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EXHIBIT 99.1
AMENDED CAUTIONARY STATEMENT FOR PURPOSES OF
THE "SAFE HARBOR" PROVISIONS OF THE
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
From time to time, Simon Worldwide, Inc. ("Simon Worldwide") may provide
forward-looking information such as forecasts of expected future performance or
statements about Simon Worldwide's plans and objectives. This information may be
contained in filings with the Securities and Exchange Commission, press releases
or oral statements by the officers of Simon Worldwide. Simon Worldwide desires
to take advantage of the "Safe Harbor" provisions of the Private Securities
Litigation Reform Act of 1995 and is including this Exhibit 99.1 in this Form
8-K in order to do so.
Simon Worldwide wishes to caution readers that the following important factors,
among others, in some cases have affected, and in the future could affect, Simon
Worldwide's actual results and could cause Simon Worldwide's actual consolidated
results for Simon Worldwide's current quarter and beyond to differ materially
from those expressed in any forward-looking statements made by, or on behalf of,
Simon Worldwide.
DEPENDENCE ON PRINCIPAL CUSTOMERS WHICH HAVE TERMINATED THEIR RELATIONSHIPS WITH
US
In recent years, our business has been heavily dependent on purchases of
promotional products by our key customers including Philip Morris Incorporated
("Philip Morris"). Additionally, the business of our subsidiary, Simon
Marketing, Inc., has been heavily dependent on purchases of promotional products
and services by McDonald's Corporation ("McDonald's") or its franchisees for
which it receives an annual fee and other payments. As a result of the alleged
fraudulent actions of a Simon Marketing, Inc. employee in connection with the
McDonald's promotional games administered by Simon Marketing, Inc., both
McDonald's and Phillip Morris terminated their relationships with us. Our
business, sales and results of operations will be materially adversely affected
by the loss of Philip Morris and McDonald's. In addition, the absence of
production from McDonald's and Philip Morris may adversely affect our
relationship with and access to foreign manufacturing sources.
PENDING LITIGATION
We, along with our subsidiary, Simon Marketing, Inc., have been named as
defendants (and/or co-defendants with McDonald's) in complaints filed in the
Circuit Court of Cook County, Illinois, the Circuit Court of the 11th Judicial
Circuit, Miami-Dade County, Florida, the Superior Courts of Los Angeles County
and San Diego, County, California, the Court of Common Pleas of Lancaster
County, Pennsylvania, the Circuit Court of Tennessee for the 30th Judicial
District at Memphis, and the United States District Courts for the Northern
District of Illinois and the District of New Jersey. In addition, we have been
notified we will be named as a respondent in an arbitration before the American
Arbitration Association. Some of the recently filed complaints are on behalf of
a purported class of consumers. The complaints, which contain
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generally similar allegations, allege that we have engaged in unfair
competition, consumer fraud, false advertising, unfair and deceptive business
practices, and unjust enrichment. The complaints seek damages of an unspecified
amount and disgorgement of profits. The actions are in their earliest states and
arise from allegations that recently came to light relating to the alleged
fraudulent actions of one rogue employee in connection with the McDonald's
promotional games administered us. We expect that we will be named as a
defendant or co-defendant in additional actions which may be filed alleging
similar claims. We intend to vigorously defend against the allegations of the
complaints but are unable to predict the outcome of the suits and their ultimate
effect, if any, on our financial condition.
DEPENDENCE ON KEY PERSONNEL
We are dependent on several key personnel, including Allan I. Brown, our Chief
Executive Officer and President. In light of the loss of our principal customers
and the pending litigation against us, there is no assurance that our key
personnel can be retained. The loss of the services of Mr. Brown or other key
personnel could harm our business. In addition, our continued success also
depends upon our ability to retain and attract skilled design, marketing and
management personnel. The loss of one or several members of such personnel could
have a material adverse effect on our business.
LIMITED CUSTOMER COMMITMENTS
Generally, our agreements with promotional product customers do not require them
to make a certain level of purchases. Instead, purchase commitments are
represented by purchase orders placed by the customers from time to time during
the course of a promotion. The actual level of purchases by promotional products
customers depends on a number of factors, including the duration of the
promotion and consumer redemption rates. Purchase orders are generally subject
to cancellation with limited penalty. Consequently, our level of net sales is
difficult to predict accurately and can fluctuate greatly from quarter to
quarter.
PROMOTIONAL PRODUCT AND MARKETING SPENDING
Our business is driven by the spending of companies to promote and market their
corporate identities and brand name products. If the demand for brand name
products diminishes or if our customers decrease their use of promotional
product programs or reduce their marketing spend to promote their corporate
identities and brands, our business will be materially adversely affected. In
addition, our relationship with certain of our promotional products customers
has been limited to the sourcing of products being offered or sold by the
customer in connection with a single promotional program. There can be no
assurance that such customers will continue to use us to source products for
future promotional programs.
