income taxes also includes estimates of interest and penalties related to uncertain tax positions.
Derivatives
The effective portion of changes in fair values of outstanding cash flow hedges is recorded in Other comprehensive income (loss) until earnings are affected by the hedged transaction, and any ineffective portion is included in current income. In most cases, amounts recorded in Other comprehensive income (loss) will be released to earnings after maturity of the related derivative. The Consolidated Statements of Operations classification of effective hedge results is the same as that of the underlying exposure. Results of hedges of product costs are recorded in Cost of sales when the underlying hedged transactions affect earnings. Results of hedges of revenue are recorded in Net sales when the underlying hedged transactions affect earnings. Unrealized derivative gains and losses, which are recorded in assets and liabilities, respectively, are non-cash items and therefore are taken into account in the preparation of the Consolidated Statements of Cash Flows based on their respective balance sheet classifications.
Foreign currency translation
The assets and liabilities of the Company's foreign subsidiaries have been translated into United States dollars using the exchange rates in effect at period end, and the sales and expenses have been translated into United States dollars using average exchange rates in effect during the period. The foreign currency translation adjustments are included as a separate component of Accumulated other comprehensive income (loss) in the Consolidated Balance Sheets.
Revenue recognition
48
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Revenues are recognized when the Company's performance obligations are satisfied as evidenced by transfer of control of promised goods to customers or consumers, in an amount that reflects the consideration the Company expects to be entitled to receive in exchange for those goods or services. Within the Company's wholesale channel, control generally transfers to the customer upon shipment to, or upon receipt by, the customer depending on the terms of sale with the customer. Within the Company's direct-to-consumer ("DTC") channel, control generally transfers to the consumer at the time of sale within retail stores and concession-based arrangements and upon shipment to the consumer with respect to e-commerce transactions.
The amount of consideration the Company expects to be entitled to receive and recognize as Net sales across both wholesale and DTC channels varies with changes in sales returns and other accommodations and incentives offered. The Company estimates expected sales returns and other accommodations, such as chargebacks and markdowns and records a sales reserve to reduce Net sales. These estimates are based on historical rates of product returns and claims, as well as events and circumstances that indicate changes to such historical rates. However, actual returns and claims in any future period are inherently uncertain and thus may differ from the estimates. As a result, the Company adjusts estimates of revenue at the earlier of when the most likely amount of consideration the Company expects to receive changes or when the amount of consideration becomes fixed. If actual or expected future returns and claims are significantly greater or lower than the sales reserves established, the Company records an adjustment to Net sales in the period in which it made such determination.
Licensing income, which is presented separately as Net licensing income on the Consolidated Statements of Operations and represents less than 1% of total revenue, is recognized over time based on the greater of contractual minimum royalty guarantees and actual, or estimated, sales of licensed products by the Company's licensees.
The Company expenses sales commissions when incurred, which is generally at the time of sale, because the amortization period would have been one year or less. These costs are recorded within SG&A expenses.
Revenue recognized from contracts with customers is recorded net of sales taxes, value added taxes, or similar taxes that are collected on behalf of local taxing authorities.
Shipping and handling costs
The Company treats shipping and handling activities as fulfillment costs, and as such recognize the costs for these activities at the time related revenue is recognized. The majority of these costs are recorded as SG&A expenses, and the direct costs associated with shipping goods to customers and consumers are recorded as Costs of sales. Shipping and handling fees billed to customers are recorded as Net sales. Shipping and handling costs recorded as a component of SG&A expenses and were $98.0 million, $89.2 million and $82.7 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Cost of sales
Cost of sales consists of all direct product costs, including shipping, duties and importation costs, as well as specific provisions for excess, close-out or slow moving inventory. In addition, certain products carry life-time or limited warranty provisions for defects in quality and workmanship. Cost of sales includes a warranty reserve established for these provisions at the time of sale to cover estimated costs based on the Company's history of warranty repairs and replacements.
