<PAGE>
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 October 31, 2000
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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)
<TABLE>
<CAPTION>
<S> <C>
Delaware 41-1590959
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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512 Seventh Avenue, New York, New York 10018
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(Address of Principal Executive Office) (Zip Code)
</TABLE>
(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 December 1, 2000.
Common Stock, $.01 par value per share: 6,553,704 shares.
<PAGE>
Part I FINANCIAL INFORMATION
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<CAPTION>
Page No.
<S> <C>
Item 1. Financial Statements*
Condensed Consolidated Balance Sheets -
October 31, 2000 and January 31, 2000............................3
Condensed Consolidated Statements of Operations -
For the Three Months Ended
October 31, 2000 and 1999........................................4
Condensed Consolidated Statements of Operations -
For the Nine Months Ended
October 31, 2000 and 1999........................................5
Condensed Consolidated Statements of Cash Flows -
For the Nine Months Ended
October 31, 2000 and 1999........................................6
Notes to Condensed Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations..........................................................10
</TABLE>
* The Balance Sheet at January 31, 2000 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
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<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
ASSETS OCTOBER 31, JANUARY 31,
2000 2000
---- ----
(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 594 $14,530
Accounts receivable 64,088 16,597
Allowance for doubtful accounts and sales discounts (6,652) (3,892)
Inventories - net 35,059 21,175
Prepaid expenses and other current assets 4,660 894
-------- -------
Total current assets 97,749 49,304
PROPERTY, PLANT AND EQUIPMENT, NET 3,212 3,316
DEFERRED INCOME TAXES 4,676 4,676
OTHER ASSETS 1,577 2,305
-------- -------
$107,214 $59,601
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 28,089 $ 3,311
Current maturities of obligations under capital leases 88 116
Income taxes payable 6,460 2,874
Accounts payable 13,514 5,875
Accrued expenses 6,812 4,714
Accrued nonrecurring charges 956 1,259
-------- -------
Total current liabilities 55,919 18,149
OTHER LONG-TERM LIABILITIES 334 419
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;
6,798,521 and 6,767,921 shares issued at October 31, 2000
and January 31, 2000, respectively 68 68
Additional paid-in capital 24,946 24,874
Retained earnings 26,917 16,521
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51,931 41,463
Less common stock held in treasury - 244,817 shares at October
31, 2000 and 118,575 shares at January 31, 2000,
at cost (970) (430)
-------- -------
50,961 41,033
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$107,214 $59,601
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
------------------------------
(Unaudited)
2000 1999
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<S> <C> <C>
Net sales $ 87,955 $ 74,544
Cost of goods sold 62,647 54,009
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Gross profit 25,308 20,535
Selling, general and administrative expenses 8,208 7,861
Unusual or non-recurring charge 1,500
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Operating income 17,100 11,174
Interest and financing charges, net 1,315 954
--------- ---------
Income before minority interest 15,785 10,220
and income taxes
Minority interest in loss of joint venture 1,303
--------- ---------
Income before income taxes 15,785 11,523
Income tax expense 6,317 4,606
--------- ---------
Net income $ 9,468 $ 6,917
========= =========
INCOME PER COMMON SHARE:
Basic:
-----
Net income per common share $ 1.45 $ 1.03
========= =========
Weighted average number of shares outstanding 6,543,102 6,717,921
========= =========
Diluted:
-------
Net income per common share $ 1.31 $ 1.01
========= =========
Weighted average number of shares outstanding 7,218,711 6,867,529
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
-----------------------------
(Unaudited)
2000 1999
---- ----
<S> <C> <C>
Net sales $ 145,918 $ 116,260
Cost of goods sold 104,632 85,407
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Gross profit 41,286 30,853
Selling, general and administrative expenses 21,790 21,520
Unusual or non-recurring charge 1,500
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Operating income 19,496 7,833
Interest and financing charges, net 2,187 1,482
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Income before minority interest 17,309 6,351
and income taxes
Minority interest in loss of joint venture 9 2,116
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Income before income taxes 17,318 8,467
Income tax expense 6,922 3,384
--------- ---------
Net income $ 10,396 $ 5,083
========= =========
INCOME PER COMMON SHARE:
Basic:
-----
Net income per common share $ 1.58 $ 0.76
========= =========
Weighted average number of shares outstanding 6,560,483 6,717,921
========= =========
Diluted:
-------
Net income per common share $ 1.47 $ 0.75
========= =========
Weighted average number of shares outstanding 7,095,332 6,806,789
========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
(Unaudited)
2000 1999
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<S> <C> <C>
Cash flows from operating activities
Net income $ 10,396 $ 5,083
Adjustments to reconcile net income to
net cash used in operating activities
Depreciation and amortization 765 1,054
Minority interest (9) (2,116)
Changes in operating assets and liabilities:
Accounts receivable (44,731) (41,107)
Inventories (13,884) (9,132)
Income taxes 3,586 3,691
Prepaid expenses and other current assets (3,766) (547)
Other assets (275) (42)
Accounts payable and accrued expenses 9,737 9,437
Accrued nonrecurring charge (374) 1,838
Other long term liabilities 50
-------- --------
Net cash used in operating activities (38,505) (31,841)
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Cash flows from investing activities
Capital expenditures (682) (443)
Capital dispositions 21
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Net cash used in investing activities (661) (443)
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Cash flows from financing activities
Increase in notes payable, net 24,778 24,670
Payments for capital lease obligations (92) (150)
Investment in joint venture by minority partner 1,012 1,000
Purchase of common stock for Treasury (540)
Proceeds from exercise of stock options 72
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Net cash from financing activities 25,230 25,520
-------- --------
Net decrease in cash and cash equivalents (13,936) (6,764)
Cash and cash equivalents at beginning of period 14,530 7,241
-------- --------
Cash and cash equivalents at end of period $ 594 $ 477
======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for
Interest $ 1,897 $ 1,229
Income taxes 3,265 (276)
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
The results for the nine-month period ended October 31, 2000 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 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, 2000.
