<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL , 2000
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
GUESS ?, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 2345 95-3679695
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
1444 SOUTH ALAMEDA STREET
LOS ANGELES, CALIFORNIA 90021
(213) 765-3100
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
BRIAN L. FLEMING
EXECUTIVE VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
GUESS ?, INC.
1444 SOUTH ALAMEDA STREET
LOS ANGELES, CALIFORNIA 90021
(213) 765-3100
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
Jerome L. Coben, Esq. Jonathan K. Layne, Esq.
Jeffrey H. Cohen, Esq. Gibson, Dunn & Crutcher LLP
Skadden, Arps, Slate, Meagher & Flom LLP 333 South Grand Avenue
300 South Grand Avenue Los Angeles, California 90071
Los Angeles, California 90071
</TABLE>
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box. / /
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this form is a post-effective amendment filed pursuant to Rule 462(c)under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock, par value $0.01 per share..... 5,175,000 shares $28.96875 $149,913,282 $39,600
</TABLE>
(1) Includes 675,000 shares of common stock that the underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee, based on the average of the high and low trading price of the common
stock reported on the New York Stock Exchange on April 24, 2000 in
accordance with Rule 457(c) under the Securities Act of 1933.
------------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SEC, ACTING PURSUANT TO SAID SECTION 8(a), MAY
DETERMINE.
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<PAGE>
SUBJECT TO COMPLETION, DATED APRIL 27, 2000
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. THESE
SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER
TO SELL THESE SECURITIES AND IS NOT SOLICITING AN OFFER TO BUY THESE SECURITIES
IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
4,500,000 SHARES
GUESS ?, INC.
[LOGO]
COMMON STOCK
$[ ] PER SHARE
- -------------------------------------------------------------------------
Guess ?, Inc. is offering 4,500,000 shares of common stock with this prospectus.
This is a firm commitment underwriting.
The common stock is listed on the New York Stock Exchange under the symbol
"GES." On April 26, 2000, the last reported sale price of our common stock on
the New York Stock Exchange was $28.875 per share.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" BEGINNING ON
PAGE 9.
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----------
<S> <C> <C>
Price to the Public............................ $ $
Underwriting Discount.......................... $ $
Proceeds to Guess ?, Inc. ..................... $ $
</TABLE>
GUESS? has granted an over-allotment option to the underwriters. Under this
option, the underwriters may elect to purchase a maximum of 675,000 additional
shares from GUESS? within 30 days following the date of this prospectus to cover
over-allotments.
- --------------------------------------------------------------------------------
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED
OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL
OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
CIBC WORLD MARKETS
PAINEWEBBER INCORPORATED
CHASE H&Q
TUCKER ANTHONY CLEARY GULL
FERRIS, BAKER WATTS
INCORPORATED
The date of this prospectus is , 2000.
<PAGE>
INSIDE FRONT COVER
Black and white photos of two women and a man standing up
INSIDE GATEFOLD
Color photos of store locations
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Prospectus Summary.......................................... 4
Risk Factors................................................ 9
Forward-Looking Statements.................................. 16
Use of Proceeds............................................. 17
Capitalization.............................................. 18
Price Range of Common Stock................................. 19
Dividend Policy............................................. 19
Selected Consolidated Financial Data........................ 20
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 21
Business.................................................... 28
Management.................................................. 44
Principal Stockholders...................................... 48
Certain Relationships and Related Transactions.............. 50
Description of Capital Stock................................ 51
Underwriting................................................ 52
Legal Matters............................................... 54
Experts..................................................... 54
Where You Can Find More Information......................... 54
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
Our executive offices are located at 1444 South Alameda Street, Los Angeles,
California 90021, and our telephone number is (213) 765-3100. We maintain a
World Wide Web site at WWW.GUESS.COM. Information contained on our web site is
not part of this prospectus.
You should rely only on the information contained in this document or to which
we have referred you. We have not authorized anyone to provide you with any
information that is different. This document may only be used in jurisdictions
where it is legal to sell our common stock. The information in this document may
only be accurate on the date of this document, regardless of the time of its
delivery or of any sale of our common stock. In this prospectus, "GUESS?,"
"Guess?," "we," "us," and "our" refer to Guess ?, Inc. and its consolidated
subsidiaries.
Unless otherwise stated, all information contained in this prospectus assumes no
exercise of the over-allotment option granted to the underwriters.
Guess, Guess?, GUESS?, Guess U.S.A., Guess Jeans, Guess? and Triangle Design,
Guess Kids, Guess Collection and Baby Guess are registered trademarks of
Guess ?, Inc. Other product, company or organization names used in this
prospectus may be trademarks of their respective companies or organizations.
3
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED IN OTHER PARTS OF THIS PROSPECTUS.
BECAUSE IT IS A SUMMARY, IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT YOU
SHOULD CONSIDER BEFORE INVESTING IN THE SHARES. YOU SHOULD READ THE ENTIRE
PROSPECTUS CAREFULLY.
OUR COMPANY
GUESS? is one of the most widely recognized brands in the fashion world. We
design, market and license a lifestyle collection of casual apparel and
accessories, and we are known for trendsetting styles and marketing creativity.
We distribute our products through a growing network of GUESS? stores, selected
wholesale accounts, international distributors and a new e-commerce site. This
multi-channel network provides us with flexibility in marketing our products and
significant opportunities for growth.
Our core customer is a style-conscious consumer between the ages of 15 and 25.
This customer is attracted to our brand image, distinctive styling and
innovative fabrics that we incorporate in our fashion-forward designs. We also
appeal to other customers through product lines that include the contemporary
and upscale GUESS? Collection and our GUESS? Kids and Baby GUESS? brands.
In 1999, we generated net revenue of $599.7 million, a 27.1% increase from 1998.
This growth resulted from several initiatives, including implementation of the
first phase of our planned retail store expansion program and the concentration
of our wholesale distribution efforts on our most profitable accounts. Our gross
profit as a percentage of total net revenues increased to 44.7% in 1999 from
42.3% in 1998, while our net earnings grew to $51.9 million from $25.1 million.
This improved profitability resulted from several factors, including a 26.9%
increase in our comparable store sales in the United States, greater "sell
through" of full price merchandise and our transition to international vendors
to lower product costs.
GUESS? STORES
We operate both full price retail stores and factory outlet stores. As of
March 31, 2000, we operated 108 retail and 59 factory outlet stores in the
United States and Canada and a retail store in Florence, Italy. Our retail
stores create an upscale and inviting shopping environment which we believe
enhances our image. These stores allow us to influence the merchandising and
presentation of our products, increase customer awareness and strengthen brand
equity. GUESS? retail stores are located primarily in better regional malls and
street oriented retail districts, while our factory outlet stores are
principally located in major outlet shopping centers and appeal to
value-conscious customers. In Summer 2000, we intend to open our first in a
series of GUESS? Kids stores, a new retail format that will sell GUESS? Kids and
Baby GUESS? apparel and accessories. We generated net revenue of $299.4 million
in 1999 from our network of retail and factory outlet stores, a 34.5% increase
from 1998.
WHOLESALE DISTRIBUTION
As of March 31, 2000, our wholesale division distributed products through
approximately 2,800 retail stores in the United States, including better
department stores and selected specialty retailers. These store locations
included approximately 1,200 shop-in-shops, which are exclusive selling areas
within department stores that offer a wide array of our products and incorporate
GUESS? signage and fixture designs. The shop-in-shop concept enhances brand
recognition and ensures the consistent presentation of GUESS? merchandise. We
added or remodeled 138 shop-in-shops in 1999 and currently plan to add or
remodel approximately 500 shop-in-shops during 2000. We generated net revenue of
$260.6 million in 1999 from our wholesale operations, a 22.6% increase from
1998.
4
<PAGE>
LICENSING AND INTERNATIONAL DISTRIBUTION
The strength and awareness of the GUESS? brand has permitted us to expand our
product offerings selectively through trademark licensing agreements. As of
March 31, 2000, we had 19 product licenses that cover such fashion accessories
as watches, eyewear, handbags and footwear, and seven international trademark
licensees authorized to produce and sell various GUESS? products in specific
geographic territories. We also sell our products through international
distributors who operate GUESS? retail stores and who sell to select department
stores and boutiques. As of March 31, 2000, we had a network of 213
international GUESS? stores operated by licensees and distributors. These stores
generally carry apparel and accessories that are similar to what we sell in the
United States and Canada, and in some instances, may carry products tailored for
local fashion preferences. We meet regularly with our licensees and distributors
to ensure the quality and consistency of the GUESS? image and to maintain our
overall merchandising and design strategies. In 1999, worldwide sales of all
licensed products approximated $525 million and generated net royalty revenue of
$39.6 million.
OUR GROWTH AND OPERATING STRATEGIES
LEVERAGE THE GUESS? BRAND
We believe the GUESS? brand is an integral part of our business and a source of
sustainable competitive advantage. The enduring strength of our brand name and
image results from our constant emphasis on innovative and distinctive product
designs that stand for exceptional styling and quality. Under the direction of
Maurice Marciano, our designers continue to show an ability to interpret global
fashion trends and translate them into products that our customers desire. Our
advertising department, which is led by Paul Marciano, communicates our fashion
and brand image through the use of high-impact print and outdoor advertising. We
have spent over $110 million from 1995 through 1999 promoting and strengthening
our brand name. Additionally, our licensees and international distributors have
spent approximately $100 million supporting the GUESS? brand over this same
period.
GROW RETAIL STORE BASE
Our retail division represents our primary growth initiative. It is our current
plan to more than double our retail square footage in the United States and
Canada over the next three years. This expansion will capitalize on favorable
customer demographics and a number of merchandising, employee and operating
initiatives. We intend to open 45 new stores in the United States and 15 new
stores in Canada during 2000. Our new United States stores will include 25
retail stores, ten factory outlet stores and our first ten GUESS? Kids stores,
while our new Canadian stores will consist of ten retail and five factory outlet
stores. We are also introducing a larger format in our full price retail stores.
In 1999, our United States retail and factory outlet stores achieved comparable
store sales gains of 28.2% and 23.8%, respectively, over 1998. Our retail stores
generated sales per square foot of $434 in 1999 compared to $336 in 1998 and our
factory outlet stores generated sales per square foot of $351 in 1999 compared
to $255 in 1998. We attribute the strong sales performance in the retail stores
to a more fashion-focused product assortment, improved merchandising efforts,
the remodeling of select stores and faster replenishment. Factory outlet stores
benefitted from deeper product assortments combined with an emphasis on top
selling products and key selling periods. When we use the term comparable store
sales in this prospectus, we mean sales generated by stores which were open a
minimum of one year prior to 1999. When we use the term sales per square foot in
this prospectus, we mean net sales divided by the time weighted average of the
gross square footage of all stores.
EXPAND WHOLESALE CHANNEL
As of March 31, 2000, we had unfilled wholesale orders, consisting primarily of
orders for seasonal fashion apparel, of $147.4 million, a 77% increase from
March 31, 1999. We believe these orders, which
5
<PAGE>
exclude replenishment orders of basic products, reflect the positive
contributions of our program to expand our wholesale business. Beginning two
years ago, we instituted a strategy to narrow selectively the number of items
offered in our lifestyle collections and to focus our shop-in-shop program on
those department stores with the greatest sales potential. In 1999, these
efforts contributed to a 22.6% increase in wholesale net revenue over the prior
year. We expect to continue to grow our wholesale operations in 2000 by opening
or remodeling approximately 500 shop-in-shops in department stores and
selectively increasing our presence in specialty stores.
ENHANCE LICENSING ACTIVITIES
We selectively license our trademarks to enhance our brand equity and generate
high margin net revenue. We regularly evaluate opportunities to license our
trademarks and expand the range of available GUESS? products. For example, we
recently awarded the license for Baby GUESS?, a product line which, starting in
Summer 2000, will be sold through our new GUESS? Kids stores, upscale department
stores and other select wholesale and specialty store accounts.
IMPROVE PRODUCT SOURCING
Our product sourcing strategy is designed to increase efficiencies, reduce costs
and improve quality. We currently purchase approximately 60% of our finished
products from international vendors. In 1998, we purchased approximately 50% of
our products overseas. Starting in 1998, we also began to rely largely on
"packaged purchases," a sourcing strategy under which we supply a vendor with a
product design and fabric selection and the vendor delivers a finished product.
We believe these strategies have enabled us to reduce our average cost per unit
which, in turn, has allowed us to selectively lower our prices while maintaining
or expanding our gross margins. We also retain a close relationship with a
number of domestic vendors located primarily in Los Angeles who manufacture our
GUESS? Collection line and who supplement production of high demand products.
RELOCATE DISTRIBUTION CENTER
We have opened a new distribution center in Louisville, Kentucky, to replace our
distribution center in Los Angeles, California. This approximately 500,000
square foot facility is near United Parcel Service's national transit hub and is
centrally located to our major wholesale customers and our own retail stores.
This new distribution center will enable us to deliver our products to market
more rapidly and will result in reduced shipping costs, lower product handling
costs and improved customer service. The facility is equipped with advanced
product handling equipment and systems, and has the capacity to accommodate the
anticipated growth of our existing businesses.
PURSUE E-COMMERCE INITIATIVES
We are pursuing both business-to-consumer and business-to-business e-commerce
initiatives. In April 1999, we introduced WWW.GUESS.COM, a virtual storefront
that promotes the GUESS? brand and customer loyalty, represents an additional
retail distribution channel and enhances our image through interactive content.
In April 2000, we introduced the first phase of our business-to-business
solution to facilitate our interaction with specialty retailers and indirect
suppliers. Later this year, we intend to extend this solution to other wholesale
customers and to licensees and suppliers. We expect this initiative will
eventually reduce our operating costs, increase our sourcing efficiencies and
improve customer service. We intend to ultimately expand our
business-to-business initiative into an electronic marketplace that will
facilitate various levels of interaction between buyers and sellers in the
textile and apparel industries.
6
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered by Guess ?, Inc......... 4,500,000 shares
Common stock to be outstanding after the
offering................................... 47,804,951 shares
Use of proceeds.............................. We currently intend to use the net proceeds
of this offering, together with internally
generated funds, to repay amounts outstanding
under our bank credit facility and for
general corporate purposes, including the
repurchase or redemption of all or a portion
of our outstanding 9 1/2% Senior Subordinated
Notes due 2003 and to fund a portion of our
capital expenditure budget for 2000.
New York Stock Exchange symbol............... GES
</TABLE>
- ---------------------
We calculated the number of shares to be outstanding after this offering based
on the number of shares outstanding on December 31, 1999. This number excludes
an aggregate of 5,000,000 shares that we have reserved for issuance under our
stock option plans, of which 1,444,112 were subject to outstanding options as of
December 31, 1999 at a weighted average exercise price of $7.59 per share.
As of December 31, 1999, we had no outstanding borrowings under our
$125 million bank credit facility and $79.6 million of outstanding 9 1/2% Senior
Subordinated Notes due 2003.
7
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenue...................................... $486,733 $551,162 $515,372 $471,931 $599,650
Cost of sales.................................... 262,142 298,631 288,408 272,079 331,660
-------- -------- -------- -------- --------
Gross profit..................................... 224,591 252,531 226,964 199,852 267,990
Selling, general and administrative expenses..... 141,663 150,877 156,318 142,806 171,014
Severance costs related to distribution
facility....................................... -- -- -- -- 3,200
-------- -------- -------- -------- --------
Earnings from operations......................... 82,928 98,095 70,646 57,046 93,776
Gain on disposition of property and equipment.... -- -- -- -- 3,849
Interest expense, net............................ (15,957) (14,539) (13,718) (12,892) (9,385)
Other expense, net............................... (157) (989) (2,041) (863) (1,140)
-------- -------- -------- -------- --------
Earnings before income taxes and cumulative
effect of change in accounting principle(1).... 66,814 82,567 54,887 43,291 87,100
Income taxes(2).................................. 26,726 33,241 21,337 18,180 35,200
-------- -------- -------- -------- --------
Net earnings..................................... $ 40,088 $ 49,326 $ 37,511 $ 25,111 $ 51,900
======== ======== ======== ======== ========
Earnings per share(1):
Basic............................................ $ 0.96 $ 1.18 $ 0.87 $ 0.59 $ 1.21
======== ======== ======== ======== ========
Diluted.......................................... $ 0.96 $ 1.18 $ 0.87 $ 0.59 $ 1.20
======== ======== ======== ======== ========
Weighted number of shares outstanding:
Basic............................................ 41,675 41,906 42,898 42,904 43,005
======== ======== ======== ======== ========
Diluted.......................................... 41,675 41,908 42,902 42,919 43,366
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
RETAIL STORES--UNITED STATES ONLY
Number of stores open at end of period........... 62 69 87 84 92
Comparable store sales increase (decrease)(3).... 0.3% 8.2% (7.5)% 0.8% 28.2%
Sales per square foot(4)......................... $ 340 $ 362 $ 333 $ 336 $ 434
FACTORY OUTLET STORES--UNITED STATES ONLY
Number of stores open at end of period........... 47 46 49 48 54
Comparable store sales increase (decrease)(3).... (12.6)% 10.7% (9.6)% (15.2)% 23.8%
Sales per square foot(4)......................... $ 282 $ 317 $ 291 $ 255 $ 351
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1999
--------------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 97,944 $140,194
Total assets.............................................. 369,036 411,286
Notes payable and long-term debt.......................... 83,363 3,801
Net stockholders' equity.................................. 167,355 289,167
</TABLE>
The "As Adjusted" column reflects the receipt of the proceeds from the sale of
4,500,000 shares of common stock offered by us in this offering, at an assumed
public offering price of $28.88 per share, and the application of the net
proceeds as described under "Use of Proceeds."
- ------------------------
(1) Effective January 1, 1997, we changed our method of accounting for product
display fixtures. (See Note 13 to Consolidated Financial Statements.)
(2) We terminated our S Corporation election in August 1996. This reflects
adjustments for Federal and state income taxes as if we had been taxed as a
C Corporation rather than as an S Corporation in 1995 and 1996.
(3) Our comparable store sales percentages are based on net revenue, and stores
are considered comparable which were open a minimum of one year prior to the
year of sales.
(4) Our sales per square foot consists of net sales divided by the time weighted
average of the gross square footage of all stores.
8
<PAGE>
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING FACTORS AND OTHER INFORMATION IN
THIS PROSPECTUS BEFORE DECIDING TO INVEST IN THE SHARES.
RISKS OF OUR BUSINESS
DEMAND FOR OUR MERCHANDISE MAY DECREASE AND THE APPEAL OF OUR BRAND IMAGE MAY
DIMINISH IF WE FAIL TO IDENTIFY AND RAPIDLY RESPOND TO CONSUMERS' FASHION
TASTES.
The apparel industry is subject to rapidly evolving fashion trends and shifting
consumer demands. Accordingly, our brand image and our profitability are heavily
dependent upon both the priority our target customers place on fashion and on
our ability to anticipate, identify and capitalize upon emerging fashion trends.
Current fashion tastes place significant emphasis on a fashionable look. In the
past this emphasis has increased and decreased through fashion cycles. If we
fail to anticipate, identify or react appropriately, or in a timely manner, to
fashion trends, we could experience reduced consumer acceptance of our products,
a diminished brand image and higher markdowns. These factors could result in
lower selling prices and sales volumes for our products and could have a
material adverse effect on our results of operations and financial condition.
WE COULD FIND THAT WE ARE CARRYING EXCESS INVENTORIES IF WE FAIL TO ANTICIPATE
CONSUMER DEMAND, IF OUR INTERNATIONAL VENDORS DO NOT SUPPLY QUALITY PRODUCTS ON
A TIMELY BASIS, IF OUR MERCHANDISING STRATEGIES FAIL OR IF WE FAIL TO OPEN NEW
AND REMODEL EXISTING STORES ON SCHEDULE.
We currently source approximately 60% of our products from international
vendors. Consequently, we must commit to styles and fabrics well in advance of
the applicable fashion season. Because of this commitment, the products we
eventually receive might not be consistent with constantly changing consumer
tastes. Further, even if we correctly anticipate consumer fashion trends, our
vendors could fail to supply the quality products and materials we require at
the time we need them. Moreover, we could fail to effectively market or
merchandise these products once we receive them. Lastly, we could fail to open
new or remodeled stores on schedule, and inventory purchases made in
anticipation of such store openings could remain unsold. Any of the above
factors could cause us to experience excess inventories and higher markdowns,
which in turn could have a material adverse effect on our results of operations
and financial condition.
THE APPAREL INDUSTRY IS HIGHLY COMPETITIVE, AND WE MAY FACE DIFFICULTIES
COMPETING SUCCESSFULLY IN THE FUTURE.
We operate in a highly competitive industry with low barriers to entry. We
compete with many apparel manufacturers and distributors and many well-known
designers, some of whom have substantially greater resources than we do and some
of whose products are priced lower than ours. Our retail and factory outlet
stores compete with many other retailers, including department stores, some of
whom are our major wholesale customers. Our licensed apparel and accessories
compete with many designer and non-designer lines and well-known brands. Within
each of our geographic markets, we also face significant competition from global
and regional branded apparel companies, as well as retailers that market apparel
under their own labels. These and other competitors pose significant challenges
to our market share in our existing major United States and foreign markets. In
addition, our larger competitors may be better able than we to adapt to changing
conditions that affect the competitive market. Any of these factors could result
in reductions in sales or prices of GUESS? products and could have a material
adverse effect on our results of operations and financial condition.
9
<PAGE>
OUR PLAN TO OPEN NEW RETAIL STORES MORE RAPIDLY THAN IN THE PAST COULD STRAIN
OUR RESOURCES AND CAUSE US TO EXECUTE OUR BUSINESS LESS EFFECTIVELY.
During fiscal 1999, we opened 17 net new stores in the United States and Canada,
which represents an increase of approximately 12% from the number of stores open
at the end of fiscal 1998. We plan to open 60 stores in the United States and
Canada in 2000, which represents an increase of approximately 38% from the
number of stores open at the end of fiscal 1999. We plan to continue rapid
retail store expansion in 2001 and 2002, significantly increasing our retail
square footage. This effort will place increased demands on our managerial,
operational and administrative resources that could prevent or delay the
successful opening of new stores as well as adversely impact the performance of
our existing stores.
WE MAY BE UNSUCCESSFUL IN IMPLEMENTING OUR PLANNED RETAIL EXPANSION, WHICH COULD
HARM OUR BUSINESS AND NEGATIVELY AFFECT OUR RESULTS OF OPERATIONS.
To open and operate new stores successfully, we must:
- identify desirable locations, the availability of which is out of our
control;
- negotiate acceptable lease terms, including desired tenant improvement
allowances;
- build and equip the new stores;
- source sufficient levels of inventory to meet the needs of the new stores;
- hire, train and retain competent store personnel;
- successfully integrate the new stores into our existing operations; and
- satisfy the fashion preferences of customers in the new geographic areas.
Any of these challenges could delay our store openings, prevent us from
completing our store opening plans or hinder the operations of stores we do
open. We cannot be sure that we can successfully complete our planned expansion
or that our new stores will be profitable. Such things as unfavorable economic
and business conditions and changing consumer preferences could also interfere
with our plans to expand.
WE RELY ON THIRD PARTIES AND OUR OWN PERSONNEL FOR UPGRADING AND MAINTAINING OUR
MANAGEMENT INFORMATION AND ACCOUNTING SYSTEMS. IF THESE PARTIES DO NOT PERFORM
THESE FUNCTIONS APPROPRIATELY, OUR BUSINESS COULD BE DISRUPTED.
The efficient operation of our business is very dependent on our information and
accounting systems. In particular, we rely heavily on the automated sortation
system used in our distribution center and the merchandise management system
used to track sales and inventory. We depend on our vendors to maintain and
periodically upgrade these systems for the continued ability of these systems to
support our business as we expand. The software programs supporting our
automated sorting equipment and processing our inventory management information
were licensed to us by independent software developers. The inability of these
developers to continue to maintain and upgrade our software programs could
result in incorrect information being supplied to management, inefficient
ordering and replenishment of products and disruption of our operations if we
are unable to convert to alternate systems in an efficient and timely manner.
Due to our recent rapid growth and increased international sourcing, we have
experienced some difficulties with our current management information and
accounting systems. In addition, segments of our current information and
accounting systems are manually intensive. We have in the past and may in the
future experience errors in entering and processing information. While we are
taking additional action to reduce the risks associated with these situations,
including seeking to purchase a new
10
<PAGE>
enterprise-wide information system that could integrate all of our business
functions, we can give no assurances that these risks will not have a material
adverse effect on our results of operations and financial condition. You should
refer to the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more information.
THE PRICE OF OUR COMMON STOCK COULD DECLINE SUBSTANTIALLY IF OUR QUARTERLY
RESULTS OF OPERATIONS, COMPARABLE STORE SALES, SALES PER SQUARE FOOT, WHOLESALE
OPERATIONS OR ROYALTY NET REVENUE DECLINE OR DO NOT MEET THE EXPECTATIONS OF
RESEARCH ANALYSTS OR INVESTORS.
Our quarterly results of operations for our individual stores, our wholesale
operations and our royalty net revenue have fluctuated in the past and can be
expected to fluctuate in the future. Further, if our retail store expansion plan
fails to meet our expected results, our overhead and other related expansion
costs would increase without an offsetting increase in sales and net revenue.
This could have a material adverse effect on our results of operations and
financial condition.
Our net revenue and operating results are typically lower in the second quarter
of our fiscal year due to general seasonal trends in the apparel and retail
industries. Our comparable store sales and quarterly results of operations are
affected by a variety of factors, including:
- shifts in consumer tastes and fashion trends;
- the timing of new store openings and the relative proportion of new stores
to mature stores;
- calendar shifts of holiday or seasonal periods;
- changes in our merchandise mix;
- the timing of promotional events;
- actions by competitors;
- weather conditions;
- changes in style;
- changes in the business environment;
- population trends;
- changes in patterns of commerce such as the expansion of electronic
commerce; and
- the level of pre-operating expenses associated with new stores.
An unfavorable change in any of the above factors could have a material adverse
effect on our results of operations and financial condition. You should refer to
the section entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for more information.
OUR OPERATIONS MAY BE ADVERSELY AFFECTED IF OUR NEW KENTUCKY DISTRIBUTION CENTER
DOES NOT OPERATE AS PLANNED.
As part of our expansion and enhanced efficiency efforts, we opened a new
approximately 500,000 square foot, fully automated distribution center in
Louisville, Kentucky in January 2000. Currently, three of our five product lines
are being distributed from this new facility. We intend to complete the transfer
of our remaining product lines and our e-commerce operations in the second
quarter of 2000. Risks related to this facility include:
- our failure to timely implement and effectively coordinate distribution
activities;
- performance that may not meet expectations; and
11
<PAGE>
- concentration of our distribution network at a single site, which would
delay our distribution of products in case of local workplace stoppages or
damage due to fires, floods and other natural disasters.
In addition, our new distribution center will rely heavily on PKMS, a relatively
new integrated receiving, inventory management and shipping system. Some other
apparel companies which have used PKMS have reported that they have experienced
problems transferring information from PKMS to their own systems. In testing our
system, we have identified problems transferring and classifying inventory data
from PKMS to our other systems. Also, we need to recruit, train and retain
qualified personnel to operate PKMS. It is too soon to tell whether we will
experience any serious problems with our new distribution center. Such problems,
whether because of PKMS, difficulty in recruiting, training and retaining the
necessary personnel, or any other reason, could disrupt our operations and have
a material adverse effect on our results of operations and financial condition.
OUR THREE MOST SENIOR EXECUTIVE OFFICERS OWN A MAJORITY OF OUR COMMON STOCK, AND
THEIR INTERESTS MAY DIFFER FROM THE INTERESTS OF OUR OTHER STOCKHOLDERS.
Maurice, Paul and Armand Marciano, our three most senior executive officers,
collectively will beneficially own 74.3% of our outstanding shares of common
stock after all of the shares offered in this prospectus are issued. These
officers may have different interests than our other stockholders and,
accordingly, they may direct the operations of our business or use the proceeds
of this offering in a manner contrary to the interests of our other
stockholders. As long as these officers own a majority of our common stock, they
will effectively be able to:
- elect our directors;
- amend or prevent amendment of our Restated Certificate of Incorporation or
Bylaws;
- effect or prevent a merger, sale of assets or other corporate transaction;
and
- control the outcome of any other matter submitted to our stockholders for
vote.
Their stock ownership, together with the anti-takeover effects of certain
provisions of applicable Delaware law and our Restated Certificate of
Incorporation or Bylaws, may allow them to delay or prevent a change in control
that may be favored by our other stockholders, which in turn could reduce our
stock price or prevent our stockholders from realizing a premium over our common
stock price. You should refer to the section entitled "Principal Stockholders"
for more information.
OUR FAILURE TO ATTRACT AND RETAIN OUR EXISTING SENIOR MANAGEMENT TEAM AND OTHER
KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS.
Our business requires disciplined execution at all levels of our organization in
order to ensure the timely delivery of merchandise in appropriate quantities to
our stores and our wholesalers' stores. This execution requires experienced and
talented management in design, production, merchandising and advertising. Our
success depends upon the personal efforts and abilities of our senior
management, particularly Maurice, Paul and Armand Marciano, and other key
personnel. Although we have recently recruited several key executives with
relevant industry expertise, the extended loss of the services of one or more of
the Marcianos or other key personnel could materially harm our business.
Further, we do not have "key man" insurance with respect to any of the Marcianos
or other key employees, and any of them may leave us at any time, which could
severely disrupt our business and future operating results.
12
<PAGE>
OUR WHOLESALE BUSINESS IS HIGHLY CONCENTRATED; THE DECISION BY ANY OF OUR LARGE
CUSTOMERS TO DECREASE THEIR PURCHASES OF OUR PRODUCTS OR STOP CARRYING OUR
PRODUCTS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS AND
FINANCIAL CONDITION.
In 1999, 25.2% of our net revenue came from our three largest wholesale
customers: 12.4% from Bloomingdale's, Macy's and other affiliated stores owned
by Federated Department Stores, 6.5% from The May Company and 6.3% from
Dillard's stores. No other single customer or group of related customers
accounted for more than 5% of our net revenue in 1999. Continued consolidation
in the retail industry could further decrease the number of, or concentrate the
ownership of, stores that carry our and our licensees' products. Also, as we
expand the number of our retail stores, we run the risk that our wholesale
customers will perceive that we are increasingly competing directly with them,
which may lead them to reduce or terminate purchases of our products. In
addition, in recent years there has been a significant increase in the number of
designer brands seeking placement in department stores, which makes any one
brand potentially less attractive to department stores. If any one of our major
customers decides to decrease purchases from us, to stop carrying GUESS?
products or to carry our products only on terms less favorable to us, our sales
and profitability could significantly decrease. This could have a material
adverse effect on our results of operations and financial condition.
SINCE WE DO NOT CONTROL OUR LICENSEES' ACTIONS AND WE DEPEND ON OUR LICENSEES
FOR A SUBSTANTIAL PORTION OF OUR EARNINGS FROM OPERATIONS, THEIR CONDUCT COULD
HARM OUR BUSINESS.
We license others to produce and market products which are sold with our
trademarks. During 1999, approximately 34% of our earnings from operations were
derived from our 14 domestic and 14 international licensees. If the quality,
focus, image or distribution of our licensed products diminish, consumer
acceptance of the GUESS? brand and products could decline. This could materially
and adversely affect our business and results of operations. In 1999,
approximately 43% of our net royalties was derived from our top four licensed
product lines: GUESS? Watches, GUESS? Handbags and Small Leather Goods, GUESS?
