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 April 30, 2002
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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 [ ]
The number of outstanding shares of the registrant's Common Stock as of June 3,
2002 was 6,710,679.
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Condensed Consolidated Balance Sheets -
April 30, 2002 and January 31, 2002...........................3
Condensed Consolidated Statements of Operations -
For the Three Months Ended April 30, 2002 and 2001............4
Condensed Consolidated Statements of Cash Flows -
For the Three Months Ended April 30, 2002 and 2001............5
Notes to Condensed Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.........................8
* The Balance Sheet at January 31, 2002 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
2
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
APRIL 30, JANUARY 31,
2002 2002
---- ----
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 339 $ 2,481
Accounts receivable, net of allowance for doubtful accounts
and sales discounts of $4,511 and $6,169, respectively 4,845 9,922
Inventories 40,497 37,172
Prepaid and refundable income taxes 3,619
Deferred income taxes 5,286 5,286
Prepaid expenses and other current assets 5,757 3,749
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Total current assets 60,343 58,610
PROPERTY, PLANT AND EQUIPMENT, NET 2,891 3,021
DEFERRED INCOME TAXES 1,954 1,954
OTHER ASSETS 4,047 4,116
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$ 69,235 $ 67,701
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 3,304 $ 800
Current maturities of obligations under capital leases 109 106
Income taxes payable 1,118
Accounts payable 9,686 5,079
Accrued expenses 4,961 5,262
Accrued nonrecurring charges 107 105
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Total current liabilities 18,167 12,470
OTHER LONG-TERM LIABILITIES 412 418
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized;
no shares issued and outstanding in all periods
Common stock - $.01 par value; authorized,
shares; 6,955,496 and 6,944,071 shares issued
at April 30, 2002 and January 31, 2002, respectively 70 69
Additional paid-in capital 25,615 25,581
Foreign currency translation adjustments 71 94
Retained earnings 25,870 30,039
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51,626 55,783
Less common stock held in treasury - 244,817 shares,
at cost, at April 30, 2002 and January 31, 2002 (970) (970)
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50,656 54,813
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$ 69,235 $ 67,701
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The accompanying notes are an integral part of these statements.
3
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED APRIL 30,
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(Unaudited)
2002 2001
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Net sales $ 12,691 $ 17,167
Cost of goods sold 11,788 14,217
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Gross profit 903 2,950
Selling, general and administrative expenses 7,514 7,465
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Operating loss (6,611) (4,515)
Interest and financing charges, net 125 305
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Loss before income taxes (6,736) (4,820)
Income tax benefit (2,567) (1,928)
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Net loss $ (4,169) $ (2,892)
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LOSS PER COMMON SHARE:
Basic and Diluted:
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Net loss per common share $ (0.62) $ (0.44)
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Weighted average number of shares outstanding 6,702,370 6,645,047
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The accompanying notes are an integral part of these statements.
4
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
THREE MONTHS ENDED APRIL 30,
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(Unaudited)
2002 2001
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Cash flows from operating activities
Net loss $ (4,169) $ (2,892)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 363 280
Changes in operating assets and liabilities:
Accounts receivable 5,077 (211)
Inventories (3,325) (29,613)
Income taxes, net (4,737) (2,166)
Prepaid expenses and other current assets (2,008) (1,784)
Other assets (33) 49
Accounts payable and accrued expenses 4,306 4,533
Accrued nonrecurring charge (25) (24)
Other long term liabilities 49
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Net cash used in operating activities (4,502) (31,828)
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Cash flows from investing activities
Capital expenditures (149) (155)
Purchase of certain assets of Gloria Gay Coats, LLC 18 (205)
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Net cash used in investing activities (131) (360)
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Cash flows from financing activities
Increase in notes payable, net 2,504 23,237
Payments for capital lease obligations (25) (24)
Proceeds from exercise of stock options 35 78
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Net cash provided by financing activities 2,514 23,291
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Effect of exchange rate changes on cash and cash equivalents (23) (15)
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Net decrease in cash and cash equivalents (2,142) (8,912)
Cash and cash equivalents at beginning of period 2,481 9,231
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Cash and cash equivalents at end of period $ 339 $ 319
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Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 190 $ 356
Income taxes $ 2,161 $ 558
The accompanying notes are an integral part of these statements.
5
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
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The results for the three month period ended April 30, 2002 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, 2002.
Certain reclassifications have been made to conform to the fiscal 2002
presentation.
Note 2 - Inventories
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Inventories consist of:
APRIL 30, January 31,
2002 2002
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(in thousands)
Finished products $ 18,798 $ 18,240
Work-in-process 2,955 576
Raw materials 18,744 18,356
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$ 40,497 $ 37,172
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Note 3 - Net Loss per Common Share
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Basic net loss per share amounts have been computed using the weighted average
number of common shares outstanding during each period. When applicable, diluted
income per share amounts are computed using the weighted average number of
common shares and the dilutive potential common shares outstanding during the
period.
6
Note 4 - Notes Payable
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The Company's domestic loan agreement, which expires on May 31, 2005, 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.
The line of credit includes a requirement that the Company have no loans and
acceptances outstanding for 45 consecutive days each year of the lending
agreement. The Company met this requirement. There was $2.5 million outstanding
at April 30, 2002 and no loan balance outstanding at January 31, 2002 under this
agreement.
