FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended July 31, 2001
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-18183
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G-III APPAREL GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 41-1590959
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
512 Seventh Avenue, New York, New York 10018
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(Address of Principal Executive Office) (Zip Code)
(212) 403-0500
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 1, 2001.
Common Stock, $.01 par value per share: 6,689,804 shares.
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Condensed Consolidated Balance Sheets -
July 31, 2001 and January 31, 2001................................................3
Condensed Consolidated Statements of Operations -
For the Three Months Ended
July 31, 2001 and 2000............................................................4
Condensed Consolidated Statements of Operations -
For the Six Months Ended
July 31, 2001 and 2000............................................................5
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended
July 31, 2001 and 2000............................................................6
Notes to Condensed Consolidated Financial Statements......................................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.............................................9
* The Balance Sheet at January 31, 2001 has been taken from the audited financial statements at that
date. All other financial statements are unaudited.
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders..........................................12
Item 6. Exhibits and Reports on Form 8-K........................................................ 12
(a) Exhibits
1. Amendment No. 9 to the Fifth Amended and Restated Loan Agreement, dated as
of May 31, 2001 by and among G-III, the Banks and Fleet Bank.
2. Amendment No. 10 to the Fifth Amended and Restated Loan Agreement, dated as
of July 27, 2001, by and among G-III, the Banks and Fleet Bank.
- 2 -
G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS JULY 31, JANUARY 31,
2001 2001
---- ----
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 1,433 $ 9,231
Accounts receivable 49,355 11,528
Allowance for doubtful accounts and sales discounts (4,636) (4,242)
Inventories - net 83,650 42,450
Prepaid expenses and other current assets 7,410 2,481
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Total current assets 137,212 61,448
PROPERTY, PLANT AND EQUIPMENT, NET 2,896 2,940
DEFERRED INCOME TAXES 4,889 4,889
OTHER ASSETS 2,904 2,675
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$147,901 $ 71,952
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 63,599 $ 1,500
Current maturities of obligations under capital leases 32 80
Income taxes payable 2,117 2,312
Accounts payable 23,642 7,411
Accrued expenses 4,928 8,190
Accrued nonrecurring charges 101 97
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Total current liabilities 94,419 19,590
OTHER LONG-TERM LIABILITIES 292 293
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized;
no shares issued and outstanding in all periods
Common stock - $.01 par value; authorized,
20,000,000 shares; 6,934,521 and 6,878,171 shares issued
at July 31, 2001 and January 31, 2001, respectively 69 69
Additional paid-in capital 25,423 25,295
Retained earnings 28,668 27,675
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54,160 53,039
Less common stock held in treasury - 244,817 shares at
July 31, 2001 and January 31, 2001, at cost (970) (970)
-------- --------
53,190 52,069
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$147,901 $ 71,952
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The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED JULY 31,
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(Unaudited)
2001 2000
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Net sales $62,913 $47,385
Cost of goods sold 46,298 33,587
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Gross profit 16,615 13,798
Selling, general and administrative expenses 9,027 7,280
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Operating income 7,588 6,518
Interest and financing charges, net 1,113 787
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Income before income taxes 6,475 5,731
Income tax expense 2,590 2,284
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Net income $ 3,885 $ 3,447
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INCOME PER COMMON SHARE:
Basic:
-----
Net income per common share $ 0.58 $ 0.53
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Weighted average number of shares outstanding 6,678,639 6,524,360
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Diluted:
-------
Net income per common share $ 0.52 $ 0.49
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Weighted average number of shares outstanding 7,456,050 7,048,484
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The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
SIX MONTHS ENDED JULY 31,
-------------------------
(Unaudited)
2001 2000
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Net sales $ 80,080 $57,963
Cost of goods sold 60,515 41,985
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Gross profit 19,565 15,978
Selling, general and administrative expenses 16,492 13,582
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Operating income 3,073 2,396
Interest and financing charges, net 1,418 872
----- ---
Income before minority interest 1,655 1,524
and income taxes
Minority interest in loss of joint venture 9
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Income before income taxes 1,655 1,533
Income tax expense 662 605
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Net income $ 993 $ 928
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INCOME PER COMMON SHARE:
Basic:
------
Net income per common share $ 0.15 $ 0.14
========= =========
Weighted average number of shares outstanding 6,662,121 6,569,370
========= =========
Diluted:
--------
Net income per common share $ 0.13 $ 0.13
========= =========
Weighted average number of shares outstanding 7,412,370 7,033,839
========= =========
The accompanying notes are an integral part of these statements.
