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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OF 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended October 31, 1995
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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___________________
0-18183
Commission File Number_________________________________________________
G-III APPAREL GROUP, LTD.
(Exact of name of registrant as specified in its character)
Delaware 41-1590959
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
345 West 37th Street, New York, New York 10018
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(Address of Principal Executive Office) (Zip Code)
(212) 629-8830
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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 XX No_______
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Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of December 1, 1995.
Common Stock, $.01 par value per share: 6,461,471 shares.
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Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Consolidated Balance Sheets -
January 31, 1995 and October 31, 1995...........3
Consolidated Statements of Operations -
For the Three Months Ended
October 31, 1994 and 1995.......................4
Consolidated Statements of Operations -
For the Nine Months Ended
October 31, 1994 and 1995.......................5
Consolidated Statements of Cash Flows -
For the Nine Months Ended
October 31, 1994 and 1995.......................6
Notes to Financial Statements........................7
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of
Operations.........................................8-9
* The Balance Sheet at January 31, 1995 has been taken from the
audited financial statements at that date. All other financial
statements are unaudited.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
JANUARY 31, OCTOBER 31,
1995 1995
---- ----
ASSETS (unaudited)
<S> <C> <C>
Current Assets:
Cash and Cash Equivalents $ 1,421 $ 1,945
Accounts Receivable - Net 13,414 27,046
Inventories - Net 25,532 20,481
Prepaid and Refundable Income Taxes 4,204 265
Prepaid Expense & Other Current Assets 466 940
------- -------
Total Current Assets 45,037 50,677
------- -------
Property and Equipment at Cost - Net 7,015 6,545
Other Assets 803 1,259
Deferred Income Taxes 1,717 256
------- -------
$54,572 $58,737
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $12,907 $16,160
Current Maturities of Capital Leases 573 573
Accounts Payable 3,947 3,290
Accrued Expenses 2,152 2,340
Accrued Nonrecurring Charges 2,856 2,620
------- -------
Total Current Liabilities 22,435 24,983
Obligations Under Capital Leases 1,479 1,060
Nonrecurring Charges - Long Term 557 557
Stockholders' Equity:
Preferred stock, 1,000,000 shares authorized;
no shares issued and outstanding
Common Stock, $.01 par value: authorized
20,000,000 shares; issued and outstanding,
6,459,381 shares on January 31, 1995 and
on October 31, 1995 65 65
Additional Paid-in Capital 23,603 23,603
Retained Earnings 6,433 8,469
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30,101 32,137
------- -------
$ 54,572 $ 58,737
======== ========
</TABLE>
See Accompanying Notes to Financial Statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------
OCTOBER 31,
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
Net Sales $ 70,057 $ 54,892
Commission Income 3,569 2,803
------------ ------------
Net Sales and Revenues 73,626 57,695
Cost of Goods Sold 60,559 45,202
------------ ------------
Gross Profit 13,067 12,493
Selling, General and
Administrative Expenses 6,962 6,050
Unusual Charge - Note 6 5,700 0
------------ ------------
Operating Profit 405 6,443
Interest and Financing Charges, Net 1,220 853
------------ ------------
Income (Loss) Before Taxes (815) 5,590
Income Taxes (Benefit) (363) 2,237
------------ ------------
Net Income (Loss) $ (452) $ 3,353
============ ============
Income (Loss) per common share:
Primary;
Net Income (Loss) per common share $ (.07) $ .50
============ ============
Weighted average number of shares
outstanding 6,466,709 6,771,737
============ ============
Fully Diluted;
Net Income (Loss) per common share $ (.07) $ .50
============ ============
Weighted average number of shares
outstanding 6,466,709 6,771,737
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
OCTOBER 31,
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
Net Sales $ 135,061 $ 94,354
Commission Income 6,881 8,648
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Net Sales and Revenues 141,942 103,002
Cost of Goods Sold 118,780 80,203
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Gross Profit 23,162 22,799
Selling, General and
Administrative Expenses 19,650 16,895
Unusual Charge - Note 6 5,700 0
------------ ------------
Operating Profit (Loss) (2,188) 5,904
Interest and Financing Charges, Net 2,771 2,251
------------ ------------
Income (Loss) Before Taxes (4,959) 3,653
Income Taxes (Benefit) (2,212) 1,617
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Net Income (Loss) $ (2,747) $ 2,036
============ ============
Income (Loss) per common share:
Primary;
Net Income (Loss) per common share $ (.42) $ .31
============ ============
Weighted average number of shares
outstanding 6,474,438 6,571,398
============ ============
Fully Diluted;
Net Income (Loss) per common share $ (.42) $ .31
============ ============
Weighted average number of shares
outstanding 6,474,438 6,652,744
============ ============
</TABLE>
See Accompanying Notes to Financial Statements.
