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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Included above at December 31, 2000 and 1999 are $14.5 million and $9.6 million for current deferred tax assets, respectively,
and $6.1 million non-current deferred tax assets, included in other assets, and $4.5 million non-current deferred tax liabilities at
December 31, 2000 and 1999, respectively.
Prepaid income taxes of $9.1 million and $3.0 million at December 31, 2000 and 1999, respectively, arise from the overpayment of
estimated income taxes. The Company filed a federal quick tax refund and received an $8.0 million refund in February 2001.
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.
N O T E 9 . R E L A T E D P A R T Y T R A N S A C T I O N S
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").
License Agreements and Licensee Transactions
On September 28, 1990, the Company entered into a license agreement with Charles David of California ("Charles David"). Charles David
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 the Company under such license agreement for the fiscal years ended December 31, 2000, 1999 and 1998 were
$2.1 million, $1.9 million and $1.4 million, respectively. Additionally, the Company purchased $8.7 million, $8.4 million and $6.1 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 2000, 1999 and 1998, the Company recorded $2.8 million in revenue
in connection with the grant of such license rights. Additionally, the Company also recorded $3.0 million, $3.2 million and $2.3 million
in royalty fees related to product sales in 2000, 1999 and 1998, respectively. Effective 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. No significant revenue was recorded related to the grant of this license agreement.
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 $2.0 million and will provide long-term debt financing of up
to $13.4 million to GUESS? Canada to expand its Canadian 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. 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 amor-
tized over 15 years. The operating results of GUESS? Canada are immaterial to the Company's consolidated financial statements.
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, 2000, both of which expire in July 2008. The total lease payments
to these limited partnerships are currently $237,000 per month. Additionally, the Company is also on a month-to-month lease for another
storage facility. Aggregate lease payments under leases in effect for the fiscal years ended December 31, 2000, 1999 and 1998 were
$2.8 million, $2.7 million, and $2.7 million, respectively.