COMPETITION
The promotional products industry is highly fragmented and competitive, and some
of our competitors have substantially greater financial and other resources than
we do. We also compete with the services of in-house advertising, promotional
products and purchasing
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departments and with designers and vendors of single or multiple product lines.
Certain of our customers seek competitive bids for their promotional programs.
Our profit margin depends, to a great extent, on our competitive position when
bidding and our ability to continually decrease product costs after being
awarded bids. Competition is not expected to abate and thus will continue to
exert pressure on our profit margin in the future.
ASIAN ECONOMIC PROBLEMS
The majority of our net sales in recent years have been attributable to products
manufactured by subcontractors located in Asia. We have no long-term contracts
with these manufacturing sources and often compete with other companies for
production facilities and import quota capacity. In addition, many Asian
manufacturers require that a letter of credit be posted at the time a purchase
order is placed. There can be no assurance that we will continue to have the
necessary credit facilities in order to post such letters of credit. Our
business is subject to the risks normally associated with conducting business
abroad, such as:
- foreign government regulations;
- political unrest;
- disruptions or delays in shipments;
- fluctuations in foreign currency exchange rates; and
- changes in economic conditions in countries in which our manufacturing
sources are located.
If any such factors were to render the conduct of our business in a particular
country undesirable or impractical, or if our current foreign manufacturing
sources were to cease doing business with us for any reason, our business, sales
and operating results could be materially adversely affected.
IMPORTS AND IMPORT RESTRICTIONS
The importation of products manufactured in Asia is subject to the constraints
imposed by bilateral agreements between the United States and substantially all
of the countries from which we import goods. These agreements impose quotas that
limit the quantity of certain types of goods, including textile products
imported by us, which can be imported into the United States from those
countries. These agreements also allow the United States to impose, under
certain conditions, restraints on the importation of categories of merchandise
that, under the terms of the agreements, are not subject to specified limits.
Our continued ability to source products through imports may be harmed by:
- additional bilateral and multilateral agreements;
- unilateral trade restrictions;
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- significant decreases in import quotas;
- the disruption of trade from exporting countries as a result of
political instability; or
- the imposition of additional duties, taxes and other charges or
restrictions on imports.
Products imported by us from China currently receive the same preferential
tariff treatment accorded goods from countries granted permanent "normal trade
relations". However, the annual renewal by Congress of normal trade relations
with China has been a contentious political issue for several years and there
can be no assurance that such relations will be continued. If China were to lose
its grant of normal trade relations with the U.S., goods imported from China
would be subject to significantly higher duty rates which would increase the
cost of goods from China and could materially harm our business.
EFFECT OF INDUSTRY CONDITIONS FACING SIMON WORLDWIDE'S CUSTOMERS
Our business is heavily dependent on the promotional budgets of our customers,
which in turn are influenced by industry conditions and other factors.
SALE OF CPG AND NEW CORPORATE STRUCTURE
In December 2000, we decided to sell our CPG division and, in February 2001, we
announced that we had sold our CPG division, which was comprised principally of
two of our subsidiaries, Tonkin, Inc., or Tonkin, and Cyrk Acquisition Corp., or
CAC. The sale is described in our report filed on Form 8-K dated February 15,
2001 which is incorporated herein by reference. In connection with the sale, we
agreed not to compete in the CPG business in the United States for a period of
five years after the closing of the sale. There can be no assurance that the
sale of the CPG division will result in long term benefits. We are effecting a
new corporate structure enabled by the sale of the CPG division that will
operate globally. This corporate structure is primarily comprised of the
operations of our Simon Marketing subsidiary and certain legacy custom product
clients. In connection with this new structure, certain of our executive
officers resigned in June 2001 as described in our report filed on Form 8-K
dated June 15, 2001. There is no assurance that this new structure will be
successfully effected in a manner that will have a positive impact on our
business, sales or operating results.
ACQUISITIONS, INVESTMENTS, STRATEGIC ALLIANCES OR OTHER ALTERNATIVES
We may acquire or invest in other businesses which are complementary to our
business or enter into strategic alliances with such businesses, or explore
other strategic alternatives for Simon Worldwide. In addition, we have made and
may continue to make venture investments. There can be no assurance that any
current or future acquisition, strategic or venture investment or strategic
alliance or strategic alternative will result in long-term benefits. If we are
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successful in our acquisitions, investments or alliances or any other financial
or strategic alternatives, our business and operating results in the future may
be harmed.
Our Internet venture investments are subject to all the risks inherent in the
Internet marketplace including the growth of the number of users, concerns about
systems and transaction security, continued development of technological
infrastructure, increasing government regulation of the Internet, rapid
technology changes rendering existing technology obsolete, the possibility of
system downtime and/or failure due to technological or other factors beyond our
control, and the fact that legal standards relating to intellectual property
rights in Internet-related business are uncertain and evolving, and are further
subject to valuation volatility of this sector within the investment community.
In addition, the early stage Internet companies have a high degree of dependence
on ready access to the capital markets and, as such, are highly vulnerable to
the pace and scale of change in the capital markets.