Certain reclassifications have been made to conform to the fiscal 2001
presentation.
Note 2 - Inventories
Inventories consist of:
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<CAPTION>
OCTOBER 31, January 31,
2000 2000
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(in thousands)
<S> <C> <C>
Finished products $20,359 $10,990
Work-in-process 4,378 326
Raw materials 10,322 9,859
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$35,059 $21,175
======= =======
</TABLE>
Note 3 - Net Income Per Common Share
Basic earnings per share amounts have been computed using the weighted average
number of common shares outstanding during each year. 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
year.
Note 4 - Notes Payable
The Company's loan agreement, which expires on May 31, 2002, provides for a
maximum line of credit in amounts that range from $45 million to $72 million
during each year of the loan term. The amounts available include direct
borrowings that range from $30 million to $52 million during each year of the
loan term. The balance of the credit line may be used for letters of credit. All
amounts available for borrowing are subject to borrowing base formulas and
overadvances specified in the agreement. There was $26.6 million outstanding at
October 31, 2000 and no loan balance outstanding at January 31, 2000 under this
agreement.
-7-
<PAGE>
Notes payable also includes borrowings by PT Balihides, the Company's Indonesian
subsidiary, under a credit facility with an Indonesian bank. Notes payable of
approximately $1.5 million as of October 31, 2000 and January 31, 2000 represent
maximum borrowings under this facility.
In November 1999, the Company and Black Entertainment Television decided to
discontinue their BET Design Studio joint venture. BET Design Studio had an
asset-based credit facility. Direct borrowings bore interest at the prevailing
prime rate plus 50 basis points. To support the requirement for overadvances
which occurred when the available collateral was not sufficient to support the
level of direct bank debt and letters of credit opened to pay for product, both
partners opened standby letters of credit in the amount of $750,000 under which
the lender was the beneficiary. The loan ($1.2 million at January 31, 2000) was
paid off in its entirety on February 16, 2000 by drawing down both partners'
standby letters of credit (See Note 5). The balance of the standby letters of
credit was cancelled effective November 2, 2000.
Note 5 - Nonrecurring Charges
In November 1999, the Company formulated a plan to cease operations of the BET
Design Studio joint venture. The joint venture generated revenues of
approximately $2.4 million and $884,000 in the years ended January 31, 2000 and
1999, respectively. The Company incurred losses from the joint venture of
approximately $2.0 million, $1.4 million, and $450,000 for the years ended
January 31, 2000, 1999, 1998, respectively. In connection with the plan, the
Company recorded $1.6 million of unusual and non-recurring charges, consisting
of $1.1 million in asset writedowns and $500,000 relating to a provision for
closing costs and various accrued expenses. The remaining nonrecurring balance
($251,000) relates to the reserve associated with the closure of the Company's
domestic factory that was completed by January 31, 1995. Based on current
estimates, management believes that existing accruals are adequate. Other
long-term liabilities include $156,000 and $227,000 of nonrecurring charges at
October 31, 2000 and January 31, 2000, respectively.
The status of the provision at the end of the period was:
<TABLE>
<CAPTION>
Balance 2000 BALANCE
January 31, 2000 Activity OCTOBER 31, 2000
---------------- -------- ----------------
(in thousands)
<S> <C> <C> <C>
Domestic operating lease obligation $ 316 $ (65) $ 251
Dissolution of BET Design Studio 1,170 (309) 861
------ ----- ------
$1,486 $(374) $1,112
====== ===== ======
</TABLE>
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<PAGE>
Note 6 - Comprehensive Income
As of February 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (SFAS 130). The adoption of
this Statement had no impact on the Company's net income or stockholders'
equity. This pronouncement sets forth requirements for disclosure of the
Company's comprehensive income and accumulated other comprehensive items.
