Capital Structure Policy
In the normal course of business, Columbia Sportswear’s financial position and results operations are subject to a variety of market risks. Those market risks include interest movements on borrowing and investment activities. As well as the volatility of currency exchange rate movement.
The business is also affected by the general seasonal trends due to the nature of outdoor industry. In 2011, approximately 65% of the net sale and all of their profitability were realized in the second half of the year. Some other risk factors include substantial cyclical fluctuation, the effects of unseasonable weather conditions, and the popularity of the outdoor activities.
In order to minimize the negative impacts on this business, the company started a series of strategic initiatives, such as product innovation program, new multi-channel and multi-country direct-to-consumer platform, information management and their enhanced marketing efforts. All those improvement and implementation involve significant investment in SG&A expenses and its fixed cost. Thus it is essential to look back and evaluate their current capital structure and payout policies to exam whether the company should start on carrying debt or whether they have residual cash return to their investors.
Despite Columbia’s regular dividend payouts and stock repurchases, they does not maintain a healthy cash and short-term investment balance. According to the financial data provided in Annual Report, the major financing needs include capital expenditures, working capital expenses, stock buybacks, and dividend payouts. In 2011, Columbia spent $78 million in capital expenditure and $92.2 million in working capital investments; which was increased from $29 million and $78.9 million from last year. Even though the company’s net income increases over time, they have generated negative free cash flow for both fiscal year of 2011 and 2010 with around $14.6 million and $5.3 million...
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