Special Note Regarding Forward Looking Statements This quarterly report contains forward-looking statements within the meaning of federal securities laws. Forward-looking statements often use words such as "will", "anticipate", "estimate", "expect", "should", "may" and other words and terms of similar meaning or reference future dates. Forward-looking statements include any statements related to our expectations regarding future performance or market position, including any statements regarding the impacts of the COVID-19 pandemic, store traffic, supply chain disruptions, constraints and costs, inventory receipts and deliveries, net sales and gross margin, profitability, return on investments, inflationary pressures and related price increases, performance obligations, unrecognized costs, derivative instruments, inventory purchase obligations, income tax rates, materiality of legal matters, our ability to meet our liquidity needs, amortization expenses and maturities of liabilities. These forward-looking statements, and others we make from time to time expressed in good faith, are believed to have a reasonable basis; however, each forward-looking statement involves risks and uncertainties. Many factors may cause actual results to differ materially from projected results in forward-looking statements, including the risks described in Item 1A of this quarterly report. Forward-looking statements are inherently less reliable than historical information. Except as required by law, we do not undertake any duty to update forward-looking statements after the date they are made or to conform them to actual results or to changes in circumstances or to reflect changes in events, circumstances or expectations. New factors emerge from time to time and it is not possible for us to predict or assess the effects of all such factors or the extent to which any factor, or combination of factors, may cause results to differ materially from those contained in any forward-looking statement. Our Business We connect active people with their passions through our four well-known brands, Columbia, SOREL,Mountain Hardwear , and prAna, by designing, developing, marketing, and distributing our outdoor, active and everyday lifestyle apparel, footwear, accessories and equipment products to meet the diverse needs of our customers and consumers. Our products are sold through a mix of wholesale distribution channels, our own direct-to-consumer ("DTC") businesses and independent international distributors. In addition, we license some of our trademarks across a range of apparel, footwear, accessories, equipment and home products. The popularity of outdoor activities, active and everyday lifestyles, changing design trends, consumer adoption of innovative performance technologies, variations in seasonal weather, and the availability and desirability of competitor alternatives affect consumer desire for our products. Therefore, we seek to drive, anticipate and respond to trends and shifts in consumer preferences by developing new products and innovative performance features and designs, creating persuasive and memorable marketing communications to generate consumer awareness, demand and retention, and adjusting the mix, price points and selling channels of available product offerings. Our production cycle from the design to the delivery of our products requires significant inventory commitment. We generally solicit orders from wholesale customers and independent international distributors for the fall and spring seasons based on seasonal ordering deadlines that we establish to aid our efforts to plan manufacturing volumes to meet demand. We typically ship the majority of our advance spring season orders to customers beginning in January and continuing through June. Similarly, we typically ship the majority of our advance fall season orders to customers beginning in July and continuing through December. Subsequent to advance order placements, wholesale customers may request replenishment orders for various products as consumer demand increases. Generally, orders are subject to cancellation prior to the date of shipment. Our business is affected by the general seasonal trends common to the industry, including seasonal weather and discretionary consumer shopping and spending patterns. Our products are marketed on a seasonal basis, and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. In 2020, approximately 65% of our net sales and the majority of our operating income were realized in the second half of the year. Although impacts from the ongoing COVID-19 pandemic exacerbated seasonal net sales and profitability patterns, this still illustrates our dependence upon sales results in the second half of the year, as well as the less seasonal nature of our operating costs. Results of operations in any period should not be considered indicative of the results to be expected for any future period. COVID-19 and Supply Chain Update The COVID-19 pandemic continues to impact the global economy. In response to this pandemic, many regional and local governments worldwide continue to implement travel restrictions, business shutdowns or slowdowns, and shelter-in-place or stay-at-home orders. 