Comprehensive income is defined as the change in equity during a period from
transactions in other events and circumstances unrelated to net income (e.g.,
foreign currency translation gains and losses). For the nine-month periods ended
October 31, 2000 and 1999, other comprehensive income was not material.
Note 7 - Segments
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 nine month periods indicated below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED OCTOBER 31,
------------------------------
2000 1999
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NON- Non-
LICENSED LICENSED Licensed Licensed
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $31,706 $56,249 $27,385 $47,159
Cost of goods sold 21,697 40,950 18,570 35,439
------- ------- ------- -------
Gross profit 10,009 15,299 8,815 11,720
Selling, general and administrative 3,771 4,437 2,729 5,132
Unusual or non-recurring charge 1,500
------- ------- ------- -------
Operating income 6,238 10,862 6,086 5,088
Interest expense 547 768 337 617
------- ------- ------- -------
Income before minority
interest and income taxes 5,691 10,094 5,749 4,471
Minority interest 1,303
------- ------- ------- -------
Income before income taxes $ 5,691 $10,094 $ 5,749 $ 5,774
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED OCTOBER 31,
----------------------------
2000 1999
---- ----
NON- Non-
LICENSED LICENSED Licensed Licensed
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $55,124 $90,794 $46,772 $69,488
Cost of goods sold 38,772 65,860 32,898 52,509
------- ------- ------- -------
Gross profit 16,352 24,934 13,874 16,979
Selling, general and administrative 10,229 11,561 7,260 14,260
Unusual or non-recurring charge 1,500
------- ------- ------- -------
Operating income 6,123 13,373 6,614 1,219
Interest expense 837 1,350 394 1,088
------- ------- ------- -------
Income before minority
interest and income taxes 5,286 12,023 6,220 131
Minority interest 9 2,116
------- ------- ------- -------
Income before income taxes $ 5,286 $12,032 $ 6,220 $ 2,247
======= ======= ======= =======
</TABLE>
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Statements in this Quarterly Report on Form 10-Q concerning the Company's
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
Net sales for the three months ended October 31, 2000 were $88.0 million
compared to $74.5 million for the same period last year. The increase in net
sales during the quarter was attributable to an increase in sales of
non-licensed apparel ($9.1 million) and licensed apparel ($4.3 million). Net
sales for the nine months ended October 31, 2000 were $145.9 million compared to
$116.3 million for the same period in the prior year. The increase in net sales
in the nine-month period was also attributable to an increase in sales of both
non-licensed apparel ($21.3 million) and licensed apparel ($8.4 million).
Gross profit was $25.3 million, or 28.8% of net sales, for the three months
ended October 31, 2000 compared to $20.5 million, or 27.5% of net sales, for the
same period last year. Gross profit was $41.3 million, or 28.3% of net sales,
for the nine months ended October 31, 2000 compared to $30.9 million, or 26.5%
of net sales, for the same period last year. The increase in gross profit as a
percentage of net sales for the three months ended October 31, 2000 resulted
from a higher volume of commission transactions in which the Company acted as an
agent and received commission fee income. This income is included in the
non-licensed apparel segment. Commission fee income on these transactions
increased to $3.8 million during the three months ended October 31, 2000 from
$1.9 million in the comparable period in the prior year. There is no cost of
goods sold component associated with commission transactions.
The increase in gross profit as a percentage of net sales for the nine months
ended October 31, 2000 was due to higher gross margins in the non-licensed
apparel segment as the result of more sales of higher margin products and a
higher volume of commission transactions. Commission fee income increased to
$5.9 million during the nine months ended October 31, 2000 from $3.2 million in
the comparable period of the prior year.
Selling, general and administrative expenses for the three months ended October
31, 2000 were $8.2 million compared to $7.9 million in the three months ended
October 31, 1999. Selling, general and administrative expenses for the nine
months ended October 31, 2000 were $21.8 million compared to $21.5 million for
the same period last year. Expenses relating to the BET Design Studio joint
venture that was discontinued in November 1999 were $1.0 million in the
three-month period last year and $2.7 million in the nine-month period last
year. Excluding last year's BET Design Studio expenses, the Company's
selling, general and administrative expenses increased approximately $1.4
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<PAGE>
million in this year's three-month period and $3.0 million in this year's
nine-month period compared to the comparable periods last year. These increases
are primarily a result of expenses relating to the start-up of the Cole Haan,
Caterpillar and Jones New York Men's divisions, which caused increased expenses
in the licensed apparel segment. In addition, personnel expenses increased over
the prior year. Excluding the BET Design Studio expenses in the prior year,
selling, general and administrative expenses were 9.3% of net sales in the three
months ended October 31, 2000 and 1999, and 14.9% of net sales in the nine
months ended October 31, 2000 compared to 16.5% in the same period in last year.
