Columbia Sportswear Company Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Stock-Based Compensation

Stock-Based Compensation

12 Months Ended

Dec. 31, 2020

Share-based Payment Arrangement [Abstract]

NOTE 14—STOCK-BASED COMPENSATION

At its Annual Meeting held on June 3, 2020, the Company’s shareholders approved the Company’s 2020 Stock Incentive Plan (the “2020 Plan”), and the 2020 Plan became effective on that date following such approval. The 2020 Plan replaced the Company’s 1997 Stock Incentive Plan (the "Prior Plan”) and no new awards will be granted under the Prior Plan. The terms and conditions of the awards granted under the Prior Plan will remain in effect with respect to awards granted under the Prior Plan. The Company has reserved 3.0 million shares of common stock for issuance under the 2020 Plan, plus up to an aggregate of 1.5 million shares of the Company’s common stock that were previously authorized and available for issuance under the Prior Plan. At December 31, 2020, 4,169,642 shares were available for future grants under the 2020 Plan and up to 328,486 additional shares that were previously authorized and available for issuance under the Prior Plan may become available for future grants under the 2020 Plan. The 2020 Plan allows for grants of incentive stock options, non-statutory stock options, restricted stock awards, restricted stock units, and other stock-based or cash-based awards. The Company uses original issuance shares to satisfy share-based payments.

Stock Compensation

Stock-based compensation expense consisted of the following:


	Year Ended December 31,
(in thousands)	2020		2019		2018
Cost of sales	$	303	$	278	$	250
SG&A expense	17,475		17,554		14,041
Pre-tax stock-based compensation expense	17,778		17,832		14,291
Income tax benefits	(4,015)		(4,009)		(3,218)
Total stock-based compensation expense, net of tax	$	13,763	$	13,823	$	11,073

The Company realized a tax benefit for the deduction from stock-based award transactions of $4.1 million, $9.9 million and $7.9 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Stock Options

Options to purchase the Company's common stock are granted at exercise prices equal to or greater than the fair market value of the Company's common stock on the date of grant. Options generally vest and become exercisable ratably on an annual basis over a period of four years and expire ten years from the date of the grant.

The fair value of stock options is determined using the Black-Scholes model. Key inputs and assumptions used in the model include the exercise price of the award, the expected option term, the expected stock price volatility of the Company's stock over the option's expected term, the risk-free interest rate over the option's expected term, and the Company's expected annual dividend yield. The option's expected term is derived from historical option exercise behavior and the option's terms and conditions, which the Company believes provide a reasonable basis for estimating an expected term. The expected volatility is estimated based on observations of the Company's historical volatility over the most recent term commensurate with the expected term. The risk-free interest rate is based on the United States Treasury yield approximating the expected term. The dividend yield is based on the expected cash dividend payouts.

The weighted average assumptions for stock options granted and resulting fair value is as follows:


	Year Ended December 31,
	2020	2019	2018
Expected option term	4.39 years	4.50 years	4.50 years
Expected stock price volatility	21.19%	27.14%	28.39%
Risk-free interest rate	1.14%	2.49%	2.47%
Expected annual dividend yield	1.13%	1.03%	1.15%
Weighted average grant date fair value per share	$14.67	$22.51	$18.86

The following table summarizes stock option activity under the Plan:


	Number of Shares	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life	Aggregate Intrinsic Value (1) (in thousands)
Options outstanding at January 1, 2018	1,769,887	$	44.22	6.69	$	48,962
Granted	402,010	76.48
Cancelled	(67,440)	60.75
Exercised	(499,836)	36.98
Options outstanding at December 31, 2018	1,604,621	53.86		6.95	48,703
Granted	395,653	93.98
Cancelled	(68,275)	74.10
Exercised	(452,325)	43.76
Options outstanding at December 31, 2019	1,479,674	66.74		7.11	49,930
Granted	660,071	87.25
Cancelled	(78,163)	83.76
Exercised	(142,419)	48.58
Options outstanding at December 31, 2020	1,919,163	$	74.45	7.19	$	29,489
Options vested and expected to vest at December 31, 2020	1,839,590	$	73.88	7.12	$	29,185
Options exercisable at December 31, 2020	806,320	$	60.31	5.53	$	22,620

(1)The aggregate intrinsic value above represents pre-tax intrinsic value that would have been realized if all options had been exercised on the last business day of the period indicated, based on the Company's closing stock price on that day.