Eyewear and GUESS? Footwear. A decrease in customer demand for any of these
product lines could have a material adverse effect on our results of operations
and financial condition.
CHANGES IN THE ECONOMY AND THE LOCAL ENVIRONMENT OF OUR STORES MAY ADVERSELY
AFFECT OUR ABILITY TO GENERATE REVENUES.
The industry in which we operate is cyclical. Purchases of apparel and related
merchandise tend to decline during recessionary periods and also may decline at
other times. We cannot provide any assurance that we will be able to maintain
our recent growth in revenues or earnings, or remain profitable in the future.
Further, a recession in the general economy or fears about future economic
conditions could decrease consumer spending habits and have a material adverse
effect on our results of operations and financial condition.
OUR INVOLVEMENT IN LAWSUITS, BOTH NOW AND IN THE FUTURE, COULD NEGATIVELY IMPACT
OUR BUSINESS.
We currently are a defendant in several lawsuits and have been involved in a
variety of other legal proceedings in the past. See the section entitled
"Business--Legal Proceedings." Although we intend to vigorously defend the
claims against us, if any of the claims in these lawsuits or a future lawsuit
are resolved unfavorably to us, we may be required to pay substantial monetary
damages or pursue alternative business strategies. This could have a material
adverse effect on our business. In addition, our defense of these actions has
resulted, and may continue to result, in substantial costs to us as well as
require the significant dedication of management resources. If we choose to
settle any of these lawsuits, the settlement costs could have a material adverse
effect on our cash resources and financial condition.
13
<PAGE>
VIOLATION OF LABOR LAWS AND PRACTICES BY US OR OUR LICENSEES, CONTRACTORS OR
SUPPLIERS COULD HARM OUR BUSINESS.
We promote and follow applicable legal and ethical business practices through
our internal and vendor operating guidelines. However, we do not control our
licensees', contractors' or suppliers' labor practices. The violation of labor
or other laws by us or any of our licensees, contractors or suppliers, or
divergence of a licensee's, contractor's or supplier's labor practices from
those generally accepted as ethical in the United States, could have a material
adverse effect on our business. See the section entitled "Business--Legal
Proceedings."
OUR SUCCESS DEPENDS ON MAINTAINING GOOD WORKING RELATIONSHIPS WITH OUR SUPPLIERS
AND MANUFACTURERS.
We do not own or operate most of our production equipment, and we depend on
independent contractors to supply our fabrics and to manufacture our products to
our specifications. We do not have long-term contracts with any suppliers or
manufacturers, and our business is dependent on continued good relations with
our vendors. In addition, none of our suppliers or manufacturers supplies or
manufactures our products exclusively. As a result, we compete with other
companies for the production capacity of independent manufacturers and
international import quota capacity. If our vendors or manufacturers fail to
ship our fabrics or products on time or to meet our quality standards or are
unable to fill our orders, we might not be able to deliver products to our
retail stores and wholesale customers on time or at all.
Moreover, our manufacturers have at times been unable to deliver finished
products in a timely fashion. This has led to an increase in our inventory,
causing a decrease in our profitability. As there are a limited number of
qualified, offshore manufacturers, it could take significant time to find
alternative manufacturers, which could result in our missing retailing seasons
or our wholesale customers' cancelling orders, refusing to accept deliveries or
requiring that we lower selling prices. Since we cannot return merchandise to
our manufacturers, we could also have a significant amount of unsold
merchandise. Any of these problems could harm our financial condition and
results of operations.
MUCH OF OUR BUSINESS IS INTERNATIONAL AND CAN BE DISRUPTED BY FACTORS BEYOND OUR
CONTROL.
We have been reducing our reliance on domestic contractors and expanding our use
of offshore manufacturers as a cost-effective means to produce our products.
During 1999, approximately 47% of our international finished apparel purchases
was made in the Middle East and Asia and approximately 50% was made in Mexico
and South America. In addition, we have been increasing our international sales
and, in 1999, 6.7% of our net revenue was from product sales to customers in
international markets and 2.1% of our net revenue was from net royalties paid by
international licensees, as compared to 5.6% and 2.8%, respectively, during
1998. We have also been increasing our purchases of fabrics outside of the
United States.
As a result of our increasing international operations, we face the possibility
of greater losses from a number of risks inherent in doing business in
international markets and from a number of factors which are beyond our control.
Such factors that could harm our results of operations and financial condition
include, among other things:
- political instability which disrupts trade with the countries in which our
contractors, suppliers or customers are located;
- local business practices that do not conform to legal or ethical guidelines;
- adoption of additional or revised quotas, restrictions or regulations
relating to imports or exports;
14
<PAGE>
- additional or increased customs duties, tariffs, taxes and other charges on
imports;
- significant fluctuations in the value of the dollar against foreign
currencies;
- economic instability in the foreign markets in which we do business, which
could influence our ability to sell our products in these international
markets; and
- restrictions on the transfer of funds between the United States and foreign
jurisdictions.
Our imports are limited by textile agreements between the United States and a
number of foreign jurisdictions, including Hong Kong, China, Taiwan and South
Korea. These agreements impose quotas on the amounts and types of merchandise
that may be imported into the United States from these countries. These
agreements also allow the United States to limit the importation of categories
of merchandise that are not now subject to specified limits. The United States
and the countries in which our products are produced or sold may also, from time
to time, impose new quotas, duties, tariffs or other restrictions, or adversely
adjust prevailing quota, duty or tariff levels. In addition, none of our
international suppliers or international manufacturers supplies or manufactures
our products exclusively. As a result, we compete with other companies for the
production capacity of independent manufacturers and import quota capacity. If
we were unable to obtain our raw materials and finished apparel from the
countries where we wish to purchase them, either because room or space under the
necessary quotas was unavailable or for any other reason, or if the cost of
doing so should increase, it could have a material adverse effect on our results
of operations and financial condition.
WE DEPEND ON OUR INTELLECTUAL PROPERTY, AND OUR METHODS OF PROTECTING IT MAY NOT
BE ADEQUATE.
Our success and competitive position depend significantly upon our trademarks
and other proprietary rights. We take steps to establish and protect our
trademarks worldwide. Despite any precautions we may take to protect our
intellectual property, policing unauthorized use of our intellectual property is
difficult, expensive and time consuming, and we may be unable to determine the
extent of any unauthorized use. We also place significant value on our trade
dress and the overall appearance and image of our products. However, we cannot
assure you that we can prevent imitation of our products by others or prevent
others from seeking to block sales of GUESS? products for violating their
trademarks and proprietary rights. We also cannot assure you that others will
not assert rights in, or ownership of, trademarks and other proprietary rights
of GUESS?, that our proprietary rights would be upheld if challenged or that we
would, in that event, not be prevented from using our trademarks, any of which
could have a material adverse effect on our financial condition and results of
operations. Further, we could incur substantial costs in legal actions relating
to our use of intellectual property or the use of our intellectual property by
others; even if we are successful, the costs we incur could have a material
adverse effect on us. In addition, the laws of certain foreign countries do not
protect proprietary rights to the same extent as do the laws of the United
States.
RISKS OF THIS OFFERING
OUR THREE MOST SENIOR EXECUTIVE OFFICERS COULD SELL A LARGE AMOUNT OF OUR COMMON
STOCK AND LOWER ITS PRICE.
As of March 31, 2000, Maurice, Paul and Armand Marciano, our three most senior
executive officers, beneficially own 81.7% of our outstanding shares of common
stock. Subject to applicable securities laws, our policies and contractual lock
ups, they are free to sell these shares from time to time for any reason. Sales
of substantial amounts of stock in the public market, or the belief that these
sales may occur, could reduce the market price of our stock.
15
<PAGE>
OUR STOCK PRICE HAS BEEN AND MAY CONTINUE TO BE VOLATILE.
Since our common stock began publicly trading in 1996, our closing stock price
has ranged from $3.63 to $32.00. The market price of our common stock is likely
to fluctuate, both because of actual and perceived changes in our operating
results and prospects and because of general volatility in the stock market. The
market price could continue to fluctuate widely in response to factors such as:
- actual or anticipated variations in our results of operations;
- the addition or loss of suppliers, customers and other business
relationships;
- changes in financial estimates of, and recommendations by, securities
analysts;
- conditions or trends in the apparel and consumer products industries;
- additions or departures of key personnel;
- sales of our common stock;
- general market and economic conditions; and
- other events or factors, many of which are beyond our control.
Fluctuations in price and trading volume of our stock in response to factors
like these could be unrelated or disproportionate to our actual operating
performance.
FORWARD-LOOKING STATEMENTS
Some of the information in this prospectus contains forward-looking statements
within the meaning of the federal securities laws. These statements include,
among others, those relating to our use of proceeds, liquidity, our expected
results, the accuracy of data relating to, and anticipated levels of, our future
inventory and gross margins, our anticipated cash requirements and sources, the
relocation of our distribution center, our cost containment efforts, our plans
regarding store openings and closings and our business seasonality. These
statements may be found under "Prospectus Summary," "Risk Factors," "Use of
Proceeds," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business." Forward-looking statements typically are
identified by use of terms such as "may," "will," "intend," "expect,"
"anticipate," "predict," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
GUESS?' actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including consumer
acceptance of existing and future product lines, excess inventory levels, the
success of our products in a competitive business environment, successfully
opening and integrating new stores into existing operations, the quality of our
management information systems and other technology, meeting the expectations of
research analysts or investors, improving our distribution system through our
new distribution center, aligning senior management's interests with our
interests, retaining our management team and other key personnel, maintaining
our sales levels and business relationships with our large customers and
licensees, our ability to monitor our licensees' actions, changes in the economy
and the local environments of our stores, obtaining favorable outcomes in
pending and future lawsuits, preventing violations of labor laws, maintaining
good working relationships with our suppliers and manufacturers, the success of
our international operations and protecting our intellectual property rights.
You should also consider carefully the statements under "Risk Factors" and other
sections of this prospectus, which address additional factors that could cause
GUESS?' actual results to differ from those set forth in the forward-looking
statements.
16
<PAGE>
USE OF PROCEEDS
We estimate that the net proceeds from the sale of the 4,500,000 shares of
common stock we are offering will be approximately $121.8 million. If the
underwriters fully exercise the over-allotment option, the estimated net
proceeds of the shares we are selling will be approximately $140.2 million. "Net
proceeds" is what we expect to receive after paying the underwriting discount
and other expenses of the offering. For the purpose of estimating net proceeds,
we are assuming that the public offering price will be $28.88 per share.
We currently intend to use the net proceeds of this offering, together with
internally generated funds, to repay amounts outstanding under our $125 million
bank credit facility and for general corporate purposes, including the
repurchase or redemption of all or a portion of our $79.6 million of outstanding
9 1/2% Senior Subordinated Notes due 2003 and to fund a portion of our capital
expenditure budget for 2000.
As of December 31, 1999, we had no outstanding borrowings under the bank credit
facility, although we did have $15.2 million in outstanding commercial letters
of credit and $32 million in standby letters of credit. Our bank credit facility
accrues interest at LIBOR plus 100 basis points and matures on October 31, 2002.
Borrowings under our bank credit facility are generally used to fund seasonal
working capital needs.
We estimate that our capital expenditures for 2000 will be approximately
$80 million, net of lease incentives. The principal expenditures are expected to
be for the:
- opening of 45 new stores in the United States and 15 new stores in Canada;
- remodeling of up to 25 existing retail stores;
- expansion of our wholesale operations, including the opening and remodeling
of approximately 500 shop-in-shops; and
- improvement of our management information systems.
Our 9 1/2% Senior Subordinated Notes due 2003 are callable at 102.375% of their
principal amount until August 15, 2000. After this date, the notes will be
callable at 100% of their principal amount.
While we have not completed a material or significant investment in, or
acquistion of, another company since our initial public offering in 1996, we
believe there may be opportunities in the future when we could enhance our
business or improve our operations through one or more transactions. While we
are not currently negotiating any investment or acquisition, we intend to
consider these types of opportunities when appropriate.
Until we use the net proceeds of this offering as outlined above, we will invest
the net proceeds in short-term, investment grade interest-bearing securities.
17
<PAGE>
CAPITALIZATION
The following table shows:
- The capitalization of GUESS? on December 31, 1999.
- The capitalization of GUESS? on December 31, 1999, assuming the completion
of the offering at the offering price of $28.88 per share and the use of the
net proceeds, as described under "Use of Proceeds."
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------
ACTUAL AS ADJUSTED
--------- -----------
(IN THOUSANDS)
<S> <C> <C>
Notes payable and long-term debt, excluding current
installments.............................................. $ 83,363 $ 3,801
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value. Authorized 10,000,000
shares; no shares issued and outstanding................ -- --
Common stock, $0.01 par value. Authorized 150,000,000
shares; 63,335,743 shares issued and 43,304,951
outstanding; 67,835,743 shares issued and 47,804,951
outstanding, as adjusted................................ 141 186
Paid-in capital........................................... 163,300 285,067
Retained earnings......................................... 144,443 144,443
Accumulated other comprehensive income.................... 10,247 10,247
Treasury stock, 20,030,792 shares repurchased............. (150,776) (150,776)
--------- ---------
Net stockholders' equity.................................... 167,355 289,167
--------- ---------
Total capitalization........................................ $ 250,718 $ 292,968
========= =========
</TABLE>
18
<PAGE>
PRICE RANGE OF COMMON STOCK
Since August 8, 1996, our common stock has been listed on the New York Stock
Exchange under the symbol "GES." The following table sets forth, for the period
indicated, the high and low sales prices of our common stock, as reported on the
New York Stock Exchange Composite Tape.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1998
First Quarter............................................... $ 8.38 $ 5.00
Second Quarter.............................................. 7.13 3.75
Third Quarter............................................... 4.94 3.75
Fourth Quarter.............................................. 7.88 3.63
YEAR ENDING DECEMBER 31, 1999
First Quarter............................................... $ 9.50 $ 4.88
Second Quarter.............................................. 14.25 6.13
Third Quarter............................................... 16.63 10.38
Fourth Quarter.............................................. 22.94 11.13
YEAR ENDING DECEMBER 31, 2000
First Quarter............................................... $33.00 $18.63
</TABLE>
On April 26, 2000, the last reported sale price of our common stock on the New
York Stock Exchange was $28.88 per share.
DIVIDEND POLICY
Since our initial public offering, we have never paid any cash dividends on our
capital stock. We anticipate that we will retain earnings to support operations
and to finance the growth and development of our business. Therefore, we do not
expect to pay cash dividends in the foreseeable future. In addition, our bank
credit agreement contains covenants which limit our ability to pay dividends.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected data presented below under the captions "Statement of Earnings
Data" and "Balance Sheet Data" for, and as of the end of, each of the years in
the five-year period ended December 31, 1999, are derived from our consolidated
financial statements that have been audited by KPMG LLP, independent certified
public accountants. The consolidated financial statements as of December 31,
1999 and 1998, and for each of the years in the three-year period ended
December 31, 1999, and the report on these statements, are included in this
prospectus. The consolidated financial statements as of December 31, 1995, 1996
and 1997, and for each of the years in the two-year period ended December 31,
1996 are not included in this prospectus. You should read the selected
consolidated financial data together with our historical financial statements
and related notes to our financial statements, as well as the section included
in this prospectus entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AND OPERATING DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Net revenue...................................... $486,733 $551,162 $515,372 $471,931 $599,650
-------- -------- -------- -------- --------
Earnings from operations......................... 82,928 98,095 70,646 57,046 93,776
-------- -------- -------- -------- --------
Earnings before interest and income taxes........ 82,771 97,106 68,605 56,183 96,485
-------- -------- -------- -------- --------
Net earnings..................................... $ 63,919 $ 66,741 $ 37,511 $ 25,111 $ 51,900
======== ======== ======== ======== ========
Supplemental statements of earnings data(1):
Earnings before income taxes and change in
accounting principle(2)........................ $ 66,814 $ 82,567 $ 54,887 $ 43,291 $ 87,100
Income taxes..................................... 26,726 33,241 21,337 18,180 35,200
-------- -------- -------- -------- --------
Net earnings..................................... $ 40,088 $ 49,326 $ 37,511 $ 25,111 $ 51,900
======== ======== ======== ======== ========
Earnings per share(2):
Basic............................................ $ 0.96 $ 1.18 $ 0.87 $ 0.59 $ 1.21
======== ======== ======== ======== ========
Diluted.......................................... $ 0.96 $ 1.18 $ 0.87 $ 0.59 $ 1.20
======== ======== ======== ======== ========
Weighted number of shares outstanding:
Basic............................................ 41,675 41,906 42,898 42,904 43,005
======== ======== ======== ======== ========
Diluted.......................................... 41,675 41,908 42,902 42,919 43,366
======== ======== ======== ======== ========
SELECTED OPERATING DATA:
RETAIL STORES--UNITED STATES ONLY
Number of stores open at end of period........... 62 69 87 84 92
Comparable store sales increase (decrease)(3).... 0.3% 8.2% (7.5)% 0.8% 28.2%
Sales per square foot(4)......................... $ 340 $ 362 $ 333 $ 336 $ 434
FACTORY OUTLET STORES--UNITED STATES ONLY
Number of stores open at end of period........... 47 46 49 48 54
Comparable store sales increase (decrease)(3).... (12.6)% 10.7% (9.6)% (15.2)% 23.8%
Sales per square foot(4)......................... $ 282 $ 317 $ 291 $ 255 $ 351
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
1995 1996 1997 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................... $ 57,572 $ 76,821 $106,670 $101,310 $ 97,944
Total assets....................................... 202,635 239,306 287,814 263,772 369,036
Notes payable and long-term debt................... 123,335 127,316 141,517 99,000 83,363
Net stockholders' equity........................... 10,997 34,928 75,330 100,409 167,355
</TABLE>
- ---------------------------
(1) Reflects pro forma adjustments for Federal and state income taxes as if the
Company had been taxed as a C corporation rather than an S corporation in
1995 and 1996.
(2) Effective January 1, 1997, the Company changed its method of accounting for
product display fixtures. (See Note 13 to Consolidated Financial
Statements.)
(3) Our comparable store sales percentages are based on net revenue, and stores
are considered comparable which were open a minimum of one year prior to the
year of sales.
(4) Our sales per square foot consists of net sales divided by the time weighted
average of gross square footage of all stores.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
GUESS? was founded in December 1981 as a designer and marketer of apparel and
accessories for men, women and children. Through internal operations and in
conjunction with the licensing of our trademarks, we have grown by the increased
sales of existing product lines, the introduction of new brands and products,
our expansion into international markets and the development of our retail
operations. Net revenues increased 27.1% to $599.7 million in fiscal 1999 from
$471.9 million in fiscal 1998. Most recently, net earnings have grown 106.8% to
$51.9 million in fiscal 1999 from $25.1 million in fiscal 1998.
Our net revenues are generated from three integrated operations: our retail and
factory outlet stores, our wholesale customers and distributors and our
licensing activities.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------------------------------
1997 1998 1999
------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenue:
Retail operations.... $215,873 41.9% $222,624 47.2% $299,384 49.9%
Wholesale
operations......... 250,040 48.5 212,504 45.0 260,628 43.5
-------- ----- -------- ----- -------- -----
Product sales.......... 465,913 90.4 435,128 92.2 560,012 93.4
Net royalties.......... 49,459 9.6 36,803 7.8 39,638 6.6
-------- ----- -------- ----- -------- -----
Total net revenue...... $515,372 100.0% $471,931 100.0% $599,650 100.0%
======== ======== ========
</TABLE>
GUESS? retail sales are generated from the sale of our men's, women's and girls'
apparel and our licensees' products through our networks of retail and factory
outlet stores. As of March 31, 2000, we operated 108 retail stores primarily
located in better regional malls and street oriented retail districts and 59
factory outlet stores principally located in major outlet shopping centers. Our
strategy is to increase domestic sales by selectively expanding our network of
retail stores, increasing the size of our new retail stores, increasing the
sales productivity of our existing stores and closing stores which do not meet
our financial objectives. Consistent with this strategy, in 1999 we opened 22
new stores in the United States and Canada and improved our operating base by
closing five under-performing stores, resulting in total retail square footage
of approximately 834,000 square feet. We intend to open approximately 25 new
retail stores and ten new factory outlet stores in the United States in 2000. We
also plan to open ten GUESS? Kids stores in the United States, which will carry
GUESS? Kids and Baby GUESS? apparel. Retail sales grew to $299.4 million in
1999, a 34.5% increase from 1998. This increase is primarily a result of our
expansion of the number of our stores and an increase in average sales per
square foot.
As part of our retail expansion, we increased our ownership of our Canadian
licensee, GUESS? Canada Corporation, to 60% on August 4, 1999. We have an option
to acquire the remaining 40% of GUESS? Canada commencing December 31, 2001.
GUESS? Canada currently operates a total of 14 retail stores and three factory
outlet stores. We intend to open approximately ten new retail stores and five
new factory outlet stores in Canada in 2000. GUESS? Canada is remodeling most of
its existing stores and plans to open up to 35 new stores over the next three
years.
Wholesale net sales result from the sale of our men's, women's, boys' and girls'
apparel to wholesale customers in the United States and Canada, which consist of
better department stores, selected specialty retailers and upscale boutiques. As
of March 31, 2000, products distributed by our wholesale division were sold in
approximately 2,800 retail store locations in the United States, including
approximately 1,200 shop-in-shops. Wholesale sales grew to $260.6 million in
1999, a 22.6% increase
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from 1998. This increase is primarily a result of the strength of our GUESS?
brand and product, our strategic decision to focus on higher volume accounts,
the addition of 138 new or remodeled shop-in-shops and the addition of Canadian
wholesale operations. We currently plan to add or remodel approximately 500
shop-in-shops during 2000.
Our strategy is to increase net royalties by selectively licensing the GUESS?
name. Licensing enables us to broaden the spectrum of available GUESS? brand
products and expand distribution into new territories. As of March 31, 2000, we
had 26 trademark licenses that cover such fashion accessories as watches,
eyewear, handbags and footwear, and allow the manufacture and sale of GUESS?
brand products in markets such as Europe, Asia, South America and Africa. GUESS?
brand products are also sold through a network of 213 international GUESS?
stores operated by licensees and distributors. These stores generally carry
apparel and accessories that are similar to what we sell through our own stores.
To protect the GUESS? trademark and brand, our licensing department meets
regularly with licensees to ensure consistency with our overall merchandising
and design strategies and to ensure uniformity and quality control. The
licensing department approves in advance all GUESS? brand products, advertising,
promotional and packaging materials.
Worldwide sales of GUESS? licensed products approximated $525 million, $577
million and $669 million in 1999, 1998 and 1997, respectively. Aggregate sales
of GUESS? brand products generated by our licensees decreased during this time
period due to our discontinuing certain licenses, some of which were brought
in-house and continuing economic turmoil and currency devaluation in Asian and
Latin American markets. These sales generated net revenue of $39.6 million,
$36.8 million and $49.5 million in 1999, 1998 and 1997, respectively. In 1998,
our net royalty revenue was adversely impacted by the financial difficulties of
certain licensees and the termination of various under-performing licensees.
While we have not completed a material or significant investment in, or
acquisition of, another company since our initial public offering in 1996, we
believe there may be opportunities in the future when we could enhance our
business or improve our operations through one or more of such transactions.
While we are not currently negotiating any investment or acquisition, we intend
to consider these types of opportunities when appropriate.
On February 16, 2000, we filed an amendment to our quarterly report on
Form 10-Q for the three and nine month periods ended September 25, 1999 in order
to restate the Financial Statements and revise the Management's Discussion and
Analysis of Financial Condition and Results of Operations sections. We filed
this amendment because we learned during our 1999 year-end closing that certain
inventory costs and related cost of sales should have been recognized in the
third quarter. Recognizing these costs in the third quarter resulted in a
reduction in our previously reported net earnings for the three and nine month
periods ended September 25, 1999.
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<PAGE>
RESULTS OF OPERATIONS
The following table sets forth actual operating results for the years ended
1997, 1998 and 1999 as a percentage of net revenue.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenue:
Product sales...................................... 90.4% 92.2% 93.4%
Net royalties...................................... 9.6 7.8 6.6
----- ----- -----
100.0 100.0 100.0
Cost of sales........................................ 56.0 57.7 55.3
----- ----- -----
Gross profit......................................... 44.0 42.3 44.7
Selling, general and administrative expenses......... 30.3 30.2 28.5
Severance costs related to distribution facility..... -- -- 0.5
----- ----- -----
Earnings from operations........................... 13.7 12.1 15.7
Other income/(expense):
Gain on disposition of property and equipment...... -- -- 0.6
Interest, net...................................... (2.7) (2.7) (1.6)
Other, net......................................... (0.4) (0.2) (0.2)
----- ----- -----
(3.1) (2.9) (1.2)
Earnings before income taxes and cumulative effect of
change in accounting principle..................... 10.6 9.2 14.5
Income taxes......................................... 4.1 3.9 5.9
----- ----- -----
Earnings before cumulative effect of change
in accounting principle............................ 6.5 5.3 8.6
Cumulative effect of change in accounting
principle.......................................... 0.8 -- --
----- ----- -----
Net earnings......................................... 7.3% 5.3% 8.6%
===== ===== =====
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
NET REVENUE. Net revenue increased $127.8 million or 27.1% to $599.7 million
for the year ended December 31, 1999 from $471.9 million for the year ended
December 31, 1998. Net revenue from retail operations increased $76.8 million or
34.5% to $299.4 million for the year ended December 31, 1999 from
$222.6 million for the year ended December 31, 1998. The primary reasons for
this growth were that our United States retail and factory outlet stores
achieved comparable store sales gains of 28.2% and 23.8%, respectively, over
1998 and sales volume generated by our new store openings. The strong increase
in comparable store net revenue was primarily attributable to our improved
merchandising and our fashion-focused product mix. The retail segment is
benefitting from our improved customer service levels resulting from our
enhanced personnel training and incentive programs that have been offered to our
employees.
Net revenue from wholesale operations increased $48.1 million or 22.6% to
$260.6 million for the year ended December 31, 1999 from $212.5 million for the
year ended December 31, 1998. Our wholesale operations generate revenue from
domestic accounts and a select number of international accounts. Domestic and
international wholesale operations net revenue increased, for the year ended
December 31, 1999, by $40.6 million to $228.7 million and by $7.4 million to
$31.9 million, respectively. Our domestic wholesale net revenue increased
primarily as a result of the increased demand for fashion products in both of
our women's and men's lines. International wholesale operations net revenue
increased due primarily to increased sales in the European market, partially
offset by soft
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<PAGE>
performance in the Asian and South American markets. GUESS? Canada contributed
$7.4 million in wholesale net revenues during the second half of the year ended
December 31, 1999.
Net royalties increased $2.8 million or 7.6%, to $39.6 million for the year
ended December 31, 1999 from $36.8 million for the year ended December 31, 1998.
The increase in net royalties was primarily due to settlements and adjustments
related to our terminating licensees, partially offset by our discontinuing
certain licenses that were brought in-house, continuing economic turmoil and
currency devaluation in Asian markets.
Net revenue from international operations comprised 6.7% and 5.6% of net product
sales during 1999 and 1998, respectively.
GROSS PROFIT. Gross profit increased 34.1% to $268.0 million for the year ended
December 31, 1999 from $199.9 million for the year ended December 31, 1998. The
increase in gross profit resulted from higher net revenue from product sales.
Gross margin from product sales increased 40.1% to $228.4 million for the year
ended December 31, 1999 from $163.0 million for the year ended December 31,
1998. Gross profit as a percentage of total net revenues increased to 44.7% for
the year ended December 31, 1999 as compared to 42.3% for the year ended
December 31, 1998. Gross margin from product sales increased to 40.8% for the
year ended December 31, 1999 compared to 37.5% for the year ended December 31,
1998.
The increase in our gross margin from product sales was primarily the result of
fixed store occupancy costs being spread over a larger comparable store revenue
base, a favorable mix in retail net revenue, which generally carries a higher
gross margin rate, lower off-price sales and a decrease in wholesale markdowns
and allowances as a percentage of wholesale net revenues.
Furthermore, during the fourth quarter of 1999, we enhanced our ability to
estimate reserves through improved processes and more current and accurate data.
As a result, we revised our estimate of certain reserves. This resulted in a
reduction of cost of sales of $2.3 million and an increase of gross profit of
$2.3 million or 2.4%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative, or SG&A, expenses of $171.0 million for the year ended
December 31, 1999 decreased to 28.5% of net revenue, from 30.2% of net revenue
or $142.8 million, in the year ended December 31, 1998. The decrease in SG&A
expenses as a percentage of net revenue was due to our ability to leverage
certain expenses against a higher revenue base, as well as the success of our
ongoing cost containment programs.
SEVERANCE COSTS RELATED TO DISTRIBUTION FACILITY. In accordance with the
requirements of EITF 94-3, "Liability for Certain Employee Termination Benefits
and Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)", we recorded a $3.2 million charge for future severance costs
related to the relocation of our distribution operations from Los Angeles,
California to Louisville, Kentucky. We anticipate the payment of these severance
costs to occur in the second quarter of fiscal year 2000.
EARNINGS FROM OPERATIONS. Earnings from operations increased 64.6% to
$93.8 million for the year ended December 31, 1999 from $57.0 million for the
year ended December 31, 1998. The increase was primarily due to higher net
revenues, higher gross profit rates and reduced SG&A rates.
GAIN ON DISPOSITION OF PROPERTY. We realized a non-recurring pre-tax gain of
$3.8 million on the disposition of property and equipment in 1999.
INTEREST EXPENSE, NET. Net interest expense decreased 27.1% to $9.4 million for
the year ended December 31, 1999 from $12.9 million for the year ended
December 31, 1998. This decrease resulted primarily from a lower outstanding
average debt. For the year ended December 31, 1999, the average debt balance was
$93.1 million, with an average effective interest rate of 9.5%. For the year
ended
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<PAGE>
December 31, 1998, the average debt balance was $135.5 million, with an average
effective interest rate of 9.0%.
INCOME TAXES. The income tax provision for the year ended December 31, 1999 was
$35.2 million, or a 40.4% effective tax rate. The income tax provision for the
year ended December 31, 1998 was $18.2 million, or a 42% effective tax rate. The
effective tax rate for 1998 was adversely impacted by Federal and state income
taxes related to a dividend declared to us by one of our foreign subsidiaries.
NET EARNINGS. Net earnings increased to $51.9 million for the year ended
December 31, 1999, from $25.1 million for the year ended December 31, 1998.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
NET REVENUE. Net revenue decreased $43.5 million or 8.4% to $471.9 million for
the year ended December 31, 1998 from $515.4 million for the year ended
December 31, 1997. Net revenue from retail operations increased $6.7 million or
3.1% to $222.6 million for the year ended December 31, 1998 from $215.9 million
for the year ended December 31, 1997, as a result of the volume generated by our
new store openings, partially offset by a $10.7 million, or 5.6%, decrease in
comparable store net revenue. The decrease in comparable store net revenue was
primarily due to product assortment changes in our outlet stores and softening
Pacific Rim tourism, which significantly impacted West Coast business during the
first half of 1998. During the second half of 1998, our retail stores
experienced positive comparable store net revenue, primarily due to our improved
merchandising and store operating initiatives implemented by a new retail
management team.
Net revenue from wholesale operations decreased $37.5 million or 15% to
$212.5 million for the year ended December 31, 1998 from $250.0 million for the
year ended December 31, 1997. Domestic and international wholesale operations
net revenue decreased, for the year ended December 31, 1998, by $18.2 million to
$188.0 million and by $19.3 million to $24.5 million, respectively. Our domestic
wholesale operations net revenue declined primarily as a result of increased
competition in branded basic denim apparel. International wholesale operations
net revenue decreased due primarily to the sale of the GUESS? Italia wholesale
operations in June 1997, which had contributed $13.5 million during the first
five months of 1997, as well as soft performance in the Asian and South American
markets.