- 5 -
G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED JULY 31,
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(Unaudited)
2001 2000
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Cash flows from operating activities
Net income $ 993 $ 928
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 583 433
Minority interest (9)
Changes in operating assets and liabilities:
Accounts receivable (37,433) (23,502)
Inventories (41,200) (31,844)
Income taxes (195) (2,551)
Prepaid expenses and other current assets (4,929) (2,295)
Other assets (102) (207)
Accounts payable and accrued expenses 12,969 2,858
Accrued nonrecurring charge (47) (235)
Other long term liabilities 50 50
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Net cash used in operating activities (69,311) (56,374)
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Cash flows from investing activities
Capital expenditures (485) (444)
Capital dispositions 24 17
Purchase of certain assets of Gloria Gay Coats, LLC (205)
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Net cash used in operating activities (666) (427)
Cash flows from financing activities
Increase in notes payable, net 62,099 43,056
Payments for capital lease obligations (48) (54)
Investment in joint venture by minority partner 1,012
Purchase of common stock for Treasury (540)
Proceeds from exercise of stock options 128 28
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Net Cash from financing activities 62,179 43,502
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Net decrease in cash and cash equivalents (7,798) (13,299)
Cash and cash equivalents at beginning of period 9,231 14,530
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Cash and cash equivalents at end of period $ 1,433 $ 1,231
========== =========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 945 $ 422
Income taxes $ 806 $ 3,105
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
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The results for the three and six month periods ended July 31, 2001 are not
necessarily indicative of the results expected for the entire fiscal year, given
the seasonal nature of the Company's business. The accompanying financial
statements included herein are unaudited. In the opinion of management, all
adjustments (consisting of only normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been reflected.
The Company consolidates the accounts of all its majority-owned subsidiaries.
All material intercompany balances and transactions have been eliminated.
The accompanying financial statements should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10K filed with the Securities and Exchange Commission for the year ended January
31, 2001.
Certain reclassifications have been made to conform to the fiscal 2001
presentation.
Note 2 - Inventories
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Inventories consist of:
JULY 31, January 31,
2001 2001
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(in thousands)
Finished products $ 46,034 $ 17,605
Work-in-process 8,977 1,707
Raw materials 28,639 23,138
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$ 83,650 $ 42,450
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Note 3 - Net Income Per Common Share
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Basic earnings per share amounts have been computed using the weighted average
number of common shares outstanding during each period. When applicable, diluted
earnings per share amounts are computed using the weighted average number of
common shares and the dilutive potential common shares outstanding during the
period.
Note 4 - Notes Payable
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The Company's loan agreement, which expires on May 31, 2002, is a collateralized
working capital line of credit with six banks that provides for a maximum line
of credit in amounts that range from $45 million to $85 million at specific
times during the year. The line of credit provides for maximum direct borrowings
ranging from $30 million to $72 million during the year. The unused balance may
be used for letters of credit. Amounts available for borrowing are subject to
borrowing base formulas and overadvances specified in the agreement. There was
$62.8 million outstanding at July 31, 2001 and no loan balance outstanding at
January 31, 2001 under this agreement.
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Notes payable also includes borrowings by PT Balihides, the Company's Indonesian
subsidiary, under a credit facility with an Indonesian bank. During the six
month period ended July 31, 2001, the Company reduced the amount of this foreign
debt. There were notes payable outstanding under this facility of $800,000 as of
July 31, 2001 and $1.5 million as of January 31, 2001.
