UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________
FORM 10-Q
____________________________

x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2018
OR
¨

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF 1934
For the transition period from_______to_______            
Commission file number 0-23939
 _____________________________
COLUMBIA SPORTSWEAR COMPANY
(Exact name of registrant as specified in its charter) 
Oregon
 
93-0498284
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
14375 Northwest Science Park Drive
Portland, Oregon
 
97229
(Address of principal executive offices)
 
(Zip Code)
(503) 985-4000
(Registrant's telephone number, including area code)
_____________________________________
Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
Accelerated filer
¨
Non-accelerated filer
¨  (Do not check if a smaller reporting company)
Smaller reporting company
¨
Emerging growth company
¨

 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨    No  x
The number of shares of Common Stock outstanding on October 19, 2018 was 69,005,295.



COLUMBIA SPORTSWEAR COMPANY
SEPTEMBER 30, 2018
INDEX TO FORM 10-Q
 
 
 
PAGE NO.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


1


PART I—FINANCIAL INFORMATION
Item 1.    FINANCIAL STATEMENTS
COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
 
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
182,175

 
$
673,166

 
$
411,805

Restricted cash (Note 4)
 
13,970

 

 

Short-term investments
 
269,313

 
94,983

 
18,469

Accounts receivable, net of allowance of $9,176, $9,043, and $10,789, respectively
 
552,442

 
364,862

 
466,852

Inventories
 
617,194

 
457,927

 
558,558

Prepaid expenses and other current assets
 
77,763

 
58,559

 
36,113

Total current assets
 
1,712,857

 
1,649,497

 
1,491,797

Property, plant and equipment, at cost, net of accumulated depreciation of $483,857, $455,811, and $450,079, respectively
 
284,744

 
281,394

 
285,582

Intangible assets, net (Note 5)
 
127,320

 
129,555

 
130,300

Goodwill (Note 5)
 
68,594

 
68,594

 
68,594

Deferred income taxes
 
68,913

 
56,804

 
98,062

Other non-current assets
 
36,911

 
27,058

 
26,479

Total assets
 
$
2,299,339

 
$
2,212,902

 
$
2,100,814

LIABILITIES AND EQUITY
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
Short-term borrowings (Note 6)
 
$
8,311

 
$

 
$

Accounts payable
 
237,344

 
252,301

 
190,634

Accrued liabilities (Note 7)
 
255,682

 
182,228

 
170,909

Income taxes payable
 
8,247

 
19,107

 
22,921

Total current liabilities
 
509,584

 
453,636

 
384,464

Other long-term liabilities
 
46,056

 
48,735

 
47,129

Income taxes payable
 
62,090

 
58,104

 
10,647

Deferred income taxes
 
13

 
168

 
154

Total liabilities
 
617,743

 
560,643

 
442,394

Commitments and contingencies (Note 13)
 

 

 

Columbia Sportswear Company Shareholders' Equity:
 
 
 
 
 

Preferred stock; 10,000 shares authorized; none issued and outstanding
 

 

 

Common stock (no par value); 250,000 shares authorized; 69,270, 69,995, and 69,863, issued and outstanding, respectively (Note 10)
 
210

 
45,829

 
39,007

Retained earnings
 
1,669,390

 
1,585,009

 
1,604,214

Accumulated other comprehensive loss (Note 9)
 
(4,235
)
 
(8,887
)
 
(13,929
)
Total Columbia Sportswear Company shareholders' equity
 
1,665,365

 
1,621,951

 
1,629,292

Non-controlling interest (Note 4)
 
16,231

 
30,308

 
29,128

Total equity
 
1,681,596

 
1,652,259

 
1,658,420

Total liabilities and equity
 
$
2,299,339

 
$
2,212,902

 
$
2,100,814

See accompanying notes to condensed consolidated financial statements.

2


COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
795,801

 
$
747,367

 
$
1,884,728

 
$
1,690,064

Cost of sales
412,098

 
398,177

 
972,966

 
901,545

Gross profit
383,703

 
349,190

 
911,762

 
788,519

Selling, general and administrative expenses
259,267

 
230,446

 
724,827

 
643,859

Net licensing income
4,708

 
4,143

 
11,279

 
8,947

Income from operations
129,144

 
122,887

 
198,214

 
153,607

Interest income, net
2,524

 
1,035

 
7,748

 
3,240

Interest expense on note payable to related party (Note 15)

 

 

 
(429
)
Other non-operating income (expense), net
736

 
(104
)
 
372

 
203

Income before income tax
132,404

 
123,818

 
206,334

 
156,621

Income tax expense
(30,029
)
 
(32,716
)
 
(44,735
)
 
(37,950
)
Net income
102,375

 
91,102

 
161,599

 
118,671

Net income attributable to non-controlling interest
2,223

 
3,378

 
6,603

 
6,476

Net income attributable to Columbia Sportswear Company
$
100,152

 
$
87,724

 
$
154,996

 
$
112,195

Earnings per share attributable to Columbia Sportswear Company (Note 10):
 
 
 
 
 
 
 
Basic
$
1.44

 
$
1.26

 
$
2.22

 
$
1.61

Diluted
$
1.42

 
$
1.25

 
$
2.19

 
$
1.59

Cash dividends per share
$
0.22

 
$
0.18

 
$
0.66

 
$
0.54

Weighted average shares outstanding (Note 10):
 
 
 
 
 
 
 
Basic
69,589

 
69,815

 
69,895

 
69,698

Diluted
70,357

 
70,389

 
70,685

 
70,390

See accompanying notes to condensed consolidated financial statements.


3


COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net income
102,375

 
$
91,102

 
161,599

 
118,671

Other comprehensive income (loss):
 
 
 
 
 
 
 
Unrealized holding losses on available-for-sale securities, net
(162
)
 

 
(158
)
 

Unrealized gains (losses) on derivative transactions (net of tax effects of ($1,062), $3,953, ($6,036), and $8,194, respectively)
2,896

 
(8,606
)
 
18,542

 
(16,368
)
Foreign currency translation adjustments (net of tax effects of $(39), ($20), $1,780, and ($18), respectively)
(562
)
 
8,333

 
(12,565
)
 
27,017

Other comprehensive income (loss)
2,172

 
(273
)
 
5,819

 
10,649

Comprehensive income
104,547

 
90,829

 
167,418

 
129,320

Comprehensive income attributable to non-controlling interest
2,256

 
3,738

 
7,255

 
8,437

Comprehensive income attributable to Columbia Sportswear Company
$
102,291

 
$
87,091

 
$
160,163

 
$
120,883

See accompanying notes to condensed consolidated financial statements.