Net royalties decreased $12.7 million or 25.6% to $36.8 million for the year
ended December 31, 1998, from $49.5 million for the year ended December 31,
1997. The decline in net royalties was primarily the result of our terminating
various under-performing licenses, discontinuing certain licenses which we
brought back in-house, continuing economic turmoil and currency devaluation in
the Asian markets and the financial difficulty of one of our domestic licensees.
Net revenue from our international operations comprised 5.6% and 11.5% of our
net product revenue during 1998 and 1997, respectively.
GROSS PROFIT. Gross profit decreased 11.9% to $199.9 million for the year ended
December 31, 1998 from $227.0 million for the year ended December 31, 1997. The
decline in gross profit resulted from lower net royalties, as well as decreased
net revenue from product sales. Gross profit from product sales decreased 8.1%
to $163.0 million for the year ended December 31, 1998 from $177.5 million for
the year ended December 31, 1997. Gross margin decreased to 42.3% for the year
ended December 31, 1998 as compared to 44% for the year ended December 31, 1997.
Gross margin from product sales decreased to 37.5% for the year ended
December 31, 1998 compared to 38.1% for the year ended December 31, 1997. The
decrease in gross margin from product sales was primarily the result of our
fixed store occupancy costs being spread over a lower comparable store revenue
base, partially offset by a favorable mix in retail net revenue, which generally
carries a higher gross margin rate, and lower wholesale markdowns and
allowances.
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<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. SG&A expenses decreased 8.6% to
$142.8 million, or 30.2% of net revenue, for the year ended December 31, 1998,
from $156.3 million, or 30.3% of net revenue, for the year ended December 31,
1997. The decrease in SG&A expenses was primarily due to our cost reduction
initiatives implemented in the fourth quarter of 1997.
EARNINGS FROM OPERATIONS. Earnings from operations decreased 19.3% to
$57.0 million for the year ended December 31, 1998, from $70.6 million for the
year ended December 31, 1997. The decrease was primarily due to lower revenue.
INTEREST EXPENSE, NET. Net interest expense decreased 5.8% to $12.9 million for
the year ended December 31, 1998 from $13.7 million for the year ended
December 31, 1997. This decrease resulted primarily from a lower outstanding
average debt, partially offset by a slightly higher average effective interest
rate. For the year ended December 31, 1998, the average debt balance was
$135.5 million, with an average effective interest rate of 9%. For the year
ended December 31, 1997, the average debt balance was $148.4 million, with an
average effective interest rate of 8.8%.
OTHER EXPENSES. Other non-operating expenses were $0.9 million for the year
ended December 1998 as compared to $2.0 million for the year ended December 31,
1997. The decrease was primarily due to a $1.4 million write-down in 1997 of an
equity investment to the lower of cost or market.
INCOME TAXES. The income tax provision for the year ended December 31, 1998 was
$18.2 million, or a 42% effective tax rate. The income tax provision for the
year ended December 31, 1997 was $21.3 million, or a 38.9% effective tax rate.
The effective tax rate for 1998 was adversely impacted primarily by Federal and
state income taxes related to a dividend declared to us by one of our foreign
subsidiaries.
NET EARNINGS BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE. Net
earnings before cumulative effect of a change in accounting principle decreased
by 25.2% to $25.1 million, or 5.3% of net revenue, for the year ended
December 31, 1998 from $33.6 million, or 6.5% of net revenue, for the year ended
December 31, 1997.
NET EARNINGS. Net earnings decreased to $25.1 million for the year ended
December 31, 1998, from $37.5 million for the year ended December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
During 1999, we relied primarily on internally generated funds and trade credit
to finance our operations and expansion. At December 31, 1999, we had working
capital of $97.9 million compared to $101.3 million at December 31, 1998. The
$3.4 million decrease in working capital is due primarily to a $40.8 million
increase in accounts payable and accrued expenses offset by a $15.2 million
increase in short-term investments, a $17.1 million increase in inventories and
a $3.2 million increase in prepaid expenses. With the acquisition of the
additional interest in GUESS? Canada, our current portion of notes payable and
long-term debt increased $7.5 million.
On December 3, 1999, we entered into a $125 million credit facility with The
Chase Manhattan Bank that replaced our $100 million revolving credit facility
entered into in March 1997. The credit facility permits borrowings up to
$125 million including a $50 million sub-limit for letters of credit. The new
credit facility expires on October 31, 2002. At December 31, 1999, we had no
outstanding borrowings under the credit facility, $15.2 million in outstanding
commercial letters of credit and $32.0 million in standby letters of credit. At
December 31, 1999, we had $77.8 million available for future borrowings under
the credit facility. The credit facility contains restrictive covenants
requiring among other things, the maintenance of certain financial ratios. We
were in compliance with all such covenants as of December 31, 1999. Our
outstanding borrowings under our credit facility currently bear interest at
LIBOR plus 100 basis points.
26
<PAGE>
Capital expenditures, net of lease incentives granted, totaled $63.5 million for
1999 and $13.7 million for 1998. The increase in capital expenditures was due
primarily to our increase in store openings, costs associated with our new
distribution facility in Louisville, Kentucky, the launching of our online store
in April 1999, and the retail expansion of GUESS? Canada. We estimate that our
capital expenditures for 2000 will be approximately $80 million, net of lease
incentives, primarily for retail store expansion and remodeling and shop-in-shop
expansion and enhancements.
We anticipate we will be able to satisfy our ongoing cash requirements through
2000, including retail expansion plans and interest payments on our senior
subordinated notes due 2003 (such interest payments paid by us during 1999
amounted to $9.2 million), primarily with cash flow from operations,
supplemented by borrowings under our credit facility.
SEASONALITY
Our business is impacted by general seasonal trends characteristic of the
apparel and retail industries. Our retail operations are generally stronger in
the third and fourth quarters of our fiscal year, while our wholesale operations
generally experience stronger performance in the first and third quarters of our
fiscal year. As the timing of the shipment of products may vary from year to
year, the result for any particular quarter may not be indicative of results for
the full year. We have not had significant overhead and other costs generally
associated with large seasonal variations. See Note 10 to Consolidated Financial
Statements on page F-17.
INFLATION
We do not believe the relatively moderate rates of inflation experienced in the
United States over the last three years have had a significant effect on our net
revenue or profitability. Although higher rates of inflation have been
experienced in a number of foreign countries in which our products are
manufactured, we do not believe inflation rates in these countries have had a
material adverse effect on our net revenue or profitability.
IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, Statement of Financial Accounting Standards No. 133, "Accounting
for Derivative Instruments and Hedging Activities" ("SFAS 133") was issued.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and for hedging activities. It is effective for fiscal years
beginning after June 15, 2000. We believe the adoption of SFAS 133 will not have
a material impact on our financial reporting.
27
<PAGE>
BUSINESS
OVERVIEW
GUESS? is one of the most widely recognized brands in the fashion world. We
design, market and license a lifestyle collection of casual apparel and
accessories, and are known for trendsetting styles and marketing creativity. Our
core customer is a style-conscious consumer between the ages of 15 and 25. This
customer is attracted to our brand image and the distinctive styling and
innovative fabrics that we incorporate in our fashion-forward designs. We also
appeal to other customers through product lines that include the contemporary
and upscale GUESS? Collection and our GUESS? Kids and Baby GUESS? brands.
We distribute our products through a growing network of GUESS? stores, selected
wholesale accounts, international distributors and a new e-commerce site. This
multi-channel network provides us with flexibility in marketing products and
significant opportunities for growth. We market our apparel under numerous
trademarks including GUESS?, Guess, Guess ?, Guess U.S.A., Guess Jeans, Guess?
and Triangle Design, Guess Kids, Guess Collection and Baby Guess. Our apparel
lines include full collections of denim and cotton clothing, including jeans,
pants, overalls, skirts, dresses, shorts, blouses, shirts, jackets and knitwear.
We also selectively grant licenses to manufacture and distribute a broad range
of products that complement our apparel lines, including watches, eyewear,
handbags and footwear.
Since our founding in 1981, our name has become one of the most familiar in
fashion through a consistent emphasis on innovative and distinctive designs. We
have a large team of designers who, under the direction of Maurice Marciano,
have demonstrated the ability to interpret global fashion trends and translate
them into products that our customers desire. Our award-winning advertising
department, which is led by Paul Marciano, communicates our fashion and brand
image through the use of high-impact print and outdoor advertising.
In 1999, we generated net revenue of $599.7 million, a 27.1% increase from 1998.
This growth resulted from several initiatives, including implementation of the
first phase of our planned retail store expansion and the concentration of our
wholesale distribution efforts on our most profitable accounts. Further, our
gross profit as a percentage of total net revenue increased to 44.7% in 1999
from 42.3% in 1998, while our net income grew to $51.9 million from
$25.1 million. This profitability resulted from several factors, including a
26.9% increase in our comparable store sales in the United States, greater "sell
through" of full price merchandise and our transition to international vendors
to lower product costs.
Over the next three to five years, we anticipate that our retail division will
represent our primary growth initiative. We expect to achieve growth by adding a
significant number of new stores, increasing the average size of new stores and
continuing to increase sales productivity for all stores. In 1999, we opened 17
net new stores and expect to open an additional 60 new stores in the United
States and Canada in 2000. It is our current plan to more than double our retail
square footage in the United States and Canada over the next three years.
We also intend to grow our wholesale net revenue. In 1999, we added or remodeled
138 shop-in-shops. These exclusive selling areas within department stores
enhance brand recognition and ensure the consistent presentation of GUESS?
merchandise. We plan to add or remodel approximately 500 shop-in-shops in 2000.
OUR INDUSTRY
With the large "baby boom" generation maturing and having children, the younger
segments of the U.S. population have been increasing in recent years. According
to the U.S. Census Bureau, Generation Y (ages 10 to 24) will grow from
56.3 million in 1998 to 63.1 million in 2010, a growth rate
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<PAGE>
that outpaces that of the general population by nearly 20%. This group is more
than three times the size of Generation X (ages 25 to 35) and is the largest
demographic group in the United States since the baby boomer generation. Teenage
Research Unlimited, an independent consumer research firm, estimates that total
teen spending in 1999 was approximately $153 billion.
WE HAVE A DISTINCTIVE BRAND IMAGE
We are known for our unique style and believe the GUESS? brand communicates a
distinctive image that is fun, fashionable and sexy--and always at the forefront
of fashion. Since the beginning of 1995, we have spent over $110 million
promoting and strengthening our brand name in the United States and Canada. In
addition our licensees and international distributors have spent approximately
$100 million advertising the GUESS? brand over this same period.
WE OFFER CUTTING-EDGE DESIGNS
Under the direction of Maurice Marciano, GUESS? apparel is designed by an
in-house staff of five teams (men's, women's, girls', boys' and GUESS?
Collection) based in Los Angeles, California. Our design teams travel throughout
the world in order to discover new fabrics and monitor fashion trends. Fabric
shows in Europe, Asia and the United States provide additional opportunities to
discover and sample new fabrics. These fabrics, together with the trends
observed by our designers, serve as the primary source of inspiration for our
lines and collections. We also maintain a fashion library consisting of antique
and contemporary garments as an additional source for creative concepts. In
addition, design teams regularly meet with members of the sales, merchandising
and retail operations to further refine our products in order to meet the
particular needs of our markets.
The GUESS? products within each of our apparel and accessories lines generally
fall into one of three categories: "core basics," which includes such items as
our traditional denim and cotton clothing; "fashion basics," which includes such
items as jeans made from more unusual fabrics and with more intricate
top-stitching; and "fashion fashion," which includes trendy and cutting-edge
fashion apparel and accessories. In addition, we divide the year into four
three-month merchandising seasons: spring, summer, fall and holiday. We
typically introduce new merchandise within each of our apparel and accessories
lines in each season in order to continually generate freshness in our product
lines. Each line is built around a central seasonal theme and includes a stylish
assortment of coordinated basic and fashion apparel with complementary
accessories designed to encourage multiple item purchases and wardrobe building.
WE CREATE AWARD-WINNING ADVERTISING
Our advertising strategy promotes the GUESS? image and products, with an
emphasis on creating an image that is fun, fashionable and sexy. GUESS? Jeans,
GUESS? U.S.A. and GUESS ?, Inc. images have been showcased in dozens of major
publications and outdoor and broadcast media throughout the United States and
the world. Led by Paul Marciano, our advertising department has contributed to
making the GUESS? brand a fashion icon. Our signature black and white print
advertisements as well as color print advertisements designed by our advertising
department have garnered prestigious awards, including Clio, Belding and Mobius
awards for creativity and excellence.
We have maintained a high degree of consistency in our advertisements by
projecting similar global themes and images of the GUESS? brand. Portraying core
lifestyle themes more often than a particular product, our distinctive
advertising builds on the GUESS? brand and image, season after season. We
launched a new marketing and advertising campaign in 1999, which included strong
and consistent images featured in all of our print, outdoor and Internet
advertising and in our enhanced point-of-sale materials.
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<PAGE>
We further strengthen communications with customers through our WWW.GUESS.COM
web site. This global medium provides consumers with information about our
history, GUESS? products and store locations and allows us to receive and
respond directly to customer feedback.
OUR CUSTOMERS ARE VERY STYLE CONSCIOUS
Our core customer is a style-conscious consumer between the ages of 15 and 25.
These consumers are part of the highly desirable Generation Y demographic group
that we believe is growing rapidly and has significant disposable income. We
believe that our success in targeting our core customer reflects the enduring
strength of the GUESS? brand name. Our image results from our constant emphasis
on innovative and distinctive product designs that stand for exceptional styling
and unparalleled quality.
We also seek opportunities to diversify into new product categories and reach
other style-conscious demographic groups. For example, the GUESS? Collection
line of women's apparel targets a style-conscious, discerning customer seeking
superior style and quality. This higher-end collection of women's skirts,
dresses, tops, jackets and blouses incorporates a contemporary high fashion
combination of colors and styles. This apparel line is currently sold
exclusively through our retail stores and the Internet.
We are also seeking to grow our GUESS? Kids and Baby GUESS? collections. We
believe these collections will appeal to parents who enjoyed GUESS? products in
the 1980s and 1990s and now desire to expand their relationship with us by
purchasing a more stylish line of children's apparel and accessories. In 1998,
we acquired our girls' line from a licensee and in 1999 we acquired our boys'
line. We also recently selected the licensee for Baby GUESS?. Both the GUESS?
Kids and Baby GUESS? collections of apparel and accessories will be featured in
a series of new GUESS? Kids stores, the first of which is scheduled to open in
Summer 2000. We also intend to sell these lines in selected department stores,
including through a series of shop-in-shops.
WE ARE CURRENTLY IMPLEMENTING A MULTI-CHANNEL RETAIL EXPANSION PROGRAM
Our retail division has been a catalyst driving our growth in the marketplace.
Retail operations produced our strongest growth in 1999, as substantially all of
our stores were profitable. As we implement our retail expansion program, we
expect the retail division will continue to support our future growth.
As of March 31, 2000, we operated 108 retail and 59 factory outlet stores in the
United States and Canada and a retail store in Florence, Italy. Our retail
stores create an upscale and inviting shopping environment which we believe
enhances our image. These stores allow us to influence the merchandising and
presentation of our products, increase customer awareness and strengthen brand
equity. GUESS? retail stores are located primarily in better regional malls and
street oriented retail districts, while our factory outlet stores are
principally located in major outlet shopping centers. To distinguish our retail
stores, we command attractive locations and utilize distinctive architectural
features such as high ceilings to create a visually appealing and enticing
environment. We believe that our stylistic presentation of apparel and
accessories helps create a differentiated store environment unique within our
industry.
Our network of GUESS? stores generated net revenue of $299.4 million in 1999, a
34.5% increase from 1998. Operating profit as a percentage of net revenue is
generally higher for retail operations than for wholesale operations. It has
been our experience that our retail locations complement our wholesale
operations by building brand awareness and contributing to the growth of our
wholesale division. Based on our recent successful retail operating performance,
an expanded infrastructure and favorable customer demographics, we believe we
are well positioned for store expansion over the next several years.
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Our retail stores are generally located in better regional shopping malls. We
also operate a select number of stores in street oriented retail districts in
major metropolitan cities. This group includes three flagship stores in Beverly
Hills, New York City (Soho) and Boston. We plan to open three additional
flagship stores in 2000. These stores will be located in Chicago, San Francisco
and our second New York flagship located in the Flatiron District.
We operate 59 factory outlet stores as of March 31, 2000. These stores offer a
unique product line targeted to the value-conscious consumer and facilitate the
clearance of past season merchandise. Geographically positioned to minimize
potential overlap with our primary customers, our factory outlet stores also add
sales in regions where GUESS? products may not be readily available.
UNITED STATES AND CANADIAN STORE LOCATIONS
The following map and table identifies our full price retail and factory outlet
stores in the United States and Canada. As of March 31, 2000, our 108 retail
stores were located in 25 states and five provinces and our 59 factory outlet
stores were located in 27 states, Puerto Rico and two provinces.
[LOGO]
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UNITED STATES (150)
ALABAMA (1)
FACTORY OUTLET (1)
Foley (Foley)
ARIZONA (7)
RETAIL (5)
Fiesta Mall (Mesa)
Metrocenter (Phoenix)
Scottsdale Fashion Center (Scottsdale)
Park Place Mall (Tucson)
Tucson Mall (Tucson)
FACTORY OUTLET (2)
Casa Grande (Casa Grande)
Arizona Mills (Tempe)
CALIFORNIA (30)
RETAIL (22)
Rodeo Drive (Beverly Hills)
Brea Mall (Brea)
Los Cerritos (Cerritos)
South Coast Plaza (Costa Mesa)
Glendale Galleria (Glendale)
Beverly Center (Los Angeles)
Century City Mall (Los Angeles)
Fashion Square (Los Angeles)
Northridge Fashion (Los Angeles)
Topanga Mall (Los Angeles)
Westside Pavilion (Los Angeles)
Stoneridge Mall (Pleasonton)
Tyler Mall (Riverside)
Downtown Plaza (Sacramento)
Fashion Valley (San Diego)
Horton Plaza (San Diego)
University Town Center (San Diego)
San Francisco Shopping Center (San Francisco)
Stonestown Galleria (San Francisco)
Valley Fair (Santa Clara)
Third Street Promendade (Santa Monica)
Del Amo (Torrance)
FACTORY OUTLET (8)
Barstow (Barstow)
Cabazon (Cabazon)
Camarillo (Camarillo)
Gilroy (Gilroy)
Cooper Building (Los Angeles)
Great Mall of Bay Area (Milpitas)
Ontario Mills (Ontario)
San Ysidro (San Diego)
COLORADO (3)
RETAIL (2)
Cherry Cheek (Denver)
Park Meadows (Littleton)
FACTORY OUTLET (1)
Castle Rock (Castle Rock)
CONECTICUT(2)
RETAIL (2)
Stamford Town Center (Stamford)
Westfarms (West Hartford)
DELAWARE (1)
FACTORY OUTLET (1)
Rehoboth Beach (Rehoboth Beach)
FLORIDA (12)
RETAIL (8)
Aventura Mall (Aventura)
Town Center at Boca Raton (Boca Raton)
Brandon Town Center (Brandon)
Bayside Marketplace (Miami)
Dadeland Mall (Miami)
South Beach (Miami Beach)
Florida Mall (Orlando)
Palm Beach Gardens (Palm Beach Gardens)
FACTORY OUTLET (4)
Orlando (Orlando)
Orlando 2 (Orlando)
St. Augustine (St. Augustine)
Sawgrass Mills (Sunrise)
GEORGIA (5)
RETAIL (3)
Lenox Square (Atlanta)
Perimeter Mall (Atlanta)
Mall of Georgia (Buford)
FACTORY OUTLET (2)
Commerce (Commerce)
Dawsonville (Dawsonville)
HAWAII (2)
RETAIL (1)
Ala Moana (Honolulu)
FACTORY OUTLET (1)
Waikele (Waipahu)
ILLINOIS (4)
RETAIL (3)
Oakbrook Mall (Oak Brook)
Woodfield Mall (Schaumburg)
Old Orchard (Skokie)
FACTORY OUTLET (1)
Gurnee Mills (Gurnee)
INDIANA (1)
FACTORY OUTLET (1)
Lighthouse Place (Michigan City)
IOWA (1)
FACTORY OUTLET (1)
Williamsburg (Williamsburg)
KANSAS (1)
RETAIL (1)
Oak Park Mall (Overland Park)
KENTUCKY (2)
RETAIL (2)
Fayette Mall (Lexington)
Mall at St. Matthews (St. Matthews)
LOUISIANA (1)
FACTORY OUTLET (1)
Gonzales (Gonzales)
MARYLAND (3)
RETAIL (1)
Montgomery Mall (Bethesda)
FACTORY OUTLET (2)
Hagerstown (Hagerstown)
Queenstown (Queenstown)
MASSACHUSETTS (4)
RETAIL (3)
Newbury Street (Boston)
Cambridgeside (Cambridge)
Emerald Square (North Attleborough)
FACTORY OUTLET(1)
Wrentham (Wrentham)
MICHIGAN (8)
RETAIL (5)
Fairlane Town Center (Dearborn)
Eastland Mall (Harper Woods)
Woodland Mall (Kentwood)
Twelve Oaks (Novi)
Somerset (Troy)
FACTORY OUTLET (3)
Birch Run (Birch Run)
Kensington (Howell)
West Branch (West Branch)
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MINNESOTA (2)
RETAIL (1)
Mall of America (Minneapolis)
FACTORY OUTLET (1)
Medford (Medford)
MISSOURI (2)
FACTORY OUTLET (2)
Branson (Branson)
Osage Beach (Osage Beach)
NEVADA (3)
RETAIL (2)
Ceasar's Forum Shops (Las Vegas)
Meadowood Mall (Reno)
FACTORY OUTLET (1)
Fashion Outlet (Primm)
NEW JERSEY (4)
RETAIL (3)
Garden State Plaza (Paramus)
Mall at Short Hills (Short Hills)
Willowbrook Mall (Wayne)
FACTORY OUTLET (1)
Jersey Gardens (Elizabeth)
NEW YORK (13)
RETAIL (10)
Walden Galleria (Buffalo)
Roosevelt Field Mall (Garden City)
Walt Whitman Mall (Huntington)
Smith Haven (Lake Grove)
Nanuet Mall (Nanuet)
SoHo (New York City)
South Street Seaport (New York City)
Staten Island (New York City)
Eastview Mall (Victor)
Westchester (White Plains)
FACTORY OUTLET (3)
Niagara Falls (Niagara Falls)
Riverhead (Riverhead)
Woodbury Commons (Woodbury)
NORTH CAROLINA (3)
RETAIL (3)
South Park Mall (Charlotte)
Crabtree Valley Mall (Raleigh)
Hanes Mall (Winston-Salem)
OHIO (3)
RETAIL (2)
Beachwood Place (Cleveland)
Columbus City Center (Columbus)
FACTORY OUTLET (1)
Jeffersonville (Jeffersonville)
OREGON (1)
RETAIL (1)
Pioneer Place (Portland)
PENNSYLVANIA (6)
RETAIL (1)
King of Prussia (King of Prussia)
FACTORY OUTLET (5)
Grove City (Grove City)
Lancaster (Lancaster)
Franklin Mills (Philadelphia)
Reading (Reading)
Tannersville (Tannersville)
PUERTO RICO (1)
FACTORY OUTLET (1)
Old San Juan (San Juan)
RHODE ISLAND (1)
RETAIL (1)
Providence Place (Providence)
SOUTH CAROLINA (1)
FACTORY OUTLET (1)
Myrtle Beach (Myrtle Beach)
TENNESSEE (1)
FACTORY OUTLET (1)
Five Oaks (Sevierville)
TEXAS (13)
RETAIL (7)
Highland Mall (Austin)
Dallas Galleria (Dallas)
North Park (Dallas)
Cielo Vista Mall (El Paso)
Huelen Mall (Forth Worth)
Houston Galleria (Houston)
North Star Mall (San Antonio)
FACTORY OUTLET (6)
Conroe (Conroe)
Gainesville (Gainesville)
Grapevine Mills (Grapevine)
Hillsboro (Hillsboro)
Katy Mills (Katy)
San Marcos (San Marcos)
UTAH (1)
FACTORY OUTLET (1)
Park City (Park City)
VIRGINA (5)
RETAIL (3)
Fair Oaks Mall (Fairfax)
Tysons Corner (McLean)
Regency Square (Richmond)
FACTORY OUTLET (2)
Potomac Mills (Prince William)
Berkeley Commons (Williamsburg)
WASHINGTON (2)
RETAIL (2)
Bellevue Square (Bellevue)
Southcenter (Seattle)
CANADA (17)
ALBERTA (2)
RETAIL (2)
South Center Mall (Calgary)
West Edmonton Mall (Edmonton)
BRITISH COLUMBIA (2)
RETAIL (2)
Robson Street (Vancouver)
Whistler Center Village (Whistler)
MANITOBA (1)
RETAIL (1)
Polo Park Mall (Winnipeg)
ONTARIO (8)
RETAIL (6)
Sherway Gardens (Etobicoke)
Square One (Mississauga)
Upper Canada Mall (Newmarket)
Bayview Village (Toronto)
Queen Street (Toronto)
Yorkdale Shopping Center (Toronto)
FACTORY OUTLET (2)
Niagara Falls (Niagara Falls)
Windsor Crossing Premium Outlets (Windsor)
QUEBEC (4)
RETAIL (3)
St. Catherine St. West (Montreal)
Rockland (Mount Royal)
Fairview Centre (Pointe-Claire)
FACTORY OUTLET (1)
Saint Sauveur Place du Cinema (Saint Sauveur)
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INTERNATIONAL STORE LOCATIONS
The following map identifies the location of the 201 full price retail and 12
factory outlet international GUESS? stores, which are located in 38 countries.
These stores, with the exception of our store in Florence, Italy, are owned and
operated by GUESS? licensees and distributors.
[LOGO]
WE ARE PURSUING A THREE-PART GROWTH PLAN FOR OUR RETAIL DIVISION
We plan that our retail division will be our primary growth initiative over the
next three to five years. Accordingly, during 1999, we initiated a program to:
- increase the number of new GUESS? stores;
- increase the productivity of all GUESS? stores; and
- increase the average size of new GUESS? full price retail stores.
NEW STORE EXPANSION
We plan to more than double our retail square footage in the United States and
Canada during the next three years. We intend to open 60 new stores during 2000
consisting of 25 retail, ten factory outlet and ten GUESS? Kids stores in the
United States and ten retail and five factory outlet stores in Canada. We expect
to open a significant number of new stores in these markets during the next
several years.
<TABLE>
<CAPTION>
NEW STORE OPENINGS
------------------------------------------------------------------
RETAIL FACTORY OUTLET
------------------- -------------------
U.S. CANADA U.S. CANADA GUESS? KIDS TOTAL
-------- -------- -------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
1999............................ 9 3 10 0 0 22
2000............................ 25 10 10 5 10 60
</TABLE>
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ENHANCE RETAIL PRODUCTIVITY
During 1998, we instituted several initiatives to improve the performance of our
retail and factory outlet stores. These ongoing initiatives include:
- achieving better inventory management so that we have the right products in
stock;
- remodeling select stores to promote a consistent brand message; and
- developing a motivated team of sales professionals so that our customers
have a favorable shopping experience.
We have been pleased with the results of these initiatives. In 1999, our retail
and factory outlet stores achieved comparable store sales gains of 28.2% and
23.8%, respectively, over 1998. Our retail stores generated sales per square
foot of $434 in 1999 compared to $336 in 1998 and our factory outlet stores
generated sales per square foot of $351 compared to $255 in 1998.
As part of our retail expansion, we increased our ownership of our Canadian
licensee, GUESS? Canada, to 60% on August 4, 1999. We have an option to acquire
the remaining 40% of GUESS? Canada commencing December 31, 2001. GUESS? Canada
currently operates a total of 14 retail stores and three factory outlet stores.
We intend to open approximately ten new retail stores and five new factory
outlet stores in Canada in 2000. GUESS? Canada is remodeling most of its
existing stores and plans to open up to 35 new stores over the next three years.
LARGER STORE FORMAT
The average size of our full price retail stores in the United States is
approximately 5,400 square feet. Over the next several years, we intend to
increase the size of our new full price retail stores to accommodate the full
line of GUESS? apparel and accessories. We plan to open three additional
flagship stores in 2000. These flagship stores will be located in Chicago, San
Francisco and our second New York flagship located in the Flatiron District.
These stores will average approximately 11,000 square feet. The average size of
our factory outlet stores in the United States is approximately 5,500 square
feet. New GUESS? Kids' stores are expected to average approximately 2,800 square
feet.
THE LOOK AND FEEL OF GUESS? STORES AND SHOP-IN-SHOPS IS IMPORTANT IN BUILDING
OUR BRAND EQUITY
Our full price retail and factory outlet stores present GUESS? apparel and
accessories in a stylish and fun environment. We have developed prototype
designs for both store formats. Our full price retail stores utilize design
elements such as light colored wood, chrome and modern lighting fixtures to
create an appealing sense of openness. Recognizable GUESS? advertising prints
are placed throughout each store to highlight selected fashions and reinforce
our brand image. We also utilize modular display units to allow us to handle
varying levels of merchandise. Our factory outlet stores incorporate many of
these same design themes, as well as exposed ceilings and warehouse style
lighting. Our new series of GUESS? Kids stores will incorporate many of the same
themes as our full price stores with an emphasis on youth and fun.
Our prototype designs will be used in our new stores and in those previously
opened stores that we elect to remodel. In 1999, we remodeled 14 stores and we
intend to remodel another 25 stores in 2000.
Our wholesale operations utilize a series of shop-in-shop designs that reflect
the same open and inviting themes used in our retail stores. Our shop-in-shops,
for example, incorporate GUESS? signage and display fixtures that are similar to
those used in our retail stores. The size of our shop-in-shops (excluding
significantly larger shop-in-shops in key department store locations) average
approximately 450 square feet.
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WE HAVE BENEFITTED THROUGH OUR CAREFUL SELECTION OF WHOLESALE CUSTOMERS
Our wholesale division sells GUESS? products primarily to leading department
stores and selected specialty retailers. These stores provide the high quality
shopping environment that the GUESS? brand deserves. We have implemented a
strategy to focus our efforts on the top performing department store locations
of our wholesale customers. Our analysis has determined that these stores
represent the greatest opportunity for sales growth of our product.
OUR WHOLESALE CUSTOMERS
We currently sell our products to wholesale accounts that operate approximately
2,800 retail store locations in the United States. Department stores represent
our largest customer group. In 1999, Bloomingdale's, Macy's and other affiliated
stores owned by Federated Department Stores, The May Company and Dillard's
stores represented 12.4%, 6.5% and 6.3%, respectively, of our net revenue.
As a critical element of our wholesale distribution to department stores, we
utilize shop-in-shops within department stores to enhance GUESS? brand
recognition and ensure the consistent presentation of GUESS? products. As of
March 31, 2000, these department store locations collectively contained
approximately 1,200 GUESS? shop-in-shops. In some cases, in order to promote
brand awareness and attract customers, we may have multiple shop-in-shops that
sell more than one line of GUESS? apparel within a department store. In 1999, we
added or remodeled 138 shop-in-shops. As part of our continued growth strategy,
during 2000 we currently plan to add or remodel approximately 500 shop-in-shops.