Note 5 - Nonrecurring Charge
- ----------------------------
The nonrecurring charge refers to the reserve associated with the closure of the
company's domestic factory that was completed by January 31, 1995. The balance
of $181,000 at July 31, 2001 and $228,000 at January 31, 2001 relates to the
remaining obligation under an operating lease obligation. Based on current
estimates, management believes that existing accruals are adequate. Other
long-term liabilities include $80,000 and $131,000 of nonrecurring charges at
July 31, 2001 and January 31, 2001, respectively.
Note 6 - Segments
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The Company's reportable segments are business units that offer different
products and are managed separately. The company operates in two segments,
licensed and non-licensed apparel. The following information is presented for
the three and six month periods indicated below:
THREE MONTHS ENDED JULY 31,
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2001 2000
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NON- Non-
LICENSED LICENSED Licensed Licensed
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Net sales $ 21,389 $41,524 $ 16,738 $ 30,647
Cost of goods sold 15,150 31,148 12,024 21,563
------ ------ ------- -------
Gross profit 6,239 10,376 4,714 9,084
Selling, general and administrative 4,991 4,036 3,422 3,858
-------- ------- -------- --------
Operating income 1,248 6,340 1,292 5,226
Interest expense 545 568 317 470
--------- -------- --------- ---------
Income before income taxes $ 703 $ 5,772 $ 975 $ 4,756
========= ======= ========= ========
SIX MONTHS ENDED JULY 31,
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2001 2000
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NON- Non-
LICENSED LICENSED Licensed Licensed
Net sales $29,699 $50,381 $ 23,418 $ 34,545
Cost of goods sold 22,018 38,497 17,075 24,910
-------- -------- --------- --------
Gross profit 7,681 11,884 6,343 9,635
Selling, general and administrative 8,915 7,577 6,458 7,124
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Operating income (loss) (1,234) 4,307 (115) 2,511
Interest expense 647 771 290 582
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Income (loss) before minority
interest and income taxes (1,881) 3,536 (405) 1,929
Minority interest 9
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Income (loss) before income taxes $ (1,881) $ 3,536 $ (405) $ 1,938
======== ======= ========= ========
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Item 2 Management's Discussion and Analysis of Financial Condition and Results
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of Operations.
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Unless the context otherwise requires, "G-III", "us", "we" and "our" refer to
G-III Apparel Group, Ltd. and its subsidiaries. References to fiscal years refer
to the year ended or ending on January 31 of that year.
Statements in this Quarterly Report on Form 10-Q concerning our business outlook
or future economic performance; anticipated revenues, expenses or other
financial items; product introductions and plans and objectives related thereto;
and statements concerning assumptions made or expectations as to any future
events, conditions, performance or other matter, are "forward-looking
statements" as that term is defined under the Federal securities laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not limited
to, reliance on foreign manufacturers, risks of doing business abroad, the
nature of the apparel industry, including changing consumer demand and tastes,
seasonality, customer acceptance of new products, the impact of competitive
products and pricing, dependence on existing management, general economic
conditions, as well as other risks detailed in the Company's filings with the
Securities and Exchange Commission, including this Quarterly Report on Form
10-Q.
Traditionally, we have our highest quarterly sales volume in the quarter ending
October 31 of each year. We are unable to predict the effect that the terrorist
attacks on September 11, 2001 will have on our business and related retail
sales. The effects of these recent events could have a material adverse effect
on our results of operations for the three months ending October 31, 2001 and
for the six months and year ending January 31, 2002.
RESULTS OF OPERATIONS
Net sales for the three months ended July 31, 2001 were $62.9 million compared
to $47.4 million for the same period last year. The increase in net sales during
the quarter was attributable to a $10.9 million increase in sales of
non-licensed apparel and a $4.7 million increase in sales of licensed apparel.
