Document
 
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 June 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 and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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 July 20, 2018 was 69,960,922.


COLUMBIA SPORTSWEAR COMPANY
JUNE 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)
 
 
June 30,
2018
 
December 31,
2017
 
June 30,
2017
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 
$
510,656

 
$
673,166

 
$
620,639

Short-term investments
 
264,014

 
94,983

 
1,591

Accounts receivable, net of allowance of $6,889, $9,043, and $8,666, respectively
 
238,675

 
364,862

 
181,119

Inventories
 
570,473

 
457,927

 
559,544

Prepaid expenses and other current assets
 
76,399

 
58,559

 
42,053

Total current assets
 
1,660,217

 
1,649,497

 
1,404,946

Property, plant and equipment, at cost, net of accumulated depreciation of $472,447, $455,811, and $435,625, respectively
 
280,726

 
281,394

 
286,006

Intangible assets, net (Note 5)
 
128,065

 
129,555

 
131,045

Goodwill
 
68,594

 
68,594

 
68,594

Deferred income taxes
 
70,351

 
56,804

 
94,514

Other non-current assets
 
38,997

 
27,058

 
26,095

Total assets
 
$
2,246,950

 
$
2,212,902

 
$
2,011,200

LIABILITIES AND EQUITY
 
 
 
 
 
 
Current Liabilities:
 
 
 
 
 
 
Accounts payable
 
$
290,812

 
$
252,301

 
$
264,881

Accrued liabilities (Note 6)
 
191,511

 
182,228

 
114,807

Income taxes payable
 
4,000

 
19,107

 
3,245

Total current liabilities
 
486,323

 
453,636

 
382,933

Other long-term liabilities
 
45,412

 
48,735

 
44,809

Income taxes payable
 
60,827

 
58,104

 
11,102

Deferred income taxes
 
13

 
168

 
156

Total liabilities
 
592,575

 
560,643

 
439,000

Commitments and contingencies (Note 12)
 

 

 

Columbia Sportswear Company Shareholders' Equity:
 
 
 
 
 

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

 
—

 
—

Common stock (no par value); 250,000 shares authorized; 69,988, 69,995, and 69,686, issued and outstanding, respectively (Note 9)
 
23,162

 
45,829

 
31,045

Retained earnings
 
1,623,612

 
1,585,009

 
1,529,061

Accumulated other comprehensive loss (Note 8)
 
(6,374
)
 
(8,887
)
 
(13,296
)
Total Columbia Sportswear Company shareholders' equity
 
1,640,400

 
1,621,951

 
1,546,810

Non-controlling interest (Note 4)
 
13,975

 
30,308

 
25,390

Total equity
 
1,654,375

 
1,652,259

 
1,572,200

Total liabilities and equity
 
$
2,246,950

 
$
2,212,902

 
$
2,011,200

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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net sales
$
481,619

 
$
398,904

 
$
1,088,927

 
$
942,697

Cost of sales
252,998

 
218,042

 
560,868

 
503,368

Gross profit
228,621

 
180,862

 
528,059

 
439,329

Selling, general and administrative expenses
222,192

 
200,598

 
465,560

 
413,413

Net licensing income
3,320

 
2,451

 
6,571

 
4,804

Income (loss) from operations
9,749

 
(17,285
)
 
69,070

 
30,720

Interest income, net
2,928

 
1,250

 
5,224

 
2,205

Interest expense on note payable to related party (Note 14)
—

 
(180
)
 
—

 
(429
)
Other non-operating (expense) income, net
(96
)
 
360

 
(364
)
 
307

Income (loss) before income tax
12,581

 
(15,855
)
 
73,930

 
32,803

Income tax (expense) benefit
(2,086
)
 
4,539

 
(14,706
)
 
(5,234
)
Net income (loss)
10,495

 
(11,316
)
 
59,224

 
27,569

Net income attributable to non-controlling interest
758

 
219

 
4,380

 
3,098

Net income (loss) attributable to Columbia Sportswear Company
$
9,737

 
$
(11,535
)
 