We believe shop-in-shops encourage our department store customers to carry a
representative cross-section of GUESS? apparel and accessories.
OUR BACKLOG
We generally receive wholesale orders for fashion apparel approximately 90 to
120 days prior to the time the products are delivered to stores. Under certain
circumstances, some orders may be cancelled by the customer. Our backlog depends
upon a number of factors, including seasonality and the scheduling of
manufacturing and shipment of products. As of March 31, 2000, we had unfilled
wholesale orders, consisting primarily of orders for seasonal fashion apparel,
of $147.4 million, a 77% increase from March 31, 1999. We believe that these
orders, which exclude replenishment orders of basic products, reflect the
positive contributions of our program to expand our wholesale business. In 1999,
these efforts contributed to a 22.6% increase in wholesale net revenue over the
prior year.
WE HAVE EXPANDED OUR PRODUCT OFFERINGS AND GLOBAL MARKETS THROUGH OUR LICENSEES
Consumer desire for GUESS? brand goods has permitted us to expand our product
offerings selectively through trademark licensing agreements. In addition, a key
aspect of the development of GUESS? as a worldwide brand is attributable to our
trademark licensing activities. Early on, we recognized the importance of
forming relationships with select licensees who could enhance the GUESS? brand
by expanding the range of available GUESS? products and by utilizing their
skills in specialized areas and in specific geographic markets.
OUR LICENSEES
Product and international licensees are granted the right to manufacture and
sell at wholesale prices specified products under one or more of our trademarks.
Generally, product licenses encompass the production and sale of some products
or a complete product line, such as our Baby GUESS? line, for sale in the United
States and may also include provisions for international sales, either directly
or through our international licensees and distributors. We meet regularly with
our product licensees to ensure consistency with our overall merchandising and
design strategies and to ensure that the finished products meet our high quality
standards. Under our international trademark licenses, we typically
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grant the licensee the right to produce and distribute a broad range of GUESS?
products within a defined international market. These agreements are generally
for three years with an option to renew prior to expiration for an additional
multi-year period. These international licensees distribute the finished
products directly to better department stores, upscale specialty retail stores
and GUESS? licensed retail stores. International licensees generally produce and
source products independently of us.
As compensation for the use of our trademark under these agreements, each
licensee pays us royalties, based upon its wholesale sales of GUESS? products,
subject generally to payment of a minimum royalty. These payments generally
range from 5% to 7% of their wholesale sales of licensed products. In addition,
it is customary for us to include advertising provisions in our license
agreements which require our licensees to allocate between 2% and 3% of their
sales to advertise and promote GUESS? products. Further, certain licensees are
required to contribute toward the protection of our trademarks within the
territories granted to such licensees, thereby assisting us in our efforts to
prevent counterfeiting and other trademark infringement in those territories.
In order to maintain control of the GUESS? trademarks and ensure the quality of
the GUESS? brand, over the past five years we have strategically brought
in-house certain apparel licenses, such as the girls' line in 1998 and the boys'
line in 1999. Our girls' and boys' apparel lines will both be prominently
featured in our new GUESS? Kids retail stores and a planned series of girls' and
boys' shop-in-shops with our wholesale customers. In addition, on August 4, 1999
we increased to 60% our ownership of our Canadian licensee, GUESS? Canada. We
have an option to acquire the remaining 40% of GUESS? Canada commencing
December 31, 2001.
In 1999, worldwide sales of all licensed products approximated $525 million and
generated net royalty revenue of $39.6 million. We continuously evaluate
opportunities to license our trademarks and expand the range of available GUESS?
products. For example, we recently awarded a new license for Baby GUESS?, a
product line which, starting in Summer 2000, will be sold through our new GUESS?
Kids stores and select wholesale and specialty store accounts.
GUESS? apparel and accessories are produced by us and by a series of product
licensees. As of March 31, 2000, we had 19 product licenses that cover such
fashion accessories as watches, eyewear, handbags and footwear. A number of our
licensee relationships, including those that include GUESS? Watches, GUESS?
Eyewear and GUESS? Footwear, have existed for several years. Baby GUESS?, which
is targeted at children up to six years of age, is currently being produced
under trademark license with Designer Classics LLC.
Internationally, we have been able to develop new markets with minimal capital
investment and operating expenses through trademark licensing arrangements. We
also sell our products through international distributors who sell GUESS? brand
goods to select department stores and boutiques. In addition, GUESS? brand
products are sold through international licensees who operate GUESS? retail
stores in their respective territories. As of March 31, 2000, we had a network
of 213 international GUESS? stores operated by licensees and distributors. These
stores generally carry apparel and accessories that are similar to what we sell
in the United States and Canada, and in some instances, may carry products
tailored for local fashion preferences. Through our international licensees,
GUESS? products are produced and distributed in major cities throughout Asia,
Europe, South America and the Middle East.
WE HAVE A HIGHLY EXPERIENCED AND CREATIVE MANAGEMENT TEAM
We believe our senior management team combines a valuable blend of individuals
with the relevant industry expertise and creative insight necessary to
continually generate freshness into our product lines. Since our inception in
1981, we have been guided by a management team that has included Maurice, Paul
and Armand Marciano. The Marcianos grew up in the South of France, a region
which
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cultivated their deep understanding of French design and the essence of style.
Maurice Marciano oversees several of our departments including design, sales and
merchandising, manufacturing and finance. Paul Marciano oversees our global
advertising and image campaigns, retail store, licensing, legal and management
information system departments and our international expansion initiatives.
Armand Marciano's direct responsibilities include distribution, real estate and
construction, customer service and European exports. In addition to the
Marcianos, our current executive officers, several of whom have joined us within
the past two years, offer an array of relevant industry expertise, as well as
fresh and valuable insight into our industry. The successful integration of
these distinct skill sets has produced a unique corporate culture that leverages
the talents of each group. We believe our management team is well positioned to
capitalize on the strong economics of the GUESS? concept.
WE EXPECT TO ACHIEVE SIGNIFICANT BENEFITS FROM OUR GLOBAL SOURCING PLATFORM
Our product sourcing strategy is designed to increase efficiencies, reduce costs
and improve quality. In order to achieve our objectives, we have:
- increased the percentage of our finished products purchased from
international vendors; and
- started to rely almost exclusively on "packaged purchases," a purchasing
method under which we supply a vendor with a design and fabric selection and
the vendor delivers a finished product.
We believe these strategies have enabled us to reduce our average cost per unit.
This has allowed us to lower the prices of many of our items while continuing to
maintain or expand our gross margins. In addition, we have maintained a close
relationship with a number of domestic vendors located primarily in Los Angeles
who manufacture our GUESS? Collection line and who supplement production of high
demand products.
GREATER USE OF INTERNATIONAL VENDORS
We have strategically aligned ourselves with sourcing vendors worldwide who have
taken the responsibility for delivering a high quality, finished product in a
timely manner. We currently purchase approximately 60% of our finished products
from international vendors. This is a significant change from several years ago,
when we purchased the vast majority of our goods from domestic sources. We
believe our management has a thorough understanding of the economics of apparel
manufacturing, including costs of materials and components. This enables us to
identify and select those vendors that can produce the high quality goods we
require at favorable prices.
In 1999, the majority of our merchandise was produced in Asia and the Middle
East. The remainder of our merchandise was produced in Mexico, Peru, Bolivia and
the United States. We continue to explore countries which may offer better
sourcing opportunities, such as a higher quality finished product, better quota
capacity, lower tariffs and a wider variety of new types of fabric.
Our manufacturing department closely supervises our international vendor
operations. All products are produced according to our specifications and we
commission independent agents to oversee this production and to ensure timely
delivery of the merchandise. In addition, our manufacturing team makes on-site
visits to our independent agents and various manufacturers to negotiate product
costs, finalize technical specifications of each product and confirm delivery of
merchandise manufactured to our specifications. Our manufacturing team also
provides quality control training to our international vendors. After the
merchandise has been manufactured and shipped to our United States distribution
center, our manufacturing team also performs a quality and assurance control
evaluation of all merchandise received in order to ensure the high quality of
the finished product.
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GREATER USE OF "PACKAGED PURCHASES"
Starting in 1998, we began to rely almost exclusively on "packaged purchases," a
sourcing strategy under which we supply a vendor with a product design and
fabric selection and the vendor delivers a finished product. We use packaged
purchases arrangements with a majority of our international vendors and with
approximately 25% of our domestic vendors. Packaged purchases arrangements
result in:
- greater ability to estimate the costs associated with a finished product;
- lower materials costs, due to our ability to negotiate favorable fabric
prices for acquisition by our vendors;
- a shift of the risk of fabric loss to the vendor during the time the fabric
is in the vendor's possession;
- a reduction of our inventory handling costs; and
- an increase in available inventory storage space at our distribution center.
WE EXPECT TO REALIZE SEVERAL BENEFITS FROM OUR NEW DISTRIBUTION CENTER
We have opened a new distribution center in Louisville, Kentucky, to replace our
distribution center in Los Angeles, California. This approximately 500,000
square foot facility is near United Parcel Service's national transit hub. We
have been transitioning our product lines over the last several months.
Currently, the Kentucky facility handles three of our five product lines, and we
expect to complete the transition of all lines in Summer 2000. The new center is
centrally located to our major wholesale customers and our own retail stores.
The facility is equipped with advanced product handling equipment and systems,
and has the capacity to accommodate the anticipated growth of our existing
businesses. This new distribution center will enable us to deliver our products
to market more rapidly and will result in reduced shipping costs, lower product
handling costs and improved customer service.
We can expand the operating capacity of our current facility by approximately
100,000 square feet. We also have an option to lease adjacent land on which we
could expand our distribution center by approximately 300,000 square feet.
OUR EMPLOYEES ARE CENTRAL TO OUR CONTINUED SUCCESS
Over the past several years, we have made a concerted effort to provide our
employees with better training and incentive programs, as well as a better work
environment. In return, we believe we are rewarded with better trained employees
who are happier and more productive.
CORPORATE CULTURE
We believe that our employees are one of our most valuable resources. As a
result, our corporate culture and management philosophy is employee focused. We
facilitate communication through an open-door policy and encourage our employees
to voice their suggestions and concerns to management. We believe this policy
promotes resolution of problems at an early stage, prevents problems from
affecting employee morale, decreases our recruiting costs and increases employee
length of service. Moreover, we have also focused on succession planning, in
which we provide valuable feedback to our employees regarding their professional
development.
RECRUITMENT
In 1998, we implemented a recruitment program in order to improve our ability to
locate and hire well-qualified individuals for managerial positions at our
stores and to encourage a teamwork focus among our sales employees.
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INCENTIVES
In 1999, we instituted an executive bonus plan to provide motivation for
selected key employees to attain and maintain the highest standards of
performance, to attract and retain executives of outstanding competence and to
direct the energies of executives toward the achievement of specified business
goals. Participation in the bonus plan is limited to key employees who are in a
position to have a significant impact on our performance and who are selected by
a compensation committee that establishes the performance goals for the plan
year. Approximately 90 individuals will participate in the bonus plan for the
2000 plan year.
TRAINING
We have incorporated a multifaceted training and development regimen at our
stores using a combination of technologies including video/CD-ROM instruction
and shopper tracking software and interactive group training exercises. We have
specially designed the video training modules to appeal to our employees whose
average age is 18 to 25 years old by making them fun and brief, yet full of
necessary content. Our employees view customized video training modules as a
group and then head out to the sales floor to demonstrate the techniques they
have learned. Using store tracking software and point-of-sale systems, our store
managers are able to calculate each employee's sales transactions per hour. We
utilize "power hour coaching"--a management technique in which managers
encourage sales employees to increase their sales transactions per hour by
devoting all of their time to customers during peak selling periods. We believe
that our extensive training programs benefit both us and our employees. By
incorporating the techniques learned in training, our employees increase their
sales transactions per hour which results in increased incentive compensation
and greater revenue.
We are not a party to any labor agreements and none of our employees are
represented by a labor union. We consider our relationship with our employees to
be good. In addition, we were among the first in the apparel industry to
implement a program to monitor the compliance of subcontractors with Federal
minimum wage and overtime pay requirements.
WE LEASE SUBSTANTIALLY ALL OF OUR PROPERTIES
As of March 31, 2000, we operated 108 retail stores and 59 factory outlet stores
in the United States and Canada and one store in Florence, Italy. We currently
lease all of our store locations. Most leases have a term of at least ten years,
either through the intial term or a combination of the initial term and options
to extend the lease. These non-cancellable operating leases expire on various
dates through May 2016.
We lease seven adjacent buildings totaling approximately 515,000 square feet for
our corporate, wholesale and retail headquarters and our production facilities
in Los Angeles, California. These buildings are leased under four separate
leases, the first of which expires in June 2000 and the last of which expires in
July 2008. We believe these facilities are adequate for our operations over the
next several years.
We also lease space containing approximately 500,000 square feet for our
distribution center in Louisville, Kentucky. The initial term is for ten years
expiring December 31, 2009. The lease contains two five year option periods.
WE ARE PURSUING E-COMMERCE INITIATIVES
We are pursuing both business-to-consumer and business-to-business e-commerce
initiatives. In April 1999, we introduced WWW.GUESS.COM, a virtual storefront
that promotes the GUESS? brand, promotes customer loyalty and enhances brand
identity through interactive content. Our web site sales volume is equivalent to
that of an average GUESS? retail store.
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In April 2000, we introduced the first phase of our business-to-business
vertical marketplace, the Apparel Buying Network. This has allowed us to process
purchasing transactions with our specialty retailers through the use of the
Plumtree Corporate Portal, Commerce One's Market Site and Peoplesoft
e-Procurement. In place of the traditional procurement process of browsing a
paper catalog and telephoning a call center during business hours, our specialty
store retailers will now be able to visit a web site that will allow them to
purchase our products, check order status and review sales performance reports.
As an added benefit, we intend to allow specialty stores to access our system
for procuring computers and other office equipment from our suppliers. We expect
this initiative, which we intend to expand to include our wholesale customers,
licensees and suppliers, will eventually reduce our operating costs, increase
our sourcing efficiencies and improve customer service. We intend to expand this
solution into an electronic marketplace that will facilitate various levels of
interaction between buyers and sellers in the textile and apparel industries.
TRADEMARKS
We own numerous trademarks, including Guess, Guess?, Guess U.S.A., Guess Jeans,
Guess? and Triangle Design, Question Mark and Triangle Design, Guess Kids, Guess
Collection and Baby Guess. At December 31, 1999, we had more than 2,100 U.S. and
international registered trademarks or trademark applications pending with the
trademark offices of the United States and in over 170 countries around the
world. From time to time, we adopt new trademarks in connection with the
marketing of new product lines. We consider our trademarks to have significant
value in the marketing of our products and act aggressively to register and
protect our trademarks worldwide.
Like many well-known brands, our trademarks are subject to infringement. We have
a staff devoted to the monitoring and aggressive protection of our trademarks
worldwide.
ENVIRONMENTAL MATTERS
We are subject to federal, state and local laws, regulations and ordinances that
govern activities or operations that may have adverse environmental effects such
as emissions to air, discharges to water, and the generation, handling, storage
and disposal of solid and hazardous wastes. We are also subject to laws,
regulations and ordinances that impose liability for the costs of clean up or
other remediation of contaminated property, including damages from spills,
disposals or other releases of hazardous substances or wastes, in some cases
without regard to fault. Some of our operations routinely involve the handling
of chemicals and wastes, some of which are or may become regulated as hazardous
substances. We have not incurred, and do not expect to incur, any significant
expenditures or liabilities for environmental matters. As a result, we believe
that our environmental obligations will not have a material adverse effect on
our financial condition or results of operations.
LEGAL PROCEEDINGS
On August 7, 1996, a class action complaint naming us and certain of our
independent contractors was filed in the Superior Court of the State of
California for the County of Los Angeles, titled as Brenda Figueroa et al. v.
Guess ?, Inc. et al. The plaintiffs asserted claims for violation of state wage
and hour laws, wrongful discharge, and breach of contract arising out of our
relationship with our independent contractors and actions taken by them with
respect to their employees. The plaintiffs also alleged that we breached our
agreement with the United States Department of Labor regarding the monitoring of
our independent contractors. The court has held two hearings on certifying the
alleged class. The parties have agreed to settle the case. On March 1, 2000, the
court gave final approval to the parties' settlement. If no class member appeals
within 60 days thereafter, the case will be finally resolved.
On July 7, 1998, the Union of Needletrades Industrial and Textile Employees
("UNITE") filed with the National Labor Relations Board ("NLRB") charges against
us alleging that we violated the National Labor Relations Act by failing to
uphold certain obligations under a prior settlement agreement with
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the NLRB, by denying pro-union employees access to our facilities, by conferring
new benefits to employees, by making false accusations against UNITE, by
conducting video surveillance of UNITE's offices, and by assisting and
organizing an anti-union demonstration. These allegations were dismissed by the
NLRB. UNITE appealed, and, on October 15, 1999, the NLRB dismissed the appeal.
On February 24, 1998, we and Maurice Marciano, Paul Marciano and Armand
Marciano, as individuals, were named as defendants in a class action entitled
John N. Robinson v. Guess ?, Inc., Maurice Marciano, Paul Marciano and Armand
Marciano filed in the Los Angeles Superior Court. The complaint, as amended,
purported to state claims under Sections 11, 12(a)(2) and 15 of the Securities
Act of 1933 for alleged misrepresentations in connection with our initial public
offering in August 1996. Mr. Robinson purported to represent a class of all
purchasers of our stock in the initial public offering and sought unspecified
damages. On January 10, 2000, the complaint was dismissed in its entirety.
However, Mr. Robinson has the right to appeal the dismissal.
On October 26, 1998, Maurice Marciano, Paul Marciano and Armand Marciano, as
individuals, as well as us, were named as defendants in a stockholder's
derivative complaint entitled John N. Robinson v. Maurice Marciano, Paul
Marciano and Armand Marciano and Guess ?, Inc. filed in the Los Angeles Superior
Court. The complaint purports to state a claim for intentional breach of
fiduciary duty, negligent breach of fiduciary duty, constructive fraud and abuse
of control in connection with the Marcianos' management of us since our initial
public offering. On July 26, 1999, the court entered an order that allows the
case to proceed past the pleadings stage. While it is too soon to predict the
outcome of the case with any certainty, the defendants believe they have
meritorious defenses to each of the claims asserted and intend to vigorously
defend themselves.
On approximately January 15, 1999, UNITE filed an unfair labor pratice charge
against us, alleging that attorney Dennis Hershewe violated Section 8(a)(1) of
the National Labor Relations Act ("the Act") by questioning our employee Maria
Perez about her union activities at the deposition he conducted in her workers'
compensation case. Mr. Hershewe represents Fireman's Fund Insurance Company, our
workers' compensation insurance carrier. GUESS?, through this firm, investigated
the charge and responded to it on March 10, 1999. The NLRB issued a complaint on
part of the charge on October 14, 1999, and we filed an answer on October 21,
1999. The hearing in this matter is set for May 1, 2000.
On May 21, 1999, we filed a demand for arbitration against Pour le Bebe, Inc.
and Pour la Maison, Inc. (collectively, "PLB") seeking damages and injunctive
relief in connection with four written license agreements between the parties.
We alleged that PLB defaulted under the license agreements, that the license
agreements properly were terminated and that PLB breached the license
agreements. On July 19, 1999, PLB filed a counterdemand for arbitration against
us. PLB sought damages and injunctive relief against us alleging breach of
contract, violation of the California Franchise Relations Act, interference with
prospective economic advantage, unlawful business practices, statutory unfair
competition and fraud. The arbitration was conducted before the American
Arbitration Association pursuant to arbitration clauses in the license
agreements.
On March 3, 2000, the arbitrators issued an interim award in our favor and
rejected each of PLB's counterclaims. The amount of the interim award was in
excess of $6 million. As the prevailing party, we are entitled to, and we have
applied for, an award of our attorneys' fees, costs, and expenses. Because of
the uncertainty of the ultimate realization of the award, no recognition has
been given to it in our consolidated financial statements. We are informed that
PLB may be attempting to raise before the California Department of Corporations
and the Federal Trade Commission the same franchise issues rejected by the
arbitrators in the interim award.
On June 9, 1999, we commenced a lawsuit in the Los Angeles County Superior Court
against Kyle Kirkland, Kirkland Messina LLC, and CKM Securities (collectively
"Kirkland") for tortious interference, unfair competition, fraud and related
claims. This action arises out of alleged
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misrepresentations and omissions of material fact made by Kirkland in connection
with the operations and financial performance of PLB. On March 29, 2000, the
California Court of Appeal determined that the action will proceed in court. No
trial date has been set.
On March 28, 2000 a complaint was filed against us in San Diego County Superior
Court entitled Snodgrass v. Guess?, Inc. and GUESS? Retail, Inc. The complaint
purports to be a class action filed on behalf of current and former store
management employees in California. Plaintiffs seek overtime wages and a
preliminary and permament injunction. No trial or hearing has been set.
We cannot predict the outcome of these matters. We believe the outcome of one or
more of the above cases could have a material adverse effect on our results of
operations or financial condition.
Most major corporations, particularly those operating retail businesses, become
involved from time to time in a variety of employment-related claims and other
matters incidental to their business in addition to those described above. In
the opinion of our management, the resolution of any of these pending incidental
matters is not expected to have a material adverse effect on our results of
operations or financial condition.
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MANAGEMENT
The following table sets forth certain information concerning our executive
officers, directors and other key employees as of March 31, 2000:
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- -------------------- ---------------------------------------------------
<S> <C> <C>
EXECUTIVE OFFICERS AND
DIRECTORS:
Maurice Marciano(1)....... 51 Director, Co-Chairman of the Board and Co-Chief
Executive Officer
Paul Marciano(2).......... 48 Director, Co-Chairman of the Board, Co-Chief
Executive Officer and President and Chief Operating
Officer
Armand Marciano(3)........ 55 Director, Senior Executive Vice President and
Assistant Secretary
Nancy Shachtman........... 43 President of Wholesale
Brian Fleming............. 56 Executive Vice President and Chief Financial
Officer
Robert Davis(2)(4)(5)..... 52 Director
Alice Kane(3)(4)(5)....... 52 Director
Howard Socol(1)(4)(5)..... 54 Director
Bryan Isaacs(1)(4)(5)..... 61 Director
OTHER KEY EMPLOYEES:
Larry Burak............... 50 Senior Vice President of Manufacturing
Dan Sawall................ 45 Vice President and General Merchandise Manager
Vincent Dell'Osa.......... 37 Vice President of Stores
Brian Dwan................ 41 Vice President of Real Estate
Bryan Timm................ 33 Vice President and Chief Information Officer
Andrew Romeo.............. 40 Vice President of Training and Development
Robert Higgins............ 39 Vice President of Retail Development and
Merchandising
Mark Kinney............... 43 Vice President of Finance and Treasurer
</TABLE>
- ---------------------
(1) Member of Class III of the directors whose terms expire at our 2002 annual
meeting of stockholders.
(2) Member of Class II of the directors whose terms expire at our 2001 annual
meeting of stockholders.
(3) Member of Class I of the directors whose terms expire at our 2000 annual
meeting of stockholders.
(4) Member of our Audit Committee.
(5) Member of our Compensation Committee.
Pursuant to the Stockholders' Agreement described herein under "Certain
Relationships and Related Transactions," the Principal Stockholders have agreed
to vote their shares of our common stock to elect each of Maurice, Paul and
Armand Marciano, or one designee of any such person (if such designee shall be
reasonably acceptable to the other Principal Stockholders), to the Board of
Directors.
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MAURICE MARCIANO founded GUESS? in 1981 and has served as Co-Chairman of the
Board and Co-Chief Executive Officer since November 15, 1999. Mr. Marciano
served as Chairman of the Board and Chief Executive Officer from August 1993 to
November 15, 1999. Mr. Marciano served as President from June 1990 to September
1992 and as Executive Vice President from 1981 until June 1990. Mr. Marciano's
direct supervisory responsibilities include overseeing the design, sales and
merchandising, manufacturing and finance departments. Additionally,
Mr. Marciano, along with Paul Marciano, is responsible for our corporate
marketing. From February 1993 to May 1993, Mr. Marciano was Chairman, Chief
Executive Officer and Director of Pepe Clothing USA, Inc. Mr. Marciano has
served as a director of GUESS? since 1981 (except for the period from January
1993 to May 1993).
PAUL MARCIANO joined GUESS? in 1981 and has served as creative director for our
worldwide advertising since joining GUESS?. Mr. Marciano has served as President
since September 1992 and has served as Co-Chairman and Co-Chief Executive
Officer since November 15, 1999. Mr. Marciano's responsibilities include direct
supervisory responsibility for the Company's global advertising and image
campaigns, retail store licensing, legal and management information systems
departments and our international expansion intiatives. Additionally,
Mr. Marciano, along with Maurice Marciano, is responsible for our corporate
marketing. Mr. Marciano served as Senior Executive Vice President from August
1990 to September 1992. Mr. Marciano has served as a director of GUESS? since
1990.
ARMAND MARCIANO joined GUESS? in 1981 and has served as Senior Executive Vice
President since November 1992. Mr. Marciano has direct supervisory
responsibility for our domestic outlet stores. In addition, Mr. Marciano is
responsible for distribution, real estate and construction, customer service and
European exports. Mr. Marciano served as Secretary from 1983 to August 1997, as
Executive Vice President from July 1988 to 1992, and as Assistant Secretary
since August 1997. Mr. Marciano has served as a director of GUESS? since 1983.
NANCY SHACHTMAN joined GUESS? in October 1986 and has served as President of
Wholesale since November 1998. From January 1998 through November 1998,
Ms. Shachtman served as President of Sales. From October 1986 through January
1998, Ms. Shachtman served in various sales and merchandising positions
including Vice President of Sales and Marketing.
BRIAN FLEMING joined GUESS? in July 1998 and has served as Executive Vice
President and Chief Financial Officer since July 1998. From 1994 to July 1998,
Mr. Fleming served as Executive Vice President and Chief Financial Officer of
The Santa Anita Companies, which included a self-administered real-estate trust
that owned the Santa Anita Racetrack, interests in major regional shopping
centers and other real-estate investments. From 1973 to 1994, Mr. Fleming held
finance and accounting positions of increasing responsibility with Carter Hawley
Hale Stores, Inc., a full-line department store company. Mr. Fleming began his
career in 1968 with Price Waterhouse & Co.
ROBERT DAVIS has served as a director of GUESS? since May 1997. Mr. Davis is the
former President and Chief Operating Officer of St. John. Following his
resignation in April 1996, Mr. Davis has remained active at St. John and is
currently a consultant to its Chairman and Founder, Bob Gray. Mr. Davis, a
director of St. John since 1984, became President of St. John in 1992 and served
as Chief Operating Officer and Secretary from 1988 to 1996. From 1980 to 1988,
Mr. Davis held various other administrative positions at St. John ending with
Vice President--Operations. Prior to that, Mr. Davis was a partner in a Chicago
area law firm, where he advised on corporate, labor and litigation matters from
1973 to 1980.
ALICE T. KANE has served as a director of GUESS? since June 1998. Ms. Kane is
the President of American General Fund Group and Chairman of VALIC Group Annuity
Funds with over $18 billion in assets under management. Ms. Kane joined American
General Corporation as Executive Vice President of their investments advisory
subsidiary, American General Investment Management L.P., in June 1998. American
General Corporation is one of the nation's largest diversified financial
organizations with
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assets of approximately $98 billion. Prior to joining American General
Corporation on June 1, 1998, Ms. Kane served her entire financial services
industry career at New York Life Insurance Company where she joined the company
in 1972. Up until her departure from New York Life, she was Executive Vice
President and Chief Marketing Officer after serving as Executive Vice President
with responsibility for managing the company's asset management division from
1994 to 1997. Ms. Kane was also Chairman of New York Life's MainStay Mutual
Funds, and served as General Counsel of New York Life from 1986 to 1995.
HOWARD SOCOL has served as a director of GUESS? since September 1999. Mr. Socol
is the former Chief Executive Officer of J. Crew Group Inc. Following his
resignation from J. Crew Group Inc., Mr. Socol established Socol Consulting
Group, a consulting firm that provides retail and Internet consulting services.
Mr. Socol spent the majority of his career rising through the ranks of Burdines
Department Stores, a division of Federated Department Stores, to become
Burdines' Chairman and Chief Executive Officer. Mr. Socol served as Chairman and
Chief Executive Officer of Burdines from 1984 to 1997. Mr. Socol joined Burdines
in 1969 as an assistant buyer and held various positions over a twelve-year
period, resulting in his appointment as the youngest division president in
Federated's history.
BRYAN ISAACS has served as a director of GUESS? since January 2000. Mr. Isaacs
has spent the majority of his career with KPMG LLP, an international accounting,
tax and consulting firm. Mr. Isaacs was admitted to the KPMG partnership in 1972
and, until his retirement in June 1999, led the expansion of KPMG's
international corporate services practice in the firm's Western Region.
Mr. Isaacs also served on a number of KPMG's global tax committees and, from
1996 to 1999, chaired the firm's global information, communication and
entertainment tax committee.
LARRY BURAK joined GUESS? in August 1997 and has served as Senior Vice President
of Manufacturing since August 1997. Mr. Burak's direct surpervisory
responsiblilities include all of Production, Pre-production, and Quality
Assurance. Mr. Burak has 30 years experience with apparel global sourcing. This
experience includes ten years with a major children's manufacturing company and
six years with Liz Claiborne as Corporate Vice President for Global Sourcing.
DAN SAWALL joined GUESS? in April 1998 and has served as the Vice-President,
General Merchandise Manager of GUESS? Retail Stores since April 1998. Prior to
joining GUESS? Mr. Sawall served in various capacities at Dillard's, including
Divisional Merchandise Manager of Mens Sportswear from 1983 to 1998 and
Corporate DM Sponsor of Mens Designs and Contemporary Collections from April
1994 to April 1998. While at Dillard's, Mr. Sawall was also a store manager from
February 1989 to April 1993 and a Buyer from November 1983 to April 1998. Prior
to his experience at Dillard's, Mr. Sawall held positions with Federated
Department Stores in Milwaukee, Wisconsin, as Executive Trainee and Buyer of
Mens Better Sportswear & Designer Collections from June 1979 to November 1983.
VINCENT DELL'OSA joined GUESS? in April 1996 and has served as Vice
President/Director of Stores of the Retail, Factory and Kids divisions since
December 1999. Mr. Dell'Osa's responsibilities also include helping to oversee
GUESS? Canada. During his tenure with GUESS?, Mr. Dell'Osa has also held
positions as Director of Stores and Regional Director of Stores. From 1974 to
1995, Mr. Dell'Osa held several management positions at Merry-Go-Round,
including Vice President/Director of Stores at Cignal, an upscale unisex
division of Merry-Go-Round Enterprises.
BRIAN DWAN joined GUESS? in November 1999 and has served as Vice President of
Real Estate since November 1999. From March of 1998 to October 1999, Mr. Dwan
served as Vice President of Real Estate & Construction for Relax The Back. Prior
to joining GUESS?, Mr. Dwan was Director of Real Estate and Store Construction
of the U.S., Canada and South America with Swatch, the U.S. division of the
$3 billion Swiss watch manufacturer and retailer. Prior to joining Swatch,
Mr. Dwan was responsible for real estate, construction and development of the
new store design at The Body Shop
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<PAGE>
USA for eight years. Mr. Dwan started in the retail industry approximately
twenty years ago with the British retailer Laura Ashley.