Selling, general and administrative expenses
SG&A expenses consists of personnel-related costs, advertising, depreciation and amortization, occupancy, and other selling and general operating expenses related to the Company's business functions.
Stock-based compensation
Stock-based compensation cost is estimated at the grant date based on the award's fair value and is recorded as expense when recognized. For stock options and service-based restricted units, stock-based compensation cost is recognized over the expected requisite service period using the straight-line attribution method. For performance-based restricted stock units, stock-based compensation cost is recognized based on the Company's assessment of the probability of achieving performance targets in the reporting period. The Company estimates forfeitures for stock-based awards granted, but which are not expected to vest.
Advertising costs
Advertising costs, including marketing and demand creation spending, are expensed in the period incurred and are included in SG&A expenses. Total advertising expense, including cooperative advertising costs, were $141.3 million, $166.4 million and $150.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. Cooperative advertising costs are expensed when the related revenues are recognized and included in SG&A expenses when the Company receives an identifiable benefit in exchange for the
49
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
cost, the advertising may be obtained from a party other than the customer, and the fair value of the advertising benefit can be reasonably estimated.
Recently issued accounting pronouncements
Effective January 1, 2021, the Company adopted ASU No. 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which, among other things, removes specific exceptions for recognizing deferred taxes for investments, performing intraperiod allocation and calculating income taxes in interim periods, as well as targeted impacts to the accounting for taxes under hybrid tax regimes. At adoption, there was not a material impact to the Company's financial position, results of operations or cash flows.
NOTE 3—REVENUES
Disaggregated revenue
As disclosed below in Note 17, the Company has four geographic reportable segments: United States ("U.S."), Latin America and Asia Pacific ("LAAP"), Europe, Middle East and Africa ("EMEA") and Canada.
The following tables disaggregate our operating segment Net sales by product category and channel, which the Company believes provides a meaningful depiction how the nature, timing, and uncertainty of Net sales are affected by economic factors:
(in thousands) U.S. LAAP EMEA Canada Total
Product category net sales
Channel net sales
(in thousands) U.S. LAAP EMEA Canada Total
Product category net sales
Channel net sales
50
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(in thousands) U.S. LAAP EMEA Canada Total
Product category net sales
Channel net sales
Performance obligations
For the years ended December 31, 2020 and 2019, Net sales recognized from performance obligations related to prior periods were not material. Net sales expected to be recognized in any future period related to remaining performance obligations is not material.
Contract balances
As of December 31, 2020 and 2019, contract liabilities included in Accrued Liabilities on the Consolidated Balance Sheets, which consisted of obligations associated with the Company's gift card and customer loyalty programs, were not material.
NOTE 4—CONCENTRATIONS
Trade receivables
The Company had one customer that accounted for approximately 14.3% and 13.9% of Accounts receivable, net at December 31, 2020 and 2019, respectively. No single customer accounted for 10% or more of Net sales for any of the years ended December 31, 2020, 2019 or 2018.
NOTE 5—PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net consisted of the following:
December 31,
Depreciation expense for property, plant and equipment, net was $60.9 million, $59.8 million, and $58.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.
Impairment charges for property, plant and equipment are included in SG&A expense and were $5.0 million, $0.4 million and $2.1 million for the years ended December 31, 2020, 2019 and 2018, respectively. Charges during the years ended December 31, 2020, 2019 and 2018 were recorded primarily for certain underperforming retail stores in the U.S., EMEA and LAAP regions.
51
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 6—INTANGIBLE ASSETS, NET AND GOODWILL
Intangible assets, net consisted of the following:
December 31,
Intangible assets subject to amortization:
Accumulated amortization:
Intangible assets not subject to amortization 97,921 115,421
Amortization expense for intangible assets subject to amortization was $2.5 million for the year ended December 31, 2020, and $3.0 million for the years ended December 31, 2020 and 2019.