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<PAGE>
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
-----------------
OCTOBER 31,
-----------
1994 1995
---- ----
(Unaudited)
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss) $ (2,747) $ 2,036
Adjustments to Reconcile Net Income:
Depreciation and Amortization 1,115 1,158
Unusual Charge 5,700 0
Changes in Operating Assets and Liabilities:
Accounts Receivable (31,422) (13,632)
Inventory (6,208) 5,051
Prepaid and refundable Income Taxes (2,496) 3,939
Prepaid Expenses 386 (474)
Other Assets (11) (396)
Deferred Income Taxes 0 1,461
Accounts Payable and Accrued Expenses 8,312 (704)
--------- ---------
Net Cash (Used in) Operating Activities (27,371) (1,561)
--------- ---------
Cash Flows for Investing Activities:
Capital Expenditures (381) (688)
Payment for purchase of PT Hwakang Indawa, 0 (61)
net of cash acquired
Investment in Joint Venture (428) 0
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Net Cash (Used in) Investing Activities: (809) (749)
--------- ---------
Cash Flows from Financing Activities:
Borrowings under bankers' acceptances and notes 135,046 63,010
Repayments of bankers' acceptances and notes (106,220) (59,757)
Proceeds from capital lease obligations 1,150 0
Payment of capital lease obligations (157) (419)
--------- ---------
Net Cash Provided by Financing Activities 29,819 2,834
--------- ---------
Net Increase in Cash 1,639 524
Cash at Beginning of Period 833 1,421
--------- -------
Cash at End of Period 2,472 $ 1,945
========= =======
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 2,441 $ 2,251
Income Taxes $ 38 $ 157
</TABLE>
See Accompanying Notes to Financial Statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
The results of the three and nine month periods ended October 31, 1995 are not
necessarily indicative of the results expected for the entire fiscal year. 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 accompanying financial statements should be read in conjunction with the
financial statements and notes included in the Company's Form 10K filed with the
Securities and Exchange Commission for the year ended January 31, 1995.
Note 2 - Inventories
<TABLE>
<CAPTION>
(in thousands)
January 31, October 31,
1995 1995
---- ----
<S> <C> <C>
Inventories consist of:
Finished products ............... $23,107 $15,521
Work-in-process ................. 52 36
Raw materials ................... 2,373 4,924
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$25,532 $20,481
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</TABLE>
Note 3 - Net Income (Loss) Per Common Share
Net income (loss) per common share is based on the weighted average number of
common shares and common share equivalents during each of the periods. Primary
and fully diluted earnings per share include the dilutive effect of unexercised
stock options.
Note 4 - Notes Payable
The Company has a loan agreement with three banks for $48,000,000 through
January 30, 1996 and $40,000,000 through May 31, 1996, of which $40,000,000
through January 30, 1996 and $32,000,000 through May 31, 1996 is available for
direct borrowings and the unused balance for letters of credit. All amounts
available for borrowings are subject to borrowing base formulas.
