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, 2019

Share-based Payment Arrangement [Abstract]

Plan") provides for issuance of up to 20,800,000 shares of the Company's common stock, of which 1,877,407 shares were available for future grants under the Plan at December 31, 2019. The 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)	2019		2018		2017
Cost of sales	$	278	$	250	$	243
SG&A expense	17,554		14,041		11,043
Pre-tax stock-based compensation expense	17,832		14,291		11,286
Income tax benefits	(4,009)		(3,218)		(1,778)
Total stock-based compensation expense, net of tax	$	13,823	$	11,073	$	9,508

The Company realized a tax benefit for the deduction from stock-based award transactions of $9.9 million, $7.9 million and $10.5 million for the years ended December 31, 2019, 2018 and 2017, 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 following table presents the weighted average assumptions for stock options granted and resulting fair value in the years ended December 31:


	2019	2018	2017
Expected option term	4.50 years	4.50 years	4.54 years
Expected stock price volatility	27.14%	28.39%	28.91%
Risk-free interest rate	2.49%	2.47%	1.73%
Expected annual dividend yield	1.03%	1.15%	1.29%
Weighted average grant date fair value per share	$22.51	$18.86	$13.11

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, 2017	2,151,542	$	37.40	6.39	$	45,253
Granted	540,537	55.90
Cancelled	(246,450)	50.62
Exercised	(675,742)	29.52
Options outstanding at December 31, 2017	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
Options vested and expected to vest at December 31, 2019	1,421,269	$	66.05	7.05	$	48,915
Options exercisable at December 31, 2019	605,469	$	50.57	5.48	$	30,048

⁽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, 2019, 2018 and 2017 was $6.2 million, $4.9 million and $3.8 million, respectively. At December 31, 2019, unrecognized costs related to outstanding stock options totaled $10.1 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 attrition method. These unrecognized costs related to stock options are being amortized over a weighted average period of 2.15 years. The aggregate intrinsic value of stock options exercised was $26.8 million, $22.4 million and $19.8 million for the years ended December 31, 2019, 2018 and 2017, respectively. The total cash received as a result of stock option exercises for the years ended December 31, 2019, 2018 and 2017 was $19.8 million, $18.5 million and $19.9 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 following table presents the weighted average assumptions for restricted stock units granted in the years ended December 31:


	2019	2018	2017
Vesting period	3.76 years	3.77 years	3.87 years
Expected annual dividend yield	0.97%	1.15%	1.30%
Weighted average grant date fair value per restricted stock unit granted	$94.58	$73.74	$52.45

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, 2017	466,475	$	47.23
Granted	270,169	52.45
Vested⁽¹⁾	(176,654)	42.32
Forfeited	(110,515)	48.13
Restricted stock units outstanding at December 31, 2017	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

⁽¹⁾ The number of vested units includes shares withheld by the Company to pay minimum statutory requirements to taxing authorities on behalf of the employee. For the years ended December 31, 2019, 2018 and 2017, the Company withheld 56,843, 55,907 and 65,437 shares, respectively, to satisfy $5.8 million, $4.3 million and $3.7 million of employees' tax obligations, respectively.

Restricted stock unit compensation expense for the years ended December 31, 2019, 2018 and 2017 was $11.6 million, $9.4 million and $7.4 million, respectively. At December 31, 2019, unrecognized costs related to restricted stock units totaled $19.4 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, 2019 are expected to be recognized over a weighted average period of 2.06 years. The total grant date fair value of restricted stock units vested during the years ended December 31, 2019, 2018 and 2017 was $9.9 million, $7.9 million and $7.5 million, respectively.