Columbia Sportswear 2012 Annual Report Download - page 15

11
limit or eliminate the availability of these resources to us. If an independent manufacturer fails to ship orders in a timely
manner or to meet our standards or if we are unable to obtain necessary capacities, we may miss delivery deadlines or incur
additional costs, which may cause our wholesale customers to cancel their orders, refuse to accept deliveries, or demand a
reduction in purchase prices, any of which could have a material adverse effect on our financial condition, results of operations
or cash flows.
Reliance on independent factories also creates quality control risks. Independent factories may need to use sub-
contracted manufacturers to fulfill demand and these manufacturers may have less experience producing our products or
possess lower overall capabilities, which could result in compromised quality of our products. A failure in our quality control
program may result in diminished product quality, which in turn could result in increased order cancellations and returns,
decreased consumer demand for our products, or product recalls (or other regulatory actions), any of which could have a
material adverse effect on our financial condition, results of operations or cash flows.
We also have license agreements that permit unaffiliated parties to manufacture or contract to manufacture products
using our trademarks. We impose Standards of Manufacturing Practices on our independent factories and licensees for the
benefit of workers and require compliance with our restricted substances list and product safety and other applicable
environmental, health and safety laws. We also require our independent factories and licensees to impose these practices,
standards and laws on their contractors. If an independent manufacturer or licensee violates labor or other laws, or engages
in practices that are not generally accepted as ethical in our key markets, we may experience production disruptions or
significant negative publicity that could result in long-term damage to our brands, and in some circumstances parties may
attempt to assert that we are liable for the independent manufacturer’s or licensee’s practices, which could have a material
adverse effect on our financial condition, results of operations or cash flows.
We May be Adversely Affected by Volatility in Global Production and Transportation Costs and Capacity
Our product costs are subject to substantial fluctuation based on:
• Availability and quality of raw materials;
• The prices of oil, cotton and other raw materials whose prices are determined by global commodity markets and
can be very volatile;
• Changes in labor markets and wage rates paid by our independent factory partners, which are often mandated
by governments in the countries where our products are manufactured, particularly in China and Vietnam;
• Interest rates and currency exchange rates;
• Availability of skilled labor and production capacity at independent factories; and
• General economic conditions.
Prolonged periods of inflationary pressure on some or all input costs will result in increased costs to produce our
products that may result in reduced gross profit or necessitate price increases for our products that could adversely affect
consumer demand for our products.
In addition, since the majority of our products are manufactured outside of our principal sales markets, our products
must be transported by third parties over large geographical distances. Shortages in ocean freight capacity, airfreight capacity
and volatile fuel costs can result in rapidly changing transportation costs. For example, during 2010, shortages of sourcing
and transportation capacity, combined with later-than-optimal production of advance orders, caused us to rely more heavily
on airfreight to achieve timely delivery to our customers, resulting in significantly higher freight costs. Because we price
our products in advance and changes in transportation and other costs may be difficult to predict, we may not be able to
pass all or any portion of these higher costs on to our customers or adjust our pricing structure in a timely manner in order
to remain competitive, either of which could have a material adverse effect on our financial condition, results of operations
or cash flows.
We May be Adversely Affected by Volatile Economic Conditions
We are a consumer products company and are highly dependent on consumer discretionary spending patterns and the
purchasing patterns of our wholesale customers as they attempt to match their seasonal purchase volumes to volatile consumer