4


COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Nine Months Ended September 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
161,599

 
$
118,671

Adjustments to reconcile net income to net cash used by operating activities:
 
 
 
Depreciation and amortization
43,544

 
44,660

Loss on disposal and impairment of property, plant, and equipment
1,979

 
970

Deferred income taxes
2,103

 
3,871

Stock-based compensation
10,247

 
8,277

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
(125,433
)
 
(127,003
)
Inventories
(188,544
)
 
(56,576
)
Prepaid expenses and other current assets
(7,968
)
 
2,959

Other assets
(9,782
)
 
1,567

Accounts payable
(14,263
)
 
(30,716
)
Accrued liabilities
38,193

 
1,595

Income taxes payable
(7,200
)
 
15,063

Other liabilities
(2,541
)
 
4,231

Net cash used in operating activities
(98,066
)
 
(12,431
)
Cash flows from investing activities:
 
 
 
Purchases of short-term investments
(426,278
)
 
(50,697
)
Sales of short-term investments
252,727

 
32,878

Capital expenditures
(45,189
)
 
(41,791
)
Proceeds from sale of property, plant, and equipment
18

 
239

Net cash used in investing activities
(218,722
)
 
(59,371
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facilities
36,051

 
3,374

Repayments on credit facilities
(27,740
)
 
(3,374
)
Proceeds from issuance of common stock under employee stock plans
16,508

 
16,056

Tax payments related to restricted stock unit issuances
(4,221
)
 
(3,585
)
Repurchase of common stock
(107,222
)
 
(35,542
)
Cash dividends paid
(46,160
)
 
(37,617
)
Cash dividends paid to non-controlling interest
(19,949
)
 

Payment of related party note payable

 
(14,236
)
Net cash used in financing activities
(152,733
)
 
(74,924
)
Net effect of exchange rate changes on cash
(7,500
)
 
7,142

Net decrease in cash, cash equivalents and restricted cash
(477,021
)
 
(139,584
)
Cash, cash equivalents and restricted cash, beginning of period
673,166

 
551,389

Cash, cash equivalents and restricted cash, end of period
$
196,145

 
$
411,805

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes, net of refunds
$
47,041

 
$
25,282

Cash paid during the period for interest on note payable to related party

 
685

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Capital expenditures incurred but not yet paid
$
7,380

 
$
3,682

See accompanying notes to condensed consolidated financial statements.

5




COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1—BASIS OF PRESENTATION AND ORGANIZATION
The accompanying unaudited condensed consolidated financial statements have been prepared by the management of Columbia Sportswear Company (together with its wholly owned subsidiaries and entities in which it maintains a controlling financial interest, the "Company") and in the opinion of management include all normal recurring material adjustments necessary to present fairly the Company's financial position as of September 30, 2018 and 2017, the results of operations for the three and nine months ended September 30, 2018 and 2017, and cash flows for the nine months ended September 30, 2018 and 2017. The December 31, 2017 financial information was derived from the Company's audited financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017. A significant part of the Company's business is of a seasonal nature; therefore, results of operations for the three and nine months ended September 30, 2018 are not necessarily indicative of results to be expected for other quarterly periods or for the full year.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The Company, however, believes that the disclosures contained in this report comply with the requirements of Section 13(a) of the Securities Exchange Act of 1934 for a Quarterly Report on Form 10-Q and are adequate to make the information presented not misleading. These unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Columbia Sportswear Company, its wholly owned subsidiaries and entities in which it maintains a controlling financial interest. 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 condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from these estimates and assumptions. Some of these more significant estimates relate to revenue recognition, including sales returns and miscellaneous claims from customers, allowance for doubtful accounts, excess, slow-moving and closeout inventories, product warranty, long-lived and intangible assets, goodwill, income taxes, and stock-based compensation.
NOTE 2—SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Except as disclosed below and in Note 3, 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 ended December 31, 2017.
Recently Adopted Accounting Pronouncements:
On January 1, 2018, the Company adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers, which outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers that superseded the previous revenue recognition guidance (Topic 605). The updated guidance, and subsequent clarifications, collectively referred to as ASC 606, require an entity to recognize revenue when it transfers control of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, the guidance requires disclosure of the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted this standard, utilizing the modified retrospective approach, with the cumulative effect of initially applying the new standard recognized in retained earnings. Accordingly, comparative prior period information has not been restated and continues to be reported under the accounting standards in effect for those periods.
In addition, the adoption of ASC 606 had the following effects: (1) fees paid to or retained by third parties in conjunction with certain concession-based retail arrangements in our Latin America and Asia Pacific ("LAAP") region, historically comprising approximately 2% of net sales, are now recognized as a component of selling, general and administrative ("SG&A") expenses; (2) wholesale sales returns reserves, estimated chargebacks and markdowns, and other provisions for customer refunds are now presented as accrued liabilities rather than netted within accounts receivable; and (3) the estimated cost of inventory associated with sales returns reserves are now presented within other current assets rather than inventories. The Company expects the timing of revenue recognition for its significant revenue streams to remain substantially unchanged, with no material effect on net sales. See the table below for the effect of the adoption of the standard on our Condensed Consolidated Balance Sheets as of January 1, 2018.