Impairment charges for the intangible assets not subject to amortization are included in SG&A expense and were $17.5 million for the year ended December 31, 2020. The impairment of the prAna trademark and trade name intangible asset was determined as part of the annual impairment test. The fair value was estimated using a relief from royalty method under the income approach. Cash flow projections were developed in part from the Company's annual planning process. The discount rate is the estimated weighted-average costs of capital of the reporting unit from a market-participant perspective. The decline in estimated fair value from the fourth-quarter 2019 impairment test reflects a lower estimated royalty rate and a decline in forecasted revenues. There was no impairment recorded for intangible assets not subject to amortization for the years ended December 31, 2019 and 2018.
Substantially all of the Company's goodwill is recorded in the U.S. segment. The Company determined that goodwill was not impaired for the years ended December 31, 2020, 2019, and 2018.
The following table presents the estimated annual amortization expense for the years 2021 through 2025:
(in thousands)
NOTE 7—SHORT-TERM BORROWINGS AND CREDIT LINES
Columbia Sportswear Company Credit Lines
In 2020, the Company entered into a credit agreement, maturing on December 30, 2025, which provides an unsecured, committed revolving credit facility that provides for funding up to $500.0 million. Interest, payable monthly, is based on the Company's option of either LIBOR plus an applicable margin or a base rate. Base rate is defined as the highest of the following, plus an applicable margin:
•the administrative agent's prime rate;
•the higher of the federal funds rate or the overnight bank funding rate set by the Federal Reserve Bank of New York, plus 0.50%; or
•the one-month LIBOR plus 1.00%.
52
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
This credit agreement requires the Company to comply with certain financial covenants covering the Company's funded debt ratio and asset coverage ratio. The credit agreement also includes customary covenants that, among other things, limit or restrict the ability of the Company and its subsidiaries to incur additional indebtedness and liens, engage in mergers, acquisitions and dispositions, and engage in transactions with affiliates, as well as restrict certain payments, including dividends and share buybacks.
At December 31, 2020, the Company was in compliance with all associated covenants and there was no balance outstanding. At December 31, 2019, there was no balance outstanding under the credit agreement in effect for such period.
Columbia Sportswear Company's Subsidiary Credit Lines
At December 21, 2020 and 2019, there was no balance outstanding under the Company's subsidiary credit lines.
The Company's Canadian subsidiary has available an unsecured and uncommitted line of credit, which is payable on demand, guaranteed by the Company, and provides for borrowing up to a maximum of CAD$30.0 million (approximately US$23.5 million) at December 31, 2020. The revolving line accrues interest at the Canadian prime rate for CAD overdraft borrowings or Bankers' Acceptance rate plus 150 basis points for Bankers' Acceptance loans.
The Company's European subsidiary has available two separate unsecured and uncommitted lines of credit, and an unsecured, committed line of credit, which are guaranteed by the Company, and provide for borrowing up to a maximum of €25.8 million, €0.6 million, and €4.4 million, respectively (combined approximately US$37.9 million), at December 31, 2020. Borrowings under the €25.8 million line accrue interest at a base rate of 185 basis points plus 175 basis points. Borrowings under the €4.4 million and €0.6 million lines each accrue interest at 75 basis points.
The Company's Japanese subsidiary has available two separate unsecured and uncommitted overdraft facilities guaranteed by the Company providing for borrowing up to a maximum of ¥1.5 billion and US$7.0 million, respectively (combined approximately US$21.5 million) at December 31, 2020. Borrowings under the ¥1.5 billion overdraft facility accrue interest at the Tokyo Interbank Offered Rate plus 0.50 basis points and borrowings under the US$7.0 million overdraft facility accrue interest at 175 basis points.
The Company's Korean subsidiary has available an unsecured and uncommitted overdraft facility guaranteed by the Company providing for borrowing up to a maximum of US$20.0 million at December 31, 2020. Borrowings under the overdraft facility accrue interest at the Korea three month CD rate plus 175 basis points.