$
54,844

 
$
24,471

Earnings (loss) per share attributable to Columbia Sportswear Company (Note 9):
 
 
 
 
 
 
 
Basic
$
0.14

 
$
(0.17
)
 
$
0.78

 
$
0.35

Diluted
$
0.14

 
$
(0.17
)
 
$
0.77

 
$
0.35

Cash dividends per share
$
0.22

 
$
0.18

 
$
0.44

 
$
0.36

Weighted average shares outstanding (Note 9):
 
 
 
 
 
 
 
Basic
70,021

 
69,672

 
70,050

 
69,639

Diluted
70,748

 
69,672

 
70,824

 
70,367

See accompanying notes to condensed consolidated financial statements.


3

COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(In thousands)
(Unaudited)
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net income (loss)
10,495

 
$
(11,316
)
 
59,224

 
27,569

Other comprehensive income:
 
 
 
 
 
 
 
Unrealized holding gains (losses) on available-for-sale securities (net of tax effects of $0, $0, $0 and $0, respectively)
—

 
(4
)
 
4

 
—

Unrealized gains (losses) on derivative transactions (net of tax effects of ($6,540), $3,361, ($4,974), and $4,241, respectively)
20,553

 
(6,157
)
 
15,646

 
(7,762
)
Foreign currency translation adjustments (net of tax effects of $275, ($93), $1,819, and ($2), respectively)
(18,262
)
 
7,182

 
(12,003
)
 
18,684

Other comprehensive income
2,291

 
1,021

 
3,647

 
10,922

Comprehensive income (loss)
12,786

 
(10,295
)
 
62,871

 
38,491

Comprehensive income attributable to non-controlling interest
474

 
1,644

 
4,999

 
4,699

Comprehensive income (loss) attributable to Columbia Sportswear Company
$
12,312

 
$
(11,939
)
 
$
57,872

 
$
33,792

See accompanying notes to condensed consolidated financial statements.


4

COLUMBIA SPORTSWEAR COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended June 30,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
59,224

 
$
27,569

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
29,067

 
29,932

Loss on disposal and impairment of property, plant, and equipment
578

 
441

Deferred income taxes
2,041

 
3,378

Stock-based compensation
6,599

 
5,719

Changes in operating assets and liabilities:
 
 
 
Accounts receivable
188,897

 
156,755

Inventories
(140,897
)
 
(61,809
)
Prepaid expenses and other current assets
(6,411
)
 
(3,073
)
Other assets
(11,867
)
 
2,037

Accounts payable
37,968

 
39,773

Accrued liabilities
(49,781
)
 
(41,523
)
Income taxes payable
(12,835
)
 
(4,133
)
Other liabilities
(3,258
)
 
1,981

Net cash provided by operating activities
99,325

 
157,047

Cash flows from investing activities:
 
 
 
Purchases of short-term investments
(257,979
)
 
(33,813
)
Sales of short-term investments
88,794

 
32,878

Capital expenditures
(29,618
)
 
(24,323
)
Proceeds from sale of property, plant, and equipment
19

 
202

Net cash used in investing activities
(198,784
)
 
(25,056
)
Cash flows from financing activities:
 
 
 
Proceeds from credit facilities
—

 
2,774

Repayments on credit facilities
—

 
(2,774
)
Proceeds from issuance of common stock under employee stock plans
14,971

 
10,606

Tax payments related to restricted stock unit issuances
(4,131
)
 
(3,539
)
Repurchase of common stock
(40,106
)
 
(35,542
)
Cash dividends paid
(30,856
)
 
(25,046
)
Payment of related party note payable
—

 
(14,236
)
Net cash used in financing activities
(60,122
)
 
(67,757
)
Net effect of exchange rate changes on cash
(2,929
)
 
5,016

Net increase (decrease) in cash and cash equivalents
(162,510
)
 
69,250

Cash and cash equivalents, beginning of period
673,166

 
551,389

Cash and cash equivalents, end of period
$
510,656

 
$
620,639

Supplemental disclosures of cash flow information:
 
 
 