21 -------------------------------------------------------------------------------- Table of Contents In the first nine months of 2021, the majority of our stores remained open. For most of the first quarter of 2021, government mandated lockdowns impacted our stores inEurope ,Canada andJapan . At varying times during the second quarter of 2021, government mandated lockdowns, including pandemic-related temporary store closures or reduced store operating hours, impacted stores inJapan ,China ,Europe andCanada . At varying times during the third quarter of 2021, government mandated lockdowns, including pandemic-related temporary store closures or reduced store operating hours, impacted stores inJapan andChina . Overall, our store retail traffic trends improved in the first nine months of 2021, but remained below pre-pandemic levels. Stores in destination locations and tourist-dependent markets were some of the most impacted stores within our fleet. In addition, certain of our wholesale customers and international distributors experienced a similar timeline and closed stores or reduced operating hours. Despite these impacts, consumer demand accelerated in the first nine months of 2021 and we did not realize significant wholesale order cancellations or customer accommodations. We, our third party partners and our customers continue to be impacted by the supply chain environment, including freight capacity, port congestion, production factory closures, and other logistics constraints. In the first nine months of 2021, these disruptions and constraints resulted in later timing of Fall 2021 inventory receipts and shipments, as well as higher freight and logistics costs. We expect these supply chain disruptions, constraints and increases in costs to continue through the balance of this year and into 2022. In addition, during the third quarter of 2021, government mandated factory closures inVietnam disrupted our manufacturing partners' operations and impacted production of Fall 2021 and Spring 2022 product. Factories inVietnam began to reopen as ofOctober 1, 2021 at less than full capacity. As a result of these supply chain disruptions and temporary factory closures, we anticipate later than expected Fall 2021 and Spring 2022 inventory receipts and shipments to our wholesale customers and inventory availability for our DTC businesses, resulting in impacts to our future net sales and gross margin. Business Outlook The ongoing business disruption and uncertainty surrounding the COVID-19 pandemic and the global supply chain make it difficult to predict our future results. Consistent with the seasonality and variability of our business, we anticipate 2021 profitability to be weighted toward the second half of the year. Our full year 2021 financial results are being, or could be, significantly impacted by the following factors: •the ability of third-party logistics providers to service the demands of our business and the retail industry generally, which may result in cancellations of advance wholesale and distributor orders and reduced availability of inventory to support our DTC business; •increasing operating costs associated with a constrained supply chain, including increased ocean freight and other logistics related costs; •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 staff and operate ourU.S. distribution centers, retail stores, and consumer call center during the peak holiday season amid U,S. labor shortages; •our ability to secure production capacity with our contract manufacturers, and their ability to maintain operations as pandemic-related outbreaks impact less vaccinated countries/regions; •changes in consumer demand as a result of ongoing effects from the COVID-19 pandemic and/or related governmental actions and regulations, and any potential incremental cost that may be associated with aU.S. government vaccine mandate or related testing protocol; •growth, performance and profitability of our global DTC operations, including depressed consumer traffic in our retail stores and elevated DTC e-commerce growth trends; •increasing consumer expectations and competitive pressure related to various aspects of our e-commerce business, including speed of product delivery, shipping charges, return privileges and other evolving expectations; •our ability to effectively manage our inventory, including liquidating excess inventory timely and profitably through close-out sales in our wholesale and DTC businesses; and •difficult economic, geopolitical and competitive environments in certain key markets globally, coupled with global economic uncertainty. We expect many of these factors to continue into 2022. In addition, we expect inflationary pressures to continue to build across our business beyond 2021. We are implementing price increases beginning with our Spring 2022 season and, to a greater extent, our Fall 2022 season to mitigate these higher costs, to the 22 -------------------------------------------------------------------------------- Table of Contents extent possible, while attempting to minimize potential risks to dampening consumer demand. We do not expect planned price increases will fully offset these gross margin