Stock option compensation expense for the years ended December 31, 2020, 2019 and 2018 was $7.0 million, $6.2 million and $4.9 million, respectively. At December 31, 2020, unrecognized costs related to outstanding stock options totaled $11.5 million, before any related tax benefit. The unrecognized costs related to stock options are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs related to stock options are being amortized over a weighted average period of 2.33 years. The aggregate intrinsic value of stock options exercised was $4.9 million, $26.8 million and $22.4 million for the years ended December 31, 2020, 2019 and 2018, respectively. The total cash received as a result of stock option exercises for the years ended December 31, 2020, 2019 and 2018 was $6.9 million, $19.8 million and $18.5 million, respectively.

Restricted Stock Units

Service-based restricted stock units are granted at no cost to key employees and generally vest over a period of four years. Performance-based restricted stock units are granted at no cost to certain members of the Company's senior executive team, excluding the Chief Executive Officer. Performance-based restricted stock units granted after 2009 generally vest over a performance period of between two and three years. Restricted stock units vest in accordance with the terms and conditions established by the Compensation Committee of the Board of Directors, and are based on continued service and, in some instances, on individual performance or Company performance or both.

The fair value of service-based and performance-based restricted stock units is determined using the Black-Scholes model. Key inputs and assumptions used in the model include the vesting period, the Company's expected annual dividend yield and the closing price of the Company's common stock on the date of grant.

The weighted average assumptions for restricted stock units granted and resulting fair value are as follows:


	Year Ended December 31,
	2020	2019	2018
Vesting period	3.79 years	3.76 years	3.77 years
Expected annual dividend yield	1.18%	0.97%	1.15%
Weighted average grant date fair value per restricted stock unit granted	$78.90	$94.58	$73.74

The following table summarizes the restricted stock unit activity under the Plan:


	Number of Shares	Weighted Average Grant Date Fair Value Per Share
Restricted stock units outstanding at January 1, 2018	449,475	$	52.07
Granted	197,299	73.74
Vested(1)	(155,847)	50.97
Forfeited	(66,926)	53.19
Restricted stock units outstanding at December 31, 2018	424,001	62.38
Granted	177,618	94.58
Vested(1)	(163,195)	60.45
Forfeited	(33,320)	72.35
Restricted stock units outstanding at December 31, 2019	405,104	76.45
Granted	216,318	78.90
Vested(1)	(160,229)	68.72
Forfeited	(35,918)	79.36
Restricted stock units outstanding at December 31, 2020	425,275	$	80.37

(1) The number of vested units includes shares withheld by the Company to pay up to maximum statutory requirements to taxing authorities on behalf of the employee. For the years ended December 31, 2020, 2019 and 2018, the Company withheld 54,543, 56,843 and 55,907 shares, respectively, to satisfy $4.5 million, $5.8 million and $4.3 million of employees' tax obligations, respectively.

Restricted stock unit compensation expense for the years ended December 31, 2020, 2019 and 2018 was $10.8 million, $11.6 million and $9.4 million, respectively. At December 31, 2020, unrecognized costs related to restricted stock units totaled $18.6 million, before any related tax benefit. The unrecognized costs related to restricted stock units are being amortized over the related vesting period using the straight-line attribution method. These unrecognized costs at December 31, 2020 are expected to be recognized over a weighted average period of 2.08 years. The total grant date fair value of restricted stock units vested during the years ended December 31, 2020, 2019 and 2018 was $11.0 million, $9.9 million and $7.9 million, respectively.