Columbia Sportswear 2014 Annual Report Download - page 16

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standards and laws on their contractors. If an independent manufacturer, licensee or subcontractor violates labor or other
laws, or engages in practices that are not generally accepted as safe or ethical, they and their employees may suffer serious
injury due to industrial accidents, the manufacturer may suffer disruptions to its operations due to work stoppages or employee
protests and we may experience production disruptions, significant negative publicity or lost sales that could result in long-
term damage to our brands and corporate reputation. In some circumstances parties may attempt to assert that we are liable
for our independent manufacturers', licensees' or subcontractors' labor and operational 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, leather, natural down, 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;
• Disruption to shipping and transportation channels utilized to bring our product to market;
• Interest rates and currency exchange rates;
• Availability of skilled labor and production capacity at contract manufacturers; 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 or air freight capacity and volatile
fuel costs can result in rapidly changing transportation costs. For example, disruption to shipping and transportation channels
due to labor disputes at ports on the west coast of the United States could cause 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
demand. In addition, as we have expanded our direct-to-consumer operations, we have increased our direct exposure to the
risks associated with volatile and unpredictable consumer discretionary spending patterns. Consumer discretionary spending
behavior is inherently unpredictable and consumer demand for our products may not reach our sales targets, or may decline,
especially during periods of heightened economic uncertainty in our key markets. Our sensitivity to economic cycles and
any related fluctuation in consumer demand may have a material adverse effect on our financial condition, results of
operations or cash flows.
Our Sales Are Subject to Cancellation
We do not have long-term contracts with any of our wholesale customers. We do have contracts with our distributors,
typically with terms ranging up to five years; however, although these contracts may have annual purchase minimums which
must be met in order to retain the distribution rights, the distributors are not otherwise obligated to purchase product. Sales
to our retailers and distributors are generally on an order-by-order basis and are subject to rights of cancellation and