Cash paid during the period for income taxes
$
31,346

 
$
18,133

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

 
501

Supplemental disclosures of non-cash investing and financing activities:
 
 
 
Capital expenditures incurred but not yet paid
$
4,009

 
$
9,191

Dividend to non-controlling interest declared but not yet paid (Note 14)
$
21,332

 
$
—

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 June 30, 2018 and 2017, the results of operations for the three and six months ended June 30, 2018 and 2017, and cash flows for the six months ended June 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 six months ended June 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):
 
 
June 30, 2018
 
 
As Reported
 
Effect of Standard
 
Balances Without Adoption of ASC 606

Accounts receivable, net
 
$
238,675

 
$
37,466

 
$
201,209

Inventories
 
570,473

 
(11,068
)
 
581,541

Prepaid expenses and other current assets
 
76,399

 
11,068

 
65,331

Total current assets
 
1,660,217

 
37,466

 
1,622,751

Total assets
 
2,246,950

 
37,466

 
2,209,484

Accrued liabilities
 
191,511

 
37,466

 
154,045

Total current liabilities
 
486,323

 
37,466

 
448,857

Total liabilities
 
592,575

 
37,466

 
555,109

Total liabilities and equity
 
$
2,246,950

 
$
37,466

 
$
2,209,484

 
 
Three Months Ended
June 30, 2018
 
Six Months Ended
June 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
 
$
481,619

 
$
7,487

 
$
474,132

 
$
1,088,927

 
$
15,744

 
$
1,073,183

Gross profit
 
228,621

 
7,487

 
221,134

 
528,059

 
15,744

 
512,315

Selling, general and administrative expenses

 
$
222,192

 
$
7,487

 
$
214,705

 
$
465,560

 
$
15,744

 
$
449,816

Recent Accounting Pronouncements Not Yet Adopted
In February 2016, the 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 Company will adopt the new standard on January 1, 2019. The new guidance is required to be applied using a modified retrospective approach at the beginning of the earliest period presented with optional practical expedients, or using an approved alternative approach at the beginning of the period in which it is adopted, rather than at the beginning of the earliest comparative period presented.
The Company is currently evaluating the impact of this 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 evaluating the transition methodology to apply upon adoption. 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. 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 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.

8
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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.
NOTE 3—REVENUES
Disaggregated Revenue
As disclosed below in Note 10, 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 June 30, 2018
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
250,394

 
$
74,600

 
$
56,881

 
$
12,782

 
$
394,657

Footwear
 
29,776

 
26,284

 
28,105

 
2,797

 
86,962

Total
 
$
280,170

 
$
100,884

 
$
84,986

 
$
15,579

 
$
481,619

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
129,166

 
$
46,146

 
$
78,003

 
$
7,894

 
$
261,209

Direct-to-consumer
 
151,004

 
54,738

 
6,983

 
7,685

 
220,410

Total
 
$
280,170

 
$
100,884

 
$
84,986

 
$
15,579

 
$
481,619

 
 
Three Months Ended June 30, 2017
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
216,091

 
$
58,419

 
$
43,864

 
$
11,318

 
$
329,692

Footwear
 
22,102

 
21,054

 
23,525

 
2,531

 
69,212

Total
 
$
238,193

 
$
79,473

 
$
67,389

 
$
13,849

 
$
398,904

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
108,183

 
$
33,550

 
$
62,131

 
$
7,696

 
$
211,560

Direct-to-consumer
 
130,010

 
45,923

 
5,258

 
6,153

 
187,344

Total
 
$
238,193

 
$
79,473

 
$
67,389

 
$
13,849

 
$
398,904


9
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

 
 
Six Months Ended June 30, 2018
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
563,720

 
$
170,980

 
$
104,356

 
$
45,560

 
$
884,616

Footwear
 
79,294

 
61,473

 
52,405

 
11,139

 
204,311

Total
 
$
643,014

 
$
232,453

 
$
156,761

 
$
56,699

 
$
1,088,927

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
316,006

 
$
114,333

 
$
135,584

 
$
39,225

 
$
605,148

Direct-to-consumer
 
327,008

 
118,120

 
21,177

 
17,474

 
483,779

Total
 
$
643,014

 
$
232,453

 
$
156,761

 
$
56,699

 
$
1,088,927

 
 