pressures. Strategic Priorities We are committed to driving sustainable and profitable long-term growth and investing in our strategic priorities to: •drive global brand awareness and sales growth through increased, focused demand creation investments; •enhance consumer experience and digital capabilities in all of our channels and geographies; •expand and improve global DTC operations with supporting processes and systems; and •invest in our people and optimize our organization across our portfolio of brands. Ultimately, we expect our investments to enable market share capture across our brand portfolio, expand gross margin, improve selling, general and administrative expense efficiency, and drive improved operating margin over the long-term. Results of Operations The following discussion of our results of operations and liquidity and capital resources should be read in conjunction with the condensed consolidated financial statements and accompanying Notes that appear in Part 1, Item 1, Financial Statements in this quarterly report. All references to quarters relate to the quarter endedSeptember 30 of the particular year. To supplement financial information reported in accordance with accounting principles generally accepted inthe 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 intoUnited 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. 23 -------------------------------------------------------------------------------- Table of Contents Highlights of the Third Quarter of 2021 •Net sales increased$103.6 million , or 15%, to$804.7 million , from$701.1 million in the third quarter of 2020. •Gross profit as a percentage of net sales expanded to 50.7% from 48.9% in the third quarter of 2020. •Operating income increased$47.9 million to$133.5 million from$85.6 million in the third quarter of 2020. •Income tax expense increased$11.2 million to$33.3 million from$22.1 million in the third quarter of 2020. •Net income increased$37.8 million to$100.6 million , or$1.52 per diluted share, from$62.8 million , or$0.94 per diluted share, in the third quarter of 2020. •Net cash used in operating activities for the nine months endedSeptember 30, 2021 decreased$182.3 million to$15.6 million , compared to net cash used in operating activities of$198.0 million for the comparable period in 2020. •We paid cash dividends to shareholders totaling$17.1 million , or$0.26 per share. The following table presents the items in our Condensed Consolidated Statements of Operations as a percentage of net sales: Three Months Ended September 30, Nine Months Ended September 30, 2021 2020 2021 2020 Net sales 100.0 % 100.0 % 100.0 % 100.0 % Cost of sales 49.3 51.1 48.8 52.0 Gross profit 50.7 48.9 51.2 48.0 Selling, general and administrative expenses 34.8 37.3 39.9 47.6 Net licensing income 0.7 0.6 0.7 0.4 Operating income 16.6 12.2 12.0 0.8 Interest income (expense), net - - - 0.1 Other non-operating income (expense), net - (0.1) - 0.1 Income before income tax 16.6 12.1 12.0 1.0 Income tax expense (4.1) (3.1) (2.1) (0.2) Net income 12.5 % 9.0 % 9.9 % 0.8 % 24
-------------------------------------------------------------------------------- Table of Contents Results of Operations - Consolidated Quarter EndedSeptember 30, 2021 Compared to Quarter EndedSeptember 30, 2020 Net Sales : Consolidated net sales increased$103.6 million , or 15%, to$804.7 million for the third quarter 2021 from$701.1 million for the comparable period in 2020. The increase primarily reflects higher consumer demand and economic recovery from the ongoing COVID-19 pandemic. This increase was constrained by supply chain disruptions that resulted in later inventory receipts and lower than expected wholesale shipments during the quarter. Net sales increased across all regions, primarily driven by increased Columbia brand net sales in ourU.S. DTC,Canada , LAAP andEurope businesses. Our global DTC e-commerce business grew 6% and represented 11% of our global net sales for the third quarter 2021, compared to 12% of our global net sales for the same period in 2020. Net sales by brand, product category and channel are summarized in the following table: Three Months Ended September 30, Reported Constant-currency Reported Reported Constant-currency (in millions, except for Net Sales Adjust for Foreign Net Sales Net Sales Net Sales Net Sales percentage changes) 2021 Currency Translation 2021(1) 2020 % Change % Change(1) BrandNet Sales : Columbia$ 651.5 $ (7.6) $ 643.9$ 559.7 16% 15% SOREL 88.1 (0.9) 87.2 91.5 (4)% (5)% prAna 36.4 - 36.4 30.5 19% 19% Mountain Hardwear 28.7 (0.1) 28.6 19.4 48% 47% Total$ 804.7 $ (8.6) $ 796.1$ 701.1 15% 14% Product CategoryNet Sales : Apparel, Accessories and Equipment$ 621.1 $ (6.3) $ 614.8$ 510.2 22% 21% Footwear 183.6 (2.3) 181.3 190.9 (4)% (5)% Total$ 804.7 $ (8.6) $ 796.1$ 701.1 15% 14% Channel Net Sales: Wholesale$ 518.2 $ (6.7) $ 511.5$ 471.5 10% 8% DTC 286.5 (1.9) 284.6 229.6 25% 24% Total$ 804.7 $ (8.6) $ 796.1$ 701.1 15% 14% (1) Constant-currency net sales information is a non-GAAP financial measure, which excludes the effect of changes in foreign currency exchange rates againstthe United States dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period intoUnited