6

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

On January 1, 2018, the Company adopted ASU No. 2016-16, Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other than Inventory, which requires the recognition of the income tax effects of an intra-entity transfer of an asset, other than inventory, when the transfer occurs, eliminating an exception under previous GAAP in which the tax effects of intra-entity asset transfers were deferred until the transferred asset is sold to a third party or otherwise recovered through use. Income tax effects of intra-entity transfers of inventory will continue to be deferred until the inventory has been sold to a third party. The Company adopted this standard effective January 1, 2018 by applying the required modified retrospective approach with a cumulative-effect adjustment to retained earnings of certain previously deferred tax benefits. The Company anticipates the adoption of this standard will result in increased volatility in its future effective income tax rate. See the table below for the effect of the adoption of the standard on our Condensed Consolidated Balance Sheets as of January 1, 2018.
On January 1, 2018, the Company early-adopted ASU No. 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, which simplifies the application of hedge accounting guidance to better portray the economic results of risk management activities in the financial statements. The guidance aligns the recognition and presentation of the effects of hedging instruments and hedged items in the financial statements and includes certain targeted improvements to ease the application of the assessment of hedge effectiveness. The Company utilized the required modified retrospective transition method with the cumulative effect of initially applying the new standard recognized in retained earnings. See the table below for the effect of the adoption of the standard on our Condensed Consolidated Balance Sheets as of January 1, 2018.
On January 1, 2018, the Company adopted ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, which requires equity investments that are not accounted for under the equity method of accounting to be measured at fair value with changes recognized in net income and also updates certain presentation and disclosure requirements. The adoption of this standard did not have a material effect on the Company's financial position, results of operations or cash flows.
The following table presents the effect of the adoption of ASC 606, ASU 2016-16 and ASU 2017-12 on our Condensed Consolidated Balance Sheets as of January 1, 2018 (in thousands):
 
 
January 1, 2018
 
 
December 31, 2017
 
Adjustments due to
ASC 606
 
Adjustments due to
ASU 2016-16
 
Adjustments due to
ASU 2017-12
 
January 1, 2018
Accounts receivable, net
 
$
364,862

 
$
64,519

 
$

 
$

 
$
429,381

Inventories
 
457,927

 
(24,037
)
 

 

 
433,890

Prepaid expenses and other current assets
 
58,559

 
24,037

 
(11,814
)
 

 
70,782

Total current assets
 
1,649,497

 
64,519

 
(11,814
)
 

 
1,702,202

Deferred income taxes
 
56,804

 
(519
)
 
23,484

 

 
79,769

Total assets
 
2,212,902

 
64,000

 
11,670

 

 
2,288,572

Accrued liabilities
 
182,228

 
61,340

 

 

 
243,568

Income taxes payable
 
19,107

 
230

 

 

 
19,337

Total current liabilities
 
453,636

 
61,570

 

 

 
515,206

Total liabilities
 
560,643

 
61,570

 

 

 
622,213

Retained earnings
 
1,585,009

 
2,430

 
11,670

 
515

 
1,599,624

Accumulated other comprehensive loss
 
(8,887
)
 

 

 
(515
)
 
(9,402
)
Total liabilities and equity
 
$
2,212,902

 
$
64,000

 
$
11,670

 
$

 
$
2,288,572


7

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

In accordance with the requirements of ASC 606, the effects of adoption of this standard on our Condensed Consolidated Balance Sheets and Condensed Consolidated Statements of Operations were as follows (in thousands):
 
 
September 30, 2018
 
 
As Reported
 
Effect of Standard
 
Balances Without Adoption of ASC 606

Accounts receivable, net
 
$
552,442

 
$
59,921

 
$
492,521

Inventories
 
617,194

 
(16,012
)
 
633,206

Prepaid expenses and other current assets
 
77,763

 
16,012

 
61,751

Total current assets
 
1,712,857

 
59,921

 
1,652,936

Total assets
 
2,299,339

 
59,921

 
2,239,418

Accrued liabilities
 
255,682

 
59,921

 
195,761

Total current liabilities
 
509,584

 
59,921

 
449,663

Total liabilities
 
617,743

 
59,921

 
557,822

Total liabilities and equity
 
$
2,299,339

 
$
59,921

 
$
2,239,418

 
 
Three Months Ended
September 30, 2018
 
Nine Months Ended
September 30, 2018
 
 
As Reported
 
Effect of Standard
 
Balances Without Adoption of ASC 606

 
As Reported
 
Effect of Standard
 
Balances Without Adoption of ASC 606

Net sales
 
$
795,801

 
$
6,913

 
$
788,888

 
$
1,884,728

 
$
22,657

 
$
1,862,071

Gross profit
 
383,703

 
6,913

 
376,790

 
911,762

 
22,657

 
889,105

Selling, general and administrative expenses

 
$
259,267

 
$
6,913

 
$
252,354

 
$
724,827

 
$
22,657

 
$
702,170

Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued ASU No. 2016-02, Leases (Topic 842), to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet for most leases previously classified as operating leases. Subsequently, the FASB has issued amendments to clarify the codification or to correct unintended application of the new guidance. The new standard is required to be applied using a modified retrospective approach, with two adoption methods permissible: (1) apply the leases standard to each lease that existed at the beginning of the earliest comparative period presented in the financial statements or (2) apply the guidance to each lease that had commenced as of the beginning of the reporting period in which the entity first applies the new lease standard.
The Company will adopt the new standard on January 1, 2019 and anticipates applying the second modified retrospective method noted above. The Company is continuing to evaluate the impact of the guidance, including reviewing the standard's provisions, gathering and analyzing data to support further evaluation of real estate and non-real estate leases, identifying arrangements that may contain embedded leases and assessing practical expedients. The Company is also evaluating the impact of the new accounting standard on the Company's financial statement disclosures, systems, processes and controls. Based on these efforts, the Company expects the adoption will result in a material increase in the assets and liabilities on its Consolidated Balance Sheets and is not expected to have a material effect on the results of operations or cash flows.
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The pronouncement changes the impairment model for most financial assets and will require the use of an "expected loss" model for instruments measured at amortized cost. Under this model, entities will be 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. Subsequently, the FASB issued an amendment to clarify the implementation dates and items that fall within the scope of this pronouncement. This standard is effective beginning in the first quarter of 2020. The adoption of ASU 2016-13 is not expected to have a material effect on the Company's financial position, results of operations or cash flows.
In January 2017, the FASB issued ASU No. 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment, 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