Note 5 - Nonrecurring Charges
As of the year ended January 31, 1995, the Company had a remaining reserve of
approximately $3.4 million related to a cost reduction program. The status of
the components of the provision at October 31, 1995 was:
<TABLE>
<CAPTION>
(in thousands)
Balance 1995 Balance
January 31, 1995 Activity October 31, 1995
---------------- --------- ----------------
<S> <C> <C> <C>
Disposal of Asian Facility ............ $2,500 $ 0 $ 2,500
Shut down of Domestic Facilities ...... 579 (100) 479
Severance and related costs ........... 334 (136) 198
------ ----- -------
$3,413 $(236) $ 3,177
====== ===== =======
</TABLE>
Note 6 - Unusual Charge
During the quarter ended October 31, 1994 the Company recorded an unusual charge
for inventory markdowns of $5.7 million in the recognition of the high levels of
inventory on hand caused by an unusually warm fall season and the resulting lack
of customer reorders.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Net sales and revenues for the three months ended October 31, 1995 were $57.7
million compared to $73.6 million for the same period last year. For the nine
months ended October 31, 1995, net sales and revenues were $103.0 million
compared to $141.9 million for the same period in the prior year. The decrease
in net sales during the three month period ended October 31, 1995 was due to
continued weakness in the retail business environment, as well as warmer than
usual weather patterns, both of which adversely affected sales of leather
outerwear. The Company expects that the weak retail environment will continue to
adversely affect sales in the quarter ending January 31, 1996. For the nine
month period ended October 31, 1995, approximately $26.7 million of the decrease
in net sales and revenues was the result of lower sales at the retail level. The
balance of the decrease (approximately $12.2 million) is attributable to the
recognition by the Company of only commission income on certain types of
sales where the Company's customers provide letters of credit which are
transferred by the Company directly to overseas manufacturers or where the
Company's customer provided a letter of credit directly to overseas
manufacturers. Prior to the quarter ended July 31, 1994, the customer provided a
letter of credit to the Company and the Company opened a letter of credit
to the manufacturer. Accounting rules require the Company to recognize only
commission income with respect to transactions where the Company does not open
a letter of credit. The Company expects that it will continue to utilize this
type transaction which results in the Company reporting lower net sales and
revenues.
For the nine months ended October 31, 1995 and 1994 the Company recognized $8.6
million and $ 6.9 million of commission income, respectively. If the Company had
recognized the full amount of sales from this type of transaction, net sales and
revenues would have been $151.0 million and $177.7 million, respectively.
Gross profit was $12.5 million for the three months ended October 31, 1995,
compared to $13.1 million in the same period last year. Gross profit as a
percentage of net sales and revenues was 21.7% for the three months ended
October 31, 1995, compared to 17.7% for the same period last year. For the nine
month period ended October 31, 1995, gross profit was $22.8 million , or 22.1%
of net sales and revenues, compared to $23.2 million or 16.3% of net sales and
revenues for the same period last year. While the change in the use of certain
letters of credit to transact sales did not impact gross profit dollars, it did
affect gross profit as a percentage of net sales and revenues since net sales
and revenues recognized from such transactions were lower. Had the Company
recognized the full amount of such sales, gross profit for the nine months ended
October 31, 1995 would have been 15.1% and 13.0%, respectively, of net sales and
revenues. The increase in the gross profit percentage was a result of improved
margins in a majority of product lines as well as cost reductions resulting from
closure of the Company's domestic manufacturing facilities.
Selling, general and administrative expenses of $6.1 million for the three
months ended October 31, 1995 were approximately $912,000 less than in the same
period last year. As a percentage of net sales and revenues, selling, general
and administrative expenses were 10.5% in this period compared to 9.5% last
year. For the nine month period, selling, general and administrative expenses
were $16.9 million or 16.4% of net sales and revenues, compared to $19.7
million, or 13.8% of net sales and revenues for the same period last year. The
increase as a percentage of net sales and revenues was the result of lower
reported net sales and revenues as described above. The lower selling, general
and administrative expenses were the result of the implementation of a cost
reduction program which began in the second half of the prior fiscal year. The
Company is continuing to monitor and reduce expense levels and expects selling,
general and administrative expenses to continue to decrease for the remainder of
the year, compared to last year, as a result of this program.
