North Face 1999 Annual Report Download - page 21

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value of marketable securities. The Company regularly assesses these
potential risks and has policies and procedures to manage these risks.
The Company limits its risk from interest rate fluctuations on its
net income and cash flows by managing its mix of long-term bor-
rowings at fixed interest rates and short-term borrowings at variable
interest rates. The Company may also use derivative instruments to
minimize its interest rate risk. The primary interest rate exposure,
which is not significant, relates to short-term domestic and foreign
borrowings. These borrowings averaged $430 million during 1999
and $245 million during 1998. In addition, at the end of 1998, the
Company had an interest rate swap contract related to $100 million
of long-term debt. This swap expired in October 1999.
The Company has assets and liabilities in foreign subsidiaries
that are subject to fluctuations in foreign currency exchange rates.
Investments in these primarily European subsidiaries are considered
to be long-term investments, and accordingly, the Company uses a
functional currency other than the U.S. dollar. The Company does
not hedge these net investments and does not hedge the translation
of foreign currency operating results into the U.S. dollar. In addi-
tion, a growing percentage of the total product needs to support our
domestic businesses are manufactured in Company-owned plants in
foreign countries or by foreign contractors. The Company’s primary
foreign currency exposures relate to the euro and to the Mexican
peso. Management monitors foreign currency exposures and may
in the ordinary course of business enter into foreign currency
forward exchange contracts related to specific foreign currency trans-
actions or anticipated cash flows occurring within twelve months.
The amount of these contracts, and related gains and losses, are not
material. There are no financial instruments held for trading or
speculative purposes.
The Company is exposed to changes in the overall investment
securities markets because amounts accrued under various non-
qualified deferred compensation plans are based on market values
of investment funds that are selected by the plans’ participants.
Changes in the market values of the participants’ underlying invest-
ment selections expose the Company to risks of stock market
fluctuations. This securities market risk is hedged by the Company’s
investments in a portfolio of variable life insurance contracts and
other securities that substantially mirror the investment selections
underlying the deferred compensation liabilities. Increases and
decreases in deferred compensation liabilities are substantially offset
by corresponding increases and decreases in the market value of the
Company-owned investment securities, resulting in an insignificant
net exposure to the Company’s operating results and financial position.
Cautionary Statement on Forward-Looking Statements From
time to time, the Company may make oral or written statements,
including statements in this Annual Report, that constitute
“forward-looking statements” within the meaning of the federal
securities laws. This includes statements concerning plans and
objectives of management relating to the Company’s operations or
economic performance, and assumptions related thereto.
Forward-looking statements are made based on management’s
expectations and beliefs concerning future events impacting the
Company and therefore involve a number of risks and uncertainties.
Management cautions that forward-looking statements are not guar-
antees and actual results could differ materially from those expressed
or implied in the forward-looking statements.
Important factors that could cause the actual results of operations
or financial condition of the Company to differ include, but are
not necessarily limited to, the overall level of consumer spending for
apparel; changes in trends in the segments of the market in which
the Company competes; the financial strength of the retail industry;
actions of competitors that may impact the Company’s business; and
the impact of unforeseen economic changes in the markets where
the Company competes, such as changes in interest rates, currency
exchange rates, inflation rates, recession, and other external economic
and political factors over which the Company has no control.