BRYAN TIMM joined GUESS? in January 1995 and has served as Chief Information
Officer since March 1999. From January 1995 to March 1999, Mr. Timm served in
various information systems positions, including Director of Applications. From
July 1989 to January 1995, Mr. Timm held positions as a consultant and manager
with Kurt Salmon Associates, where he specialized in Logistics and Operations
improvement.
ANDREW ROMEO joined GUESS? in 1997 and has served as Vice President of Training
Operations. Mr. Romeo is responsible for developing our training programs,
performance incentive programs and succession planning for management
development. Mr. Romeo has worked in the retail industry since 1982. Prior to
joining us, he has held positions in Operations, Marketing and Total Quality
Management at Saks Fifth Avenue, Macy's and Brooks Brothers, Inc.
ROBERT HIGGINS joined GUESS? in April 1999 and has served as Vice President of
Retail Development and Merchandising since April 1999. Mr. Higgins is
responsible for the Retail Development department which he helped to create.
Retail Development includes all aspects of Design, Construction and
Merchandising for Retail, Factory and Wholesale. From 1996 to March 1999,
Mr. Higgins served as Vice President of Retail Development at Tommy Hilfiger
USA. From 1985 to 1996, Mr. Higgins held store management and merchandising
positions of increasing responsibility with Brooks Brothers, Inc. At the time of
his departure from Brooks Brothers, Inc., Mr. Higgins was Vice President of
Visual Merchandising and Sales Management.
MARK KINNEY joined GUESS? in May 1999 and has served as Vice President of
Finance and Treasurer since May 1999. From 1993 to 1999, Mr. Kinney was
Executive Director of Finance for The Walt Disney Company and was responsible
for overseeing the corporate finance and accounting operations for its
International Division. Prior to joining the Walt Disney Company, Mr. Kinney was
the Controller and National Finance Manager for Isuzu Truck of America.
Mr. Kinney has over 17 years of experience in finance, accounting and
international business.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information, as of March 31, 2000, with
respect to the beneficial ownership of our common stock held by:
- each person who is known by us to own more than five percent of our common
stock,
- each named executive officer,
- each director who beneficially owns shares of our common stock, and
- all of our executive officers and directors as a group.
Beneficial ownership is determined in accordance with the rules and regulations
of the Securities and Exchange Commission. Shares subject to options that are
exercisable currently or within 60 days following March 31, 2000 are deemed to
be outstanding and beneficially owned by the optionee for the purpose of
computing share and percentage ownership of that optionee. They are not deemed
to be outstanding for the purpose of computing percentage ownership of any other
person. Except as indicated in the footnotes of this table and subject to the
Amended and Restated Stockholders' Agreement, dated as of August 7, 1996, and as
affected by applicable community property laws and similar laws, all persons
listed have sole voting and dispositive power for all shares shown as
beneficially owned by them.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NUMBER OF SHARES OF SHARES
OF SHARES BENEFICIALLY BENEFICIALLY
BENEFICIALLY OWNED OWNED OWNED
BEFORE THE BEFORE THE AFTER THE
EXECUTIVE OFFICERS AND DIRECTORS(1) OFFERING OFFERING OFFERING
- ----------------------------------- ------------------ ------------ ------------
<S> <C> <C> <C>
Maurice Marciano(2)....................... 16,318,281 37.6% 34.1%
Paul Marciano(3).......................... 12,924,981 29.8% 27.0%
Armand Marciano(4)........................ 6,303,557 14.3% 13.2%
Robert Davis(5)........................... 36,697 * *
Alice Kane(6)............................. 28,106 * *
Howard Socol(7)........................... 3,602 * *
Bryan Isaacs(8)........................... 2,074 * *
Nancy Shachtman(9)........................ 142,017 * *
Brian Fleming(10)......................... 60,000 * *
All executive officers and directors
as a group (9 persons)(11).............. 35,819,315 82.5% 74.8%
</TABLE>
- ---------------------------
* Less than 1.0%
(1) The address of the beneficial owner is c/o Guess ?, Inc., 1444 South
Alameda Street, Los Angeles, California 90021.
(2) Includes shares of our common stock beneficially owned by Maurice Marciano
as follows: 15,466,395 shares as trustee of the Maurice Marciano Trust
(1995 Restatement), 90,000 shares as president of the Maurice Marciano
Family Foundation and 30,000 shares as trustee of the Maurice Marciano 1990
Children's Trust with respect to which he has sole voting and dispositive
power; and 462,351 shares as co-trustee of the Paul Marciano 1996 Grantor
Retained Annuity Trust and 269,535 shares as co-trustee of the Armand
Marciano 1996 Grantor Retained Annuity Trust with respect to which he
shares voting and dispositive power.
(3) Includes shares of our common stock beneficially owned by Paul Marciano as
follows: 12,287,947 shares as sole trustee of the Paul Marciano Trust dated
February 20, 1986 with respect to which he has sole voting and dispositive
power; and 637,034 shares as co-trustee of the Maurice Marciano 1996
Grantor Retained Annuity Trust with respect to which he shares voting and
dispositive power.
(4) Includes shares of our common stock beneficially owned by Armand Marciano
as follows: 6,298,557 shares as sole trustee of the Armand Marciano Trust
dated February 20, 1986, 1,000 shares held indirectly as sole trustee of
the Armand Marciano Gift Trust-Anastasia, 1,000 shares held indirectly as
sole trustee of the Armand Marciano Gift Trust-Francisca, 1,000 shares
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<PAGE>
held indirectly as sole trustee of the Armand Marciano Gift Trust-Harrison,
1,000 shares held indirectly as sole trustee of the Armand Marciano Gift
Trust-Dominique, and 1,000 shares held indirectly as sole trustee of the
Armand Marciano Gift Trust-Julien with respect to which he has sole voting
and dispositive power.
(5) Includes 32,197 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000, pursuant
to our Amended and Restated 1996 Non-Employee Directors' Stock Option Plan.
(6) Includes 23,606 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000, pursuant
to our Amended and Restated 1996 Non-Employee Directors' Stock Option Plan.
(7) Includes 602 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000, pursuant
to our Amended and Restated 1996 Non-Employee Directors' Stock Option Plan.
(8) Includes 574 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000, pursuant
to our Amended and Restated 1996 Non-Employee Directors' Stock Option Plan.
(9) Includes 141,667 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000, pursuant
to our 1996 Equity Incentive Plan.
(10) Includes 50,000 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000, pursuant
to our 1996 Equity Incentive Plan.
(11) Includes 248,626 shares of our common stock that may be acquired upon the
exercise of options exercisable within 60 days of March 31, 2000.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
We are engaged in various transactions with entities affiliated with trusts for
the respective benefit of Maurice, Paul and Armand Marciano (the "Marciano
Trusts"). We believe that the arrangements involving each of the companies in
which these trusts have an investment, and related party transactions discussed
below, were entered into on terms no less favorable to us than could have been
obtained from an unaffiliated third party. Further, we will continue to abide by
the New York Stock Exchange's rules with respect to any future related party
transactions between us and our officers, directors or principal stockholders.
AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT
Upon consummation of our initial public offering of common stock, we and the
Marciano Trusts entered into an Amended and Restated Stockholders' Agreement.
Pursuant to this agreement, the Marcianos have agreed to vote their shares of
common stock to elect each of them, or one designee of any of them (if the
designee is reasonably acceptable to the other Marcianos) to our board of
directors. This agreement provides that, with limited exceptions, each of the
Marcianos has granted to each other and to us rights of first refusal with
respect to the sale of any shares of our common stock held by each of them.
LICENSE AGREEMENTS AND LICENSEE TRANSACTIONS
On September 28, 1990, we entered into a license agreement with Charles David of
California. Charles David of California is controlled by the father-in-law of
Maurice Marciano. The Marciano Trusts and Nathalie Marciano (the spouse of
Maurice Marciano) together own 50% of Charles David, and the remaining 50% is
owned by the father-in-law of Maurice Marciano. The license agreement grants
Charles David the rights to manufacture worldwide and distribute worldwide
(except Japan and certain European countries) for men, women and some children,
leather and rubber footwear which bear the GUESS? trademark. The license also
includes related shoe care products and accessories. Gross royalties earned by
us under this license agreement for the fiscal years ended December 31, 1997,
1998 and 1999 were $1.2 million, $1.4 million and $1.9 million, respectively.
Additionally, we purchased $6.1 million, $6.1 million and $8.4 million of
products from Charles David for resale in our retail stores during the same
periods.
LEASES
We lease manufacturing, warehouse and administrative facilities from
partnerships affiliated with the Marciano Trusts and certain of its affiliates.
There are two leases in effect at December 31, 1999, both of which expire in
July 2008. The total lease payments to these limited partnerships are currently
$225,000 per month. Aggregate lease payments under leases in effect for the
fiscal years ended December 31, 1997, 1998 and 1999 were $2.6 million,
$2.7 million, and $2.7 million, respectively.
REGISTRATION RIGHTS AGREEMENT
Pursuant to a Registration Rights Agreement, the Marciano Trusts have the right
to require us to register shares of their common stock under the Securities Act
of 1933 until either (i) a registration statement covering the shares of common
stock has been declared effective and the shares of common stock have been
disposed of pursuant to an effective registration statement or (ii) the shares
of common stock are sold or distributed pursuant to Rule 144 under the
Securities Act. The Marciano Trusts have the right to have their shares included
in registration statements relating to some offerings of our common stock,
including the offering pursuant to this prospectus. In the event of any
registration by us, the agreement contains customary provisions relating to
holdback and indemnification arrangements. The agreement also provides that we
will bear the cost of all expenses,
50
<PAGE>
excluding underwriters' discounts and commissions, incurred in connection with
each registration under this agreement.
The Marciano Trusts have agreed to waive their rights to require the
registration of any of their shares of common stock in connection with our
offering of shares pursuant to this prospectus.
DESCRIPTION OF CAPITAL STOCK
Our authorized capital stock consists of 150,000,000 shares of common stock, par
value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01
per share.
COMMON STOCK
Holders of common stock are entitled to one vote for each share held on all
matters submitted to a vote of the stockholders, including the election of
directors. Our Restated Certificate of Incorporation does not provide for
cumulative voting in the election of directors. Accordingly, holders of a
majority of the shares of common stock entitled to vote in any election of
directors may elect all of the directors standing for election. Subject to
preferences that may be applicable to any preferred stock outstanding at the
time, holders of common stock are entitled to receive ratably such dividends, if
any, as may be declared from time to time by our board of directors out of
legally available funds. In the event of a liquidation, dissolution or winding
up of GUESS?, holders of common stock are entitled to share ratably in all
assets remaining after payment of our liabilities and the liquidation
preference, if any, of any outstanding shares of preferred stock. Holders of
common stock have no preemptive rights and no rights to convert their common
stock into any other securities and there are no redemption provisions with
respect to such shares. All of the outstanding shares of common stock are fully
paid and non-assessable. The rights, preferences and privileges of holders of
common stock are subject to, and may be adversely affected by, the rights of the
holders of shares of any series of preferred stock which we may designate and
issue in the future.
Certain stockholders have the right in certain circumstances to require us to
register shares of common stock under the Securities Act of 1933. See "Certain
Relationships and Related Transactions--Registration Rights Agreement".
Our common stock currently trades on the New York Stock Exchange under the
symbol "GES."
The transfer agent and registrar for our common stock is Fleet National Bank.
PREFERRED STOCK
Our Restated Certificate of Incorporation provides that our board of directors,
without further action by the stockholders, may issue shares of the preferred
stock in one or more series and may fix or alter the relative, participating,
optional or other rights, preferences, privileges and restrictions, including
the voting rights, redemption provisions (including sinking fund provisions),
dividend rights, dividend rates, liquidation preferences and conversion rights,
and the description of and number of shares constituting any wholly unissued
series of preferred stock. The board of directors, without further stockholder
approval, can issue preferred stock with voting and conversion rights which
could adversely affect the voting power of the holders of common stock. No
shares of preferred stock presently are outstanding, and we currently have no
plans to issue shares of preferred stock. The issuance of preferred stock in
certain circumstances may have the effect of delaying or preventing a change of
control of us without further action by the stockholders, may discourage bids
for our common stock at a premium over the market price of the common stock and
may adversely affect the market price and the voting and other rights of the
holders of common stock.
51
<PAGE>
UNDERWRITING
GUESS? has entered into an underwriting agreement with the underwriters named
below. CIBC World Markets Corp., PaineWebber Incorporated, Chase Securities
Inc., Tucker Anthony Incorporated and Ferris, Baker Watts Incorporated are
acting as representatives of the underwriters.
The underwriting agreement provides for the purchase of a specific number of
shares of common stock by each of the underwriters. The underwriters'
obligations are several, which means that each underwriter is required to
purchase a specified number of shares, but is not responsible for the commitment
of any other underwriter to purchase shares. Subject to the terms and conditions
of the underwriting agreement, each underwriter has severally agreed to purchase
the number of shares of common stock set forth opposite its name below:
<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
- ------------ ----------------
<S> <C>
CIBC World Markets Corp.....................................
PaineWebber Incorporated....................................
Chase Securities Inc........................................
Tucker Anthony Incorporated.................................
Ferris, Baker Watts Incorporated............................
---------
Total................................................... 4,500,000
=========
</TABLE>
The underwriters have agreed to purchase all of the shares offered by this
prospectus (other than those covered by the over-allotment option described
below), if any are purchased. Under the underwriting agreement, if an
underwriter defaults in its commitment to purchase shares, the commitments of
non-defaulting underwriters may be increased or the underwriting agreement may
be terminated, depending on the circumstances.
The shares should be ready for delivery on or about , 2000 against payment
in immediately available funds. The representatives have advised GUESS? that the
underwriters propose to offer the shares directly to the public at the public
offering price that appears on the cover page of this prospectus. In addition,
the representatives may offer some of the shares to other securities dealers at
such price less a concession of $ per share. The underwriters may also
allow, and such dealers may reallow, a concession not in excess of $ per
share to other dealers. After the shares are released for sale to the public,
the representatives may change the offering price and other selling terms at
various times.
GUESS? has granted the underwriters an over-allotment option. This option, which
is exercisable for up to 30 days after the date of this prospectus, permits the
underwriters to purchase a maximum of 675,000 additional shares from GUESS? to
cover over-allotments. If the underwriters exercise all or part of this option,
they will purchase shares covered by the option at the initial public offering
price that appears on the cover page of this prospectus, less the underwriting
discount. If this option is exercised in full, the total price to public will be
$ , and the total proceeds to GUESS? will be $ . The underwriters have
severally agreed that, to the extent the over-allotment option is exercised,
they will each purchase a number of additional shares proportionate to the
underwriter's initial amount reflected in the foregoing table.
52
<PAGE>
The following table provides information regarding the amount of the discount to
be paid to the underwriters by GUESS?
<TABLE>
<CAPTION>
TOTAL WITHOUT EXERCISE OF TOTAL WITH FULL EXERCISE
PER SHARE OVER-ALLOTMENT OPTION OF OVER-ALLOTMENT OPTION
--------- ------------------------- ------------------------
<S> <C> <C> <C>
GUESS?................................ $ $ $
------- ------------------ ------------------
</TABLE>
GUESS? estimates the total expenses of the offering, excluding the underwriting
discount, will be approximately $ .
GUESS? has agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933.
GUESS? currently intends to use more than ten percent of the net proceeds of the
sale of shares to repay indebtedness it owes to The Chase Manhattan Bank, an
affiliate of one of the underwriters. Therefore, the offering is being made in
compliance with the requirements of Rule 2710(c)(8) of the National Association
of Securities Dealers, Inc. Conduct Rules. Under this rule, if more than ten
percent of the net proceeds from the sale of shares, not including underwriting
compensation, is paid to the underwriters or their affiliates, the initial
public offering price of the stock can be no higher than is recommended by a
"qualified independent underwriter." In accordance with this requirement, CIBC
World Markets Corp., PaineWebber Incorporated, Tucker Anthony Incorporated and
Ferris, Baker Watts Incorporated are assuming the responsibilities of acting as
the qualified independent underwriters in pricing the offering and conducting
due diligence. The price of the shares will be no higher than the price
recommended by CIBC World Markets Corp., PaineWebber Incorporated, Tucker
Anthony Incorporated and Ferris, Baker Watts Incorporated.
Rules of the Securities Exchange Commission may limit the ability of the
underwriters to bid for or purchase shares before the distribution of the shares
is completed. However, the underwriters may engage in the following activities
in accordance with the rules:
- Stabilizing transactions--The representatives may make bids or purchases for
the purpose of pegging, fixing or maintaining the price of the shares, so
long as stabilizing bids do not exceed a specified maximum.
- Over-allotments and syndicate covering transactions--The underwriters may
create a short position in the shares that are set forth on the cover page
of this prospectus. If a short position is created in connection with the
offering, the representatives may engage in syndicate covering transactions
by purchasing shares in the open market. The representatives may also elect
to reduce any short position by exercising all or part of the over-allotment
option.
- Penalty bids--If the representatives purchase shares in the open market in a
stabilizing transaction or syndicate covering transaction, they may reclaim
a selling concession from the underwriters and selling group members who
sold those shares as part of the offering.
Stabilization and syndicate covering transactions may cause the price of the
shares to be higher than it would be in the absence of such transactions. The
imposition of a penalty bid might also have an effect on the price of the shares
if it discourages resales of the shares.
Neither GUESS?, nor the underwriters, makes any representation or prediction as
to the effect that the transactions described above may have on the price of
shares. These transactions may occur on the New York Stock Exchange or
otherwise. If such transactions are commenced, they may be discontinued without
notice at any time.
GUESS?, its officers and directors and some other stockholders have agreed to a
90-day "lock up" with respect to shares of common stock that they
beneficially own, including securities that are convertible into shares of
common stock and securities that are exchangeable or exercisable for shares of
common stock. This means that, for a period of 90 days following the date of
this prospectus, GUESS? and such persons may not offer, sell, pledge or
otherwise dispose of these GUESS? securities without the prior written consent
of CIBC World Markets Corp.
53
<PAGE>
LEGAL MATTERS
Certain legal matters relating to the validity of the securities offered hereby
will be passed upon for us by Skadden, Arps, Slate, Meagher & Flom LLP, Los
Angeles, California. Skadden, Arps, Slate, Meagher & Flom LLP has represented
and may continue to represent some of the underwriters on unrelated matters from
time to time. The underwriters have been represented by Gibson, Dunn & Crutcher
LLP, Los Angeles, California.
EXPERTS
The consolidated financial statements and schedule of Guess ?, Inc. as of
December 31, 1999 and 1998, and for each of the years in the three-year period
ended December 31, 1999, have been included in the prospectus and elsewhere in
the registration statement in reliance upon the report of KPMG LLP, independent
certified public accountants, appearing elsewhere in the registration statement,
and upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
We file annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document we file at the
SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the SEC located in New York, New York and
Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information
on the public reference room. Our SEC filings are also available to the public
from commercial document retrieval services and from the SEC's web site at
http://www.sec.gov.
We have filed a registration statement to register with the SEC the common stock
offered by this prospectus. This prospectus is part of that registration
statement. As allowed by SEC rules, this prospectus does not contain all of the
information you can find in the registration statement and its exhibits. The SEC
allows us to "incorporate by reference" into this prospectus the information we
file with them, which means that we can disclose important information to you by
referring you to those documents. The information incorporated by reference is
considered to be part of this prospectus, and later information filed with the
SEC will update and supersede this information. Statements in this prospectus as
to the contents of any contract or other document are not necessarily complete,
and in each instance we refer you to the full text of such contract or document
filed as an exhibit to the registration statement, each such statement being
qualified in all respects by this reference. We incorporate by reference the
documents listed below.
(1) Our Annual Report on Form 10-K for the year ended December 31, 1999; and
(2) All documents filed by us with the SEC under Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this
prospectus and before the termination of this offering.
You may request a copy of these filings, at no cost, by writing or telephoning
us at the following address:
Guess ?, Inc.
Attn: Corporate Secretary
1444 South Alameda Street
Los Angeles, California 90021
(213) 765-3100
54
<PAGE>
GUESS ?, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................ F-2
Consolidated Balance Sheets at December 31, 1998 and
1999................................................... F-3
Consolidated Statements of Earnings for the Years ended
December 31, 1997, 1998 and 1999....................... F-4
Consolidated Statements of Stockholders' Equity and
Comprehensive Income (Loss) for the Years ended
December 31, 1997, 1998 and 1999....................... F-5
Consolidated Statements of Cash Flows for the Years
ended December 31, 1997, 1998 and 1999................. F-6
Notes to Consolidated Financial Statements.............. F-7
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE--VALUATION AND
QUALIFYING ACCOUNTS......................................... F-22
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Guess ?, Inc.:
We have audited the accompanying consolidated financial statements of Guess
?, Inc. and Subsidiaries as listed in the accompanying index. In connection with
our audits of the consolidated financial statements, we also have audited the
consolidated financial statement schedule, as listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Guess ?,
Inc. and Subsidiaries at December 31, 1998 and 1999 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1999 in conformity with generally accepted accounting
principles. Also in our opinion, the related consolidated financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As discussed in Note 13, the Company changed its method of accounting for
its product display fixtures in 1997.
KPMG LLP
Los Angeles, California
February 10, 2000, except
for note 15, which is as of
March 3, 2000
F-2
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
ASSETS
1998 1999
--------- ---------
<S> <C> <C>
Current assets:
Cash...................................................... $ 5,853 $ 6,139
Investments (note 2)...................................... 11,900 27,059
Receivables:
Trade receivables, less reserves aggregating $7,837 and
$8,863 at December 31, 1998 and 1999, respectively.... 19,685 26,829
Royalties, less allowance for doubtful accounts of
$3,667 and $1,258 at December 31, 1998 and 1999,
respectively.......................................... 10,780 8,528
Other................................................... 3,673 4,316
--------- ---------
34,138 39,673
Inventories (note 3)...................................... 89,499 106,624
Prepaid expenses.......................................... 5,640 8,861
Prepaid income taxes...................................... 2,566 3,004
Deferred tax assets (note 6).............................. 6,496 9,619
--------- ---------
Total current assets.................................. 156,092 200,979
Property and equipment, at cost, net of accumulated
depreciation and amortization
(note 4).................................................. 86,453 125,688
Investments (note 2)........................................ 1,118 21,771
Deferred tax assets (note 6)................................ 4,110 --
Other assets, at cost, net of accumulated amortization of
$2,293 and $3,589 at December 31, 1998 and 1999,
respectively (note 14).................................... 15,999 20,598
--------- ---------
$ 263,772 $ 369,036
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and long-term debt
(note 5)................................................ $ -- $ 7,475
Accounts payable.......................................... 32,802 61,736
Accrued expenses.......................................... 21,980 33,824
--------- ---------
Total current liabilities............................. 54,782 103,035
Notes payable and long-term debt, excluding current
installments (note 5)..................................... 99,000 83,363
Deferred tax liabilities (note 6)........................... -- 4,562
Other liabilities........................................... 9,581 9,674
--------- ---------
163,363 200,634
Minority interest (note 7).................................. -- 1,047
Commitments and contingencies (notes 5 and 8)
Stockholders' equity (note 12):
Preferred stock, $0.01 par value. Authorized 10,000,000
shares; no shares issued and outstanding................ -- --
Common stock, $0.01 par value. Authorized 150,000,000
shares; issued 62,937,327 and 63,335,743 shares at 1998
and 1999, outstanding 42,906,535 and 43,304,951 shares,
respectively............................................ 137 141
Paid-in capital........................................... 158,589 163,300
Retained earnings......................................... 92,543 144,443
Accumulated other comprehensive income (loss)............. (84) 10,247
Treasury stock, 20,030,792 shares repurchased............. (150,776) (150,776)
--------- ---------
Net stockholders' equity................................ 100,409 167,355
--------- ---------
$ 263,772 $ 369,036
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenue (note 11)
Product sales............................................. $465,913 $435,128 $560,012
Net royalties............................................. 49,459 36,803 39,638
-------- -------- --------
515,372 471,931 599,650
Cost of sales............................................... 288,408 272,079 331,660
-------- -------- --------
Gross profit................................................ 226,964 199,852 267,990
Selling, general and administrative expenses................ 156,318 142,806 171,014
Severance costs related to distribution facility (notes 10
and 14)................................................... -- -- 3,200
-------- -------- --------
Earnings from operations.................................. 70,646 57,046 93,776
Other income/(expense):
Gain on disposition of property and equipment
(note 10)............................................... -- -- 3,849
Interest, net............................................. (13,718) (12,892) (9,385)
Other, net................................................ (2,041) (863) (1,140)
-------- -------- --------
(15,759) (13,755) (6,676)
Earnings before income taxes and cumulative effect of
change in accounting principle.......................... 54,887 43,291 87,100
Income taxes (note 6)....................................... 21,337 18,180 35,200
-------- -------- --------
Earnings before cumulative effect of change in accounting
principle............................................... 33,550 25,111 51,900
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707
(note 13)................................................. 3,961 -- --
-------- -------- --------
Net earnings.............................................. $ 37,511 $ 25,111 $ 51,900
======== ======== ========
Basic earnings per share:
Earnings before cumulative effect of change in accounting
principle................................................. $ 0.78 $ 0.59 $ 1.21
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707
(note 13)................................................. 0.09 -- --
-------- -------- --------
Net earnings.............................................. $ 0.87 $ 0.59 $ 1.21
======== ======== ========
Diluted earnings per share:
Earnings before cumulative effect of change in accounting
principle................................................. $ 0.78 $ 0.59 $ 1.20
Cumulative effect of change in accounting for product
display fixtures, net of income taxes of $2,707
(note 13)................................................. 0.09 -- --
-------- -------- --------
Net earnings.............................................. $ 0.87 $ 0.59 $ 1.20
======== ======== ========
Weighted number of shares outstanding--basic................ 42,898 42,904 43,005
======== ======== ========
Weighted number of shares outstanding--diluted.............. 42,902 42,919 43,366
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (LOSS)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE TREASURY
INCOME STOCK CAPITAL EARNINGS INCOME STOCK TOTAL
------------- -------- -------- -------- ------------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996.................... $ 135 $155,591 $ 29,921 $ 57 $(150,776) $ 34,928
Comprehensive income:
Net earnings............ $37,511 -- -- 37,511 -- -- 37,511
Foreign currency
translation
adjustment............ (109) -- -- -- (109) -- (109)
-------
Total comprehensive
income................ $37,402
=======
Issuance of common
stock................... 2 2,998 -- -- -- 3,000
-------- -------- -------- --------- --------- --------
Balance at December 31,
1997.................... 137 158,589 67,432 (52) (150,776) 75,330
Comprehensive income:
Net earnings............ $25,111 -- -- 25,111 -- -- 25,111
Foreign currency
translation
adjustment............ (32) -- -- -- (32) -- (32)
-------
Total comprehensive
income................ $25,079
======= -------- -------- -------- --------- --------- --------
Balance at December 31,
1998.................... 137 158,589 92,543 (84) (150,776) 100,409
Comprehensive income:
Net earnings............ $51,900 -- -- 51,900 -- -- 51,900
Foreign currency
translation
adjustment............ (114) -- -- -- (114) -- (114)
Unrealized gain on
investment, net of tax
effect of $7,632...... 10,445 -- -- -- 10,445 -- 10,445
-------
Total comprehensive
income................ $62,231
=======
Issuance of common stock
under stock option
plan.................... 4 4,711 -- -- -- 4,715
-------- -------- -------- --------- --------- --------
Balance at December 31,
1999.................... $ 141 $163,300 $144,443 $ 10,247 $(150,776) $167,355
======== ======== ======== ========= ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 37,511 $ 25,111 $ 51,900
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Depreciation and amortization of property and
equipment............................................. 20,071 22,571 25,589
Amortization of other assets............................ 369 931 1,296
Deferred income taxes................................... 1,783 (834) (2,150)
Amortization of deferred royalty income................. (2,623) -- --
Cumulative effect of change in accounting principle..... (3,961) -- --
Loss (gain) on disposition of property and equipment.... 120 1,483 (5,037)
Minority interest....................................... -- -- 1,047
Foreign currency translation adjustment................. 91 (89) (80)
Equity method losses.................................... 603 87 (98)
(Increase) decrease in:
Receivables........................................... 8,988 3,637 558
Inventories........................................... (12,591) 2,582 (9,155)
Prepaid expenses and other current assets............. (4,972) 3,553 (9,340)
Prepaid income taxes.................................. (14,511) 12,141 (2,849)
Other assets.......................................... 8,105 (324) 5,820
Increase (decrease) in:
Accounts payable...................................... (964) (5,520) 19,393
Accrued expenses...................................... (993) (241) 10,662
Income taxes payable.................................. (6,784) 112 (252)
--------- --------- --------
Net cash provided by operating activities........... 30,242 65,200 87,304
Cash flows from investing activities:
Net (purchases of) proceeds from the sale of short-term
investments............................................. 4,401 (11,900) (10,600)
Purchase of property and equipment........................ (48,836) (13,738) (63,501)
Proceeds from the disposition of property and equipment... 1,445 14 7,106
Lease incentives granted.................................. 2,561 432 1,544
Acquisition of interest in GUESS? Canada.................. (2,027)
--- ---
Acquisition of license.................................... (2,975) (741) (1,443)
Purchase of investment securities available for sale...... -- -- (8,979)
Proceeds of investment securities available for sales..... -- -- 4,868
Increase of long-term investments......................... (1,435) 842 (2,357)
--------- --------- --------
Net cash used by investing activities............... (44,839) (25,091) (75,389)
Cash flows from financing activities:
Repayment of senior subordinated notes.................... -- (6,000) (19,400)
Proceeds from notes payable and long-term debt............ 163,935 102,300 5,529
Repayment of notes payable and long-term debt............. (149,734) (138,817) (1,258)
Proceeds from issuance of common stock.................... -- -- 3,534
--------- --------- --------
Net cash provided (used) by financing activities.... 14,201 (42,517) (11,595)
Net increase (decrease) in cash............................. (596) (2,351) 286
Cash at beginning of year................................... 8,800 8,204 5,853
--------- --------- --------
Cash at end of year......................................... $ 8,204 $ 5,853 $ 6,139
========= ========= ========
Supplemental disclosures
Cash paid during the year for:
Interest.............................................. $ 15,185 $ 15,095 $ 10,358
Income taxes.......................................... $ 39,558 $ 3,704 $ 37,236
========= ========= ========
</TABLE>
On January 2, 1997, in connection with the acquisition of a license, the
Company issued 216,216 shares of Common Stock aggregating $3.0 million.
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Guess ?, Inc. (the "Company" or "GUESS?") designs, markets, distributes and
licenses leading lifestyle collections of casual apparel and accessories for
men, women and children that reflect the American lifestyle and European
fashions sensibilities. The Company's designs are sold in GUESS? owned stores,
to a network of wholesale accounts that include primarily better department
stores, selected specialty retailers and upscale boutiques and through the
Internet. GUESS? branded products, some of which are produced under license, are
also sold internationally through a series of licensees and distributors.
PRINCIPLES OF CONSOLIDATION. The consolidated financial statements include
the accounts of Guess ?, Inc. and its wholly-owned foreign subsidiary, Guess
Europe, B.V., a Netherlands corporation ("GEBV"), and its majority-owned
subsidiary GUESS? Canada Corporation, a Canadian corporation. GEBV holds two
wholly-owned subsidiaries: Ranche, Limited, a Hong Kong corporation ("Ranche"),
and Guess Italia, s.r.l., an Italian corporation ("GUESS? Italia"). The Company
holds a 60% interest in GUESS? Canada and the results of GUESS? Canada are
included in the consolidated Financial Statements. Accordingly, all references
herein to "GUESS?" include the consolidated results of the Company and its
subsidiaries. All intercompany accounts and transactions are eliminated during
the consolidation process.