Net sales for the six months ended July 31, 2001 were $80.1 million compared to
$58.0 million for the same period in the prior year. The increase in net sales
in the six month period was attributable to a $15.8 million increase in sales of
non-licensed apparel and a $6.3 million increase in sales of licensed apparel.
Gross profit was $16.6 million, or 26.4% of net sales, for the three months
ended July 31, 2001 compared to $13.8 million, or 29.1% of net sales, for the
same period last year. Gross profit was $19.6 million, or 24.4% of net sales,
for the six months ended July 31, 2001 compared to $16.0 million, or 27.6% of
net sales, for the same period last year. The decrease in gross profit
percentage for the three month period ended July 31, 2001 resulted from a lower
gross profit percentage in the non-licensed apparel segment offset, in part, by
a higher gross profit percentage in the licensed apparel segment. The gross
profit percentage decreased in the non-licensed apparel segment primarily due to
sales of lower margin products. In addition, a portion of the decrease resulted
from a lower volume of commission fee income. Commission fee income, which is
primarily generated in the non-licensed apparel segment, decreased to $1.4
million during the three months ended July 31, 2001 from $1.7 million in the
comparable period of the prior year. There is no cost of goods sold component
associated with commission transactions.
- 9 -
The decrease in gross profit percentage for the six month period ended July 31,
2001 was due primarily to a larger portion of sales at deeper discounts in both
the licensed and non-licensed apparel segments. In addition, commission fee
income decreased to $1.5 million during the six months ended July 31, 2001 from
$2.1 million in the comparable period of the prior year.
Selling, general and administrative expenses for the three months ended July 31,
2001 were $9.0 million compared to $7.3 million in the three months ended July
31, 2000. Selling, general and administrative expenses for the six months ended
July 31, 2001 were $16.5 million compared to $13.6 million for the same period
last year. The increases in both the three and six month periods were primarily
a result of expenses relating to the start-up of the Cole Haan, Caterpillar, and
the two Jones New York divisions, which increased expenses in the licensed
apparel segment by $1.4 million in the three month period and $1.6 million in
the six month period. In addition, during the six month period, personnel
expenses increased by $856,000 and facility expenses increased by $314,000 over
the comparable period of the prior year.
Interest expense and finance charges for the three months ended July 31, 2001
were $1.1 million compared to $787,000 in the same period last year. Interest
expense and finance charges for the six month period ended July 31, 2001 were
$1.4 million compared to $872,000 in the same period last year. The increase in
interest expense in both the three and six month periods resulted primarily from
increased inventory investments needed to support our increased sales volume
offset, in part, by lower interest rates.
Income tax expense was $2.6 million for the three months ended July 31, 2001
compared to $2.3 million in the same period in the prior year. Income tax
expense was $662,000 for the six months ended July 31, 2001 compared to $605,000
in the same period last year. Our effective tax rate was 40% in both periods in
each fiscal year.
For the three months ended July 31, 2001, we had net income of $3.9 million, or
$.52 per diluted share, compared to $3.4 million, or $.49 per diluted share, for
the same period in the prior year. For the six months ended July 31, 2001, we
had net income of $993,000, or $.13 per diluted share, compared to $928,000, or
$.13 per diluted share, for the same period in the prior year.
LIQUIDITY AND CAPITAL RESOURCES
Our loan agreement, which expires on May 31, 2002, is a collateralized working
capital line of credit with six banks that provides for a maximum line of credit
in amounts that range from $45 million to $85 million at specific times during
the year. The line of credit provides for maximum direct borrowings ranging from
$30 million to $72 million during the year. The unused balance may be used for
letters of credit. Amounts available for borrowing are subject to borrowing base
formulas and overadvances specified in the agreement.
Direct borrowings under the line of credit bear interest at our option at either
the prevailing prime rate (6.5% as of September 1, 2001) or LIBOR plus 225 basis
points (5.8% at September 1, 2001). All borrowings are collateralized by our
assets. The loan agreement requires us, among other covenants, to maintain
specified earnings and tangible net worth levels, and prohibits the payment of
cash dividends.