8

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. This standard is effective beginning in the first quarter of 2019, with early adoption permitted. The Company is evaluating the impact and expects the adoption of ASU 2017-04 to affect the amount and timing of future goodwill impairment charges, if any.
In June 2018, the FASB issued ASU No. 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, which simplifies the accounting for share-based payments granted to nonemployees for goods and services. Under the ASU, most of the guidance on such payments to nonemployees would be aligned with the requirements for share-based payments granted to employees. As a result, most of the guidance in ASC 718 associated with employee share-based payments, including most requirements related to classification and measurement, applies to nonemployee share-based payment arrangements. This standard is effective beginning in the first quarter of 2019, with early adoption permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.
In August 2018, the FASB issued ASU No. 2018-15, Intangibles - Goodwill and Other - Internal-Use Software (Subtopic 350-40), 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. This standard is effective beginning in the first quarter of 2020, with early adoption permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.
NOTE 3—REVENUES
Disaggregated Revenue
As disclosed below in Note 11, the Company has aggregated its operating segments into four geographic segments: (1) United States, (2) LAAP, (3) Europe, Middle East and Africa ("EMEA") and (4) Canada, which are reflective of the Company's internal organization, management and oversight structure. The following tables disaggregate our operating segment revenue by product category and sales channel (in thousands), which we believe provides a meaningful depiction how the nature, timing, and uncertainty of revenues are affected by economic factors:
 
 
Three Months Ended September 30, 2018
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
406,474

 
$
92,869

 
$
63,950

 
$
54,294

 
$
617,587

Footwear
 
89,687

 
25,510

 
36,401

 
26,616

 
178,214

Total
 
$
496,161

 
$
118,379

 
$
100,351

 
$
80,910

 
$
795,801

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
320,102

 
$
67,154

 
$
87,434

 
$
70,099

 
$
544,789

Direct-to-consumer
 
176,059

 
51,225

 
12,917

 
10,811

 
251,012

Total
 
$
496,161

 
$
118,379

 
$
100,351

 
$
80,910

 
$
795,801

 
 
Three Months Ended September 30, 2017
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
379,387

 
$
91,843

 
$
55,172

 
$
53,518

 
$
579,920

Footwear
 
76,583

 
31,153

 
32,350

 
27,361

 
167,447

Total
 
$
455,970

 
$
122,996

 
$
87,522

 
$
80,879

 
$
747,367

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
310,607

 
$
82,148

 
$
78,126

 
$
72,875

 
$
543,756

Direct-to-consumer
 
145,363

 
40,848

 
9,396

 
8,004

 
203,611

Total
 
$
455,970

 
$
122,996

 
$
87,522

 
$
80,879

 
$
747,367


9

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

 
 
Nine Months Ended September 30, 2018
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
970,194

 
$
263,849

 
$
168,306

 
$
99,854

 
$
1,502,203

Footwear
 
168,981

 
86,983

 
88,806

 
37,755

 
382,525

Total
 
$
1,139,175

 
$
350,832

 
$
257,112

 
$
137,609

 
$
1,884,728

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
636,108

 
$
181,487

 
$
223,018

 
$
109,324

 
$
1,149,937

Direct-to-consumer
 
503,067

 
169,345

 
34,094

 
28,285

 
734,791

Total
 
$
1,139,175

 
$
350,832

 
$
257,112

 
$
137,609

 
$
1,884,728

 
 
Nine Months Ended September 30, 2017
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
882,224

 
$
237,025

 
$
135,868

 
$
94,574

 
$
1,349,691

Footwear
 
145,126

 
83,782

 
74,380

 
37,085

 
340,373

Total
 
$
1,027,350

 
$
320,807

 
$
210,248

 
$
131,659

 
$
1,690,064

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
601,789

 
$
184,912

 
$
186,745

 
$
110,720

 
$
1,084,166

Direct-to-consumer
 
425,561

 
135,895

 
23,503

 
20,939

 
605,898

Total
 
$
1,027,350

 
$
320,807

 
$
210,248

 
$
131,659

 
$
1,690,064

Accounting Policies
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 direct-to-consumer ("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 revenue we recognize 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 returns and claims based on historical rates as well as events and circumstances that indicate changes to historical rates of product returns and claims. 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.
Licensing income, which is presented separately as Net licensing income on the Condensed 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 revenue.
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.
Performance Obligations
For the three and nine months ended September 30, 2018, revenue recognized from performance obligations related to prior periods was not material. Revenue expected to be recognized in any future period related to remaining performance obligations is not material.

10

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Contract Balances
As of September 30, 2018, contract liabilities recorded on the Condensed Consolidated Balance Sheets, which consisted of obligations associated with our gift card and customer loyalty programs, were not material.
NOTE 4—NON-CONTROLLING INTEREST
The Company owns a 60% controlling interest in a joint venture formed with Swire Resources Limited ("Swire") to support the development and operation of the Company's business in China. The accounts of the joint venture are included in the Condensed Consolidated Financial Statements. Swire's share of net income from the joint venture is included in Net income attributable to non-controlling interest in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 and 2017. The 40% non-controlling equity interest in this entity is included in total equity as Non-controlling interest in the Condensed Consolidated Balance Sheets as of September 30, 2018 and 2017, and December 31, 2017.
In September 2018, the Company and Swire entered into an Equity Interest Transfer Agreement ("EITA"), in which the Company will buy out the 40% non-controlling interest in the joint venture. The buyout is subject to various terms and conditions, including regulatory approval in China and is expected to be completed in early 2019. As part of the buyout arrangement, the Company has placed approximately $13,970,000 in an escrow account as a portion of the funds needed to complete the buyout in 2019. These funds are included as Restricted cash in the Condensed Consolidated Balance Sheets at September 30, 2018. In addition, the China joint venture declared a dividend on June 14, 2018 of which Swire's share was approximately RMB136,539,000 (approximately US$21,332,000 at the date of declaration). The renminbi denominated dividend was paid in full in September 2018 and equated to approximately $19,949,000 on the date of payment.
The following table presents the changes in Columbia Sportswear Company shareholders' equity and non-controlling interest for the nine months ended September 30, 2018 (in thousands, except per share amounts):
 
