M A N A G E M E N T ' S D I S C U S S I O N A N D A N A L Y S I S
O F F I N A N C I A L C O N D I T I O N A N D R E S U L T S O F O P E R A T I O N S
continued
GUESS?, Inc. and Subsidiaries
page
3 0
CD rate plus 100 basis points or the Federal Funds Effective Rate (collectively "ABR") plus a range as defined depending on the duration
and type of loan facility. The Credit Facility expires on October 31, 2002. Borrowings under the Credit Facility primarily funded capital
projects and growth in inventories. At December 31, 2000, we had $22.4 million outstanding borrowings under the Credit Facility, $17.6
million in outstanding documentary letters of credit and $4.0 million in standby letters of credit. At December 31, 2000, we had $81.0
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. As a result of lower than expected financial results in the fourth quarter and fiscal
year 2000, the Company was in non-compliance with the terms of the Credit Facility regarding the fixed charge coverage ratio required for
the twelve-month period ended December 31, 2000. On March 27, 2001 the Company's bank lenders agreed to amend the Credit Facility
Agreement to cure all past non-compliance and revise certain terms, including modifications to the financial covenants, the addition of
a liquidity ratio and an amendment to the range of interest rates based on the leverage ratio as follows: LIBOR plus 100 basis points to
LIBOR plus 225 basis points, ABR to ABR plus 125 basis points and commitment fees of 25 basis points to 62.5 basis points. Accordingly,
the Company is presently in full compliance with all the terms of the Credit Facility, as amended.
The Company has also agreed to provide long-term financing of up to $13.4 million to GUESS? Canada to expand its retail operations,
of which $12.3 million was outstanding as of December 31, 2000. The remaining funding is being provided on an as-needed basis.
Capital expenditures, net of lease incentives granted, totaled $79.1 million for 2000 and $62.0 million for 1999. The increase in capital
expenditures was due primarily to our increase in store openings and remodels, the retail expansion of GUESS? Canada, our expansion of
shop-in-shops in department stores and investments in our systems infrastructure. Capital expenditures by our retail operating segment
increased to $57.3 million in 2000 from $26.5 million in 1999 primarily due to retail store expansion and store remodels. Capital expen-
ditures by our wholesale operating segment decreased to $21.8 million in 2000 from $35.5 million in 1999 as the distribution facility
construction costs were primarily incurred in 1999. Our capital expenditures planned for 2001 are approximately $40.0 million, primarily
for retail store expansion, including our expansion in Canada, store remodelings, investments in systems and shop-in-shop expansion
and enhancements.
We anticipate we will be able to satisfy our ongoing cash requirements through 2001, including retail expansion plans and interest pay-
ments on our senior subordinated notes due 2003 (such interest payments paid by us during 2000 amounted to $7.6 million), primarily
with cash flow from operations, supplemented by borrowings under our Credit Facility.
I M P O R T A N T F A C T O R S R E G A R D I N G F O R W A R D - L O O K I N G S T A T E M E N T S
Various forward-looking statements have been made in this Annual Report. Forward-looking statements may also be in our other reports
filed under the Securities Exchange Act of 1934, in our press releases and in other documents. In addition, from time to time, we,
through our management, may make oral forward-looking statements.
Forward-looking statements are only expectations, and involve known and unknown risks and uncertainties, which may cause actual
results in future periods and other future events to differ materially from what is currently anticipated. Certain statements in this Annual
Report, including those relating to 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, our cost containment efforts, our plans regarding store openings
and closings and our business seasonality, are forward-looking statements. Such statements involve risks and uncertainties, which may
cause actual results to differ materially from those set forth in these statements. In addition to the factors discussed below, the eco-
nomic and other factors identified elsewhere in this Annual Report, as well as the risk factors discussed in our previously filed public
documents, could affect the forward-looking statements contained herein and therein.
Forward-looking statements generally refer to future plans and performance, and are identified by the words "believe," "expect,"
"anticipate," "optimistic," "intend," "aim," "will" or the negative thereof and similar expressions. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date of which they are made. We undertake no obliga-
tion to update publicly or revise any forward-looking statements.
Important factors which could have a material adverse effect on our financial condition and results of operations and could cause actual
results in future periods to differ materially from our forward-looking statements, as well as affect our ability to achieve our financial and
other goals, include, but are not limited to, the following:
s
The lack of continued availability of sufficient working capital.
s
Our inability to integrate new stores into existing operations.
s
The decline in continued desirability and customer acceptance of our existing and future products.