Interest expense and finance charges for the three months ended October 31, 2000
were $1.3 million compared to $1.0 million in the same period last year.
Interest expense and finance charges for the nine months ended October 31, 2000
were $2.2 million compared to $1.5 million in the same period last year. The
increase in interest expense resulted primarily from higher inventory levels in
response to increased customer orders and higher interest rates.
Income tax expense of $6.3 million reflect an effective tax rate of 40% for the
three months ended October 31, 2000 compared to income tax expense of $4.6
million (same effective tax rate) in the comparable period in the prior year.
Income tax expense of $6.9 million for the nine months ended October 31, 2000
also reflects an effective tax rate of 40%, compared to income tax expense of
$3.4 million (same effective tax rate) in the same period last year.
For the three months ended October 31, 2000, the Company had net income of $9.5
million, or $1.31 per diluted share, compared to net income of $6.9 million, or
$1.01 per diluted share, for the comparable period in the prior year. For the
nine months ended October 31, 2000, the Company had net income of $10.4 million,
or $1.47 per diluted share, compared to net income of $5.1 million, or $0.75 per
diluted share, for the same period in the prior year. Net income in the three-
and nine-month periods increased as a result of the foregoing factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's loan agreement, which expires on May 31, 2002, provides for a
maximum line of credit in amounts that range from $45 million to $72 million
during each year of the loan term. The amounts available include direct
borrowings that range from $30 million to $52 million during each year of the
loan term. The balance of the credit line may be used for letters of credit. All
amounts available for borrowing are subject to borrowing base formulas and
overadvances specified in the agreement.
Direct borrowings bear interest at the agent's prime rate (9.5% as of December
1, 2000) or LIBOR plus 225 basis points (9.1% at December 1, 2000), at the
election of the Company. 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
payment of cash dividends. As of October 31, 2000, direct borrowings were $26.6
million and contingent liability under open letters of credit approximated $9.4
million. The amount borrowed under the line of credit varies based upon the
Company's seasonal requirements.
PT Balihides, the Company's Indonesian subsidiary, has a separate credit
facility with an Indonesian bank. Notes payable of approximately $1.5 million as
of October 31, 2000 and January 31, 2000 represent maximum borrowings under this
facility.
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<PAGE>
In November 1999, the Company and Black Entertainment Television ("BET") decided
to discontinue their BET Design Studio joint venture. The joint venture was
started in February 1997 to provide a BET-branded clothing and accessory line.
As of October 31, 2000, BET and the Company had each contributed $3.8 million to
this joint venture.
BET Design Studio had an asset-based credit facility. Direct borrowings bore
interest at the prevailing prime rate plus 50 basis points. To support the
requirement for overadvances which occurred when the available collateral was
not sufficient to support the level of direct bank debt and letters of credit
opened to pay for product, both partners opened standby letters of credit in the
amount of $750,000 under which the lender was the beneficiary. The loan was paid
off in its entirety on February 16, 2000 by drawing down both partners' standby
letters of credit. The balance of the standby letters of credit was cancelled
effective November 2, 2000.
BET advanced $600,000 to BET Design Studio under a lending agreement. Borrowings
under this agreement bore interest at 12% during the first twelve months of the
agreement and 14% thereafter. The loan was paid off in its entirety on March 9,
2000.
On December 20, 1999, the Board of Directors authorized the Company to
repurchase up to $1,000,000 worth of the Company's common stock, from time to
time, until September 30, 2000, in open market purchases at market prices or in
privately negotiated transactions, at the discretion of the Chief Executive
Officer of the Company. The Company purchased 244,817 shares of its common stock
at a total cost of $970,000. The Company concluded its buyback program in April
2000.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Derivatives
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS NO. 133"), "Accounting for Derivative Instruments and Hedging
Activities," as amended by SFAS NO. 137, is effective with the first quarter of
fiscal years beginning after June 15, 2000. SFAS No. 133 will require the
Company to recognize all derivatives on the balance sheet at fair value.
Adoption of SFAS No. 133 is not expected to have a material effect on the
Company's financial statements.
-12-
<PAGE>
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 14, 2000 By: /s/ Morris Goldfarb
-------------------------
Morris Goldfarb
Chief Executive Officer
Date: December 14, 2000 By: /s/ Wayne S. Miller
------------------------
Wayne S. Miller
Chief Financial Officer