 
Columbia Sportswear Company
 
Non-Controlling Interest
 
Total
Balance at December 31, 2017
 
$
1,621,951

 
$
30,308

 
$
1,652,259

Net income
 
154,996

 
6,603

 
161,599

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Unrealized holding losses on available-for-sale securities
 
(158
)
 

 
(158
)
Derivative holding gains
 
17,472

 
1,070

 
18,542

Foreign currency translation adjustments
 
(12,147
)
 
(418
)
 
(12,565
)
Cash dividends ($0.66 per share)
 
(46,160
)
 

 
(46,160
)
Dividends to non-controlling interest
 

 
(21,332
)
 
(21,332
)
Issuance of common stock under employee stock plans, net of tax
 
12,286

 

 
12,286

Adoption of new accounting pronouncements (Note 2)
 
14,100

 

 
14,100

Stock-based compensation expense
 
10,247

 

 
10,247

Repurchase of common stock
 
(107,222
)
 

 
(107,222
)
Balance at September 30, 2018
 
$
1,665,365

 
$
16,231

 
$
1,681,596

The following table presents the changes in Columbia Sportswear Company shareholders' equity and non-controlling interest for the nine months ended September 30, 2017 (in thousands, except per share amounts):

11

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

 
 
Columbia Sportswear Company
 
Non-Controlling Interest
 
Total
Balance at December 31, 2016
 
$
1,560,820

 
$
20,691

 
$
1,581,511

Net income
 
112,195

 
6,476

 
118,671

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Derivative holding losses
 
(15,993
)
 
(375
)
 
(16,368
)
Foreign currency translation adjustments
 
24,681

 
2,336

 
27,017

Cash dividends ($0.54 per share)
 
(37,617
)
 

 
(37,617
)
Issuance of common stock under employee stock plans, net
 
12,471

 

 
12,471

Stock-based compensation expense
 
8,277

 

 
8,277

Repurchase of common stock
 
(35,542
)
 

 
(35,542
)
Balance at September 30, 2017
 
$
1,629,292

 
$
29,128

 
$
1,658,420

NOTE 5—INTANGIBLE ASSETS, NET
Intangible assets that are determined to have finite lives include patents, purchased technology and customer relationships and are amortized over their estimated useful lives, which range from approximately 3 to 10 years, and are measured for impairment only when events or circumstances indicate the carrying value may be impaired. Goodwill and intangible assets with indefinite useful lives, including trademarks and trade names, are not amortized but are evaluated for impairment on an annual basis during the fourth quarter of our fiscal year or earlier if events or circumstances indicate the carrying value may be impaired.
Intangible Assets
The following table summarizes the Company's identifiable intangible assets (in thousands):
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
Intangible assets subject to amortization:
 
 
 
 
 
Patents and purchased technology
$
14,198

 
$
14,198

 
$
14,198

Customer relationships
23,000

 
23,000

 
23,000

Gross carrying amount
37,198

 
37,198

 
37,198

Accumulated amortization:
 
 
 
 
 
Patents and purchased technology
(11,649
)
 
(10,651
)
 
(10,319
)
Customer relationships
(13,650
)
 
(12,413
)
 
(12,000
)
Total accumulated amortization
(25,299
)
 
(23,064
)
 
(22,319
)
Net carrying amount
11,899

 
14,134

 
14,879

Intangible assets not subject to amortization
115,421

 
115,421

 
115,421

Intangible assets, net
$
127,320

 
$
129,555

 
$
130,300

Amortization expense for intangible assets subject to amortization was approximately $745,000 for the three months ended September 30, 2018 and 2017, respectively, and was approximately $2,235,000 and $3,138,000 for the nine months ended September 30, 2018 and 2017, respectively.
Annual amortization expense is estimated to be as follows for the years 2018 through 2022 (in thousands):
2018
$
2,980

2019
2,980

2020
2,537

2021
1,650

2022
1,650


12

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

NOTE 6—SHORT-TERM BORROWINGS AND CREDIT LINES
In the third quarter of 2018, the Company's China joint venture established an unsecured and uncommitted line of credit guaranteed by the Company providing for borrowings of advances or overdrafts up to a maximum of US$20,000,000 (RMB137,806,000), and is available at September 30, 2018. Once the line is drawn upon, the revolving line accrues interest on advances of RMB based on the People's Bank of China ("PBOC") base rate, advances of USD based on LIBOR +1.8% per annum or overdrafts of RMB based on 110% of the PBOC base rate. As of September 30, 2018, the balance outstanding on an advance of RMB was approximately RMB57,266,000 (approximately US$8,311,000).
Except as disclosed above, there have been no significant changes to the Company's short-term borrowing and credit lines as described in Note 8 in the Company's Annual Report on Form 10-K for the year ended December 31, 2017.
NOTE 7—PRODUCT WARRANTY
Some of the Company's products carry assurance-type limited warranty provisions for defects in quality and workmanship. A warranty reserve is established at the time of sale to cover estimated costs based on the Company's history of warranty repairs, replacements and refunds and is recorded in cost of sales. The warranty reserve is included in Accrued liabilities in the Condensed Consolidated Balance Sheets.
A reconciliation of product warranties is as follows (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Balance at beginning of period
$
11,857

 
$
11,213

 
$
12,339

 
$
11,455

Provision for warranty claims
555

 
1,373

 
2,997

 
3,304

Warranty claims
(378
)
 
(877
)
 
(3,088
)
 
(3,365
)
Other
50

 
108

 
(164
)
 
423

Balance at end of period
$
12,084

 
$
11,817

 
$
12,084

 
$
11,817

NOTE 8—STOCK-BASED COMPENSATION
The Company's Stock Incentive Plan (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 majority of all stock options and restricted stock unit grants outstanding under the Plan were granted in the first quarter of each fiscal year. Stock compensation is recognized based on an estimated number of awards that are expected to vest.
Stock-based compensation expense consisted of the following (in thousands):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Stock options
$
1,277

 
$
834

 
$
3,571

 
$
2,843

Restricted stock units
2,371

 
1,724

 
6,676

 
5,434

Total
$
3,648

 
$
2,558

 
$
10,247

 
$
8,277

Stock Options
The Company estimates the fair value of stock options using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of stock options 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 following table presents the weighted average assumptions for stock options granted in the periods:

13

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Expected option term
4.30 years
 
4.35 years
 
4.49 years
 
4.54 years
Expected stock price volatility
27.75%
 
28.79%
 
28.41%
 
28.91%
Risk-free interest rate
2.81%
 
1.68%
 
2.47%
 
1.72%
Expected annual dividend yield
1.01%
 
1.23%
 
1.15%
 
1.30%
Weighted average grant date fair value
$21.37
 
$13.47
 
$18.80
 
$13.03
During the nine months ended September 30, 2018 and 2017, the Company granted a total of 397,667 and 528,477 stock options, respectively. At September 30, 2018, unrecognized costs related to outstanding stock options totaled approximately $9,828,000, before any related tax benefit. The unrecognized costs related to stock options are amortized over the related vesting period using the straight-line attribution method. Unrecognized costs related to stock options at September 30, 2018 are expected to be recognized over a weighted average period of 2.47 years.
Restricted Stock Units
The Company estimates the fair value of service-based and performance-based restricted stock units using the Black-Scholes model. Key inputs and assumptions used to estimate the fair value of restricted stock units include the vesting period, expected annual dividend yield and 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 periods:
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Vesting period
3.51 years
 
4.03 years
 
3.88 years
 
3.87 years
Expected annual dividend yield
1.01%
 
1.23%
 
1.15%
 
1.30%
Estimated average grant date fair value per restricted stock unit
$84.32
 
$55.61
 
$73.10
 
$52.65
During the nine months ended September 30, 2018 and 2017, the Company granted 178,761 and 255,032 restricted stock units, respectively. At September 30, 2018, unrecognized costs related to outstanding restricted stock units totaled approximately $17,905,000, 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 September 30, 2018 are expected to be recognized over a weighted average period of 2.45 years.
NOTE 9—ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss, net of applicable taxes, reported on the Company's Condensed Consolidated Balance Sheets consists of unrealized holding gains and losses on available-for-sale securities, unrealized gains and losses on certain derivative transactions and foreign currency translation adjustments.
The following table sets forth the changes in accumulated other comprehensive loss attributable to Columbia Sportswear Company, net of tax, for the three months ended September 30, 2018 (in thousands):
 
Unrealized losses on available-for-sale securities
 
Unrealized holding gains on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at June 30, 2018
$

 
$
3,889

 
$
(10,263
)
 
$
(6,374
)
Other comprehensive (loss) income before reclassifications
(162
)
 
541

 
(51
)
 
328

Amounts reclassified from other comprehensive income

 
1,811

 

 
1,811

Net other comprehensive (loss) income during the period
(162
)
 
2,352

 
(51
)
 
2,139

Balance at September 30, 2018
$
(162
)
 
$
6,241

 
$
(10,314
)
 
$
(4,235
)

14

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The following table sets forth the changes in accumulated other comprehensive loss attributable to Columbia Sportswear Company, net of tax, for the three months ended September 30, 2017 (in thousands):
 
Unrealized losses on available-for-sale securities
 
Unrealized holding losses on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at June 30, 2017
$
(4
)
 
$
(794
)
 
$
(12,498
)
 
$
(13,296
)
Other comprehensive (loss) income before reclassifications

 
(7,391
)
 
7,793

 
402

Amounts reclassified from other comprehensive income

 
(1,035
)
 

 
(1,035
)
Net other comprehensive (loss) income during the period

 
(8,426
)
 
7,793

 
(633
)
Balance at September 30, 2017
$
(4
)
 
$
(9,220
)
 
$
(4,705
)
 
$
(13,929
)

The following table sets forth the changes in accumulated other comprehensive loss attributable to Columbia Sportswear Company, net of tax, for the nine months ended September 30, 2018 (in thousands):
 
Unrealized losses on available-for-sale securities
 
Unrealized holding (losses) gains on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at December 31, 2017
$
(4
)
 
$
(10,716
)
 
$
1,833

 
$
(8,887
)
Other comprehensive (loss) income before reclassifications
(158
)
 
16,088

 
(12,147
)
 
3,783

Amounts reclassified from other comprehensive income

 
1,384

 

 
1,384

Net other comprehensive (loss) income during the period
(158
)
 
17,472

 
(12,147
)
 
5,167

Adoption of ASU 2017-12 (Note 2)

 
(515
)
 

 
(515
)
Balance at September 30, 2018
$
(162
)
 
$
6,241

 
$
(10,314
)
 
$
(4,235
)
The following table sets forth the changes in accumulated other comprehensive loss attributable to Columbia Sportswear Company, net of tax, for the nine months ended September 30, 2017 (in thousands):
 
Unrealized losses on available-for-sale securities
 
Unrealized holding gains (losses) on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at December 31, 2016
$
(4
)
 
$
6,773

 
$
(29,386
)
 
$
(22,617
)
Other comprehensive (loss) income before reclassifications

 
(14,366
)
 
24,681

 
10,315

Amounts reclassified from other comprehensive income

 
(1,627
)
 

 
(1,627
)
Net other comprehensive (loss) income during the period

 
(15,993
)
 
24,681

 
8,688

Balance at September 30, 2017
$
(4
)
 
$
(9,220
)
 
$
(4,705
)
 
$
(13,929
)
NOTE 10—EARNINGS PER SHARE
Earnings per share ("EPS") is presented on both a basic and diluted basis. Basic EPS is based on the weighted average number of common shares outstanding. Diluted EPS reflects the potential dilution that could occur if outstanding securities or other contracts to issue common stock were exercised or converted into common stock.