Six Months Ended June 30, 2017
 
 
United States
 
LAAP
 
EMEA
 
Canada
 
Total
Product category revenues
 
 
 
 
 
 
 
 
 
 
Apparel, Accessories and Equipment
 
$
502,834

 
$
145,188

 
$
80,693

 
$
41,056

 
$
769,771

Footwear
 
68,543

 
52,629

 
42,030

 
9,724

 
172,926

Total
 
$
571,377

 
$
197,817

 
$
122,723

 
$
50,780

 
$
942,697

Sales channel revenues
 
 
 
 
 
 
 
 
 
 
Wholesale
 
$
291,179

 
$
102,770

 
$
108,616

 
$
37,845

 
$
540,410

Direct-to-consumer
 
280,198

 
95,047

 
14,107

 
12,935

 
402,287

Total
 
$
571,377

 
$
197,817

 
$
122,723

 
$
50,780

 
$
942,697

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 six months ended June 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.
Contract Balances

10
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

As of June 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 six months ended June 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 June 30, 2018 and 2017, and December 31, 2017.
The following table presents the changes in Columbia Sportswear Company shareholders' equity and non-controlling interest for the six months ended June 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
 
54,844

 
4,380

 
59,224

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Unrealized holding gains on available-for-sale securities
 
4

 
—

 
4

Derivative holding gains
 
15,120

 
526

 
15,646

Foreign currency translation adjustments
 
(12,096
)
 
93

 
(12,003
)
Cash dividends ($0.44 per share)
 
(30,856
)
 
—

 
(30,856
)
Dividends declared but not yet paid
 
—

 
(21,332
)
 
(21,332
)
Issuance of common stock under employee stock plans, net of tax
 
10,840

 
—

 
10,840

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

 
—

 
14,100

Stock-based compensation expense
 
6,599

 
—

 
6,599

Repurchase of common stock
 
(40,106
)
 
—

 
(40,106
)
Balance at June 30, 2018
 
$
1,640,400

 
$
13,975

 
$
1,654,375

The following table presents the changes in Columbia Sportswear Company shareholders' equity and non-controlling interest for the six months ended June 30, 2017 (in thousands, except per share amounts):
 
 
Columbia Sportswear Company
 
Non-Controlling Interest
 
Total
Balance at December 31, 2016
 
$
1,560,820

 
$
20,691

 
$
1,581,511

Net income
 
24,471

 
3,098

 
27,569

Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
Derivative holding losses
 
(7,567
)
 
(195
)
 
(7,762
)
Foreign currency translation adjustments
 
16,888

 
1,796

 
18,684

Cash dividends ($0.36 per share)
 
(25,046
)
 
—

 
(25,046
)
Issuance of common stock under employee stock plans, net
 
7,067

 
—

 
7,067

Stock-based compensation expense
 
5,719

 
—

 
5,719

Repurchase of common stock
 
(35,542
)
 
—

 
(35,542
)
Balance at June 30, 2017
 
$
1,546,810

 
$
25,390

 
$
1,572,200

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

11
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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):
 
June 30,
2018
 
December 31,
2017
 
June 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
(11,316
)
 
(10,651
)
 
(9,986
)
Customer relationships
(13,238
)
 
(12,413
)
 
(11,588
)
Total accumulated amortization
(24,554
)
 
(23,064
)
 
(21,574
)
Net carrying amount
12,644

 
14,134

 
15,624

Intangible assets not subject to amortization
115,421

 
115,421

 
115,421

Intangible assets, net
$
128,065

 
$
129,555

 
$
131,045

Amortization expense for intangible assets subject to amortization was $745,000 and $1,106,000 for the three months ended June 30, 2018 and 2017, respectively, and was $1,490,000 and $2,393,000 for the six months ended June 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

NOTE 6—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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Balance at beginning of period
$
12,066

