Columbia Sportswear 2004 Annual Report Download - page 53

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
NOTE 10—INCOME TAXES
The Company applies an asset and liability method for income taxes that requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in
the Company’s financial statements or tax returns. In estimating future tax consequences, the Company generally
considers all expected future events other than enactment of changes in the tax laws or rates. Deferred taxes are
provided for temporary differences between assets and liabilities for financial reporting purposes and for income
tax purposes. Valuation allowances are recorded against net deferred tax assets when it is more likely than not
that the asset will not be realized.
The Company has undistributed earnings of foreign subsidiaries of approximately $110,000,000 at
December 31, 2004, for which deferred taxes have not been provided. Such earnings are considered indefinitely
invested outside of the United States. If these earnings were repatriated to the United States, the earnings would
be subject to U.S. taxation. The amount of unrecognized deferred tax liability associated with the undistributed
earnings was approximately $12,000,000 at December 31, 2004. The unrecognized deferred tax liability is the
approximate excess of the United States tax liability over the creditable foreign taxes paid that would result from
a full remittance of undistributed earnings.
On October 22, 2004, the American Jobs Creation Act of 2004 (the “Act”) was signed into law. The Act
includes a deduction from taxable income of 85% of certain foreign earnings that are repatriated, as defined in
the Act. During 2005, the Company may elect to apply this provision to qualifying repatriations of foreign
subsidiary earnings which are currently considered as permanently reinvested under the exception provided by
APB No. 23, “Accounting for Income Taxes—Special Areas.” Absent the Act provisions, these earnings would
likely not be repatriated in the foreseeable future. The Company is evaluating the effects of the repatriation
provisions based on all available U.S. Treasury guidance and is awaiting anticipated further guidance. The
Company expects to complete its evaluation of the effects of the repatriation provision within a reasonable period
of time after additional guidance is published. The Company is estimating that the range of possible amounts
considered for repatriation under this provision is between $0 and $150 million. The related potential range of
income tax is subject to various factors and will become determinable once further guidance has been issued.
In November 2004, the Internal Revenue Service commenced an examination of the Company’s 2002 and
2003 U.S. federal income tax returns.
The Company receives a U.S. income tax benefit upon the exercise of the majority of its employee stock
options. The benefit is equal to the difference between the fair market value of the stock at the time of exercise
and the option price, times the appropriate tax rate. The Company has recorded the benefit associated with the
exercise of employee stock options directly to shareholders’ equity.
Consolidated income from continuing operations before income taxes consists of the following (in
thousands):
Year ended December 31
2004 2003 2002
U.S. operations .................................................. $141,493 $147,738 $136,186
Foreign operations ............................................... 73,428 42,931 27,843
Incomebeforeincometax ..................................... $214,921 $190,669 $164,029
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