INVESTMENT SECURITIES. The Company accounts for its investment securities
in accordance with Financial Accounting Standards Board ("FASB") Statement of
Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" ("SFAS 115"). SFAS 115 requires
investments to be classified into one of three categories based on management's
intent: held-to-maturity securities, available-for-sale securities and trading
securities. Held-to-maturity securities are recorded at amortized cost.
Available-for-sale securities are recorded at fair value with unrealized gains
and losses reported as a separate component of stockholders' equity. Trading
securities are recorded at market value with unrealized gains and losses
reported in operations. The Company accounts for its short-term investment
securities as available-for-sale.
EARNINGS PER SHARE. Basic earnings per share represents net earnings
divided by the weighted-average number of shares of common stock, par value
$0.01 per share (the "Common Stock"), outstanding for the period. Diluted
earnings per share represents net earnings divided by the weighted-average
number of shares outstanding, inclusive of the dilutive impact of Common Stock
equivalents.
The reconciliation of basic to diluted weighted average shares is as follows
(in thousands):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net earnings..................................... $37,511 $25,111 $51,900
======= ======= =======
Weighted average shares used in basic
computations................................... 42,898 42,904 43,005
Dilutive stock options........................... 4 15 361
------- ------- -------
Weighted average shares used in diluted
computation.................................... 42,902 42,919 43,366
======= ======= =======
</TABLE>
Options to purchase 1,421,000, 1,036,000 and 467,000 shares of Common Stock
at prices ranging from $10.50 to $18.00, $5.50 to $11.00 and $10.88 to $16.38
were outstanding during 1997, 1998 and 1999, respectively, but were not included
in the computation of diluted earnings per share because the options exercise
prices were greater than the average market price of the shares of Common Stock.
F-7
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
CONCENTRATION OF CREDIT RISK. The Company's financial instruments that are
exposed to concentrations of credit risk consist primarily of accounts
receivable. The Company maintains cash with various major financial institutions
and performs evaluations of the relative credit standing of these financial
institutions in order to limit the amount of credit exposure with any
institution. The Company extends credit to corporate customers based upon an
evaluation of the customer's financial condition and credit history and
generally requires no collateral. The Company's customers are principally
located throughout North America, and their ability to pay amounts due to the
Company may be dependent on the prevailing economic conditions of their
geographic region. However, such credit risk is considered limited due to the
Company's large customer base. Management performs regular evaluations
concerning the ability of its customers to satisfy their obligations and records
a provision for doubtful accounts based on these evaluations. The Company's
credit losses for the periods presented are insignificant and have not exceeded
management's estimates. A few of the Company's domestic wholesale customers,
including some under common ownership, have accounted for significant portions
of its net revenue. During 1999, Bloomingdale's, Macy's and other affiliated
stores owned by Federated Department Stores, Inc. together accounted for
approximately 12.4% of the Company's net revenue.
INVENTORIES. Inventories are stated at the lower of cost (first-in,
first-out and weighted average) or market.
REVENUE RECOGNITION. The Company recognizes retail operations revenue at
the point of sale, and wholesale operations revenue from the sale of merchandise
upon shipment. Royalty income is based upon a percentage, as defined in the
underlying agreement, of the licensees' net revenue. The Company accrues for
estimated sales returns and allowances in the period in which the related
revenue is recognized.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization of property
and equipment are provided using the straight-line and declining balance methods
over the following useful lives:
<TABLE>
<S> <C>
Building and building improvements.......................... 10 to 31 years
Land improvements........................................... 5 years
Machinery and equipment..................................... 3 to 5 years
Corporate aircraft.......................................... 10 years
Corporate vehicles.......................................... 3 years
Shop fixtures............................................... 5 years
</TABLE>
Leasehold improvements are amortized over the lesser of the estimated useful
life of the asset or the term of the lease. Construction in progress is not
depreciated until the related asset is completed.
Goodwill, which represents the excess of purchase price over fair value of
net assets acquired, is amortized on a straight-line basis over the expected
periods to be benefited, generally 10 to 15 years.
FOREIGN CURRENCY TRANSLATION. In accordance with SFAS No. 52, "Foreign
Currency Translation," balance sheet accounts of the Company's foreign
operations are translated from foreign currencies into U.S. dollars at year-end
at historical rates, while income and expenses are translated at the weighted-
average exchange rates for the year. The related translation adjustments are
reflected as a foreign currency translation adjustment in the consolidated
balance sheets.
F-8
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
HEDGING ACTIVITIES. At December 31, 1999, the Company had forward exchange
contracts to purchase $1.5 million U.S. currency for approximately $2.2 million
Canadian currency. Based on rates at December 31, 1999, the cost to buy the
equivalent U.S. dollars was approximately $2.2 million Canadian currency.
Unrealized gains and losses on outstanding foreign currency exchange
contracts, used to hedge future revenues and purchases, are not recorded in the
financial statements but are included in the measurement of the related hedged
transaction when realized.
INCOME TAXES. The Company uses the asset and liability method of accounting
for income taxes. Under this method, deferred income taxes are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to be applied to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
COMPREHENSIVE INCOME. The Company reports comprehensive income under SFAS
No. 130, "Reporting Comprehensive Income." Comprehensive income consists of net
earnings, unrealized gains on investments and foreign currency translation
adjustments and is presented in the consolidated statements of stockholders'
equity and comprehensive income.
BUSINESS SEGMENT REPORTING. The Company adopted SFAS No. 131, "Disclosures
About Segments of an Enterprise and Related Information" ("SFAS 131"), effective
in 1998. SFAS 131 establishes new standards for reporting information about
business segments and related disclosures about products and services,
geographic areas and major customers. The business segments of the Company are
wholesale, retail and licensing operations. Information regarding these segments
is summarized in Note 11.
FAIR VALUE OF FINANCIAL INSTRUMENTS. The carrying amount of the Company's
financial instruments, which principally include cash, short and long-term
investments, trade receivables, accounts payable and accrued expenses,
approximates fair value due to the relatively short maturity of such
instruments.
The fair value of the Company's debt instruments are based on the amount of
future cash flows associated with each instrument discounted using the Company's
borrowing rate. At December 31, 1998 and 1999, the carrying value of all
financial instruments was not materially different from fair value.
USE OF ESTIMATES. Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets, liabilities, revenues and
expenses and the disclosure of contingent assets and liabilities to prepare
these consolidated financial statements in conformity with generally accepted
accounting principles. Actual results could differ from these estimates.
LONG-LIVED ASSETS. The Company reports long-lived assets, including
intangibles, at amortized cost. Long-lived assets and certain identifiable
intangibles are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If this assessment indicates that the intangibles will not be
recoverable, as determined by a
F-9
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES (CONTINUED)
non-discounted cash flow generated by the asset, the carrying value of the
Company's long-lived assets would be reduced to its estimated fair market value
based on the discounted cash flows.
ADVERTISING COSTS. The Company expenses the cost of advertising as
incurred. Advertising expenses charged to operations for the years ended
December 31, 1997, 1998 and 1999 were $22.5 million, $18.0 million, and
$24.5 million, respectively.
RECLASSIFICATIONS. Certain reclassifications have been made to the 1997 and
1998 consolidated financial statements to conform with the 1999 presentation.
2. INVESTMENTS
Short-term investments consist mostly of overnight interest bearing deposit
accounts aggregating $11.9 million at December 31, 1998 and $27.1 million at
December 31, 1999.
Long-term investments consist of certain marketable equity securities
aggregating $1.1 million and $21.8 million at December 31, 1998 and 1999,
respectively. Unrealized gains related to marketable equity securities at
December 31, 1999 amounted to $11.2 million, net of deferred taxes of
$7.6 million and are included as a component of stockholders' equity.
3. INVENTORIES
Inventories are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Raw materials............................................ $ 9,400 $ 8,514
Work in process.......................................... 7,922 6,740
Finished goods--retail................................... 36,712 45,750
Finished goods--wholesale................................ 35,465 45,620
------- --------
$89,499 $106,624
======= ========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Land and land improvements.............................. $ 5,729 $ 5,734
Building and building improvements...................... 8,462 8,462
Leasehold improvements.................................. 59,218 67,821
Machinery and equipment................................. 71,975 86,790
Corporate aircraft...................................... 5,973 6,601
Shop fixtures........................................... 28,895 31,347
Construction in progress................................ 1,321 23,842
-------- --------
181,573 230,597
Less accumulated depreciation and amortization.......... 95,120 104,909
-------- --------
$ 86,453 $125,688
======== ========
</TABLE>
Construction in progress at December 31, 1998 and 1999 represents the costs
associated with the construction of buildings and improvements used in the
Company's operations and other capitalizable expenses in progress.
F-10
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
5. NOTES PAYABLE AND LONG-TERM DEBT
Notes payable and long-term debt are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
9 1/2% Senior Subordinated Notes due 2003................... $99,000 $79,562
Revolving bank loan bearing interest at 1.75% above the
Canadian prime rate plus an amount equal to 0.5% per month
of the average outstanding balance, payable on demand, but
commencing January 1, 2001 by way of 24 equal consecutive
minimum payments.......................................... -- 2,770
Advances under a demand line of credit of $15,926 with
advances thereon bearing interest at the Canadian prime
rate plus 1%.............................................. -- 6,818
Other obligations, maturing in varying amounts through
2004...................................................... -- 1,688
------- -------
99,000 90,838
Less current installments................................... -- 7,475
------- -------
Long-term debt, excluding current installments.............. $99,000 $83,363
======= =======
</TABLE>
In December 1999, the Company entered into a credit agreement with a bank
permitting borrowings up to $125.0 million (the "Credit Facility"). The Credit
Facility replaced the Company's $100.0 million revolving credit facility entered
into in March 1997. The Credit Facility provides for a $125.0 million revolving
credit facility including a $50.0 million sub-limit for letters of credit. The
Credit Facility expires on October 31, 2002. At December 31, 1999, the Company
had no outstanding borrowings under the Credit Facility, $15.2 million in
outstanding commercial letters of credit and $32.0 million in standby letters of
credit. The Credit Facility contains various restrictive covenants requiring,
among other things, the maintenance of certain financial ratios. The Company was
in compliance with all such covenants as of December 31, 1999. In addition, the
arrangements governing the Company's Credit Facility and the indenture pursuant
to which the Company's Senior Subordinated Notes due 2003 were issued restrict
the payments of dividends by the Company. Our outstanding borrowings currently
bear interest at LIBOR plus 100 basis points.
The Senior Subordinated Notes are redeemable at the option of the Company,
in whole or in part, at any time at various redemption prices. The Company
repurchased $6.0 million and $19.4 million in 1998 and 1999, respectively, of
its Senior Subordinated Notes.
F-11
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
6. INCOME TAXES
Income taxes are summarized as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Federal:
Current........................................ $17,487 $14,477 $32,508
Deferred....................................... 2,995 793 (2,464)
State:
Current........................................ 3,973 2,459 5,202
Deferred....................................... (1,212) 41 314
Foreign:
Current........................................ 801 410 (360)
------- ------- -------
$24,044 $18,180 $35,200
======= ======= =======
</TABLE>
Actual income taxes differ from expected income taxes obtained by applying
the statutory Federal income tax rate to earnings before income taxes as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Computed "expected" tax expense.................. $21,544 $15,152 $30,485
State taxes, net of Federal benefit.............. 2,928 1,625 3,586
Foreign (benefit)................................ (157) (14) (273)
U.S. tax and foreign withholding tax on Foreign
distributions.................................. -- 739 --
Other............................................ (271) 678 1,402
------- ------- -------
$24,044 $18,180 $35,200
======= ======= =======
</TABLE>
Total income taxes were allocated as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Operations....................................... $24,044 $18,180 $35,200
Stockholders' equity............................. -- -- 6,451
------- ------- -------
Total income taxes............................... $24,044 $18,180 $41,651
======= ======= =======
</TABLE>
The income tax expense for the year ended December 31, 1997 includes taxes
of $2.7 million related to a one-time change in accounting (see Note 13). The
Company's consolidated statement of earnings has presented the change in
accounting, net of this income tax expense.
F-12
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
6. INCOME TAXES (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of current and non-current deferred tax assets and deferred tax
liabilities at December 31, 1998 and 1999 are presented below (in thousands):
<TABLE>
<CAPTION>
1998 1999
-------- --------
<S> <C> <C>
Deferred tax assets:
Retail store closure reserves........................... $ 467 $ 269
Deferred lease incentives............................... 1,648 1,718
Rent expense............................................ 2,158 2,161
Uniform capitalization adjustment....................... 1,987 2,194
State income taxes...................................... 870 1,471
Bad debt and other reserves............................. 1,810 2,904
Severance reserve....................................... -- 1,378
Other................................................... 2,066 2,602
------- -------
Total deferred assets................................. 11,006 14,697
Deferred tax liabilities-principally related to
unrealized gain on investment......................... 400 9,640
------- -------
Net deferred tax assets............................... $10,606 $ 5,057
======= =======
</TABLE>
Included above at December 31, 1998 and 1999 are $6.5 million and
$9.6 million for current deferred tax assets, respectively, and $4.1 million
non-current deferred tax assets and $4.5 million non-current deferred tax
liabilities.
Prepaid income taxes of $2.6 million and $3.4 million at December 31, 1998
and 1999, respectively, arise from the overpayment of estimated income taxes.
Based on the historical earnings of the Company, management believes it is
more likely than not that the results of operations will generate sufficient
taxable earnings to realize net deferred tax assets.
7. RELATED PARTY TRANSACTIONS
The Company is engaged in various transactions with entities affiliated with
trusts for the respective benefit of Maurice, Paul and Armand Marciano (the
"Marciano Trusts"). The Company believes that the arrangements involving each of
the companies in which the Marciano Trusts have an investment, and related party
transactions discussed below were entered into on terms no less favorable to the
Company than could have been obtained from an unaffiliated third party.
LICENSE AGREEMENTS AND LICENSEE TRANSACTIONS. On September 28, 1990, the
Company entered into a license agreement with Charles David of California
("Charles David"). The Marciano Trusts and Nathalie Marciano (the spouse of
Maurice Marciano) together own 50% of Charles David, and the remaining 50% is
owned by the father-in-law of Maurice Marciano. The license agreement grants
Charles David the rights to manufacture worldwide and distribute worldwide
(except Japan and certain European countries) for men, women and some children,
leather and rubber footwear which bear the GUESS? trademark. The license also
includes related shoe care products and accessories.
F-13
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
7. RELATED PARTY TRANSACTIONS (CONTINUED)
Gross royalties earned by the Company under such license agreement for the
fiscal years ended December 31, 1997, 1998 and 1999 were $1.2 million,
$1.4 million and $1.9 million, respectively. Additionally, the Company purchased
$6.1 million, $6.1 million and $8.4 million of products from Charles David for
resale in the Company's retail stores during the same periods.
In May 1997, the Company sold substantially all of the assets and
liabilities of GUESS? Italia to Maco Apparel, S.p.a. ("Maco"). The effect of the
net asset disposal was immaterial to the Company's results of operations. In
connection with this sale, the Company also purchased a 10% ownership interest
in Maco and entered into an approximate 10-year license agreement with Maco
granting it the right to manufacture and distribute certain men's and women's
jeanswear apparel, which bear the GUESS? trademark, in certain parts of Europe.
In addition to royalty fees, the Company will also receive $14.1 million over a
four-year period in consideration of the grant of the license rights for men's
and women's jeanswear apparel. During 1998 and 1999, the Company recorded
$2.8 million and $2.8 million, respectively, in revenue in connection with the
grant of such license rights. Additionally, the Company also recorded
$2.3 million and $3.2 million in royalty fees related to product sales in 1998
and 1999, respectively. Effective as of March 1, 1998, the Company also entered
into an approximate nine-year license agreement with Maco granting it the right
to manufacture and distribute kid's jeanswear, which bear the GUESS? trademark,
in certain parts of Europe.
On August 4, 1999, the Company completed its purchase of an additional 40%
of GUESS? Canada, whereby the Company's ownership has been increased to 60%. As
part of the transaction, the Company paid $2.2 million and will provide
long-term financing of up to $13.4 million to GUESS? Canada to expand its
Canadian retail operations. The Company has an option to acquire the remaining
40% of GUESS? Canada that becomes exercisable commencing December 31, 2001. The
acquisition was accounted for as a purchase and the results of GUESS? Canada are
included in the Company's consolidated financial statements from the date of
acquisition. The excess of the purchase price over the fair value of net assets
acquired amounting to $1.1 million is allocated to goodwill and is being
amortized over 15 years. The operating results of GUESS? Canada are immaterial
to the Company's consolidated financial statements.
AGENCY AGREEMENT. In February 1996, the Company entered into a buying
agency agreement with Newtimes Guess?, Ltd. ("Newtimes"). The Company owned 50%
of Newtimes. Pursuant to such agreement, the Company pays Newtimes a commission
based on the cost of finished garments purchased for the Company. Commissions
earned by Newtimes from the Company during the fiscal years ended December 31,
1997 and 1998 were $1.7, and $1.0 million, respectively. Additionally, with
respect to Newtimes, the Company recorded $0.1 million in equity losses during
the fiscal year ended December 31, 1997. During 1998, Newtimes was dissolved
after the Company terminated its buying agency agreement with them, and severed
its equity interest in Newtimes. Accordingly, the Company has discontinued
recording equity income during 1998.
LEASES. The Company leases manufacturing, warehouse and administrative
facilities from partnerships affiliated with the Marciano Trusts and certain of
its affiliates. There are two leases in effect at December 31, 1999, both of
which expire in July 2008. The total lease payments to these limited
partnerships are currently $225,000 per month. Additionally, the Company was on
a month to month lease for another storage facility. Aggregate lease payments
under leases in effect for the fiscal
F-14
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
7. RELATED PARTY TRANSACTIONS (CONTINUED)
years ended December 31, 1997, 1998 and 1999 were $2.6 million, $2.7 million,
and $2.7 million, respectively.
8. COMMITMENTS AND CONTINGENCIES
LEASES. The Company leases its showrooms and retail store locations under
operating lease agreements expiring on various dates through 2016. Some of these
leases require the Company to make periodic payments for property taxes and
common area operating expenses. Certain leases include rent abatements and
scheduled rent escalations, for which the effects are being amortized and
recorded over the lease term. The Company also leases some of its equipment
under operating lease agreements expiring at various dates through 2003.
Future minimum rental payments under non-cancelable operating leases at
December 31, 1999 are as follows:
Year ending December 31, (in thousands):
<TABLE>
<CAPTION>
NON
RELATED RELATED
PARTIES PARTIES TOTAL
-------- -------- --------
<S> <C> <C> <C>
2000........................................... $ 30,251 $ 2,727 $ 32,978
2001........................................... 30,380 2,727 33,107
2002........................................... 28,975 2,727 31,702
2003........................................... 27,552 2,727 30,279
2004........................................... 23,727 2,727 26,454
Thereafter..................................... 71,245 9,771 81,016
-------- ------- --------
$212,130 $23,406 $235,536
======== ======= ========
</TABLE>
Rental expense for all operating leases during the years ended December 31,
1997, 1998, and 1999 aggregated $30.8 million, $32.6 million, and
$41.2 million, respectively.
INCENTIVE BONUSES. Certain officers and key employees of the Company are
entitled to incentive bonuses, primarily based on the Company's profits.
LITIGATION. On August 7, 1996, a class action complaint naming the Company
and certain of its independent contractors was filed in the Superior Court of
the State of California for the County of Los Angeles, titled as Brenda Figueroa
et al. v. Guess?, Inc. et al. The plaintiffs asserted claims for violation of
state wage and hour laws, wrongful discharge, and breach of contract arising out
of the Company's relationship with its independent contractors and actions taken
by them with respect to their employees. The plaintiffs also alleged that the
Company breached its agreement with the United States Department of Labor
regarding the monitoring of its independent contractors. The Court has held two
hearings on certifying the alleged class. The parties have agreed to settle the
case. On March 1, 2000, the Court gave final approval to the parties'
settlement. If no class member appeals within 60 days thereafter, the case will
be finally resolved.
F-15
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
On July 7, 1998, the Union of Needletrades Industrial and Textile Employees
("UNITE") filed with the National Labor Relations Board ("NLRB") charges against
the Company alleging that the Company violated the National Labor Relations Act
by failing to uphold certain obligations under a prior settlement agreement with
the NLRB, by denying pro-union employees access to the Company's facilities, by
conferring new benefits to employees, by making false accusations against UNITE,
by conducting video surveillance of UNITE's offices, and by assisting and
organizing an anti-union demonstration. These allegations were dismissed by the
NLRB. UNITE appealed, and, on October 15, 1999, the NLRB dismissed the appeal.
On February 24, 1998, the Company and Maurice Marciano, Paul Marciano and
Armand Marciano, as individuals, were named as defendants in a class action
entitled John N. Robinson v. Guess ?, Inc., Maurice Marciano, Paul Marciano and
Armand Marciano and GUESS? Inc., filed in the Los Angeles Superior Court. The
complaint as amended, purported to state claims under Sections 11, 12(a)(2) and
15 of the Securities Act of 1933 for alleged misrepresentations in connection
with the Company's initial public offering (the "IPO") in August 1996.
John Robinson purported to represent a class of all purchasers of the Company's
stock in the IPO and sought unspecified damages. On January 10, 2000, the
complaint was dismissed in its entirety. However, Robinson has the right to
appeal the dismissal.
On October 26, 1998, Maurice Marciano, Paul Marciano and Armand Marciano, as
individuals (the "Marcianos"), as well as the Company, were named as defendants
in a shareholders' derivative complaint entitled John N. Robinson v. Maurice
Marciano, Paul Marciano and Armand Marciano and Guess ?, Inc., filed in the Los
Angeles Superior Court. The complaint, as amended, (the "Derivative Complaint")
purports to state a claim for intentional breach of fiduciary duty, negligent
breach of fiduciary duty, constructive fraud and abuse of control in connection
with the Marcianos' management of the Company since its IPO. On July 26, 1999,
the Court entered an Order that allows the case to proceed past the pleadings
stage. While it is too soon to predict the outcome of the case with any
certainty, the defendants believe they have meritorious defenses to each of the
claims asserted and intend to vigorously defend themselves.
On May 21, 1999, the Company filed a demand for arbitration against Pour le
Bebe, Inc. and Pour la Maison, Inc. (collectively, "PLB") seeking damages and
injunctive relief in connection with four written license agreements between the
parties. The Company alleged that PLB defaulted under the license agreements,
that the license agreements properly were terminated and that PLB breached the
license agreements. On July 19, 1999, PLB filed a counterdemand for arbitration
against the Company. PLB sought damages and injunctive relief against the
Company alleging breach of contract, violation of the California Franchise
Relations Act, interference with prospective economic advantage, unlawful
business practices, statutory unfair competition and fraud. The arbitration was
conducted before the American Arbitration Association pursuant to arbitration
clauses in the license agreements. (See Note 15.)
On June 9, 1999, the Company commenced a lawsuit in the Los Angeles County
Superior Court against Kyle Kirkland, Kirkland Messina LLC, and CKM Securities
(collectively "Kirkland") for tortious interference, unfair competition, fraud
and related claims. This action arises out of alleged misrepresentations and
omissions of material fact made by Kirkland in connection with the operations
F-16
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
8. COMMITMENTS AND CONTINGENCIES (CONTINUED)
and financial performance of PLB. Currently, there are proceedings in the
California Court of Appeal to determine if the action will proceed in court or
by way of arbitration. No trial or hearing date has been set.
The Company cannot predict the outcome of these matters. The Company
believes the outcome of one or more of the above cases could have a material
adverse effect on the Company's financial condition and results of operations.
9. SAVINGS PLAN
The Company established the Guess ?, Inc. Savings Plan (the "Savings Plan")
under Section 401(k) of the Internal Revenue Code. Under the Savings Plan,
employees ("associates") may contribute up to 15% of their compensation per
year, subject to the elective limits as defined by IRS guidelines, and the
Company may make matching contributions in amounts not to exceed 1.5% of the
associates' annual compensation. The Company's contributions to the Savings Plan
for each of the three years ended December 31, 1997, 1998 and 1999 aggregated
$0.3 million.
10. QUARTERLY INFORMATION (UNAUDITED)
The following is a summary of the unaudited quarterly financial information
for the years ended December 31, 1998 and 1999 (in thousands, except per share
data):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1998 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue.......................................... $110,768 $98,068 $130,138 $132,957
Gross profit......................................... 46,452 44,235 54,782 54,383
Net earnings......................................... 7,951 3,440 9,639 4,081
Basic and diluted earnings per share................. $ 0.19 $ 0.08 $ 0.22 $ 0.10
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
YEAR ENDED DECEMBER 31, 1999 QUARTER QUARTER QUARTER QUARTER
- ---------------------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
Net revenue......................................... $129,052 $119,557 $155,547 $195,494
Gross profit........................................ 54,028 55,035 65,261 93,666
Net earnings........................................ 11,486 7,017 14,235 19,162
Earnings per share:
Basic............................................. $ 0.27 $ 0.16 $ 0.33 $ 0.45
Diluted........................................... $ 0.27 $ 0.16 $ 0.33 $ 0.44
</TABLE>
During the second quarter of 1999, in accordance with the requirements of
EITF 94-3, "Liability Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring"), the Company recorded a $3.2 million charge for future severance
costs related to the relocation of distribution operations to Louisville,
Kentucky. In the third quarter of 1999, the Company realized a non-recurring
pretax gain of $3.8 million on the disposition of property and equipment. During
the fourth quarter of 1999, the Company enhanced its ability to estimate
reserves through improved processes and more current and accurate data. As a
result, the
F-17
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
10. QUARTERLY INFORMATION (UNAUDITED) (CONTINUED)
Company revised its estimate of certain reserves. This resulted in a reduction
of cost of sales of $2.3 million.
11. SEGMENT INFORMATION
In accordance with the requirements of SFAS 131, "Disclosures about Segments
of an Enterprise and Related Information", the Company's reportable business
segments and respective accounting policies, policies of the segments are the
same as those described in Note 1. Management evaluates segment performance
based primarily on revenue and earnings from operations. Interest income and
expense is evaluated on a consolidated basis and not allocated to the Company's
business segments.
Segment information is summarized as follows for the years ended
December 31, 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net revenue:
Retail operations......................................... $215,873 $222,624 $299,384
Wholesale operations...................................... 250,040 212,504 260,628
Licensing operations...................................... 49,459 36,803 39,638
-------- -------- --------
$515,372 $471,931 $599,650
======== ======== ========
Earnings from operations:
Retail operations......................................... $ 12,118 $ 19,943 $ 37,072
Wholesale operations...................................... 18,962 7,971 25,101
Licensing operations...................................... 39,566 29,132 31,603
-------- -------- --------
$ 70,646 $ 57,046 $ 93,776
======== ======== ========
Capital expenditures:
Retail operations......................................... $ 5,602 $ 28,030
Wholesale operations...................................... 8,136 35,471
Licensing operations...................................... -- --
-------- --------
$ 13,738 $ 63,501
======== ========
Total assets:
Retail operations......................................... $ 93,140 $114,152
Wholesale operations...................................... 159,069 245,162
Licensing operations...................................... 11,563 9,722
-------- --------
$263,772 $369,036
======== ========
</TABLE>
Certain expense items in the 1998 and 1997 amounts have been reclassified to
conform with the 1999 presentation.
F-18
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
11. SEGMENT INFORMATION (CONTINUED)
The table below presents information related to geographic areas in which
the Company operated during 1997, 1998 and 1999 (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Net sales:
United States....................................... $455,969 $434,207 $548,179
Asia................................................ 22,277 13,859 13,279
Europe.............................................. 19,812 10,600 13,464
Canada.............................................. 1,649 1,644 12,073
South America....................................... 7,965 5,066 3,973
Mexico.............................................. 2,774 2,406 3,337
Other............................................... 4,926 4,149 5,345
-------- -------- --------
$515,372 $471,931 $599,650
======== ======== ========
</TABLE>
12. STOCK OPTION PLAN
On July 30, 1996, the Board of Directors adopted the Guess ?, Inc. 1996
Non-Employee Directors' Stock Option Plan pursuant to which the Board of
Directors may grant stock options to non-employee directors. This plan
authorizes grants of options to purchase up to 500,000 authorized but unissued
shares of Common Stock. At December 31, 1997, 1998 and 1999, there were 28,886,
70,451 and 80,599 options issued under this plan, respectively. Stock options
are granted with an exercise price equal to the stock's fair market value at the
date of grant. Stock options have ten-year terms and vest and become fully
exercisable in increments of one-fourth of the shares granted on each
anniversary from the date of grant.
On July 30, 1996, the Board of Directors adopted the Guess ?, Inc. 1996
Equity Incentive Plan (the "Plan") pursuant to which the Board of Directors may
grant stock options to officers, key associates and consultants. The Plan
authorizes grants of options to purchase up to 4,500,000 authorized but unissued
shares of Common Stock. Stock options are granted with an exercise price equal
to the stock's fair market value at the date of grant. Stock options have
ten-year terms (five years in the case of an incentive stock option granted to a
ten-percent stockholder) and vest and become fully exercisable after varying
time periods from the date of grant based on length of service or specified
performance goals.
At December 31, 1997, 1998 and 1999, there were 3,208,645, 2,841,825 and
2,763,397 additional shares available for grant under the Plan, respectively.
The per share weighted-average fair value of stock options granted during 1997,
1998 and 1999 was $9.75, $4.24, and $12.46, respectively, on the dates of grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions: 1997, 1998 and 1999 expected dividend yields of 0.0%, 0.0% and
0.0%, respectively; 1997, 1998 and 1999 risk-free interest rates of 6.50%, 4.87%
and 6.51%, respectively; 1997, 1998 and 1999 volatility factors of 30%, 63% and
65%, respectively; and 1997, 1998 and 1999 expected lives of four years.
F-19
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
12. STOCK OPTION PLAN (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its stock options in
the accompanying consolidated financial statements. Had the Company determined
compensation based on the fair value at the grant date for its stock options
under SFAS No. 123 ("SFAS 123"), the Company's pro forma net earnings and net
earnings per share for the years ended December 31, 1997, 1998 and 1999 would
have been reduced to the pro forma amounts indicated below (in thousands, except
per share data):
<TABLE>
<CAPTION>
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Pro forma net earnings........................... $35,222 $24,574 $51,300
Pro forma earnings per share--basic.............. $ 0.82 $ 0.57 $ 1.19
Pro forma earnings per share--diluted............ $ 0.82 $ 0.57 $ 1.18
</TABLE>
Pro forma net earnings reflect only options granted since the inception of
the Plan on July 30, 1996. The full impact of calculating compensation cost for
stock options under SFAS 123 is not reflected in the pro forma net earnings
amounts presented above because compensation cost is reflected over the options'
vesting period of four years.
Stock option activity during the period indicated is as follows:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE
OPTIONS EXERCISE PRICE
---------- ----------------
<S> <C> <C>
Balance at December 31, 1996...................... 1,251,105 $17.74
Granted......................................... 1,406,105 10.78
Forfeited....................................... (1,365,855) (16.88)
---------- ------
Balance at December 31, 1997...................... 1,291,355 11.05
Granted......................................... 1,035,600 4.24
Forfeited....................................... (668,780) (10.92)
---------- ------
Balance at December 31, 1998...................... 1,658,175 6.86
Granted......................................... 343,650 12.46
Exercised....................................... (373,090) (8.56)
Forfeited....................................... (265,222) (7.68)
---------- ------
Balance at December 31, 1999...................... 1,363,513 $ 7.64
========== ======
</TABLE>
At December 31, 1997, 1998 and 1999, the weighted-average exercise price was
$11.05, $6.86 and $7.64, respectively, and the weighted-average remaining
contractual lives of outstanding options were 8.85, 9.0 and 8.53 years,
respectively.
