Columbia Sportswear 2010 Annual Report Download - page 21

will increase as well, making it more expensive and challenging to establish and protect our intellectual property
rights and to defend against claims of infringement by others.
As a global company, we determine our income tax liability in various competing tax jurisdictions based on
a careful analysis and interpretation of local tax laws and regulations. This analysis requires a significant amount
of judgment and estimation and is often based on various assumptions about the future actions of the local tax
authorities. These determinations are the subject of periodic domestic and foreign tax audits. Although we accrue
for uncertain tax positions, our accrual may be insufficient to satisfy unfavorable findings, which by their nature
cannot be predicted with certainty. Unfavorable audit findings and tax rulings may result in payment of taxes,
fines and penalties for prior periods and higher tax rates in future periods, which may have a material adverse
effect on our financial condition, results of operations or cash flows. Changes in tax law or our interpretation of
tax laws and the resolution of current and future tax audits could significantly affect the amounts provided for
income taxes in our consolidated financial statements.
Moreover, if we encounter a significant need for liquidity domestically or at a particular location that we
cannot fulfill through borrowings, equity offerings or other internal or external sources, we may experience
unfavorable tax and earnings consequences as a result of cash transfers. These adverse consequences would
occur, for example, if the transfer of cash into the United States is taxed and no offsetting foreign tax credit is
available to offset the U.S. tax liability, resulting in lower earnings. Furthermore, we may be prohibited from
transferring cash from a country such as China. Foreign exchange ceilings imposed by local governments and the
sometimes lengthy approval processes that foreign governments require for international cash transfers may
delay our internal cash transfers from time to time.
In addition, many of our imported products are subject to duties, tariffs or other import limitations that
affect the cost and quantity of various types of goods imported into the United States or into our other sales
markets. Any country in which our products are produced or sold may eliminate, adjust or impose new import
limitations, duties, tariffs, anti-dumping penalties or other charges or restrictions, any of which could have a
material adverse effect on our financial condition, results of operations or cash flows.
Our Business and Reputation May be Adversely Affected by Actions of Independent Contractors
We contract with many independent contractors outside of the United States to manufacture our products,
and we also have license agreements that permit unaffiliated parties to manufacture or contract to manufacture
products using our trademarks. We impose, and require our licensees to impose, on those contractors Standards
of Manufacturing Practices and other environmental, health and safety standards for the benefit of workers and
compliance with product safety and other laws. However, from time to time contractors may not comply with
these standards or applicable local law, or our licensees may not require their contractors to comply with these
standards or applicable local law. Significant or continuing noncompliance with these standards and laws by one
or more contractors could harm our reputation and, as a result, could have an adverse effect on our financial
condition, results of operations or cash flows.
We Operate in Very Competitive Markets
The markets for outerwear, sportswear, footwear, accessories and equipment are highly competitive, as are
the markets for our licensed products. In each of our geographic markets, we face significant competition from
global and regional branded apparel, footwear, accessories and equipment companies.
Retailers who are our customers often pose our most significant competitive threat by marketing apparel,
footwear and equipment under their own private labels. For example, in the United States, several of our largest
customers have developed significant private label brands during the past decade that compete directly with our
products. These retailers have assumed an increasing degree of inventory risk in their private label products and,
as a result, may first cancel advance orders with us in order to manage their own inventory levels downward
during weak economic cycles.
15