15

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

A reconciliation of common shares used in the denominator for computing basic and diluted EPS is as follows (in thousands, except per share amounts):
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Weighted average shares of common stock outstanding, used in computing basic earnings per share
69,589

 
69,815

 
69,895

 
69,698

Effect of dilutive stock options and restricted stock units
768

 
574

 
790

 
692

Weighted average shares of common stock outstanding, used in computing diluted earnings per share
70,357

 
70,389

 
70,685

 
70,390

Earnings per share of common stock attributable to Columbia Sportswear Company:
 
 
 
 
 
 
 
Basic
$
1.44

 
$
1.26

 
$
2.22

 
$
1.61

Diluted
$
1.42

 
$
1.25

 
$
2.19

 
$
1.59

 
Stock options and service-based restricted stock units representing 216,386 and 931,524 shares of common stock for the three months ended September 30, 2018 and 2017, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive as a result of applying the treasury stock method. Stock options and service-based restricted stock units representing 325,410 and 887,508 shares of common stock for the nine months ended September 30, 2018 and 2017, respectively, were outstanding but were excluded from the computation of diluted EPS because their effect would be anti-dilutive as a result of applying the treasury stock method. In addition, performance-based restricted stock units representing 23,971 and 36,589 shares of common stock for the three months ended September 30, 2018 and 2017, respectively, and 23,971 and 43,292 shares of common stock for the nine months ended September 30, 2018 and 2017, respectively, were outstanding but were excluded from the computation of diluted EPS because these shares were subject to performance conditions that had not been met.

Common Stock Repurchase Plan
Since the inception of the Company's stock repurchase plan in 2004 through September 30, 2018, the Company's Board of Directors has authorized the repurchase of $900,000,000 of the Company's common stock. Shares of the Company's common stock may be purchased in the open market or through privately negotiated transactions, subject to market conditions. The repurchase program does not obligate the Company to acquire any specific number of shares or to acquire shares over any specified period of time. As of September 30, 2018, the Company had repurchased 22,918,221 shares under this program at an aggregate purchase price of approximately $669,285,000. During the three and nine months ended September 30, 2018, the Company repurchased 759,896 and 1,260,186 shares of the Company's common stock at an aggregate purchase price of approximately $67,116,000 and $107,222,000, respectively. The Company did not repurchase shares of the Company's common stock for the three months ended September 30, 2017. During the nine months ended September 30, 2017, the Company repurchased 665,095 shares of the Company's common stock at an aggregate purchase price of approximately $35,542,000.
NOTE 11—SEGMENT INFORMATION
The Company has aggregated its operating segments into four geographic segments: (1) United States, (2) LAAP, (3) EMEA, and (4) Canada, which are reflective of the Company's internal organization, management and oversight structure. Each geographic segment operates predominantly in one industry: the design, development, marketing and distribution of outdoor and active lifestyle apparel, footwear, accessories, and equipment. Intersegment net sales and intersegment profits, which are recorded at a negotiated mark-up and eliminated in consolidation, are not material. Unallocated corporate expenses consist of expenses incurred by centrally-managed departments, including global information systems, finance and legal, executive compensation, unallocated benefit program expense, and other miscellaneous costs.

16

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The geographic distribution of the Company's Net sales and Income (loss) from operations in the Condensed Consolidated Statements of Operations are summarized in the following table (in thousands) for the three and nine months ended September 30, 2018 and 2017.
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2018
 
2017
 
2018
 
2017
Net sales to unrelated entities:
 
 
 
 
 
 
 
United States
$
496,161

 
$
455,970

 
$
1,139,175

 
$
1,027,350

LAAP
118,379

 
122,996

 
350,832

 
320,807

EMEA
100,351

 
87,522

 
257,112

 
210,248

Canada
80,910

 
80,879

 
137,609

 
131,659

 
$
795,801

 
$
747,367

 
$
1,884,728

 
$
1,690,064

Segment income from operations:
 
 
 
 
 
 
 
United States
$
123,522

 
$
117,901

 
$
237,341

 
$
202,857

LAAP
15,992

 
21,583

 
45,400

 
44,894

EMEA
15,130

 
10,212

 
27,687

 
11,688

Canada
17,611

 
18,971

 
21,606

 
22,235

Total segment income from operations
172,255

 
168,667

 
332,034

 
281,674

Unallocated corporate expenses
(43,111
)
 
(45,780
)
 
(133,820
)
 
(128,067
)
Interest income, net
2,524

 
1,035

 
7,748

 
3,240

Interest expense on note payable to related party

 

 

 
(429
)
Other non-operating income (expense)
736

 
(104
)
 
372

 
203

Income before income taxes
$
132,404

 
$
123,818

 
$
206,334

 
$
156,621

Concentrations
No single customer accounted for 10% or more of Accounts receivable, net of allowance as of September 30, 2018 and 2017. The Company had one customer that accounted for 12.3% of Accounts receivable, net of allowance as of December 31, 2017. No single customer accounted for 10% or more of Net sales in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2018 or 2017, or for the year ended December 31, 2017.
NOTE 12—FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
In the normal course of business, the Company's financial position, results of operations and cash flows are routinely subject to a variety of risks. These risks include risks associated with financial markets, primarily currency exchange rate risk and, to a lesser extent, interest rate risk and equity market risk. The Company regularly assesses these risks and has established policies and business practices designed to mitigate them. The Company does not engage in speculative trading in any financial market.
The Company actively manages the risk of changes in functional currency equivalent cash flows resulting from anticipated non-functional currency denominated purchases and sales. Subsidiaries that use European euros, Canadian dollars, Japanese yen, Chinese renminbi, or Korean won as their functional currency are primarily exposed to changes in functional currency equivalent cash flows from anticipated U.S. dollar inventory purchases. The Company's prAna subsidiary uses U.S. dollars as its functional currency and is exposed to anticipated Canadian dollar denominated sales. The Company manages these risks by using currency forward and option contracts formally designated and effective as cash flow hedges. Hedge effectiveness is generally determined by evaluating the ability of a hedging instrument's cumulative change in fair value to offset the cumulative change in the present value of expected cash flows on the underlying exposures. For forward contracts, forward points are excluded from the determination of hedge effectiveness and are included in current period cost of sales for hedges of anticipated U.S. dollar inventory purchases and in net sales for hedges of anticipated Canadian dollar sales on a straight-line basis over the life of the contract. In each accounting period, any difference between the change in fair value of the forward points and the amount recognized in earnings on a straight-line basis is recognized in Other comprehensive income in the Condensed Consolidated Statements of Comprehensive Income.  For option contracts, the change in fair value attributable to changes in time value are excluded from the assessment of hedge effectiveness and included in current period Cost of sales in the Condensed Consolidated Statements of Operations. Hedge ineffectiveness was not material during the three and nine months ended September 30, 2018 and 2017.
 