F-20
<PAGE>
GUESS ?, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
12. STOCK OPTION PLAN (CONTINUED)
The following table summarizes information about stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- ----------------------------
WEIGHTED WEIGHTED WEIGHTED
NUMBER AVERAGE AVERAGE NUMBER AVERAGE
RANGE OF EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE AT EXERCISE
PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE PRICE DECEMBER 31, 1999 PRICE
- --------------------- ----------------- ---------------- -------- ----------------- --------
<S> <C> <C> <C> <C> <C>
$ 3.94 to $ 5.50 750,463 8.81 years $ 4.17 126,644 $ 4.26
$ 7.03 to $ 9.38 105,100 8.56 years 8.33 34,350 8.09
$10.50 to $13.13 391,350 7.60 years 11.16 177,290 10.93
$16.38 to $21.06 116,600 9.90 years 17.51 -- --
--------- ------ ------- ------
1,363,513.... 8.54 years $ 7.64 338,284 $ 8.14
========= =======
</TABLE>
At December 31, 1998 and 1999, the number of options exercisable for each
year was 315,875 and 338,284, respectively. The weighted-average exercise price
of those options was $10.84 and $8.14, respectively.
13. CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING FOR PRODUCT DISPLAY FIXTURES
Effective January 1, 1997, the Company changed its method of accounting for
product display fixtures located in its wholesale customers' retail stores,
whereby the costs for such fixtures are capitalized and amortized over five
years using the straight-line method. In prior years, these costs had been
expensed as incurred. The Company believes that this new method will more
closely match the long-term benefit that the product display fixtures provide
with the expected future revenue from such fixtures. The cumulative effect of
the change in accounting principle, recorded in the first quarter of 1997, is
calculated based upon the retroactive effect of applying the new accounting
method to prior year fixture acquisitions. The cumulative effect of the change
in accounting principle of $4.0 million (after reduction for income tax expense
of $2.7 million) is included in earnings for the year ended December 31, 1997.
Excluding the cumulative effect of the change in accounting principle, the
effect of the change during 1997 was to increase net earnings by approximately
$6.2 million, or $0.14 per share.
14. SEVERANCE COSTS RELATED TO DISTRIBUTION FACILITY
In accordance with the requirements of EITF 94-3, "Liability for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)," the Company recorded a
$3.2 million charge for future severance costs related to the relocation of its
distribution operations from Los Angeles, California to Louisville, Kentucky.
The Company anticipates the payment of these severance costs to occur in the
second quarter of fiscal 2000.
15. SUBSEQUENT EVENT
On March 3, 2000, the Arbitrators issued an interim award in favor of the
Company and rejected each of PLB's counterclaims (see Note 8). The amount of the
interim award was in excess of $6 million. As the prevailing party, the Company
is entitled to, and has applied for, an award of its attorneys' fees, costs and
expenses. Because of the uncertainty of the ultimate realization of the award,
no recognition has been given to it in the accompanying consolidated financial
statements.
F-21
<PAGE>
SCHEDULE II
GUESS ?, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1997, 1998, AND 1999
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO DEDUCTIONS BALANCE AT
BEGINNING COSTS AND AND END
DESCRIPTION OF PERIOD EXPENSES WRITE-OFFS OF PERIOD
- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
As of December 31, 1997
Allowance for obsolescence........................ $ 3,257 $ 3,764 $ (3,456) $ 3,565
Reserves for accounts receivable.................. 9,720 12,746 (11,270) 11,196
Allowance for doubtful royalties.................. -- -- -- --
As of December 31, 1998
Allowance for obsolescence........................ 3,565 3,512 (3,217) 3,860
Reserves for accounts receivable.................. 11,196 8,542 (11,901) 7,837
Allowance for doubtful royalties.................. -- 3,667 -- 3,667
As of December 31, 1999
Allowance for obsolescence........................ 3,860 583 (2,079) 2,364
Reserves for accounts receivable.................. 7,837 1,398 (372) 8,863
Allowance for doubtful royalties.................. 3,667 1,657 (4,066) 1,258
</TABLE>
F-22
<PAGE>
INSIDE BACK COVER
Black and white photo of a woman sitting on a stone
INSIDE GATEFOLD
Black and white and color photos of products and models
<PAGE>
- --------------------------------------------------------------------------------
[Black and white photo of a man and a woman]
- --------------------------------------------------------------------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. NO DEALER,
SALESPERSON OR OTHER PERSON IS AUTHORIZED TO GIVE INFORMATION THAT IS NOT
CONTAINED IN THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT
SEEKING AN OFFER TO BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR
SALE IS NOT PERMITTED. THE INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT
ONLY AS OF THE DATE OF THIS PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY
OF THIS PROSPECTUS OR ANY SALE OF THESE SECURITIES.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth costs and expenses of the sale and distribution
of the securities being registered. All amounts except SEC fees are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $39,600
NASD Filing fee.............................................
Listing fee.................................................
Accounting fees and expenses................................
Legal fees and expenses.....................................
Printing expenses...........................................
Miscellaneous...............................................
Total....................................................... $
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Pursuant to Section 145 of the General Corporation Law of the State of Delaware
(the "DGCL"), Article IX of the Bylaws of the Registrant provides that the
Registrant shall indemnify any person in connection with any threatened, pending
or completed legal proceeding (other than a legal proceeding by or in the right
of the Registrant) by reason of the fact that he is or was a director or officer
of the Registrant or is or was serving at the request of the Registrant as a
director, officer, employee or agent of another corporation, partnership or
other enterprise against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred in connection
with such legal proceeding if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Registrant, and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding is by or in the right of the Registrant, the director or officer may
he indemnified by the Registrant against expenses (including attorneys' fees)
actually and reasonably incurred in connection with the defense or settlement of
such legal proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Registrant and
except that he may not be indemnified in respect of any claim, issue or matter
as to which he shall have been adjudged to be liable to the Registrant unless a
court determines otherwise.
Article IX of the Registrant's Bylaws allows the Registrant to maintain director
and officer liability insurance on behalf of any person who is or was a director
or officer of the Registrant or such person who serves or served as director,
officer, employee or agent of another corporation, partnership or other
enterprise at the request of the Registrant.
Pursuant to Section 102(b)(7) of the DGCL, Article VII of the Restated
Certificate of Incorporation of the Registrant, which is Exhibit 3.1 to this
Registration Statement, provides that no director of the Registrant shall be
personally liable to the Registrant or its stockholders for monetary damages for
any breach of his fiduciary duty as a director; provided, however, that such
clause shall not apply to any liability of a director (1) for any breach of his
duty of loyalty to the Registrant or its stockholders, (2) for acts or omissions
that are not in good faith or involve intentional misconduct or a knowing
violation of the law, (3) under Section 174 of the DGCL, or (4) for any
transaction from which the director derived an improper personal benefit.
II-1
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Restated Certificate of Incorporation of the Registrant.*
3.2 Bylaws of the Registrant.*
4.1 Specimen certificate for shares of common stock.*
5.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.**
23.1 Consent of KPMG LLP, independent auditors.
23.2 Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1 Power of Attorney (included on signature page).
</TABLE>
- ---------------------------
* Incorporated by reference from the exhibit of the same number to the
Company's Registration Statement on Form S-1 (File No. 333-4419), as
amended.
** To be filed by amendment or as an exhibit to a document to be incorporated
or deemed to be incorporated by reference in the Registration Statement.
ITEM 17. UNDERTAKINGS.
A. Undertaking Regarding Filings Incorporating Subsequent Exchange Act Documents
by Reference
The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the registrant's
annual report pursuant to Section 13(a) or Section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
B. Undertaking in Respect of Indemnification
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions described in Item 15, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C. Undertaking Pursuant to Rule 430A
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Los Angeles, State of California, on the 25th day of
April, 2000.
<TABLE>
<S> <C> <C>
GUESS ?, INC.
By: /s/ MAURICE MARCIANO
-----------------------------------------
Maurice Marciano
CO-CHIEF EXECUTIVE OFFICER
</TABLE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
constitutes and appoints Maurice Marciano and Brian L. Fleming, and each of
them, as their true and lawful attorneys-in-fact and agents, each of whom may
act without joinder of the other, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to execute in the name of each such person who is then an
officer or director of Guess ?, Inc., and to file any and all amendments
(including post-effective amendments) to this Registration Statement, and any
registration statement for the same offering filed pursuant to Rule 462 under
the Securities Act of 1933, and to file the same, with all exhibits thereto and
all other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing appropriate or
necessary to be done, as fully and for all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or their substitute or substitutes, may lawfully
do or cause or to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement on Form S-3 has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Co-Chairman of the Board,
/s/ MAURICE MARCIANO Co-Chief Executive Officer and
--------------------------------------- Director (Co-Principal April 25, 2000
Maurice Marciano Executive Officer)
Co-Chairman of the Board,
/s/ PAUL MARCIANO Co-Chief Executive Officer,
--------------------------------------- President and Director April 25, 2000
Paul Marciano (Co-Principal Executive
Officer)
/s/ ARMAND MARCIANO Senior Executive Vice
--------------------------------------- President, Assistant Secretary April 21, 2000
Armand Marciano and Director
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
Executive Vice President and
/s/ BRIAN L. FLEMING Chief Financial Officer
--------------------------------------- (Principal Financial and April 20, 2000
Brian L. Fleming Accounting Officer)
/s/ ROBERT C. DAVIS
--------------------------------------- Director April 22, 2000
Robert C. Davis
/s/ BRYAN ISAACS
--------------------------------------- Director April 17, 2000
Bryan Isaacs
/s/ ALICE T. KANE
--------------------------------------- Director April 21, 2000
Alice T. Kane
/s/ HOWARD SOCOL
--------------------------------------- Director April 19, 2000
Howard Socol
</TABLE>
II-4
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- --------------------- ------------------------------------------------------------ ------------
<C> <S> <C>
1.1......... Form of Underwriting Agreement.
3.1......... Restated Certificate of Incorporation of the Registrant. *
3.2......... Bylaws of the Registrant. *
4.1......... Specimen certificate for shares of common stock. *
5.1......... Opinion of Skadden, Arps, Slate, Meagher & Flom LLP.**
23.1........ Consent of KPMG LLP, independent auditors.
23.2........ Consent of Skadden, Arps, Slate, Meagher & Flom LLP
(included in Exhibit 5.1).
24.1........ Power of Attorney (included on signature page).
</TABLE>
- ---------------------
* Incorporated by reference from the exhibit of the same number to the
Company's Registration Statement on Form S-1 (File No. 333-4419), as
amended.
** To be filed by amendment or as an exhibit to a document to be incorporated
or deemed to be incorporated by reference in the Registration Statement.
<PAGE>
EXHIBIT 1.1
4,500,000 Shares
GUESS ?, INC.
Common Stock
UNDERWRITING AGREEMENT
, 2000
--------
CIBC World Markets Corp.
PaineWebber Incorporated
Chase Securities Inc.
Tucker Anthony Incorporated
Ferris, Baker Watts Incorporated
c/o CIBC World Markets Corp.
10880 Wilshire Blvd., 23rd Floor
Los Angeles, California 90024
On behalf of the Several
Underwriters named on
Schedule I attached hereto.
Ladies and Gentlemen:
Guess ?, Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions contained herein, to sell to you and the other
underwriters named on Schedule I to this Agreement (the "Underwriters"), for
whom you are acting as Representatives (the "Representatives"), an aggregate
of 4,500,000 shares (the "Firm Shares") of the Company's Common Stock, $0.01
par value (the "Common Stock"). The amounts of the Firm Shares to be
purchased by each of the several Underwriters are set forth opposite their
names on Schedule I hereto. In addition, the Company proposes to grant to the
Underwriters an option to purchase up to an additional 675,000 shares (the
"Option Shares") of Common Stock for the purpose of covering over-allotments
in connection with the sale of the Firm Shares. The Firm Shares and the
Option Shares are together called the "Shares."
1. SALE AND PURCHASE OF THE SHARES.
On the basis of the representations, warranties and agreements contained
in, and subject to the terms and conditions of this Agreement:
<PAGE>
(a) The Company agrees to sell to each of the Underwriters, and each
of the Underwriters agrees, severally and not jointly, to purchase from
the Company, at a price of $_____ per share (the "Initial Price"), the
number of Firm Shares set forth opposite the name of such Underwriter
under the column "Number of Firm Shares to be Purchased" on Schedule I
to this Agreement, subject to adjustment in accordance with Section 10
hereof.
(b) The Company grants to the several Underwriters an option to
purchase, severally and not jointly, all or any part of the Option
Shares at the Initial Price. The number of Option Shares to be purchased
by each Underwriter shall be the same percentage (adjusted by the
Representatives to eliminate fractions) of the total number of Option
Shares to be purchased by the Underwriters as such Underwriter is
purchasing of the Firm Shares. Such option may be exercised only to
cover over-allotments in the sales of the Firm Shares by the
Underwriters and may be exercised in whole or in part at any time on or
before 12:00 noon, New York City time, on the business day before the
Firm Shares Closing Date (as defined below), and from time to time
thereafter within 30 days after the date of this Agreement, in each case
upon written, facsimile or telegraphic notice, or verbal or telephonic
notice confirmed by written, facsimile or telegraphic notice, by the
Representatives to the Company no later than 12:00 noon, New York City
time, on the business day before the Firm Shares Closing Date or at
least two business days before the Option Shares Closing Date (as
defined below), as the case may be, setting forth the number of Option
Shares to be purchased and the time and date (if other than the Firm
Shares Closing Date) of such purchase.
2. DELIVERY AND PAYMENT. Delivery by the Company of the Firm Shares to
the Representatives for the respective accounts of the Underwriters, and
payment of the purchase price by certified or official bank check or checks
payable in New York Clearing House (next day) funds drawn to the order of the
Company, against delivery of the respective certificates therefor to the
Representatives, shall take place at the offices of CIBC World Markets Corp.,
One World Financial Center, New York, New York 10281, at 10:00 a.m., New York
City time, on the third business day following the date of this Agreement, or
at such time on such other date, not later than 10 business days after the
date of this Agreement, as shall be agreed upon by the Company and the
Representatives (such time and date of delivery and payment are called the
"Firm Shares Closing Date").
If the option with respect to the Option Shares is exercised in whole or
in part on one or more occasions, delivery by the Company of the Option
Shares to the Representatives for the respective accounts of the Underwriters
and payment of the purchase price thereof in immediately available funds by
wire transfer or by certified or official bank check or checks payable in New
York Clearing House (next day) funds to the Company shall take place at the
offices of CIBC World Markets Corp. specified above at the time and on the
date (which may be the same date as, but in no event shall be earlier than,
the Firm Shares Closing Date) specified in
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the notice referred to in Section 1(b) (such time and date of delivery and
payment are called the "Option Shares Closing Date"). The Firm Shares Closing
Date and the Option Shares Closing Date are called, individually, a "Closing
Date" and, together, the "Closing Dates."
Certificates evidencing the Shares shall be registered in such names and
shall be in such denominations as the Representatives shall request at least
two full business days before the Firm Shares Closing Date or, in the case of
Option Shares, on the day of notice of exercise of the option as described in
Section l(b) and shall be made available to the Representatives for checking
and packaging, at such place as is designated by the Representatives, on the
full business day before the Firm Shares Closing Date (or the Option Shares
Closing Date in the case of the Option Shares).
3. REGISTRATION STATEMENT AND PROSPECTUS; PUBLIC OFFERING. The Company
has prepared and filed in conformity with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the published rules and
regulations thereunder (the "Rules") adopted by the Securities and Exchange
Commission (the "Commission"), a Registration Statement (as hereinafter
defined) on Form S-3 (No. 333-_____), including a preliminary prospectus
relating to the Shares, and such amendments thereof as may have been required
to the date of this Agreement. The Company has delivered to you copies of
such Registration Statement (including all amendments thereof) and of the
related Preliminary Prospectus (as hereinafter defined). The term
"Preliminary Prospectus" means any preliminary prospectus (as described in
Rule 430 of the Rules) included at any time as a part of the Registration
Statement or filed with the Commission by the Company with the consent of the
Representatives pursuant to Rule 424(a) of the Rules. The term "Registration
Statement" as used in this Agreement means the initial registration statement
(including all exhibits, financial schedules and information deemed to be a
part of the Registration Statement through incorporation by reference or
otherwise), as amended at the time and on the date it becomes effective (the
"Effective Date"), including the information (if any) deemed to be part
thereof at the time of effectiveness pursuant to Rule 430A of the Rules. If
the Company has filed an abbreviated registration statement to register
additional Shares pursuant to Rule 462(b) under the Rules (the "462(b)
Registration Statement"), then any reference herein to the Registration
Statement shall also be deemed to include such 462(b) Registration Statement.
The term "Prospectus" as used in this Agreement means the prospectus in the
form included in the Registration Statement at the time of effectiveness or,
if Rule 430A of the Rules is relied on, the term "Prospectus" shall also
include the final prospectus filed with the Commission pursuant to Rule
424(b) of the Rules.
The Company understands that the Underwriters propose to make a public
offering of the Shares, as set forth in and pursuant to the Prospectus, as
soon after the Effective Date and the date of this Agreement as the
Representatives deem advisable. The Company hereby confirms that the
Underwriters and dealers have been authorized to distribute or cause to be
distributed each Preliminary Prospectus and are authorized to distribute the
Prospectus (as from time to time amended or supplemented, if the Company
furnishes such amendments or supplements to the Underwriters).
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4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to each Underwriter as follows:
(a) On the Effective Date, the Registration Statement complied, and
on (i) the date of the Prospectus, (ii) the date any post-effective
amendment to the Registration Statement becomes effective, (iii) the
date any supplement or amendment to the Prospectus is filed with the
Commission and (iv) each Closing Date, the Registration Statement and
the Prospectus (and any amendment thereof or supplement thereto) will
comply with the applicable provisions of the Securities Act and the
Rules and the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder. As of
the Effective Date, the Registration Statement did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading; and on the Effective Date and the
other dates referred to above, neither the Registration Statement nor
the Prospectus, nor any amendment thereof or supplement thereto, will
contain any untrue statement of a material fact or will omit to state
any material fact required to be stated therein or necessary in order to
make the statements therein not misleading. When any related preliminary
prospectus was first filed with the Commission (whether filed as part of
the Registration Statement or any amendment thereto or pursuant to Rule
424(a) of the Rules) and when any amendment thereof or supplement
thereto was first filed with the Commission, such preliminary
prospectus, as amended or supplemented, complied with the applicable
provisions of the Securities Act and the Rules, and did not contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein not misleading. Notwithstanding the foregoing, none
of the representations and warranties in this paragraph 4(a) shall apply
to statements in, or omissions from, the Registration Statement or the
Prospectus made in reliance upon, and in conformity with, information
herein or otherwise furnished in writing by the Representatives on
behalf of the several Underwriters expressly for use in the Registration
Statement or the Prospectus. With respect to the preceding sentence, the
Company acknowledges that the only information furnished in writing by
the Representatives on behalf of the several Underwriters authorized for
use in the Registration Statement or the Prospectus are the statements
contained under the caption "Underwriting" in the Prospectus.
(b) The Registration Statement is effective under the Securities
Act, no stop order preventing or suspending the effectiveness of the
Registration Statement or suspending or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are threatened under the Securities Act. Any required
filing of the Prospectus and any supplement thereto pursuant to Rule
424(b) of the Rules has been or will be made in the manner and within
the time period required by such Rule 424(b).
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(c) The documents incorporated by reference in the Registration
Statement and the Prospectus, at the time they were filed with the
Commission, complied with the requirements of the Exchange Act and, when
read together and with the other information in the Registration
Statement and the Prospectus, do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(d) The financial statements of the Company (including all notes and
schedules thereto) included or incorporated by reference in the
Registration Statement and Prospectus present fairly the financial
position, the results of operations, the statements of cash flows and
the statements of stockholders' equity and the other information
purported to be shown therein of the Company at the respective dates and
for the respective periods to which they apply; and such financial
statements and related schedules and notes have been prepared in
conformity with generally accepted accounting principles, consistently
applied throughout the periods involved, and all adjustments necessary
for a fair presentation of the results for such periods have been made.
The summary and selected financial data included in the Prospectus
present fairly the information shown therein as at the respective dates
and for the respective periods specified and the summary and selected
financial data have been presented on a basis consistent with the
consolidated financial statements so set forth in the Prospectus and
other financial information.
(e) KPMG LLP, whose reports are filed with the Commission as a part
of the Registration Statement, are and, during the periods covered by
their reports, were independent public accountants, as required by the
Securities Act and the Rules.
(f) The Company and each subsidiary or other entity controlled
directly or indirectly by the Company (collectively, "Subsidiaries") are
corporations duly organized, validly existing and in good standing under
the laws of their respective jurisdictions of incorporation. The Company
and each of its Subsidiaries are duly qualified to do business and is in
good standing as a foreign corporation in each jurisdiction in which the
nature of the respective business conducted or location of the
respective assets or properties owned, leased or licensed requires such
qualification, except for such jurisdictions where the failure to so
qualify would not have a material adverse effect, individually or in the
aggregate, on the assets or properties, business, results of operations
or financial condition of the Company (a "Material Adverse Effect"). The
Company and each of its Subsidiaries have all requisite corporate power
and authority, and all necessary authorizations, approvals, consents,
orders, licenses, certificates and permits of and from all governmental
or regulatory bodies or any other person or entity (collectively, the
"Permits"), to own, lease and license their respective assets and
properties and conduct their respective businesses, all of which are
valid
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and in full force and effect, as described in the Registration Statement
and the Prospectus, except where the lack of such Permits, individually
or in the aggregate, would not have a Material Adverse Effect. The
Company and each of its Subsidiaries have fulfilled and performed all of
their respective material obligations with respect to such Permits and
no event has occurred that allows, or after notice or lapse of time
would allow, revocation or termination thereof or results in any other
material impairment of the rights of the Company thereunder. Except as
may be required under the Securities Act and state and foreign Blue Sky
laws, no other Permits are required to enter into, deliver and perform
this Agreement and to issue and sell the Shares.
(g) The Company and each of its Subsidiaries own or possess adequate
and enforceable rights to use all trademarks, trademark applications,
trade names, service marks, copyrights, copyright applications,
licenses, intellectual property rights, know-how and other similar
rights and proprietary knowledge (collectively, "Intangibles") described
in the Prospectus as being owned by them necessary for the conduct of
their respective businesses. Neither the Company, nor any of its
Subsidiaries has received any notice of, nor is aware of, any
infringement of or conflict with asserted rights of others with respect
to any Intangibles.
(h) The Company and each of its Subsidiaries have good and
marketable title in fee simple to all items of real property and good
and marketable title to all personal property described in the
Prospectuses as being owned by them. Any real property and buildings
described in the Prospectuses as being held under lease by the Company
or any of its Subsidiaries is held by it under valid, existing and
enforceable leases, free and clear of all liens, encumbrances, claims,
security interests and defects, except such as (a) are described in the
Registration Statement and the Prospectus or (b) would not have a
Material Adverse Effect.
(i) There are no governmental proceedings or litigation to which
either the Company or its Subsidiaries is subject or which is pending
or, to the knowledge of the Company, threatened, against the Company or
any of its Subsidiaries, which, individually or in the aggregate, (a)
might have a Material Adverse Effect, (b) might affect the consummation
of this Agreement or (c) which is required to be disclosed in the
Registration Statement and the Prospectus that is not so disclosed.
(j) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, except as
described therein, (a) there has been no change that has had or could
reasonably be expected to have a Material Adverse Effect (a "Material
Adverse Change"); (b) neither the Company nor any of its Subsidiaries
has sustained any loss or interference with their respective assets,
businesses or properties (whether owned or leased) from fire, explosion,
earthquake, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or any court or legislative or
other governmental action, order or decree which
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<PAGE>
would have a Material Adverse Effect; and (c) since the date of the
latest balance sheet included in the Registration Statement and the
Prospectus, except as reflected therein, neither the Company, nor its
Subsidiaries has (1) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, except such
liabilities or obligations incurred in the ordinary course of business,
(2) entered into any transaction not in the ordinary course of business
or (3) declared or paid any dividend or made any distribution on any
shares of its stock or redeemed, purchased or otherwise acquired or
agreed to redeem, purchase or otherwise acquire any shares of its stock.
(k) There is no document, contract or other agreement of a character
required to be described in the Registration Statement or Prospectus or
to be filed as an exhibit to the Registration Statement which is not
described or filed as required by the Securities Act or Rules. Each
description of a contract, document or other agreement in the
Registration Statement and the Prospectus accurately reflects in all
respects the terms of the underlying document, contract or agreement.
Each agreement described in the Registration Statement and Prospectus or
listed in the Exhibits to the Registration Statement or incorporated by
reference is in full force and effect and is valid and enforceable by
and against the Company or its Subsidiaries, as the case may be, in
accordance with its terms. Neither the Company nor any Subsidiary (if
such Subsidiary is a party) nor, to the Company's knowledge, any other
party is in default in the observance or performance of any term or
obligation to be performed by it under any such agreement, and no event
has occurred which with notice or lapse of time or both would constitute
such a default, in any such case which default or event, individually or
in the aggregate, would have a Material Adverse Effect. No default
exists, and no event has occurred which, with notice or lapse of time or
both, would constitute a default in the due performance and observance
of any term, covenant or condition by the Company or any Subsidiary (if
any such Subsidiary is a party thereto) of any other agreement or
instrument to which the Company or any Subsidiary is a party or by which
their respective properties or business may be bound or affected, which
default or event, individually or in the aggregate, would have a
Material Adverse Effect.
(l) Neither the Company nor any of its Subsidiaries is in violation
of any term or provision of their respective charters or by-laws or of
any franchise, license, permit, judgment, decree, order, statute, rule
or regulation (collectively "Law"), including, but not limited to any
applicable Law pertaining to United States immigration laws or United
States customs matters or any federal, state or local fair labor
practices, except where the consequences of such violation, individually
or in the aggregate, would not have a Material Adverse Effect.
(m) Neither the execution, delivery and performance of this
Agreement by the Company, nor the consummation of any of the
transactions contemplated hereby
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(including, without limitation, the issuance and sale by the Company of
the Shares) will give rise to a right to terminate or accelerate the due
date of any payment due under, or conflict with or result in the breach
of any term or provision of, or constitute a default (or an event which
with notice or lapse of time or both would constitute a default) under,
or require any consent or waiver under, or result in the execution or
imposition of any lien, charge or encumbrance upon any properties or
assets of the Company or its Subsidiaries pursuant to the terms of, any
indenture, mortgage, deed of trust or other agreement or instrument to
which the Company or any Subsidiary is a party or by which either the
Company or any Subsidiary or any of their respective properties or
businesses are bound, or any franchise, license, permit, judgment,
decree, order, statute, rule or regulation applicable to the Company or
any Subsidiary or violate any provision of the charter or by-laws of the
Company or any Subsidiary, except for such consents or waivers which
have already been obtained and are in full force and effect.
(n) The Company has authorized and outstanding capital stock as set
forth under the caption "Capitalization" in the Prospectus. The
certificates evidencing the Shares are in due and proper legal form and
have been duly authorized for issuance by the Company. All of the issued
and outstanding shares of Common Stock have been duly and validly issued
and are fully paid and nonassessable. There are no statutory preemptive
or other similar rights to subscribe for or to purchase or acquire any
shares of Common Stock of the Company or its Subsidiaries or any such
rights pursuant to their respective charters or by-laws or any agreement
or instrument to or by which the Company or any of its Subsidiaries is a
party or bound. The Shares, when issued and sold pursuant to this
Agreement, will be duly and validly issued, fully paid and nonassessable
and none of them will be issued in violation of any preemptive or other
similar right. Except as disclosed in the Registration Statement and the
Prospectus, there is no outstanding option, warrant or other right
calling for the issuance of, and there is no commitment, plan or
arrangement to issue, any share of stock of the Company or its
Subsidiaries or any security convertible into, or exercisable or
exchangeable for, such stock. The Common Stock and the Shares conform to
all statements in relation thereto contained in the Registration
Statement and the Prospectus. Unless otherwise disclosed in the
Prospectus, all outstanding shares of capital stock of each Subsidiary
have been duly authorized and validly issued, and are fully paid and
nonassessable and are owned directly by the Company or by another
wholly-owned subsidiary of the Company free and clear of any security
interests, liens, encumbrances, equities or claims.
(o) Other than as disclosed in the Registration Statement, no holder
of any security of the Company has the right to have any security owned
by such holder included in the Registration Statement or to demand
registration of any security owned by such holder during the period
ending 180 days after the date of this Agreement. Each stockholder,
director and executive officer of the Company listed on SCHEDULE II
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hereto has delivered to the Representatives his enforceable written
lock-up agreement in the form attached to this Agreement ("Lock-Up
Agreement").
(p) All necessary corporate action has been duly and validly taken
by the Company to authorize the execution, delivery and performance of
this Agreement and the issuance and sale of the Shares by the Company.
This Agreement has been duly and validly authorized, executed and
delivered by the Company and constitutes, and will constitute, a legal,
valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as the enforceability
thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the enforcement of creditors'
rights generally and by general equitable principles.
(q) Neither the Company, nor any of its Subsidiaries is involved in
any labor dispute nor, to the knowledge of the Company, is any such
dispute threatened, which dispute would have a Material Adverse Effect.
The Company is not aware of any existing or imminent labor disturbance
by the employees of any of its principal suppliers or contractors which
would have a Material Adverse Effect. The Company is not aware of any
threatened or pending litigation between the Company or its Subsidiaries
and any of their respective executive officers which, if adversely
determined, could have a Material Adverse Effect and has no reason to
believe that such officers will not remain in the employment of the
Company or the Subsidiaries.
(r) No transaction has occurred between or among the Company and any
of its officers or directors, or any affiliate or affiliates of any such
officer or director that is required to be described in and is not so
described in the Registration Statement and the Prospectus.
(s) The Company has not taken, nor will it take, directly or
indirectly, any action designed to or which might reasonably be expected
to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation
of the price of the Common Stock to facilitate the sale or resale of any
of the Shares.
(t) The Company and its Subsidiaries have filed all Federal, state,
local and foreign tax returns which are required to be filed through the
date hereof, or have received extensions thereof, and have paid all
taxes shown on such returns and all assessments received by it to the
extent that the same are material and have become due. There are no tax
audits or investigations pending, which, if adversely determined, would
have a Material Adverse Effect; nor are there any material proposed
additional tax assessments against the Company and any of its
Subsidiaries.
(u) The Shares have been duly authorized for quotation on the New
York
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Stock Exchange, Inc. A registration statement has been filed on Form 8-A
pursuant to Section 12 of the Exchange Act, which registration statement
complies with the Exchange Act.
(v) The books, records and accounts of the Company and its
Subsidiaries accurately and fairly reflect, in reasonable detail, the
transactions in, and dispositions of, the assets of, and the results of
operations of, the Company and its Subsidiaries. The Company and each of
its Subsidiaries maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally
accepted accounting principles and to maintain asset accountability,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability
for assets is compared with the existing assets at reasonable intervals
and appropriate action is taken with respect to any differences.
