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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, 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)
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<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)
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(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
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Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of June 1, 2000.
Common Stock, $.01 par value per share: 6,523,104 shares.
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Part I FINANCIAL INFORMATION Page No.
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Item 1. Financial Statements*
Condensed Consolidated Balance Sheets--
April 30, 2000 and January 31, 2000........................3
Condensed Consolidated Statements of Operations--
For the Three Months Ended
April 30, 2000 and 1999....................................4
Condensed Consolidated Statements of Cash Flows--
For the Three Months Ended
April 30, 2000 and 1999....................................5
Notes to Condensed Consolidated Financial Statements...............6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations......................9
* The Balance Sheet at January 31, 2000 has been derived from the audited
financial statements at that date. All other financial statements are
unaudited.
Part II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K..................................11
1. Amendment No. 4 to the Fifth Amended and Restated
Loan Agreement, dated May 24, 2000, by and among G-III, the
Banks and Fleet Bank.
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G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
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<CAPTION>
ASSETS APRIL 30, JANUARY 31,
2000 2000
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(unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 620 $14,530
Accounts receivable 8,671 16,597
Allowance for doubtful accounts and sales discounts (3,004) (3,892)
Inventories--net 37,959 21,175
Prepaid and refundable income taxes 1,698
Prepaid expenses and other current assets 1,889 894
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Total current assets 47,833 49,304
PROPERTY, PLANT AND EQUIPMENT, NET 3,227 3,316
DEFERRED INCOME TAXES 4,676 4,676
OTHER ASSETS 1,351 2,305
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$57,087 $59,601
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 8,491 $ 3,311
Current maturities of obligations under capital leases 109 116
Income taxes payable 2,874
Accounts payable 4,716 5,875
Accrued expenses 4,290 4,714
Accrued nonrecurring charges 1,068 1,259
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Total current liabilities 18,674 18,149
OTHER LONG-TERM LIABILITIES 439 419
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; 6,767,921 shares issued
at April 30, 2000 and January 31, 2000 68 68
Additional paid-in capital 24,874 24,874
Retained earnings 14,002 16,521
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38,944 41,463
Less common stock held in treasury--244,817 shares at April
30, 2000 and 118,575 shares at January 31, 2000, at cost (970) (430)
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37,974 41,033
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$57,087 $59,601
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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 STATEMENT OF OPERATIONS
(in thousands, except share and per share amounts)
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THREE MONTHS ENDED APRIL 30,
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(Unaudited)
2000 1999
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Net sales $10,578 $ 8,470
Cost of goods sold 8,398 7,637
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Gross profit 2,180 833
Selling, general and administrative expenses 6,302 6,887
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Operating loss (4,122) (6,054)
Interest and financing charges, net 85 98
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Loss before minority interest
and income taxes (4,207) (6,152)
Minority interest in loss of joint venture 9 431
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Loss before income taxes (4,198) (5,721)
Income tax benefit (1,679) (2,288)
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Net loss $(2,519) $(3,433)
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LOSS PER COMMON SHARE:
Basic and Diluted;
Net loss per common share $ (0.38) $ (0.51)
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Weighted average number of shares outstanding 6,614,379 6,717,921
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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 CASH FLOWS
(in thousands)
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<CAPTION>
THREE MONTHS ENDED APRIL 30,
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(Unaudited)
2000 1999
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Cash flows from operating activities:
Net loss $(2,519) $(3,433)
Adjustments to reconcile net income (loss) to
net cash used in operating activities
Depreciation and amortization 193 345
Minority Interest (9) (431)
Changes in operating assets and liabilities:
Accounts receivable 7,038 4,644
Inventories (16,784) (6,926)
Prepaid income taxes (4,572) (1,976)
Prepaid expenses and other current assets (995) (554)
Other assets (49) 33
Accounts payable and accrued expenses (1,583) 1,244
Accrued nonrecurring charge (205) (21)
Other long-term liabilities 50
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Net cash used in operating activities (19,435) (7,075)
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Cash flows from investing activities:
Capital expenditures (120) (148)
Capital dispositions 16
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Net cash used in investing activities (104) (148)
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Cash flows from financing activities:
Increase in notes payable, net 5,180 26
Payments for capital lease obligations (23) (89)
Investment in joint venture by Minority Partner 1,012 500
Purchase of common stock for Treasury (540)
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Net cash from financing activities 5,629 437
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NET DECREASE IN CASH
AND CASH EQUIVALENTS (13,910) (6,786)
Cash and cash equivalents at beginning of period 14,530 7,241
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Cash and cash equivalents at end of period $ 620 $ 455
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Supplemental disclosures of cash flow information:
Cash paid (received) during the period for
Interest $ 150 $ 91
Income taxes 2,865 (286)
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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
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1--General Discussion
The results for the three month period ended April 30, 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 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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APRIL 30, January 31,
2000 2000
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(in thousands)
<S> <C> <C>
Finished products $15,107 $10,990
Work-in-process 5,857 326
Raw materials 16,995 9,859
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$37,959 $21,175
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Note 3--Net Loss 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.
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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 $7.0 million outstanding at
April 30, 2000 and no loan balance outstanding at January 31, 2000 under this
agreement.
Notes payable also includes foreign notes payable by PT Balihides, the Company's
Indonesian subsidiary. The foreign notes payable represent maximum borrowings
under a line of credit of approximately $1.5 million with an Indonesian bank as
of April 30, 2000 and January 31, 1999.