States dollars at the exchange rates that were in effect during the comparable period of the prior year. Gross Profit: Gross profit as a percentage of net sales expanded to 50.7% for the third quarter 2021 from 48.9% for the comparable period in 2020, primarily reflecting: •an approximate 290 basis points increase in channel profitability, including favorable DTC product margin driven by lower promotional levels, increased wholesale product margin driven by strong retail sell-through performance resulting in lower customer accommodations and, to a lesser extent, favorable full-price sales mix, and unfavorable impacts from higher inbound freight costs due to supply chain capacity constraints; partially offset by •a decrease resulting from the non-recurrence of inventory provision activity that benefited gross margin performance in the third quarter of 2020; and •a decrease driven by an unfavorable sales mix as sales shifted to channels which carry lower margins, including regional net sales shifts to wholesale from DTC channels and higher net sales in stores within the DTC channel. Selling, General and Administrative Expense: SG&A expense increased$18.9 million , or 7%, to$280.1 million , or 34.8% of net sales, for the third quarter of 2021, from$261.2 million , or 37.3% of net sales, for the comparable period in 2020. The SG&A expense increase was primarily due to: •higher global retail expenses relative to prior year temporary store closures; 25 -------------------------------------------------------------------------------- Table of Contents •higher incentive compensation; •increased demand creation spending driven by higher variable spending with sales growth and incremental strategic investment; and •higher personnel expenses to support business growth, annual merit increases, and wage increases to mitigate workforce shortages; partially offset by •the benefit of$7.0 million from the completion of a lease termination and settlement of liabilities related to a prior year store closure; and •the non-recurrence of prior year COVID-19 related expenses. The benefit of$7.0 million from the completion of a lease termination and settlement of liabilities discussed above relates to a portion of the$16.5 million of accelerated amortization of lease right-of-use assets for stores that permanently closed in 2020 for which the related lease liabilities had not been extinguished as ofDecember 31, 2020 due to ongoing negotiations with the landlords as disclosed in our 2020 Annual Report. Operating Income: Operating income increased$47.9 million to$133.5 million , or 16.6% of net sales, for the third quarter of 2021, from$85.6 million , or 12.2% of net sales, for the comparable period in 2020. Income Tax Expense: Income tax expense increased to$33.3 million for the third quarter of 2021 from$22.1 million for the comparable period in 2020. Our effective income tax rate was 24.9% compared to 26.1% for the third quarter of 2020. Our effective income tax rate for the third quarter of 2021 decreased compared to the third quarter of 2020 primarily driven by the mix of book income or loss among jurisdictions. Net Income: Net income increased$37.8 million to$100.6 million , or$1.52 per diluted share, for the third quarter of 2021, from$62.8 million , or$0.94 per diluted share, for the comparable period in 2020. 26 -------------------------------------------------------------------------------- Table of Contents Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 Net Sales : Consolidated net sales increased$410.8 million , or 26%, to$1,996.7 million for the nine months endedSeptember 30, 2021 from$1,585.9 million for the comparable period in 2020. The increase primarily reflects higher consumer demand and an accelerated economic recovery compared to the same period in 2020, which was impacted by wholesale order cancellations, temporary store closures and lower consumer demand. Net sales increased across all regions, product categories, and brands, primarily driven by increased Columbia brand net sales in theU.S. DTC and wholesale businesses. In addition, our DTC e-commerce business grew 16% and represented 15% of our global net sales for the nine months endedSeptember 30, 2021 , compared to 17% of our global net sales for the same period in 2020. Net sales by brand, product category and channel are summarized in the following table: Nine Months Ended September 30, Reported Adjust for Foreign Constant-currency Reported Reported Constant-currency (in millions, except for Net Sales Currency Net Sales Net Sales Net Sales Net Sales percentage changes) 2021 Translation 2021(1) 2020 % Change % Change(1) Brand Net Sales: Columbia$ 1,663.2 $ (27.8) $ 1,635.4$ 1,297.2 28% 26% SOREL 157.5 (1.8) 155.7 143.5 10% 9% prAna 107.6 - 107.6 94.7 14% 14% Mountain Hardwear 68.4 (0.6) 67.8 50.5 35% 34% Total$ 1,996.7 $ (30.2) $ 1,966.5$ 1,585.9 26% 24% Product CategoryNet Sales : Apparel, Accessories and Equipment$ 1,543.1 $ (21.0) $ 1,522.1$ 1,206.2 28% 26% Footwear 453.6 (9.2) 444.4 379.7 19% 17% Total$ 1,996.7 $ (30.2) $ 1,966.5$ 1,585.9 26% 24% Channel Net Sales: Wholesale$ 1,155.9 $ (19.2) $ 1,136.7$ 957.3 21% 19% DTC 840.8 (11.0) 829.8 628.6 34% 32% Total$ 1,996.7 $ (30.2) $ 1,966.5$ 1,585.9 26% 24% (1) Constant-currency net sales information is a non-GAAP financial measure, which excludes the effect of changes in foreign currency exchange rates againstthe United States dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period intoUnited States dollars at the exchange rates that were in effect during the comparable period of the prior year. Gross Profit: Gross profit as a percentage of net sales expanded to 51.2% for the nine months endedSeptember 30, 2021 from 48.0% for the comparable period in 2020, primarily reflecting: •an approximate 230 basis points increase in channel profitability, including favorable DTC product margin driven by lower promotional levels and unfavorable impacts from higher inbound freight costs due to supply chain capacity constraints; and •an approximate 110 basis points increase primarily resulting from decreased inventory reserve provisions. Selling, General and Administrative Expense: SG&A expense increased$40.6 million , or 5%, to$796.3 million , or 39.9% of net sales, for the nine months endedSeptember 30, 2021 , from$755.7 million , or 47.6% of net sales, for the comparable period in 2020. The increase in SG&A expenses primarily reflects the variable component of our SG&A expense structure, which correlates with changes in sales volume. The SG&A expense increase was primarily due to: •higher personnel expenses of$26.9 million to support business growth and annual merit increases; •higher global retail expenses of$26.0 million relative to prior year temporary store closures; •increased demand creation spending of$23.8 million , driven by higher variable spending with sales growth and incremental strategic investment; and •higher incentive compensation; partially offset by 27 -------------------------------------------------------------------------------- Table of Contents •lower bad debt expenses of$33.8 million ; •the non-recurrence of prior year COVID-19 related expenses of$21.7 million ; and •the benefit of$8.6 million from the completion of lease terminations and settlements of liabilities related to prior year store closures. The decrease in bad debt expenses was driven by incremental COVID-19 pandemic related bad debt reserve provisions in the first nine months of 2020, compared to a reduction in bad debt reserves in the same period in 2021 reflecting the continued recovery of the market and a healthier wholesale customer base. The benefit of$8.6 million from the completion of a lease termination and settlement of liabilities discussed above relates to a portion of the$16.5 million of accelerated amortization of lease right-of-use assets for stores that permanently closed in 2020 for which the related lease liabilities had not been extinguished as ofDecember 31, 2020 due to ongoing negotiations with the landlords as disclosed in our 2020 Annual Report. Operating Income: Operating income increased$225.6 million to$238.9 million , or 12.0% of net sales, for the nine months endedSeptember 30, 2021 , from$13.4 million , or 0.8% of net sales, for the comparable period in 2020. Income Tax Expense: Income tax expense was$42.5 million for the nine months endedSeptember 30, 2021 , compared to$4.0 million for the comparable period in 2020. Our effective income tax rate was 17.7% for the nine months endedSeptember 30, 2021 compared to 24.8% for the comparable period in 2020. The change in our effective income tax rate for the nine months endedSeptember 30, 2021 compared to the same period in 2020 was primarily driven by the non-recurring decrease in accrued foreign withholding taxes and the mix of book income or loss among jurisdictions. Net Income: Net income increased$184.9 million to$197.1 million , or$2.96 per diluted share, for the nine months endedSeptember 30, 2021 , from$12.3 million , or$0.18 per diluted share, for the comparable period in 2020. Results of Operations - Segment Quarter EndedSeptember 30, 2021 Compared to Quarter EndedSeptember 30, 2020 Net sales by geographic segment are summarized in the following table: Three Months Ended September 30, Reported Constant-currency Reported Reported Constant-currency (in millions, except for percentage Net Sales Adjust for Foreign Net Sales Net Sales Net Sales Net Sales changes) 2021 Currency Translation 2021(1) 2020 % Change % Change(1) U.S.$ 510.5 $ - $ 510.5$ 445.6 15% 15% LAAP 102.7 (2.3) 100.4 90.9 13% 10% EMEA 109.2 (1.3) 107.9 99.2 10% 9% Canada 82.3 (5.0) 77.3 65.4 26% 18%$ 804.7 $ (8.6) $ 796.1$ 701.1 15% 14% (1) Constant-currency net sales information is a non-GAAP financial measure, which excludes the effect of changes in foreign currency exchange rates againstthe United States dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period intoUnited States dollars at the exchange rates that were in effect during the comparable period of the prior year. 28 -------------------------------------------------------------------------------- Table of Contents Operating income (loss) for each reportable segments and unallocated corporate expenses are summarized in the following table: Three Months Ended September 30, (in millions) 2021 2020 Change ($) U.S.