N O T E S T O C O N S O L I D A T E D F I N A N C I A L S T A T E M E N T S
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GUESS?, Inc. and Subsidiaries
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Income Taxes
The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recog-
nized 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
Comprehensive income consists of net earnings, unrealized gains or losses 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 reports 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 13.
Fair Value of Financial Instruments
The carrying amount of the Company's financial instruments, which principally include cash, short-term investments, trade receivables,
accounts payable and accrued expenses, approximates fair value due to the relatively short maturity of such instruments. Long-term
investments are recorded at fair value.
The fair value of the Company's debt instruments are based on the amount of future cash flows associated with each instrument dis-
counted using the Company's borrowing rate. At December 31, 2000 and 1999, the carrying value of all financial instruments was not
materially different from fair value, as the fixed rate debt approximates rates currently available to the Company.
Long-Lived Assets
The Company reports long-lived assets, including intangibles, at amortized cost. Long-lived assets and certain intangibles, including
goodwill, 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 assets will not be recoverable, as determined by a 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,
2000, 1999 and 1998 were $29.7 million, $24.5 million, and $18.0 million, respectively.
Reclassifications
Certain reclassifications have been made to the 1999 and 1998 consolidated financial statements to conform with the 2000 presentation.
N O T E 2 . I N V E S T M E N T S
At December 31, 2000, short-term investments consist of $0.9 million of marketable securities available for sale. At December 31, 1999,
short-term investments of $27.1 million consist mostly of overnight interest-bearing deposit accounts.
Long-term investments consist of certain marketable equity securities aggregating $447,000 and $21.8 million at December 31, 2000 and
1999, respectively, and are included in other assets in the accompanying consolidated balance sheets. Unrealized gains (losses) related
to marketable equity securities at December 31, 2000 and 1999 amounted to ($1.9) million and $11.2 million, respectively, net of deferred
tax assets (liabilities) of $1.3 million and ($7.6) million, respectively, and are included as a component of stockholders' equity. During 2000,
the Company recorded an impairment charge related to a certain long-term marketable equity security. See Note 16.