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 with The CIT Group. 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 CIT Group 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).
Note 5--Nonrecurring Charges
In November 1999, the Company formulated a plan to cease operations of the BET
joint venture. The joint venture generated approximately $2.4 million and
$884,000 in revenues for the years ended January 31, 2000 and 1999,
respectively. The Company incurred losses from the joint venture of
approximately $2 million, $1.4 million, and $450,000 for the years ended January
31, 2000, 1999, 1998, respectively. In connection with the plan, the Company
charged $1.6 million to unusual and non-recurring charges, consisting of $1.1
million in asset writedowns and $500,000 relating to the provision for closing
costs and various accrued expenses. The remaining nonrecurring balance
($303,000) 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 $213,000 and $227,000 of nonrecurring charges at
April 30, 2000 and January 31, 2000, respectively.
The status of the provision at the end of the period was:
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Balance 2000 BALANCE
January 31, 2000 Activity APRIL 30, 2000
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(in thousands)
<S> <C> <C> <C>
Domestic operating lease obligation $ 316 $ (13) $ 303
Dissolution of BET Design Studio 1,170 (192) 978
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$1,486 $(205) $1,281
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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 three month periods
ended April 30, 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 fiscal years indicated below:
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THREE MONTHS ENDED APRIL 30,
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2000 1999
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NON- Non-
LICENSED LICENSED Licensed Licensed
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<S> <C> <C> <C> <C>
Net sales $ 6,680 $ 3,898 $ 4,907 $ 3,563
Cost of goods sold 5,051 3,347 4,200 3,437
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Gross profit 1,629 551 707 126
Selling, general and
administrative 3,036 3,266 2,177 4,710
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Operating loss (1,407) (2,715) (1,470) (4,584)
Interest expense (income) (27) 112 (25) 123
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Loss before minority
interest and income taxes (1,380) (2,827) (1,445) (4,707)
Minority interest 9 431
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Loss before income taxes $(1,380) $(2,818) $(1,445) $(4,276)
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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
Traditionally, the three month period ending April 30 has been the quarter with
the lowest sales volume during the Company's fiscal year. Net sales for the
three months ended April 30, 2000 were $10.6 million compared to $8.5 million
for the same period last year. The increase in net sales during the quarter was
primarily attributable to a $1.8 million increase in sales of licensed
merchandise.
Gross profit was $2.2 million, or 20.6% of net sales, for the three month period
ended April 30, 2000 compared to $833,000, or 9.8% of net sales, for the same
period last year. Gross profit as a percentage of net sales increased due to
increased sales of higher margin licensed merchandise and improved margins on
shipments of both licensed and non-licensed merchandise.
Selling, general and administrative expenses were $6.3 million for the three
month period ended April 30, 2000 compared to $6.9 million for the same period
last year. Last year's period included $1.1 million of expenses relating to the
BET Design Studio joint venture that was discontinued in November 1999.
Excluding the BET Design Studio expenses, the Company's selling, general and
administrative expenses increased approximately $500,000 over the prior year,
primarily as a result of higher personnel expenses.
Interest expense and finance charges for the three month period ended April 30,
2000 were $85,000 compared to $98,000 for the comparable period last year.
Income tax benefit of $1.7 million reflects an effective tax rate of 40% for the
three months ended April 30, 2000 compared to an income tax benefit of $2.3
million which reflected the same effective tax rate in the comparable period
last year.
As a result of the foregoing for the three months ended April 30, 2000, the
Company had a net loss of $2.5 million, or $0.38 per share, compared to a net
loss of $3.4 million, or $0.51 share, for the comparable period last year.
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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 June 1,
2000) or LIBOR plus 250 basis points (9.11% at June 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 April 30, 2000, direct borrowings were $7.0 million and
contingent liability under open letters of credit approximated $21.8 million.
The amount borrowed under the line of credit varies based upon the Company's
seasonal requirements.
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 April 30, 2000, BET and the Company had each contributed $3.8 million to
this joint venture.
BET Design Studio had an asset-based credit facility with The CIT Group. Direct
borrowings bore interest at the prevailing prime rate plus 50 basis points
(10.0% at April 1, 2000). 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 CIT Group was the beneficiary. The loan was paid off in its entirety on
February 16, 2000 by drawing down both partners' standby letters of credit.
BET advanced $600,000 to BET Design Studio under a lending agreement. Borrowings
under this agreement bore interest at 12.0% during the first twelve months of
the agreement and 14% thereafter. The loan was paid off in its entirety on March
9, 2000.
PT Balihides, the Company's Indonesian subsidiary, has a separate credit
facility with an Indonesian bank. The foreign notes payable represent maximum
borrowings under a line of credit of approximately $1.5 million as of April 30,
2000 and January 31, 2000.
On December 20, 1999, the Board of Directors authorized the Company to
repurchase up to $1,000,000 worth of shares 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. As of April 30, 2000, the Company had
purchased 244,817 of its shares at a total cost of $970,000 and concluded its
buyback program.
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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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Amendment No. 4 to the Fifth Amended and Restated Loan Agreement,
dated May 24, 2000, by and among G-III, the Banks and Fleet Bank.
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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: June 12, 2000 By: /s/ Morris Goldfarb
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Morris Goldfarb
Chief Executive Officer
Date: June 12, 2000 By: /s/ Wayne S. Miller
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Wayne S. Miller
Chief Financial Officer