$ 139.1 $ 96.6 $ 42.5 LAAP 7.6 4.7 2.9 EMEA 26.2 19.0 7.2 Canada 22.8 19.7 3.1 Total segment operating income 195.7 140.0 55.7 Unallocated corporate expenses (62.2) (54.4) (7.8) Operating income$ 133.5 $ 85.6 $ 47.9 Unless otherwise noted below, segment net sales and operating income within all regions increased due to the result of unfavorable COVID-19 pandemic impacts realized in the comparable period in 2020, which led to economic lockdowns, including temporary store closures and lower consumer demand.U.S. U.S. operating income increased$42.5 million to$139.1 million , or 27.2% of net sales, for the third quarter of 2021 from$96.6 million , or 21.7% of net sales, for the comparable period in 2020. The increase was driven primarily by increased net sales combined with increased gross margin.U.S. net sales increased$64.9 million , or 15%, for the third quarter of 2021 compared to same period in 2020, driven by increased net sales primarily in ourU.S. DTC business and to a lesser extent ourU.S. wholesale business.U.S. wholesale net sales increased due to higher Fall 2021 order shipments, but were constrained by supply chain disruptions that resulted in later inventory receipts and later than expected wholesale shipments during the quarter.U.S. SG&A expense decreased as a percentage of net sales to 25.2% for the three months endedSeptember 30, 2021 compared to 28.5% for the comparable period in 2020.U.S. SG&A expense for the third quarter of 2020 included non-recurring COVID-19 related expenses. LAAP LAAP operating income of$7.6 million , or 7.4% of net sales, for the third quarter of 2021 increased$2.9 million from$4.7 million , or 5.2% of net sales, for the comparable period in 2020. The increase was driven primarily by increased net sales combined with increased gross margin. LAAP net sales increased$11.8 million , or 13% (10% constant-currency) for the third quarter of 2021 compared to the same period in 2020, primarily driven by increased net sales in ourChina business. LAAP net sales increased due to higher Fall 2021 wholesale order shipments, partially offset by lower consumer demand due to COVID-19 related provincial and government mandated restrictions to prevent the spread of the virus. LAAP SG&A expense increased as a percentage of net sales to 46.9% for the third quarter of 2021 compared to 46.6% for the comparable period in 2020. EMEA EMEA operating income increased$7.2 million to$26.2 million , or 24.0% of net sales, for the third quarter of 2021 from$19.0 million , or 19.1% of net sales, for the comparable period in 2020. The increase was driven by increased net sales combined with increased gross margin and SG&A expense leverage. EMEA net sales increased$10.0 million , or 10% (9% constant-currency), for the third quarter of 2021 compared to the same period in 2020. EMEA net sales increased primarily in ourEurope -direct business, and to a lesser extent our EMEA distributor business.Europe -direct net sales increased primarily due to higher Fall 2021 wholesale order shipments. EMEA SG&A expense decreased as a percentage of net sales to 22.6% for the third quarter of 2021 compared to 26.3% for the same period in 2020 driven by leveraging of fixed operating expenses.Canada Canada operating income of$22.8 million , or 27.8% of net sales, for the third quarter of 2021 increased$3.1 million from$19.8 million , or 30.2% of net sales, for the comparable period in 2020. The increase primarily resulted from increased net sales.Canada net sales increased$16.9 million , or 26% (18% constant-currency), for the third quarter of 2021 compared to the same period in 2020.Canada net sales increased primarily due to higher Fall 2021 wholesale order shipments. Canada SG&A expense increased as a percentage of net sales to 20.1% for the third quarter of 2021 compared to 17.5% for the comparable period in 2020. 29 -------------------------------------------------------------------------------- Table of Contents Unallocated corporate expenses increased by$7.8 million to$62.3 million for the third quarter of 2021, from$54.4 million for the comparable period in 2020, primarily driven by higher incentive compensation and personnel expenses. Nine Months EndedSeptember 30, 2021 Compared to Nine Months EndedSeptember 30, 2020 Net sales by geographic segment are summarized in the following table: Nine Months Ended September 30, Reported Adjust for Foreign Constant-currency Reported Reported
Constant-currency
(in millions, except for percentage Net Sales Currency Net Sales Net Sales Net Sales Net Sales changes) 2021 Translation 2021(1) 2020 % Change % Change(1) U.S.$ 1,298.2 $ - $ 1,298.2$ 1,004.7 29% 29% LAAP 292.7 (11.9) 280.8 260.9 12% 8% EMEA 268.5 (9.6) 258.9 213.3 26% 21% Canada 137.3 (8.7) 128.6 107.0 28% 20%$ 1,996.7 $ (30.2) $ 1,966.5$ 1,585.9 26% 24% (1) Constant-currency net sales information is a non-GAAP financial measure, which excludes the effect of changes in foreign currency exchange rates againstthe United States dollar between comparable reporting periods. We calculate constant-currency net sales by translating net sales in foreign currencies for the current period intoUnited States dollars at the exchange rates that were in effect during the comparable period of the prior year.