- 10 -
The amount borrowed under the line of credit varies based on our seasonal
requirements. As of July 31, 2001, direct borrowings were $62.8 million and
contingent liabilities under open letters of credit was approximately $13.6
million compared to direct borrowings of $44.9 million and contingent
liabilities under open letters of credit of approximately $19.3 million as of
July 31, 2000. The increase in borrowings under our credit facility compared to
last year resulted primarily from the increase in inventories needed to support
our increased sales volume.
PT Balihides, our Indonesian subsidiary, has a separate credit facility with an
Indonesian bank. During the six month period ended July 31, 2001, we reduced the
amount of this foreign debt. There were notes payable outstanding under this
facility of approximately $800,000 as of July 31, 2001 and $1.5 million as of
January 31, 2001.
In November 1999, along with Black Entertainment Television ("BET"), we decided
to discontinue our BET Design Studio joint venture. The joint venture was
started in February 1997 to provide a BET-branded clothing and accessory line.
BET and us each contributed $3.8 million to this joint venture, of which $1.0
million was contributed during the quarter ended April 30, 2000. The final
distribution from the joint venture company was made in January 2001.
On December 20, 1999, our Board of Directors authorized the repurchase of up to
$1,000,000 worth of our common stock. We purchased 244,817 shares of our common
stock at a total cost of $970,000. We concluded this buyback program in the
quarter ended April 30, 2000, when we expended $540,000 to purchase our shares.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Derivatives
Effective February 1, 2001, we adopted the provisions of Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities." Due to the immaterial amount of our derivative and hedging
activity, the effect of adopting SFAS 133 on our results of operations and
financial position was immaterial.
Business Combinations/Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting Standards No. 141, Business Combinations, and No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. Under the new rules, goodwill and intangible assets deemed to
have indefinite lives will no longer be amortized but will be subject to annual
impairment tests in accordance with the Statements. Other intangible assets will
continue to be amortized over their useful lives.
We will apply the new rules on accounting for goodwill and other intangible
assets beginning in the first quarter of the fiscal year ending January 31,
2003. We do not believe the new pronouncements will have a material impact on
our consolidated financial position or results of operations
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
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(a) Our Annual Meeting of Stockholders was held on June 12, 2001.
(b) The following matters were voted on and approved by our
stockholders at the Annual Meeting:
(i) The election of nine directors to serve for the ensuing
year. The following nominees were elected as directors
(with our stockholders having voted as set forth below):
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NOMINEE VOTES FOR WITHHELD AUTHORITY TO VOTE
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Morris Goldfarb 6,403,884 64,355
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Aron Goldfarb 6,403,884 64,355
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Lyle Berman 6,427,884 40,355
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Thomas J. Brosig 6,425,384 42,855
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Alan Feller 6,425,884 42,355
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Carl Katz 6,425,884 42,355
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Willem van Bokhorst 6,425,884 42,355
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Sigmund Weiss 6,424,379 43,860
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George J. Winchell 6,423,984 44,255
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(ii) The ratification of the appointment of Ernst & Young LLP as
our independent certified public accountants for the fiscal
year ending January 31, 2002. Our stockholders voted as
follows:
FOR: 6,466,484
AGAINST: 1,105
ABSTENTIONS: 650
BROKER NON-VOTES: 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
1. Amendment No. 9 to the Fifth Amended and Restated Loan
Agreement, dated as of May 31, 2001, by and among G-III, the
Banks and Fleet Bank.
2. Amendment No. 10 to the Fifth Amended and Restated Loan
Agreement, dated as of July 27, 2001, by and among G-III,
the Banks and Fleet Bank.
- 12 -
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
G-III APPAREL GROUP, LTD.
(Registrant)
Date: September 14, 2001 By: /s/ Morris Goldfarb
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Morris Goldfarb
Chief Executive Officer
Date: September 14, 2001 By: /s/ Wayne S. Miller
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Wayne S. Miller
Chief Financial Officer