The Company also uses currency forward contracts not formally designated as hedges to manage the consolidated currency exchange rate risk associated with the remeasurement of non-functional currency denominated monetary assets and liabilities by subsidiaries that use

17

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

U.S. dollars, euros, Canadian dollars, yen, won, or renminbi as their functional currency. Non-functional currency denominated monetary assets and liabilities consist primarily of cash and cash equivalents, short-term investments, receivables, payables, deferred income taxes, and intercompany loans. The gains and losses generated on these currency forward contracts not formally designated as hedges are expected to be largely offset in other non-operating expense, net by the gains and losses generated from the remeasurement of the non-functional currency denominated monetary assets and liabilities.
The following table presents the gross notional amount of outstanding derivative instruments (in thousands): 
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
Currency forward contracts
$
434,738

 
$
448,448

 
$
390,500

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
Currency forward contracts
289,772

 
231,161

 
181,045

At September 30, 2018, approximately $3,247,000 of deferred net gains on both outstanding and matured derivatives accumulated in Other comprehensive income are expected to be reclassified to net income during the next twelve months as a result of underlying hedged transactions also being recorded in net income. Actual amounts ultimately reclassified to Net income in the Condensed Consolidated Statements of Comprehensive Income are dependent on U.S. dollar exchange rates in effect against the euro, renminbi, Canadian dollar, and yen when outstanding derivative contracts mature.
At September 30, 2018, the Company's derivative contracts had a remaining maturity of less than three years. The maximum net exposure to any single counterparty, which is generally limited to the aggregate unrealized gain of all contracts with that counterparty, was less than $5,000,000 at September 30, 2018. All of the Company's derivative counterparties have investment grade credit ratings. The Company is a party to master netting arrangements that contain features that allow counterparties to net settle amounts arising from multiple separate derivative transactions or net settle in the case of certain triggering events such as a bankruptcy or major default of one of the counterparties to the transaction. The Company has not pledged assets or posted collateral as a requirement for entering into or maintaining derivative positions.
The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):
 
 
Balance Sheet Classification
 
September 30,
2018
 
December 31,
2017
 
September 30,
2017
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
 
 
 
Derivative instruments in asset positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Prepaid expenses and other current assets
 
$
7,262

 
$
1,648

 
$
1,930

Currency forward contracts
 
Other non-current assets
 
7,963

 
335

 
509

Derivative instruments in liability positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Accrued liabilities
 
584

 
9,336

 
10,152

Currency forward contracts
 
Other long-term liabilities
 

 
3,820

 
3,048

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Derivative instruments in asset positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Prepaid expenses and other current assets
 
865

 
683

 
959

Derivative instruments in liability positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Accrued liabilities
 
154

 
1,229

 
407



18

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The following table presents the statement of operations effect and classification of derivative instruments (in thousands):
 
Statement of
Operations
Classification
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
 
2018
 
2017
 
2018
 
2017
Currency Forward and Option Contracts:
 
 
 
 
 
 
 
 
 
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
 
 
 
Gain (loss) recognized in other comprehensive income or loss, net of tax
 
$
866

 
$
(7,535
)
 
$
16,493

 
$
(14,510
)
Gain reclassified from accumulated other comprehensive income or loss to income for the effective portion
Net sales
 
17

 

 
41

 
144

(Loss) gain reclassified from accumulated other comprehensive income or loss to income for the effective portion
Cost of sales
 
(4,192
)
 
1,549

 
(7,796
)
 
2,500

Loss reclassified from accumulated other comprehensive income or loss to income as a result of cash flow hedge discontinuance
Other non-operating expense
 

 
(178
)
 

 
(178
)
Gain recognized in income for amount excluded from effectiveness testing and for the ineffective portion
Net sales
 
4

 

 
16

 
5

Gain recognized in income for amount excluded from effectiveness testing and for the ineffective portion
Cost of sales
 
1,637

 
1,203

 
5,458

 
2,489

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Gain (loss) recognized in income
Other non-operating expense
 
372

 
(634
)
 
2,606

 
(4,045
)
NOTE 13—COMMITMENTS AND CONTINGENCIES
Inventory Purchase Obligations
Inventory purchase obligations consist of open production purchase orders and other commitments for raw materials and sourced apparel, footwear, accessories, and equipment. At September 30, 2018, inventory purchase obligations were approximately $333,670,000.
Litigation
The Company is a party to various legal claims, actions and complaints from time to time. Although the ultimate resolution of legal proceedings cannot be predicted with certainty, management believes that disposition of these matters will not have a material adverse effect on the Company's consolidated financial statements.
NOTE 14—FAIR VALUE MEASURES
Certain assets and liabilities are reported at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants, under a three-tier fair value hierarchy that prioritizes the inputs used in measuring fair value as follows:
Level 1 — observable inputs such as quoted prices for identical assets or liabilities in active liquid markets;
Level 2 — inputs, other than the quoted market prices in active markets, that are observable, either directly or indirectly; or observable market prices in markets with insufficient volume or infrequent transactions; and
Level 3 — unobservable inputs for which there is little or no market data available, that require the reporting entity to develop its own assumptions.

19

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

Assets and liabilities measured at fair value on a recurring basis as of September 30, 2018 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
70,573

 
$

 
$

 
$
70,573

Available-for-sale short-term investments (1):
 
 
 
 
 
 
 
U.S. Government treasury bills

 
267,861

 

 
267,861

Other short-term investments:
 
 
 
 
 
 
 
Mutual fund shares
1,452

 

 

 
1,452

Other current assets:
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)

 
8,127

 

 
8,127

Other non-current assets:
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)

 
7,963

 

 
7,963

Mutual fund shares
9,950

 

 

 
9,950

Total assets measured at fair value
$
81,975

 
$
283,951

 
$

 
$
365,926

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative financial instruments (Note 12)
$

 
$
738

 
$

 
$
738

Total liabilities measured at fair value
$

 
$
738

 
$

 
$
738