Operating income for each reportable segments and unallocated corporate expenses are summarized in the following table:
Nine Months Ended September 30, (in millions) 2021 2020 Change ($) U.S.$ 320.8 $ 118.5 $ 202.3 LAAP 16.3 8.7 7.6 EMEA 47.8 19.0 28.8 Canada 29.7 15.1 14.6 Total segment operating income 414.6 161.3
253.3
Unallocated corporate expenses (175.7) (147.9) (27.8) Operating income$ 238.9 $ 13.4 $ 225.5 Unless otherwise noted below, segment net sales and operating income within all regions increased due to the result of unfavorable COVID-19 pandemic impacts realized in the comparable period in 2020, which led to economic lockdowns, including temporary store closures and lower consumer demand.U.S. U.S. operating income increased$202.3 million to$320.8 million , or 24.7% of net sales, for the nine months endedSeptember 30, 2021 from$118.5 million , or 11.8% of net sales, for the comparable period in 2020. The increase was driven primarily by increased net sales combined with increased gross margin, as well as a reduction in bad debt expense.U.S. net sales increased$293.5 million , or 29%, for the nine months endedSeptember 30, 2021 compared to the same period in 2020, driven by increased net sales in ourU.S. DTC retail stores, wholesale and, to a lesser extent, DTC e-commerce businesses. The reduction in bad debt reserves reflected the continued recovery of the market and a healthier wholesale customer base. SG&A expenses decreased as a percentage of net sales to 28.2% for the nine months endedSeptember 30, 2021 compared to 37.3% for the comparable period in 2020, primarily driven by leveraging of fixed operating expenses, a reduction in bad debt expense, and the non-recurrence of prior year COVID-19 related expenses. LAAP LAAP operating income increased$7.6 million to$16.3 million , or 5.6% of net sales, for the nine months endedSeptember 30, 2021 from$8.7 million , or 3.3% of net sales, for the comparable period in 2020. The increase was driven primarily by increased net sales combined with increased gross margin. LAAP net sales increased$31.8 million , or 12% (8% constant-currency) for the nine months endedSeptember 30, 2021 compared to the same period in 2020, primarily driven by increased net sales in ourChina business and to a lesser extent ourKorea andJapan businesses, partially offset by decreased net sales in our LAAP 30 -------------------------------------------------------------------------------- Table of Contents distributor businesses. LAAP SG&A expense increased as a percentage of net sales to 50.3% for the nine months endedSeptember 30, 2021 compared to 48.5% for the comparable period in 2020, primarily driven by increased investment in demand creation and the non-recurrence of prior year COVID-19 government subsidies received. EMEA EMEA operating income increased$28.8 million to$47.8 million , or 17.8% of net sales, for the nine months endedSeptember 30, 2021 from$19.0 million , or 8.9% of net sales, for the comparable period in 2020. The increase was driven primarily by increased net sales combined with increased gross margin. EMEA net sales increased$55.2 million to$268.5 million , or 26% (21% constant-currency), for the nine months endedSeptember 30, 2021 compared to the same period in 2020. EMEA net sales increased in both ourEurope -direct and EMEA distributors businesses. SG&A expense decreased as a percentage of net sales to 26.6% for the nine months endedSeptember 30, 2021 compared to 33.6% for the same period in 2020 driven by leveraging of fixed operating expenses, the non-recurrence of prior year COVID-19 related expenses and lower reserve provisions for bad debt.Canada Canada operating income increased$14.6 million to$29.7 million , or 21.6% of net sales, for the nine months endedSeptember 30, 2021 from$15.1 million , or 14.2% of net sales, for the comparable period in 2020. The increase primarily resulted from increased net sales combined with increased gross margin.Canada net sales increased$30.3 million , or 28% (20% constant-currency), for the nine months endedSeptember 30, 2021 compared to the same period in 2020. Canada SG&A expense decreased as a percentage of net sales to 26.3% for the nine months endedSeptember 30, 2021 compared to 32.6% for the comparable period in 2020, primarily driven by leveraging of fixed operating expenses, a reduction in bad debt expense and the non-recurrence of prior year COVID-19 government subsidies received. Unallocated corporate expenses increased by$27.8 million to$175.7 million for the nine months endedSeptember 30, 2021 , from$148.0 million for the comparable period in 2020, primarily driven by higher incentive compensation and personnel expenses. Liquidity and Capital Resources AtSeptember 30, 2021 , we had total cash and cash equivalents of$599.5 million , compared to$790.7 million atDecember 31, 2020 and$313.4 million atSeptember 30, 2020 . Our primary ongoing cash needs are for working capital and capital expenditures, including investment in our DTC operations, including new stores, and investment in digital and supply chain capabilities to support our strategic priorities. We have planned 2021 capital expenditures of approximately$45 million to$50 million . Our actual 2021 capital expenditures may differ from the planned amounts depending on factors such as the timing of new store acquisitions and related construction as well as the availability of capital assets from suppliers. We expect to meet our cash needs for the next twelve months with cash flows from operations. Our business is affected by the general seasonal trends common to the industry. Our products are marketed on a seasonal basis and our sales are weighted substantially toward the third and fourth quarters, while our operating costs are more equally distributed throughout the year. Our cash and cash equivalents and short-term investments balances generally are at their lowest level at the end of the third quarter and increase during the fourth quarter from collection of wholesale business receivables and fourth quarter DTC sales. Short-term borrowings and credit lines Refer to Note 4 in Item 1 of this quarterly report for additional information regarding