Notes payable include foreign notes payable by PT Balihides, the Company's
Indonesian subsidiary. The foreign notes payable of approximately $800,000 at
April 30, 2002 and January 31, 2002 represent maximum borrowings under a line of
credit with an Indonesian bank. The loan is secured by the property, plant, and
equipment of the subsidiary.
Note 5 - Nonrecurring Charge
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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 balances
of $107,000 at April 30, 2002 and $132,000 at January 31, 2002 relate to the
remaining obligation under an operating lease. Based on current estimates,
management believes that existing accruals are adequate. At April 30, 2002, the
entire nonrecurring charge is a current liability. Other long-term liabilities
include $27,000 of nonrecurring charges at January 31, 2002.
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 month periods indicated below:
THREE MONTHS ENDED APRIL 30,
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2002 2001
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NON- Non-
LICENSED LICENSED Licensed Licensed
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Net sales $ 8,360 $ 4,331 $ 8,310 $ 8,857
Cost of goods sold 6,928 4,860 6,868 7,349
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Gross profit (loss) 1,432 (529) 1,442 1,508
Selling, general and administrative 4,178 3,336 3,924 3,541
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Operating loss (2,746) (3,865) (2,482) (2,033)
Interest expense, net 50 75 102 203
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Loss before income taxes $ (2,796) $ (3,940) $ (2,584) $ (2,236)
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7
Item 2 Management's Discussion and Analysis of Financial Condition and Results
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.
RESULTS OF OPERATIONS
Traditionally, the three month period ending April 30 has been the quarter with
the lowest sales volume during our fiscal year. Net sales for the three months
ended April 30, 2002 were $12.7 million compared to $17.2 million for the same
period last year. The decrease in net sales during the quarter was primarily
attributable to a decrease in sales of non-licensed apparel resulting from lower
regular spring shipments and a shift in the timing of some shipments to the
second quarter.
Gross profit was $903,000, or 7.1% of net sales, for the three month period
ended April 30, 2002 compared to $3.0 million, or 17.2% of net sales, for the
same period last year. Gross profit as a percentage of net sales decreased due
to lower regular price spring shipments and sales at deeper discounts for
inventory management purposes in the non-licensed apparel segment compared to
the same period last year.
Selling, general and administrative expenses remained unchanged at $7.5 million
in both the three month period ended April 30, 2002 and the same period last
year. Expenses incurred in connection with our expanded Sports Licensing
business and our new Timberland and Sean John lines offset lower expenses
resulting from our reduction in headcount in October 2001.
Interest expense and finance charges for the three month period ended April 30,
2002 were $125,000 compared to $305,000 for the comparable period last year. The
decrease in interest expense was due to lower debt levels as a result of
reducing inventory from $72.1 million at April 30, 2001 to $41.0 million at
April 30, 2002, as well as lower interest rates.
Income tax benefit of $2.6 million reflects an effective tax rate of 38.1% for
the three months ended April 30, 2002 compared to an income tax benefit of $1.9
million which reflected a 40% effective tax rate in the comparable period last
year. The tax rate in the three month period ended April 30, 2002 reflects the
implementation of a strategic tax plan which reduced our effective state income
tax rate.
8
As a result of the foregoing, for the three months ended April 30, 2002, we had
a net loss of $4.2 million, or $0.62 per share, compared to a net loss of $2.9
million, or $0.44 share, for the comparable period last year.
LIQUIDITY AND CAPITAL RESOURCES
Our loan agreement, which expires on May 31, 2005, 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 (4.75% as of June 3, 2002) or LIBOR plus 225 basis
points (4.15% at June 3, 2002). Our assets collateralize all borrowings. The
loan agreement requires us, among other covenants, to maintain specified
earnings and tangible net worth levels, and prohibits the payment of cash
dividends.
The amount borrowed under the line of credit varies based on our seasonal
requirements. As of April 30, 2002, direct borrowings were $2.5 million and
contingent liability under open letters of credit was approximately $7.6 million
compared to direct borrowings of $23.8 million and contingent liability under
open letters of credit of approximately $15.7 million as of April 30, 2001. The
decrease in borrowings under our credit facility compared to last year resulted
primarily from the decrease in our inventories.
PT Balihides, our Indonesian subsidiary, has a separate credit facility with an
Indonesian bank. There were notes payable outstanding under this facility of
approximately $800,000 as of April 30, 2002 and $950,000 as of April 30, 2001.
The loan is secured by the property, plant, and equipment of the subsidiary.
9
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Business Combination and Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, effective for
fiscal years beginning after December 15, 2001. Under the new guidelines,
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
these statements. Other intangible assets will continue to be amortized over
their useful lives. We adopted these pronouncements effective as of February 1,
2002. The adoption of this Statement does not have a material impact on our
consolidated results of operations and financial position.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes
Statement No. 121. Although this Statement retains many of the fundamental
provisions of Statement No. 121, it expands the scope of discontinued operations
and significantly changes the criteria for classifying an asset as
held-for-sale. The provisions of this statement are effective for fiscal years
beginning after December 15, 2001. We adopted this pronouncement effective as of
February 1, 2002. The adoption of this Statement does not have a material impact
on our consolidated results of operations and financial position.
10
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: June 7, 2002 By: /s/ Morris Goldfarb
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Morris Goldfarb
Chief Executive Officer
Date: June 7, 2002 By: /s/ Wayne Miller
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Wayne S. Miller
Chief Financial Officer