 
$
11,503

 
$
12,339

 
$
11,455

Provision for warranty claims
1,194

 
731

 
2,442

 
1,931

Warranty claims
(1,121
)
 
(1,190
)
 
(2,710
)
 
(2,489
)
Other
(282
)
 
170

 
(214
)
 
317

Balance at end of period
$
11,857

 
$
11,214

 
$
11,857

 
$
11,214


12
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

NOTE 7—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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Stock options
$
1,222

 
$
1,005

 
$
2,294

 
$
2,009

Restricted stock units
2,264

 
1,772

 
4,305

 
3,710

Total
$
3,486

 
$
2,777

 
$
6,599

 
$
5,719

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:
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Expected option term
6.47 years
 
6.89 years
 
4.49 years
 
4.56 years
Expected stock price volatility
27.69%
 
28.50%
 
28.41%
 
28.91%
Risk-free interest rate
2.82%
 
1.94%
 
2.47%
 
1.72%
Expected annual dividend yield
0.99%
 
1.26%
 
1.16%
 
1.30%
Weighted average grant date fair value
$26.21
 
$15.98
 
$18.78
 
$13.00
During the six months ended June 30, 2018 and 2017, the Company granted a total of 394,098 and 496,384 stock options, respectively. At June 30, 2018, unrecognized costs related to outstanding stock options totaled approximately $11,184,000, 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 June 30, 2018 are expected to be recognized over a weighted average period of 2.71 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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Vesting period
2.16 years
 
3.08 years
 
3.89 years
 
3.86 years
Expected annual dividend yield
0.99%
 
1.26%
 
1.15%
 
1.30%
Estimated average grant date fair value per restricted stock unit
$87.20
 
$55.06
 
$72.95
 
$52.54
During the six months ended June 30, 2018 and 2017, the Company granted 176,331 and 245,953 restricted stock units, respectively. At June 30, 2018, unrecognized costs related to outstanding restricted stock units totaled approximately $20,443,000, 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 June 30, 2018 are expected to be recognized over a weighted average period of 2.69 years.

13
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

NOTE 8—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 June 30, 2018 (in thousands):
 
Unrealized gains (losses) on available-for-sale securities
 
Unrealized holding gains (losses) on derivative transactions
 
Foreign currency translation adjustments
 
Total
Balance at March 31, 2018
$
—

 
$
(15,801
)
 
$
6,852

 
$
(8,949
)
Other comprehensive income (loss) before reclassifications
—

 
20,129

 
(17,115
)
 
3,014

Amounts reclassified from other comprehensive income
—

 
(439
)
 
—

 
(439
)
Net other comprehensive income (loss) during the period
—

 
19,690

 
(17,115
)
 
2,575

Balance at June 30, 2018
$
—

 
$
3,889

 
$
(10,263
)
 
$
(6,374
)
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 June 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 March 31, 2017
$
—

 
$
5,246

 
$
(18,138
)
 
$
(12,892
)
Other comprehensive income (loss) before reclassifications
(4
)
 
(5,537
)
 
5,640

 
99

Amounts reclassified from other comprehensive income
—

 
(503
)
 
—

 
(503
)
Net other comprehensive income (loss) during the period
(4
)
 
(6,040
)
 
5,640

 
(404
)
Balance at June 30, 2017
$
(4
)
 
$
(794
)
 
$
(12,498
)
 
$
(13,296
)

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

 
$
(8,887
)
Other comprehensive income (loss) before reclassifications
4

 
15,547

 
(12,096
)
 
3,455

Amounts reclassified from other comprehensive income
—

 
(427
)
 
—

 
(427
)
Net other comprehensive income (loss) during the period
4

 
15,120

 
(12,096
)
 
3,028

Adoption of ASU 2017-12 (Note 2)
—

 
(515
)
 
—

 
$
(515
)
Balance at June 30, 2018
$
—

 
$
3,889

 
$
(10,263
)
 
$
(6,374
)

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 six months ended June 30, 2017 (in thousands):
 
Unrealized gains (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 income (loss) before reclassifications
—