our lines of credit and overdraft facilities in place. AtSeptember 30, 2021 , we had a$500.0 million committed revolving line of credit available domestically under our credit agreement and, internationally, our subsidiaries had approximately$118.0 million in committed and uncommitted lines of credit and overdraft facilities in place, some of which were guaranteed byColumbia Sportswear Company . AtSeptember 30, 2021 , there was no balance outstanding under these lines of credit and overdraft facilities. At the time of this filing, we are in compliance with all financial covenants necessary as a condition for borrowing under the domestic credit agreement. Cash flow activities Net cash used in operating activities was$15.6 million for the nine months endedSeptember 30, 2021 compared to net cash used in operating activities of$198.0 million for the comparable period in 2020. The change in operating cash flow was driven by a$113.4 million increase in operating cash flow provided by net income and non-cash adjustments, and a$68.9 million decrease in cash used in changes in assets and liabilities. The most significant comparative changes included Accounts receivable, Prepaid expenses and other current assets, Accounts payable, Accrued liabilities, and Operating lease assets and liabilities. The increase in cash used by Accounts receivable was driven by higher wholesale net sales, partially offset by higher collections of accounts receivable in 2021. 31
--------------------------------------------------------------------------------
Table of Contents The increase in cash used by Prepaid expenses and other current assets was primarily driven by changes in US inventory prepayments and US prepaid income taxes. The increase in cash provided by Accounts payable primarily reflects the effects of higher receipts of inventory in the third quarter of 2021 compared to the third quarter of 2020 due to stronger customer demand and increased in-transit inventory. The increase in cash provided by Accrued liabilities was primarily driven by changes in accruals for incentive compensation, wholesale refund liabilities, and wholesale and retail sales return liabilities. The increase in cash used by Operating lease assets and liabilities includes the payment of deferred rents. Net cash used in investing activities was$19.2 million for the nine months endedSeptember 30, 2021 compared to net cash used in investing activities of$23.6 million for the comparable period in 2020. For the 2021 period, net cash used in investing activities primarily consisted of$20.4 million for capital expenditures, partially offset by$1.2 million in sales and maturities of short-term investments. For the same period in 2020, net cash used in investing activities primarily consisted of$25.2 million for capital expenditures, partially offset by$1.6 million in net sales and maturities of short-term investments. Net cash used in financing activities was$151.4 million for the nine months endedSeptember 30, 2021 compared to net cash used in financing activities of$152.3 million for the comparable period in 2020. For the 2021 period, net cash used in financing activities primarily consisted of repurchases of common stock of$118.6 million and dividend payments to our shareholders of$51.7 million , partially offset by proceeds from the issuance of common stock related to stock-based compensation of$24.3 million . For the 2020 period, net cash used in financing activities primarily consisted of repurchases of common stock of$132.9 million and dividend payments to our shareholders of$17.2 million . Contractual obligations Our inventory purchase obligations increased to$542.8 million atSeptember 30, 2021 compared to$305.7 million atDecember 31, 2020 . There have been no other material changes to the estimated contractual commitments contained in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2020 . Critical Accounting Policies and Estimates Management's discussion and analysis of our financial condition and results of operations are based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make various estimates and judgments that affect reported amounts of assets, liabilities, sales, cost of sales, and expenses and related disclosure of contingent assets and liabilities. We believe that the estimates, assumptions and judgments involved in the accounting policies referred to in Part II, Item 7 in our Annual Report on Form 10-K for the year endedDecember 31, 2020 have the greatest potential effect on our financial statements, so we consider these to be our critical accounting policies and estimates. Because of the uncertainty inherent in these matters, actual results may differ from the estimates we use in applying these critical accounting policies. We base our ongoing estimates on historical experience and other assumptions that we believe to be reasonable in the circumstances. Our critical accounting policies relate to revenue recognition; allowance for uncollectible accounts receivable; obsolescence reserves for excess, close-out and slow-moving inventory; impairment of long-lived assets, intangible assets and goodwill; and income taxes. Management regularly discusses with our audit committee each of our critical accounting estimates, the development and selection of these accounting estimates, and the disclosure about each estimate in this quarterly report. These discussions typically occur at our quarterly audit committee meetings and include the basis and methodology used in developing and selecting these estimates, the trends in and amounts of these estimates, specific matters affecting the amount of and changes in these estimates, and any other relevant matters related to these estimates, including significant issues concerning accounting principles and financial statement presentation. Except as disclosed in Note 1 in Item 1 of this quarterly report, pertaining to our adoption of new accounting pronouncements, there have been no significant changes to the Company's significant accounting policies as described in the Company's Annual Report on Form 10-K for the year endedDecember 31, 2020 . Recent Accounting Pronouncements None.
© Edgar Online, source