North Face 2001 Annual Report Download - page 45

30% excluding restructuring charges in both years and the change in accounting policy in 2000), compared with
a payout rate of 28% in 1999. The indicated annual dividend rate for 2002 is $.96 per share. VF has paid divi-
dends on its Common Stock annually since 1941, and we intend to maintain a long-term payout rate of 30%.
M anagement believes that the Company has sufficient funds provided by operations, as well as unused
credit lines and additional borrowing capacity, to meet all of its obligations when due. Debt agreements do not
contain acceleration clauses related to changes in credit ratings. Following is a summary of the Company’s fixed
obligations at the end of 2001 that will require the use of funds:
Payments Due by Year
In millions 2002 2003 – 2004 2005 – 2006 Thereafter
Long-term debt (1) $ 0.7 $202.0 $400.6 $301.4
Operating leases 57.4 81.7 48.0 63.8
Minimum royalties under licenses (2) 18.2 40.1 23.1 10.6
$76.3 $323.8 $471.7 $375.8
(1) $200.0 million of the debt due in 2003– 2004 w as called for redemption and paid in February 2002.
(2) Royalties paid under trademark licenses are recognized in cost of products sold in the Consolidated Statements of
Income as the related products are sold.
We have other financial commitments at the end of 2001 that may require the use of funds under certain
circumstances:
• The Company has outstanding $72.4 million of trade letters of credit for the purchase of inventory from foreign
suppliers in the ordinary course of business. These letters of credit, generally for periods of less than six months,
will only be paid upon satisfactory receipt of the inventory by the Company.
• M atching contributions under the Employee Stock Ow nership Plan are made to participants in the form of
shares of the Company’s Series B Convertible Preferred Stock. The Company has an obligation to redeem
Preferred Stock held in participant accounts, and to pay each participant the value of their account, upon
retirement or withdrawal from the plan. The amounts of these redemptions vary based on the conversion
value of the Preferred Stock. Payments made for redemption of Preferred Stock have averaged $5.2 million
per year over the last three years.
• The Company has entered into $50.0 million of surety bonds and standby letters of credit representing contin-
gent guarantees of performance under self-insurance and other programs. These commitments would only be
drawn upon if VF were to fail to meet its claims obligations.
Outlook for 2002
Looking ahead to 2002:
• We expect that our sales will decline by 8%, with one-half of that decline resulting from the business exits
announced in late 2001. Regarding our ongoing businesses, we continue to expect slow consumer spending on
apparel in the U.S. We believe that the Company will successfully address the competitive pressures in the
retail apparel marketplace by delivering more value in the form of selective price reductions and more market-
ing investment, product innovation and in-store promotion. In addition, while w e cannot assess the impact on
VF of the bankruptcy filing of one of our largest customers as mentioned in the Balance Sheets section above,
it is possible that there will be some decline in sales volume with that customer.
• As previously stated, the restructuring actions should result in $100 million of cost reduction. How ever, labor,
pension and other benefit cost increases, higher marketing spending in our leading brands and other inflation-
ary increases will offset a portion of these savings. On an overall basis, operating margins for ongoing busi-
nesses should improve by at least 1.0% of sales.
• Of the estimated $265 million of restructuring charges that w e approved in the fourth quarter of 2001, we
expect that $25 to $30 million of those costs will be recorded in 2002 as the actions are carried out. In addi-
tion, costs and operating losses to be incurred in liquidation of the Private Label knitw ear and swimw ear
businesses will approximate $15 million. The combined impact of these restructuring charges and business
exit costs is estimated at $.25 per share.
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