The Company's Chinese subsidiary has available an unsecured and uncommitted line of credit providing for borrowings up to a maximum of RMB140.0 million at December 31, 2020. The Company's Chinese subsidiary also has an unsecured and uncommitted overdraft and clean advance facility, guaranteed by the Company that provides for borrowings of advances or overdrafts up to a maximum of US$20.0 million at December 31, 2020. Borrowings under the RMB140.0 million line of credit accrue interest at the one year loan prime rate less 10 basis points. Borrowings under the US$20.0 million facility accrue interest on advances of RMB at 4.15%, advances of USD based on LIBOR plus 1.75% per annum or overdrafts of RMB based on 110% of the People's Bank of China rate. The combined available borrowings of the two facilities were approximately US$41.5 million at December 31, 2020.
NOTE 8—ACCRUED LIABILITIES
Accrued liabilities consisted of the following:
December 31,
Accrued salaries, bonus, paid time off and other benefits 80,074 93,887
Taxes other than income taxes payable 15,002 15,496
53
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
A reconciliation of product warranties is as follows:
Year Ended December 31,
NOTE 9—LEASES
The components of lease cost consisted of the following:
Year Ended December 31,
(1) For the year ended December 31, 2018, prior to the adoption of ASC 842 on January 1, 2019, rent expenses of $143.9 million and $1.6 million was included in SG&A expense andCost of sales, respectively.
For the year ended December 31, 2020, operating lease cost included $16.5 million of accelerated amortization for retail locations that permanently closed during 2020 for which the related lease liabilities have not been extinguished as of December 31, 2020 due to ongoing negotiations with the landlords. In addition, for the year ended December 31, 2020, operating lease cost included $7.0 million of right-of-use asset impairment charges related to underperforming retail locations primarily in the U.S. segment for the year ended December 31, 2020. There was no impairment recorded for the year ended December 31, 2019.
In the periods presented, lease concessions reducing variable lease expense were not material.
The following table presents supplemental cash flow information:
Year Ended December 31,
(1) The year ended December 31, 2019 reflects the impact from amount initially capitalized in conjunction with the adoption of ASC 842.
(2) Includes amounts added to the carrying amount of lease liabilities resulting from lease modifications and reassessments.
The following table presents supplemental balance sheet information related to leases:
Year Ended December 31,
Weighted average remaining lease term 6.16 years 6.79 years
Weighted average discount rate 3.72 % 3.82 %
54
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following table presents the future maturities of liabilities as of December 31, 2020:
(in thousands)
Less: imputed interest (54,662)
Total lease liabilities 418,647
Less: current obligations (65,466)
Long-term lease obligations $ 353,181
As of December 31, 2020, the Company has additional operating lease commitments that have not yet commenced of $3.9 million. These leases will commence in 2021 with lease terms of approximately two to 10 years.
NOTE 10—INCOME TAXES
Income Tax Provision
Consolidated income from continuing operations before income taxes consisted of the following:
Year Ended December 31,
The components of the provision for income taxes consisted of the following:
Year Ended December 31,
Current:
Deferred:
Table of Contents
Index to Notes to Consolidated Financial Statements
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements:
Year Ended December 31,
Provision for federal income taxes at the statutory rate 21.0 % 21.0 % 21.0 %
State and local income taxes, net of federal benefit 1.5 1.7 2.0
Non-United States income taxed at different rates 2.1 (0.1) (0.1)
Foreign tax credits (0.9) (0.1) —
Adjustment to deferred taxes (1.2) (2.1) —
Global Intangible Low-Taxed Income 0.1 — 0.4
Research credits (1.4) (0.5) (0.6)
Excess tax benefits from stock plans (0.8) (1.6) (1.4)
Provision for income taxes related to tax reform — — 1.4
Actual provision for income taxes 22.6 % 18.5 % 23.8 %
Deferred Income Tax Balances
Significant components of the Company's deferred taxes consisted of the following:
December 31,
Deferred tax assets:
Foreign currency 2,418 —
Deferred tax liabilities:
Deferred tax liability associated with future repatriations (19,008) (19,847)