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GUESS?, Inc. and Subsidiaries
N O T E 1 0 . C O M M I T M E N T S A N D C O N T I N G E N C I E S
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, 2000 are as follows:
Year Ending December 31,
Non Related
Related
( i n t h o u s a n d s )
Parties
Parties
Total
2001
$ 45,088
$ 2,839
$ 47,927
2002
46,004
2,839
48,843
2003
44,991
2,839
47,830
2004
42,058
2,839
44,897
2005
37,542
2,839
40,381
Thereafter
124,729
7,331
132,060
$340,412
$21,526
$361,938
Rental expense for all operating leases during the years ended December 31, 2000, 1999, and 1998 aggregated $36.1 million, $34.9 million,
and $27.1 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 approximately January 15, 1999, UNITE filed an unfair labor practice 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? 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. On July 6, 2000, the complaint was dismissed
in its entirety. The NLRB appealed the decision and both sides submitted briefs in September of 2000. We are awaiting a decision on
the appeal.
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 June 9, 2000, the arbitrators issued a final award in our favor and rejected each of PLB's counterclaims. The amount of this award was
$7,659,677. Thereafter, the Company filed a petition to confirm the arbitration award and PLB filed a petition to vacate the award. On
September 29, 2000, the court confirmed the final award and denied PLB's petition to vacate. On October 23, 2000, the court entered
judgment confirming the final arbitration award and the case has been resolved. Because of the uncertainty of the ultimate realization
of the award, no recognition has been given to it in our consolidated financial statements.
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 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. Kirkland's petition for review
to the California Supreme Court was denied on July 12, 2000. No trial date has been set.