 
(6,975
)
 
16,888

 
9,913

Amounts reclassified from other comprehensive income
—

 
(592
)
 
—

 
(592
)
Net other comprehensive income (loss) during the period
—

 
(7,567
)
 
16,888

 
9,321

Balance at June 30, 2017
$
(4
)
 
$
(794
)
 
$
(12,498
)
 
$
(13,296
)

NOTE 9—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.
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 June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Weighted average shares of common stock outstanding, used in computing basic earnings per share
70,021

 
69,672

 
70,050

 
69,639

Effect of dilutive stock options and restricted stock units
727

 
—

 
774

 
728

Weighted average shares of common stock outstanding, used in computing diluted earnings per share
70,748

 
69,672

 
70,824

 
70,367

Earnings (loss) per share of common stock attributable to Columbia Sportswear Company:
 
 
 
 
 
 
 
Basic
$
0.14

 
$
(0.17
)
 
$
0.78

 
$
0.35

Diluted
$
0.14

 
$
(0.17
)
 
$
0.77

 
$
0.35

 
Stock options and service-based restricted stock units representing 378,360 and 2,641,676 shares of common stock for the three months ended June 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 290,673 and 862,559 shares of common stock for the six months ended June 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 21,164 and 50,403 shares of common stock for the three months ended June 30, 2018 and 2017, respectively, and 21,164 and 46,485 shares of common stock for the six months ended June 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 June 30, 2018, the Company's Board of Directors has authorized the repurchase of $700,000,000 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 June 30, 2018, the Company had repurchased 22,158,325 shares under this program at an aggregate purchase price of approximately $602,169,000. During the three and six months ended June 30, 2018, the Company repurchased 264,793 and 500,290 shares of the Company's common stock at an aggregate purchase price of $22,007,000 and $40,106,000, respectively. During the three and six months ended June 30, 2017, the Company repurchased 48,943 and 665,095 shares of the Company's common stock at an aggregate purchase price of $2,542,000 and $35,542,000, respectively.

15
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

NOTE 10—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.
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 six months ended June 30, 2018 and 2017.
 
Three Months Ended June 30,
 
Six Months Ended June 30,
 
2018
 
2017
 
2018
 
2017
Net sales to unrelated entities:
 
 
 
 
 
 
 
United States
$
280,170

 
$
238,196

 
$
643,014

 
$
571,380

LAAP
100,884

 
79,467

 
232,453

 
197,811

EMEA
84,986

 
67,392

 
156,761

 
122,726

Canada
15,579

 
13,849

 
56,699

 
50,780

 
$
481,619

 
$
398,904

 
$
1,088,927

 
$
942,697

Segment income (loss) from operations:
 
 
 
 
 
 
 
United States
$
39,432

 
$
22,314

 
$
113,819

 
$
84,956

LAAP
7,669

 
3,503

 
29,408

 
23,311

EMEA
5,415

 
152

 
12,557

 
1,476

Canada
(2,548
)
 
(2,563
)
 
3,995

 
3,264

Total segment income from operations
49,968

 
23,406

 
159,779

 
113,007

Unallocated corporate expenses
(40,219
)
 
(40,691
)
 
(90,709
)
 
(82,287
)
Interest income, net
2,928

 
1,250

 
5,224

 
2,205

Interest expense on note payable to related party
—

 
(180
)
 
—

 
(429
)
Other non-operating (expense) income
(96
)
 
360

 
(364
)
 
307

Income (loss) before income taxes
$
12,581

 
$
(15,855
)
 
$
73,930

 
$
32,803

Concentrations
The Company had two customers that accounted for approximately 11.3% and 10.6%, respectively, of Accounts receivable, net of allowance on the Condensed Consolidated Balance Sheets as of June 30, 2018. The Company had two customers that accounted for approximately 12.6% and 10.9%, respectively, of Accounts receivable, net of allowance as of June 30, 2017. The Company had one customer that accounted for approximately 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 or six months ended June 30, 2018 or 2017, or for the year ended December 31, 2017.
NOTE 11—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

16
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

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 six months ended June 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 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, 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): 
 
June 30,
2018
 
December 31,
2017
 
June 30,
2017
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
Currency forward contracts
$
493,828

 
$
448,448

 
$
314,000

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
Currency forward contracts
419,707

 
231,161

 
166,476

At June 30, 2018, approximately $2,594,000 of deferred net losses 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 June 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 June 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.