(w) The Company and its Subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in
such amounts as are customary in the businesses in which they are
engaged or propose to engage after giving effect to the transactions
described in the Prospectus; all policies of insurance and fidelity or
surety bonds insuring the Company or any of its Subsidiaries or the
Company's or its Subsidiaries' respective businesses, assets, employees,
officers and directors are in full force and effect; the Company and
each of its Subsidiaries are in compliance with the terms of such
policies and instruments in all material respects; and neither the
Company nor any of its Subsidiaries has any reason to believe that it
will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its respective business at a
cost that would not have a Material Adverse Effect. Neither the Company
nor any Subsidiary has been denied any insurance coverage which it has
sought or for which it has applied.
(x) Each approval, consent, order, authorization, designation,
declaration or filing of, by or with any regulatory, administrative or
other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated required to be obtained or performed by
the Company (except as may be necessary to qualify the Shares for public
offering by the Underwriters under the state securities or Blue Sky
laws) has been obtained or made and is in full force and effect.
(y) (i) Each of the Company and its Subsidiaries is in compliance
with all rules, laws and regulation relating to the use, treatment,
storage and disposal of toxic substances and protection of health or the
environment ("Environmental Law") which are applicable to its business;
(ii) neither the Company, nor its Subsidiaries has received any notice
from any governmental authority or third party of an
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asserted claim under Environmental Laws; (iii) each of the Company and
its Subsidiaries has received all permits, licenses or other approvals
required of it under applicable Environmental Laws to conduct its
respective business and is in compliance with all terms and conditions
of any such permit, license or approval; (iv) to the Company's
knowledge, no facts currently exist that will require the Company or its
Subsidiaries to make future capital expenditures to comply with
Environmental Laws; and (v) no property which is or has been owned,
leased or occupied by the Company or its Subsidiaries has been
designated as a Superfund site pursuant to the Comprehensive
Environmental Response, Compensation of Liability Act of 1980, as
amended (42 U.S.C. Section 9601, et. seq.) ("CERCLA") or otherwise
designated as a contaminated site under applicable state or local law.
Neither the Company, nor any of its Subsidiaries has been named as a
"potentially responsible party" under the CERCLA.
(z) In the ordinary course of its business, the Company
periodically reviews the effect of Environmental Laws on the business,
operations and properties of the Company and its Subsidiaries, in the
course of which the Company identifies and evaluates associated costs
and liabilities (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance
with Environmental Laws, or any permit, license or approval, any related
constraints on operating activities and any potential liabilities to
third parties). On the basis of such review, the Company has reasonably
concluded that such associated costs and liabilities would not, singly
or in the aggregate, have a Material Adverse Effect.
(aa) The Company is not and after giving effect to the offering and
sale of the Shares and the application of proceeds thereof as described
in the Prospectus, will not be an "investment company" within the
meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(bb) None of the Company, nor its Subsidiaries, nor any of its
officers, employees, agents or any other person acting on behalf of the
Company or its Subsidiaries, has (i) directly or indirectly, given or
agreed to give any money, gift or similar benefit to any customer,
supplier, employee or agency of a customer or supplier, or official of
employee of any governmental agency (domestic or foreign) or
instrumentality of any government (domestic of foreign) or any political
party or candidate for office (domestic or foreign) or other person who
was, is, or may be in a position to help or hinder the business of the
Company or any of its Subsidiaries (or assist the Company or any of its
Subsidiaries with any actual or proposed transaction) which (A) might
subject the Company , or any other such person to any damage or penalty
in any civil, criminal or governmental litigation or proceeding
(domestic or foreign), (B) if not given in the past, might have had a
Material Adverse Effect, or (C) if not continued in the future, might
have a Material Adverse Effect; (ii) violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended (the "FCPA"); or (iii)
made any other unlawful payment. The Company's internal accounting
controls
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are sufficient to cause the Company to comply with the FCPA.
(cc) There are no affiliations with the NASD among the Company's
officers, directors or, to the best of the knowledge of the Company, any
five percent or greater stockholder of the Company, except as set forth
in the Registration Statement or otherwise disclosed in writing to the
Representatives.
5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The
obligations of the Underwriters under this Agreement are several and not joint.
The respective obligations of the Underwriters to purchase the Shares are
subject to each of the following terms and conditions:
(a) The Representatives shall have received Notification that the
Registration Statement has become effective and the Prospectus shall
have been timely filed with the Commission in accordance with Section
6(a) of this Agreement.
(b) No order preventing or suspending the use of any preliminary
prospectus or the Prospectus shall have been or shall be in effect, no
order suspending the effectiveness of the Registration Statement shall
be in effect, and no proceedings for such purpose shall be pending
before or threatened by the Commission. Any requests for additional
information on the part of the Commission (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of the Commission and the
Representatives.
(c) The representations and warranties of the Company contained in
this Agreement and in the certificates delivered pursuant to Section
5(d) shall be true and correct when made and on and as of each Closing
Date, as if made on such date. The Company shall have performed all
covenants and agreements and satisfied all the conditions contained in
this Agreement required to be performed or satisfied by it at or before
such Closing Date.
(d) The Representatives shall have received, on each Closing Date, a
certificate, addressed to the Representatives and dated such Closing
Date, of the chief executive or chief operating officer and the chief
financial officer of the Company to the effect that (i) the signers of
such certificate have carefully examined the Registration Statement, the
Prospectus and this Agreement and that the representations and
warranties of the Company in this Agreement are true and correct on and
as of such Closing Date with the same effect as if made on such Closing
Date and the Company has performed all covenants and agreements and
satisfied all conditions contained in this Agreement required to be
performed or satisfied by it at or prior to such Closing Date, and (ii)
no stop order suspending the effectiveness of the Registration Statement
has been issued and to the best of their knowledge, no proceedings for
that purpose have been instituted or are pending under the Securities
Act.
(e) The Representatives shall have received, at the time this
Agreement is
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executed and on each Closing Date, a signed letter from KPMG LLP
addressed to the Representatives and dated, respectively, the date of
this Agreement and each such Closing Date, in form and substance
reasonably satisfactory to the Representatives, confirming that they are
independent accountants within the meaning of the Securities Act and the
Rules, that the response to Item 10 of the Registration Statement is
correct insofar as it relates to them and stating in effect that:
(i) in their opinion, the audited financial statements and financial
statement schedules included or incorporated by reference in the
Registration Statement and the Prospectus and reported on by them comply
as to form with the applicable accounting requirements of the Securities
Act and the Rules;
(ii) on the basis of a reading of the amounts included in the
Registration Statement and the Prospectus under the headings "Summary
Consolidated Financial Information" and "Selected Consolidated Financial
Data" carrying out certain procedures (but not an examination in
accordance with Generally Accepted Auditing Standards ("GAAS")) which
would not necessarily reveal matters of significance with respect to the
comments set forth in such letter, a reading of the minutes of the
meetings of the stockholders and directors of the Company, and inquiries
of certain officials of the Company who have responsibility for
financial and accounting matters of the Company as to transactions and
events subsequent to the date of the latest audited financial
statements, except as disclosed in the Registration Statement and the
Prospectus, nothing came to their attention which caused them to believe
that:
(A) the amounts in "Summary Consolidated Financial Information"
and "Selected Consolidated Financial Data" included in the
Registration Statement and the Prospectus do not agree with the
corresponding amounts in the audited and unaudited financial
statements from which such amounts were derived; or
(B) with respect to the Company, there were, at a specified
date not more than three business days prior to the date of the
letter, any increases in the current liabilities and long-term
liabilities of the Company or any decreases in net income or in
working capital or the stockholders' equity in the Company, as
compared with the amounts shown on the Company's audited balance
sheet for the fiscal year ended December 31, 1999 included in the
Registration Statement;
(iii) they have performed certain other procedures as may be
permitted under GAAS, as a result of which they determined that certain
information of an accounting, financial or statistical nature (which is
limited to accounting, financial or statistical information derived from
the general accounting records of the Company) set forth in the
Registration Statement and
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<PAGE>
the Prospectus and reasonably specified by the Representatives agrees
with the accounting records of the Company; and
(iv) based upon the procedures set forth in clauses (ii) and (iii)
above and a reading of the amounts included in the Registration
Statement under the headings "Summary Consolidated Financial
Information" and "Selected Consolidated Financial Data" included in the
Registration Statement and Prospectus and a reading of the financial
statements from which certain of such data were derived, nothing has
come to their attention that gives them reason to believe that the
"Summary Consolidated Financial Information" and "Selected Consolidated
Financial Data" included in the Registration Statement and Prospectus do
not comply as to the form with the applicable accounting requirements of
the Securities Act and the Rules or that the information set forth
therein is not fairly stated in relation to the financial statements
included in the Registration Statement or Prospectus from which certain
of such data were derived are not in conformity with GAAS applied on a
basis substantially consistent with that of the audited financial
statements included in the Registration Statement and Prospectus.
References to the Registration Statement and the Prospectus in this
paragraph (e) are to such documents as amended and supplemented at the
date of the letter.
(f) All proceedings taken in connection with the sale of the Firm
Shares and the Option Shares as herein contemplated shall be reasonably
satisfactory in form and substance to the Representatives, and their
counsel and the Underwriters shall have received from Skadden, Arps,
Slate, Meagher & Flom LLP, and such other counsel of the Company as the
Underwriters may reasonably request, a favorable opinion, addressed to the
Representatives and dated such Closing Date, with respect to the Shares,
the Registration Statement and the Prospectus, and such other related
matters, as the Representatives may reasonably request, and the Company
shall have furnished to Skadden, Arps, Slate, Meagher & Flom LLP, and
such other counsel of the Company as the Underwriters may reasonably
request, such documents as they may reasonably request for the purpose of
enabling them to pass upon such matters.
(g) The Representatives shall have received copies of the Lock-up
Agreements executed by each entity or person described in Section 4(o).
(h) The Company shall have furnished or caused to be furnished to
the Representatives such further certificates or documents as the
Representatives shall have reasonably requested.
6. COVENANTS OF THE COMPANY.
(a) The Company covenants and agrees as follows:
(i) The Company will use its best efforts to cause
the Registration
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<PAGE>
Statement, if not effective at the time of execution of
this Agreement, and any amendments thereto, to become
effective as promptly as possible. The Company shall
prepare the Prospectus in a form approved by the
Representatives and file such Prospectus pursuant to
Rule 424(b) under the Securities Act not later than the
Commission's close of business on the second business
day following the execution and delivery of this
Agreement, or, if applicable, such earlier time as may
be required by Rule 430A(a)(3) under the Securities Act.
(ii) The Company shall promptly advise the Representatives
in writing (a) when any amendment to the Registration
Statement shall have become effective, (b) of any
request by the Commission for any amendment of the
Registration Statement or the Prospectus or for any
additional information, (c) of the prevention or
suspension of the use of any preliminary prospectus or
the Prospectus or of the issuance by the Commission of
any stop order suspending the effectiveness of the
Registration Statement or the institution or threatening
of any proceeding for that purpose and (d) of the
receipt by the Company of any notification with respect
to the suspension of the qualification of the Shares for
sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose. The
Company shall not file any amendment of the Registration
Statement or supplement to the Prospectus unless the
Company has furnished the Representatives a copy for its
review prior to filing, and shall not file any such
proposed amendment or supplement to which the
Representatives reasonably object. The Company shall use
its best efforts to prevent the issuance of any such
stop order and, if issued, to obtain as soon as possible
the withdrawal thereof.
(iii) If, at any time when a prospectus relating to the
Shares is required to be delivered under the Securities
Act and the Rules, any event occurs as a result of which
the Prospectus as then amended or supplemented would
include any untrue statement of a material fact or omit
to state any material fact necessary to make the
statements therein in the light of the circumstances
under which they were made not misleading, or if it
shall be necessary to amend or supplement the Prospectus
to comply with the Securities Act or the Rules, the
Company promptly shall prepare and file with the
Commission, subject to the second sentence of paragraph
(ii) of this Section 6(a), an amendment or supplement
which shall correct such statement or omission or an
amendment which shall effect such compliance.
(iv) The Company shall make generally available to its
security holders and to the Representatives as soon as
practicable, but not later than 45 days after the end of
the 12-month period beginning at the end of the fiscal
quarter of the Company during which the Effective Date
occurs (or 90 days if such 12-month period coincides
with the Company's fiscal year), an earning statement
(which need not be audited) of the Company, covering
such
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<PAGE>
12-month period, which shall satisfy the provisions of
Section 11(a) of the Securities Act or Rule 158 of the
Rules.
(v) The Company shall furnish to the
Representatives and counsel for the Underwriters, without
charge, signed copies of the Registration Statement
(including all exhibits thereto and amendments thereof)
and to each other Underwriter a copy of the Registration
Statement (without exhibits thereto) and all amendments
thereof and, so long as delivery of a prospectus by an
Underwriter or dealer may be required by the Securities
Act or the Rules, as many copies of any preliminary
prospectus and the Prospectus and any amendments thereof
and supplements thereto as the Representatives may
reasonably request.
(vi) The Company shall cooperate with the
Representatives and their counsel in endeavoring to
qualify the Shares for offer and sale in connection with
the offering under the laws of such jurisdictions as the
Representatives may designate and shall maintain such
qualifications in effect so long as required for the
distribution of the Shares; provided, however, that the
Company shall not be required in connection therewith, as
a condition thereof, to qualify as a foreign corporation
or to execute a general consent to service of process in
any jurisdiction or subject itself to taxation as doing
business in any jurisdiction.
(vii) Without the prior written consent of the
Representatives, for a period 90 days after the date of
this Agreement, the Company and each of its individual
directors and executive officers shall not issue, sell or
register with the Commission (other than on Form S-8 or on
any successor form), or otherwise dispose of, directly or
indirectly, any equity securities of the Company (or any
securities convertible into, exercisable for or
exchangeable for equity securities of the Company), except
for the issuance of the Shares pursuant to the
Registration Statement and the issuance of shares pursuant
to the Company's existing stock option plan or bonus plan
as described in the Registration Statement and the
Prospectus. In the event that during this period, (i) any
shares are issued pursuant to the Company's existing stock
option plan or bonus plan that are exercisable during such
90 day period or (ii) any registration is effected on Form
S-8 or on any successor form relating to shares that are
exercisable during such 90 period, the Company shall
obtain the written agreement of such grantee or purchaser
or holder of such registered securities that, for a period
of 90 days after the date of this Agreement, such person
will not, without the prior written consent of the
Representatives, offer for sale, sell, distribute, grant
any option for the sale of, or otherwise dispose of,
directly or indirectly, or exercise any registration
rights with respect to, any shares of Common Stock (or any
securities convertible into, exercisable for, or
exchangeable for any shares of Common Stock) owned by such
person.
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<PAGE>
(viii) On or before completion of this offering,
the Company shall make all filings required under
applicable securities laws and by the New York Stock
Exchange, Inc. (including any required registration under
the Exchange Act).
(ix) The Company will apply the net proceeds from
the offering of the Shares in the manner set forth under
"Use of Proceeds" in the Prospectus.
(b) The Company agrees to pay, or reimburse if paid by the
Representatives, whether or not the transactions contemplated
hereby are consummated or this Agreement is terminated, all costs
and expenses incident to the public offering of the Shares and the
performance of the obligations of the Company under this Agreement
including those relating to: (i) the preparation, printing, filing
and distribution of the Registration Statement including all
exhibits thereto, each preliminary prospectus, the Prospectus, all
amendments and supplements to the Registration Statement and the
Prospectus, and the printing, filing and distribution of this
Agreement; (ii) the preparation and delivery of certificates for
the Shares to the Underwriters; (iii) the registration or
qualification of the Shares for offer and sale under the
securities or Blue Sky laws of the various jurisdictions referred
to in Section 6(a)(vi), including the reasonable fees and
disbursements of counsel for the Underwriters in connection with
such registration and qualification and the preparation, printing,
distribution and shipment of preliminary and supplementary Blue
Sky memoranda; (iv) the furnishing (including costs of shipping
and mailing) to the Representatives and to the Underwriters of
copies of each preliminary prospectus, the Prospectus and all
amendments or supplements to the Prospectus, and of the several
documents required by this Section to be so furnished, as may be
reasonably requested for use in connection with the offering and
sale of the Shares by the Underwriters or by dealers to whom
Shares may be sold; (v) the filing fees of the NASD in connection
with its review of the terms of the public offering and reasonable
fees and disbursements of counsel for the Underwriters in
connection with such review; (vi) inclusion of the Shares for
quotation on the New York Stock Exchange, Inc.; and (vii) all
transfer taxes, if any, with respect to the sale and delivery of
the Shares by the Company to the Underwriters. Subject to the
provisions of Section 9, the Underwriters agree to pay, whether or
not the transactions contemplated hereby are consummated or this
Agreement is terminated, all costs and expenses incident to the
performance of the obligations of the Underwriters under this
Agreement not otherwise payable by the Company pursuant to the
preceding sentence, including, without limitation, the fees and
disbursements of counsel for the Underwriters.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section
20 of the Exchange Act against any and all losses, claims, damages
and liabilities, joint or several (including any reasonable
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<PAGE>
investigation, legal and other expenses incurred in connection
with, and any amount paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they, or any of them,
may become subject under the Securities Act, the Exchange Act or
other Federal or state law or regulation, at common law or
otherwise, insofar as such losses, claims, damages or liabilities
arise out of or are based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in any preliminary
prospectus, the Registration Statement or the Prospectus or any
amendment thereof or supplement thereto, or in any Blue Sky
application or other information or other documents executed by
the Company filed in any state or other jurisdiction to qualify
any or all of the Shares under the securities laws thereof (any
such application, document or information being hereinafter
referred to as a "Blue Sky Application") or arise out of or are
based upon any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make
the statements therein not misleading, (ii) in whole or in part
upon any breach of the representations and warranties set forth in
Section 4 hereof, or (iii) in whole or in part upon any failure of
the Company to perform any of its obligations hereunder or under
law; provided, however, that such indemnity shall not inure to the
benefit of any Underwriter (or any person controlling such
Underwriter) on account of any losses, claims, damages or
liabilities arising from the sale of the Shares to any person by
such Underwriter if such untrue statement or omission or alleged
untrue statement or omission was made in such preliminary
prospectus, the Registration Statement or the Prospectus, or such
amendment or supplement thereto, or in any Blue Sky Application in
reliance upon and in conformity with information furnished in
writing to the Company by the Representatives on behalf of any
Underwriter expressly authorized by such Underwriter for use
therein. This indemnity agreement will be in addition to any
liability which the Company may otherwise have.
(b) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company and each person, if any,
who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act, each director of
the Company, and each officer of the Company who signs the
Registration Statement, to the same extent as the foregoing
indemnity from the Company to each Underwriter, but only insofar as
such losses, claims, damages or liabilities arise out of or are
based upon any untrue statement or omission or alleged untrue
statement or omission which was made in any preliminary prospectus,
the Registration Statement or the Prospectus, or any amendment
thereof or supplement thereto, contained in the (i) concession and
reallowance figures appearing under the caption "Underwriting" and
(ii) the stabilization information contained under the caption
"Underwriting" in the Prospectus; PROVIDED, HOWEVER, that the
obligation of each Underwriter to indemnify the Company (including
any controlling person, director or officer thereof) shall be
limited to the net proceeds received by the Company from such
Underwriter.
(c) Any party that proposes to assert the right to be
indemnified under this Section will, promptly after receipt of
notice of commencement of any action, suit or
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proceeding against such party in respect of which a claim is to
be made against an indemnifying party or parties under this
Section, notify each such indemnifying party of the commencement
of such action, suit or proceeding, enclosing a copy of all
papers served. No indemnification provided for in Section 7(a)
or 7(b) shall be available to any party who shall fail to give
notice as provided in this Section 7(c) if the party to whom
notice was not given was unaware of the proceeding to which such
notice would have related and was prejudiced by the failure to
give such notice, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall
not relieve it from any liability that it may have to any
indemnified party for contribution or otherwise than under this
Section. In case any such action, suit or proceeding shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate in, and, to the extent
that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel
reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and the approval
by the indemnified party of such counsel, the indemnifying party
shall not be liable to such indemnified party for any legal or
other expenses, except as provided below and except for the
reasonable costs of investigation subsequently incurred by such
indemnified party in connection with the defense thereof. The
indemnified party shall have the right to employ its counsel in
any such action, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been
authorized in writing by the indemnifying parties, (ii) the
indemnified party shall have been advised by counsel that there
may be one or more legal defenses available to it which are
different from or in addition to those available to the
indemnifying party (in which case the indemnifying parties shall
not have the right to direct the defense of such action on
behalf of the indemnified party) or (iii) the indemnifying
parties shall not have employed counsel to assume the defense of
such action within a reasonable time after notice of the
commencement thereof, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying
parties. An indemnifying party shall not be liable for any
settlement of any action, suit, proceeding or claim effected
without its written consent, which consent shall not be
unreasonably withheld or delayed.
8. CONTRIBUTION. In order to provide for just and
equitable contribution in circumstances in which the
indemnification provided for in Section 7(a) or 7(b) is due in
accordance with its terms but for any reason is held to be
unavailable to or insufficient to hold harmless an indemnified
party under Section 7(a) or 7(b), then each indemnifying party
shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses
reasonably incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims
asserted, but after deducting any contribution received by any
person entitled hereunder to contribution from any person who may
be liable for contribution) to which the indemnified party may be
subject in such proportion as is appropriate to
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<PAGE>
reflect the relative benefits received by the Company, on the
one hand, and the Underwriters, on the other, from the offering
of the Shares or, if such allocation is not permitted by
applicable law or indemnification is not available as a result
of the indemnifying party not having received notice as provided
in Section 7 hereof, in such proportion as is appropriate to
reflect not only the relative benefits referred to above, but
also the relative fault of the Company, on the one hand, and the
Underwriters, on the other, in connection with the statements or
omissions which resulted in such losses, claims, damages,
liabilities or expenses, as well as any other relevant equitable
considerations. The relative benefits received by the Company
and the Underwriters shall be deemed to be in the same
proportion as (x) the total proceeds from the offering (net of
underwriting discounts, but before deducting expenses) received
by the Company, as set forth in the table on the cover page of
the Prospectus, bear to (y) the underwriting discounts received
by the Underwriters, as set forth in the table on the cover page
of the Prospectus. The relative fault of the Company or the
Underwriters shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact related to information supplied by the Company or
the Underwriters and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission. The Company and the Underwriters agree
that it would not be just and equitable if contribution pursuant
to this Section 8 were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose)
or by any other method of allocation which does not take account
of the equitable considerations referred to above.
Notwithstanding the provisions of this Section 8, (i) in no case
shall any Underwriter (except as may be provided in the
Agreement Among Underwriters) be liable or responsible for any
amount in excess of the underwriting discount applicable to the
Shares purchased by such Underwriter hereunder; (ii) the Company
shall be liable and responsible for any amount in excess of such
underwriting discount; provided, however, that no person guilty
of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 8, each person,
if any, who controls an Underwriter within the meaning of
Section 15 of the Securities Act or Section 20(a) of the
Exchange Act shall have the same rights to contribution as such
Underwriter, and each person, if any, who controls the Company
within the meaning of the Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, each officer of the Company
who shall have signed the Registration Statement and each
director of the Company shall have the same rights to
contribution as the Company, subject in each case to clauses (i)
and (ii) in the immediately preceding sentence of this Section
8. Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit or
proceeding against such party in respect of which a claim for
contribution may be made against another party or parties under
this Section 8, notify such party or parties from whom
contribution may be sought, but the omission so to notify such
party or parties from whom contribution may be sought shall not
relieve the party or parties from whom contribution may be
sought from any other obligation it or they may have hereunder
or otherwise than under this Section 8. No party shall be liable
for
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contribution with respect to any action, suit, proceeding or
claim settled without its written consent. The Underwriter's
obligations to contribute pursuant to this Section 8 are several
in proportion to their respective underwriting commitments and
not joint.
9. TERMINATION. This Agreement may be terminated with respect to the
Shares to be purchased on a Closing Date by the Representatives by notifying
the Company at any time:
(a) in the absolute discretion of the Representatives at or before any
Closing Date: (i) if on or prior to such date, any domestic or
international event or act or occurrence has materially disrupted, or in
the opinion of the Representatives will in the future materially disrupt,
the securities markets; (ii) if there has occurred any new outbreak or
material escalation of hostilities or other calamity or crisis the effect
of which on the financial markets of the United States is such as to make
it, in the judgment of the Representatives, inadvisable to proceed with
the offering; (iii) if there shall be such a material adverse change in
general financial, political or economic conditions or the effect of
international conditions on the financial markets in the United States is
such as to make it, in the judgment of the Representatives, inadvisable or
impracticable to market the Shares; (iv) if trading in the Shares has been
suspended by the Commission or trading generally on the New York Stock
Exchange, Inc., on the American Stock Exchange, Inc. or the Nasdaq
National Market has been suspended or limited, or minimum or maximum
ranges for prices for securities shall have been fixed, or maximum ranges
for prices for securities have been required, by said exchanges or by
order of the Commission, the National Association of Securities Dealers,
Inc., or any other governmental or regulatory authority; or (v) if a
banking moratorium has been declared by any state or Federal authority; or
(vi) if, in the judgment of the Representatives, there has occurred a
Material Adverse Effect, or
(b) at or before any Closing Date, that any of the conditions specified
in Section 5 shall not have been fulfilled when and as required by this
Agreement.
If this Agreement is terminated pursuant to any of its provisions, the
Company shall not be under any liability to any Underwriter, and no
Underwriter shall be under any liability to the Company, except that (i) if
this Agreement is terminated by the Representatives or the Underwriters
because of any failure, refusal or inability on the part of the Company to
comply with the terms or to fulfill any of the conditions of this Agreement,
the Company will reimburse the Underwriters for all out-of-pocket expenses
(including the reasonable fees and disbursements of their counsel) incurred
by them in connection with the proposed purchase and sale of the Shares or in
contemplation of performing their obligations hereunder and (ii) no
Underwriter who shall have failed or refused to purchase the Shares agreed to
be purchased by it under this Agreement, without some reason sufficient
hereunder to justify cancellation or termination of its obligations under
this Agreement, shall be relieved of liability to the Company or to the other
Underwriters for damages occasioned by its failure or refusal.
10. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters
shall
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fail (other than for a reason sufficient to justify the cancellation or
termination of this Agreement under Section 9) to purchase on any Closing
Date the Shares agreed to be purchased on such Closing Date by such
Underwriter or Underwriters, the Representatives may find one or more
substitute underwriters to purchase such Shares or make such other
arrangements as the Representatives may deem advisable; or one or more of the
remaining Underwriters may agree to purchase such Shares in such proportions
as may be approved by the Representatives, in each case upon the terms set
forth in this Agreement. If no such arrangements have been made by the close
of business on the business day following such Closing Date:
(a) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall not exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, then
each of the nondefaulting Underwriters shall be obligated to purchase such
Shares on the terms herein set forth in proportion to their respective
obligations hereunder; PROVIDED, that in no event shall the maximum number
of Shares that any Underwriter has agreed to purchase pursuant to Section
1 be increased pursuant to this Section 10 by more than [one-ninth] of
such number of Shares without the written consent of such Underwriter, or
(b) if the number of Shares to be purchased by the defaulting
Underwriters on such Closing Date shall exceed 10% of the Shares that all
the Underwriters are obligated to purchase on such Closing Date, then the
Company shall be entitled to one additional business day within which it
may, but is not obligated to, find one or more substitute underwriters
reasonably satisfactory to the Representatives to purchase such Shares
upon the terms set forth in this Agreement.
In any such case, either the Representatives or the Company shall have
the right to postpone the applicable Closing Date for a period of not more
than five business days in order that necessary changes and arrangements
(including any necessary amendments or supplements to the Registration
Statement or Prospectus) may be effected by the Representatives and the
Company. If the number of Shares to be purchased on such Closing Date by such
defaulting Underwriter or Underwriters shall exceed 10% of the Shares that
all the Underwriters are obligated to purchase on such Closing Date, and none
of the nondefaulting Underwriters or the Company shall make arrangements
pursuant to this Section within the period stated for the purchase of the
Shares that the defaulting Underwriters agreed to purchase, this Agreement
shall terminate with respect to the Shares to be purchased on such Closing
Date without liability on the part of any nondefaulting Underwriter to the
Company and without liability on the part of the Company, except in both
cases as provided in Sections 6(b), 7, 8 and 9. The provisions of this
Section shall not in any way affect the liability of any defaulting
Underwriter to the Company or the nondefaulting Underwriters arising out of
such default. A substitute underwriter hereunder shall become an Underwriter
for all purposes of this Agreement.
11. MISCELLANEOUS. The respective agreements, representations,
warranties, indemnities and other statements of the Company or its officers,
and of the Underwriters set forth in or made pursuant to this Agreement shall
remain in full force and effect, regardless of any investigation made by or
on behalf of any Underwriter or the Company or any of the officers,
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<PAGE>
directors or controlling persons referred to in Sections 7 and 8 hereof, and
shall survive delivery of and payment for the Shares. The provisions of
Sections 6(b), 7, 8 and 9 shall survive the termination or cancellation of
this Agreement.
This Agreement has been and is made for the benefit of the Underwriters,
the Company and their respective successors and assigns, and, to the extent
expressed herein, for the benefit of persons controlling any of the
Underwriters, or the Company, and directors and officers of the Company, and
their respective successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. The term "successors and
assigns" shall not include any purchaser of Shares from any Underwriter
merely because of such purchase.
All notices and communications hereunder shall be in writing and mailed
or delivered or by telephone or telegraph if subsequently confirmed in
writing, (a) if to the Representatives, c/o CIBC World Markets Corp., 10880
Wilshire Blvd., Los Angeles, CA 90024 Attention: Steven H. Reiner, with a
copy to Jonathan K. Layne, Gibson, Dunn & Crutcher LLP, 333 South Grand, Los
Angeles, California 90017 and (b) if to the Company, to its agent for service
as such agent's address appears on the cover page of the Registration
Statement, with a copy to Jerome L. Coben, Esq., Skadden, Arps, Slate,
Meagher & Flom LLP, 300 South Grand Avenue, Los Angeles, California 90017.
This Agreement shall be governed by and construed in accordance with the
laws of the State of New York without regard to principles of conflict of
laws.
This Agreement may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and hereto were upon the same instrument.
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Please confirm that the foregoing correctly sets forth the agreement
among us.
Very truly yours,
GUESS ?, INC.
By _____________________
Title:
Confirmed:
CIBC World Markets Corp.
PaineWebber Incorporated
Chase Securities Inc.
Tucker Anthony Incorporated
Ferris, Baker Watts Incorporated
C/O CIBC WORLD MARKETS CORP.
___________________________________
Acting severally on behalf of itself
and as representative of the several
Underwriters named in Schedule I annexed
hereto.
By CIBC WORLD MARKETS CORP.
By_____________________
Title:
-24-
<PAGE>
SCHEDULE I
Number of
Firm Shares to
NAME BE PURCHASED
CIBC World Markets Corp.
PaineWebber Incorporated
Chase Securities Inc.
Tucker Anthony Incorporated
Ferris, Baker Watts Incorporated
----------------
Total 4,500,000
================
-25
<PAGE>
SCHEDULE II
List of Persons Subject to Lock-Up Agreements
Maurice Marciano
Paul Marciano
Armand Marciano
Nancy Shachtman
Brian Fleming
Robert Davis
Alice Kane
Howard Socol
Bryan Isaacs
-26-
<PAGE>
FORM OF LOCK UP AGREEMENT
-27-
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
Board of Directors
Guess ?, Inc.
We consent to the use of our report incorporated herein by reference and to the
references to our firm under the headings "Selected Consolidated Financial Data"
and "Experts" in the prospectus.
Our report refers to a change in the method of accounting for product display
fixtures in 1997.
KPMG LLP
Los Angeles, California
April 25, 2000
