Columbia Sportswear 2010 Annual Report Download - page 55

COLUMBIA SPORTSWEAR COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
trademarks and trade names. Substantially all of the Company’s goodwill is recorded in the United States
segment and impairment testing for goodwill is performed at the reporting unit level. In the impairment test for
goodwill, the two-step process first compares the estimated fair value of the reporting unit with the carrying
amount of that reporting unit. The Company estimates the fair value of its reporting units using a combination of
discounted cash flow analysis, comparisons with the market values of similar publicly traded companies and
other operating performance based valuation methods. If step one indicates impairment, step two compares the
estimated fair value of the reporting unit to the estimated fair value of all reporting unit assets and liabilities
except goodwill to determine the implied fair value of goodwill. The Company calculates impairment as the
excess of carrying amount of goodwill over the implied fair value of goodwill. In the impairment test for
trademarks, the Company compares the estimated fair value of the asset to the carrying amount. The fair value of
trademarks is estimated using the relief from royalty approach, a standard form of discounted cash flow analysis
used in the valuation of trademarks. If the carrying amount of trademarks exceeds the estimated fair value, the
Company calculates impairment as the excess of carrying amount over the estimate of fair value.
If events or circumstances indicate the carrying value of intangible assets with finite lives may be impaired,
the Company estimates the future undiscounted cash flows to be derived from the asset or asset group to
determine whether a potential impairment exists. If the sum of the estimated undiscounted cash flows is less than
the carrying value of the asset the Company recognizes an impairment loss, measured as the amount by which the
carrying value exceeds the estimated fair value of the asset.
Impairment charges are classified as a component of SG&A expense. The fair value estimates are based on
a number of factors, including assumptions and estimates for projected sales, income, cash flows, discount rates
and other operating performance measures. Changes in estimates or the application of alternative assumptions
could produce significantly different results. These assumptions and estimates may change in the future due to
changes in economic conditions, changes in the Company’s ability to meet sales and profitability objectives or
changes in the Company’s business operations or strategic direction.
Income taxes:
Income taxes are provided on financial statement earnings for financial reporting purposes. Income taxes are
based on amounts of taxes payable or refundable in the current year and on expected future tax consequences of
events that are recognized in the financial statements in different periods than they are recognized in tax returns.
As a result of timing of recognition and measurement differences between financial accounting standards and
income tax laws, temporary differences arise between amounts of pre-tax financial statement income and taxable
income and between reported amounts of assets and liabilities in the Consolidated Balance Sheets and their
respective tax bases. Deferred income tax assets and liabilities reported in the Consolidated Balance Sheets
reflect estimated future tax effects attributable to these temporary differences and to net operating loss and net
capital loss carryforwards, based on tax rates expected to be in effect for years in which the differences are
expected to be settled or realized. Realization of deferred tax assets is dependent on future taxable income in
specific jurisdictions. Valuation allowances are used to reduce deferred tax assets to amounts considered likely to
be realized. U.S. deferred income taxes are not provided on undistributed income of foreign subsidiaries where
such earnings are considered to be permanently invested, or to the extent such recognition would result in a
deferred tax asset.
Accrued income taxes in the Consolidated Balance Sheets include unrecognized income tax benefits relating
to uncertain tax positions, including related interest and penalties, appropriately classified as current or
noncurrent. The Company recognizes the tax benefit from an uncertain tax position if it is more likely than not
that the tax position will be sustained on examination by the relevant taxing authority based on the technical
merits of the position. The tax benefits recognized in the financial statements from such positions are then
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