17
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

The following table presents the balance sheet classification and fair value of derivative instruments (in thousands):
 
 
Balance Sheet Classification
 
June 30,
2018
 
December 31,
2017
 
June 30,
2017
Derivative instruments designated as cash flow hedges:
 
 
 
 
 
 
 
 
Derivative instruments in asset positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Prepaid expenses and other current assets
 
$
4,692

 
$
1,648

 
$
1,648

Currency forward contracts
 
Other non-current assets
 
10,516

 
335

 
816

Derivative instruments in liability positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Accrued liabilities
 
1,022

 
9,336

 
3,151

Currency forward contracts
 
Other long-term liabilities
 
327

 
3,820

 
1,665

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Derivative instruments in asset positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Prepaid expenses and other current assets
 
2,471

 
683

 
505

Derivative instruments in liability positions:
 
 
 
 
 
 
 
 
Currency forward contracts
 
Accrued liabilities
 
1,873

 
1,229

 
916


The following table presents the statement of operations effect and classification of derivative instruments (in thousands):
 
Statement of
Operations
Classification
 
Three Months Ended June 30,
 
Six Months Ended June 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
—
 
$
20,859

 
$
(5,537
)
 
$
15,627

 
$
(6,975
)
Gain reclassified from accumulated other comprehensive income or loss to income for the effective portion
Net sales
 
19

 
—

 
24

 
144

Gain (loss) reclassified from accumulated other comprehensive income or loss to income for the effective portion
Cost of sales
 
(1,398
)
 
897

 
(3,604
)
 
951

Gain recognized in income for amount excluded from effectiveness testing and for the ineffective portion
Net sales
 
6

 
2

 
12

 
5

Gain recognized in income for amount excluded from effectiveness testing and for the ineffective portion
Cost of sales
 
1,896

 
492

 
3,821

 
1,286

Derivative instruments not designated as cash flow hedges:
 
 
 
 
 
 
 
 
Gain (loss) recognized in income
Other non-operating expense
 
2,836

 
(1,723
)
 
2,234

 
(3,411
)
NOTE 12—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 June 30, 2018, inventory purchase obligations were $424,968,000.
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.

18
COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

NOTE 13—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.
Assets and liabilities measured at fair value on a recurring basis as of June 30, 2018 are as follows (in thousands):
 
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Cash equivalents:
 
 
 
 
 
 
 
Money market funds
$
144,729

 
$
—

 
$
—

 
$
144,729

Time deposits
61,563

 
—

 
—

 
61,563

U.S. Government treasury bills
—

 
121,352

 
—

 
121,352

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

 
225,247

 
—

 
225,247

U.S. Government-backed municipal bonds
—

 
37,335

 
—

 
37,335

Other short-term investments:
 
 
 
 
 
 
 
Mutual fund shares
1,432

 
—

 
—

 
1,432

Other current assets:
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
—

 
7,163

 
—

 
7,163

Other non-current assets:
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
—

 
10,516

 
—

 
10,516

Mutual fund shares
9,332

 
—

 
—

 
9,332

Total assets measured at fair value
$
217,056

 
$
401,613

 
$
—

 
$
618,669

Liabilities:
 
 
 
 
 
 
 
Accrued liabilities:
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
$
—

 
$
2,895

 
$
—

 
$
2,895

Other long-term liabilities:
 
 
 
 
 
 
 
Derivative financial instruments (Note 11)
—

 
327

 
—

 
327

Total liabilities measured at fair value
$
—

 
$
3,222

 
$
—

 
$
3,222


(1) Investments have remaining maturities of less than one year.


19
COLUMBIA SPORTSWEAR COMPANY