Columbia Sportswear 2014 Annual Report Download - page 15

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operations or cash flows. As we transition from our legacy ERP systems to new ERP systems and supporting systems and
third-party systems that interface with our new ERP systems, certain functionality and information from our legacy systems
may not be fully compatible with the new systems. As a result, temporary processes may be required, including manual
operations, which could significantly increase the risk of human errors in information used by the business and/or result in
business disruptions, which could have a material adverse effect on our capital resources, financial condition, results of
operations or cash flows.
System Security Risks, Data Breaches and Cyber Attacks Could Disrupt Our Operations
We manage and store various proprietary information and sensitive or confidential data relating to our business,
including sensitive and personally identifiable information. Breaches of our security measures or the accidental loss,
inadvertent disclosure or unapproved dissemination of proprietary information or sensitive or confidential data about us,
our customers or our employees, including the potential loss or disclosure of such information or data as a result of hacking,
fraud, trickery or other forms of deception, could expose us, our customers or the individuals affected to a risk of loss or
misuse of this information, result in litigation and potential liability for us, damage our brand and reputation or otherwise
harm our business. In addition, our current data protection measures might not protect us against increasingly sophisticated
and aggressive threats and the cost and operational consequences of implementing further data protection measures could
be significant.
Experienced computer programmers and hackers may be able to penetrate our network security and misappropriate
or compromise our confidential information or that of third parties, create system disruptions or cause shutdowns. Computer
programmers and hackers also may be able to develop and deploy viruses, worms and other malicious software programs
that attack or otherwise exploit any security vulnerabilities of our systems. In addition, sophisticated hardware and operating
system software and applications that we procure from third parties may contain defects in design or manufacture, including
"bugs" and other problems that could unexpectedly interfere with the operation of the system. The costs to us to eliminate
or alleviate cyber or other security problems, bugs, viruses, worms, malicious software programs and security vulnerabilities
could be significant, and our efforts to address these problems may not be successful and could result in significant financial
losses and expenses, interruptions, delays, cessation of service and loss of existing or potential customers that may impede
our sales, manufacturing, distribution or other critical functions.
We Depend on Contract Manufacturers
Our products are manufactured by contract manufacturers worldwide. Although we enter into purchase order
commitments with these contract manufacturers each season, we generally do not maintain long-term manufacturing
commitments with them. Without long-term or reserve commitments, there is no assurance that we will be able to secure
adequate or timely production capacity or favorable pricing if growth or product demand differs from our forecasts. Contract
manufacturers may fail to perform as expected or our competitors may obtain production capacities that effectively 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 contract manufacturers also creates quality control risks. Contract manufacturers 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 could result in diminished product quality, which in turn could result in increased order cancellations, price
concessions and returns, decreased consumer demand for our products, non-compliance with our product standards or
regulatory requirements 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 contract manufacturers 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 contract manufacturers and licensees to impose these practices,