-8-
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<PAGE>
Interest expense of $853,000 was $367,000 lower in the quarter ended October 31,
1995, compared to interest expense in the same period last year. For the nine
months ended October 31, 1995, interest expense was $2.3 million, a decrease of
$520,000 from the prior year. The decrease is attributable to lower borrowing
levels as a result of the Company maintaining lower levels of inventory, which
more than offset higher interest rates and other financing costs.
Income taxes of $2.2 million reflects an effective tax rate of 40.0% for the
three months ended October 31, 1995, compared to an income tax benefit of
$363,000 which reflected an effective tax rate of 44.5% in the comparable
period in the prior year. For the nine months ended October 31, 1995, income
taxes of $1.6 million reflects an effective tax rate of 44.3%, compared to
an income tax benefit of $2.2 million in the same period last year, which
reflected an effective tax rate of 44.6 %. The decreased effective tax rate
for the nine months results from a lower provision for current year income
taxes (40%), resulting from the state and local tax loss carry forward from the
prior year, offset in part by additional federal taxes of $157,000 due to the
settlement of an income tax audit for certain prior periods through January 31,
1993.
As a result of the foregoing, for the three month period ended October 31, 1995,
the Company had net income of $3.4 million, or $.50 per share, compared to a net
loss of $452,000, or $.07 per share, for the comparable period in the prior
year. For the nine month period ended October 31, 1995, the Company had net
income of $2.0 million, or $.31 per share, compared to a net loss of $2.7
million, or $.42 per share, for the same period in the prior year.
Liquidity and Capital Resources
The Company has a loan agreement, which expires May 31, 1996, providing for a
collateralized working capital line of credit for a maximum amount of $48
million through January 30, 1996 (reduced to $40 million commencing January 31,
1996), of which a maximum of $40 million (reduced to $32 million commencing
January 31, 1996) is available for direct borrowings and the unused balance for
letters of credit. All amounts available for borrowings are subject to borrowing
base formulas and overadvances specified in the agreement.
Direct borrowings bear interest at the agent's prime rate (8.75% as of December
1, 1995) plus 2%. All borrowings are collateralized by the assets of the
Company. The loan agreement requires the Company, among other covenants, to
maintain certain earnings and tangible net worth levels, and prohibits the
payments of cash dividends. As of October 31, 1995, there was $13.7 million of
borrowings outstanding and approximately $ 8.2 million of contingent liability
under open letters of credit. The amount borrowed under the line of credit
varies based on the Company's seasonal requirements. The current loan agreement
reduced the maximum credit line available to the Company compared to the prior
year. The Company is carrying lower levels of inventory in the current fiscal
year compared to the prior year and, as a result, believes that this facility
will be sufficient to meet its working capital needs. Inventories as of October
31, 1995 were $20.5 million compared to $38.9 million as of October 31, 1994.
The Company's wholly-owned Indonesian subsidiary has a line of credit with a
bank for approximately $3.5 million which is supported by a $2.0 million
stand-by letter of credit issued under the Company's loan agreement. As of
October 31, 1995, the borrowing by the Indonesian subsidiary under its line of
credit approximated $2.4 million.
-9-
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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: December 13, 1995 By: /s/ MORRIS GOLDFARB
__________________________
Morris Goldfarb
President and Chief
Executive Officer
Date: December 13, 1995 By: /s/ ALAN FELLER
__________________________
Alan Feller
Chief Financial Officer,
Treasurer, and Secretary
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1996
<PERIOD-END> OCT-31-1996
<CASH> 1,945
<SECURITIES> 0
<RECEIVABLES> 27,046
<ALLOWANCES> 0
<INVENTORY> 20,481
<CURRENT-ASSETS> 50,677
<PP&E> 6,545
<DEPRECIATION> 0
<TOTAL-ASSETS> 58,737
<CURRENT-LIABILITIES> 24,983
<BONDS> 0
<COMMON> 65
0
0
<OTHER-SE> 32,072
<TOTAL-LIABILITY-AND-EQUITY> 58,737
<SALES> 94,354
<TOTAL-REVENUES> 103,002
<CGS> 80,203
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 16,895
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,251
<INCOME-PRETAX> 3,653
<INCOME-TAX> 1,617
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,036
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
