FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1996
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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 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, 1996.
Common Stock, $.01 par value per share: 6,472,856 shares.
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Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Consolidated Balance Sheets -
January 31, 1996 and October 31, 1996.......................................... 3
Consolidated Statements of Operations -
For the Three Months Ended
October 31, 1995 and 1996.........................................................4
Consolidated Statements of Operations -
For the Nine Months Ended
October 31, 1995 and 1996.........................................................5
Consolidated Statements of Cash Flows -
For the Nine Months Ended
October 31, 1995 and 1996.........................................................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, 1996 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
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
JANUARY 31, OCTOBER 31,
ASSETS 1996 1996
- ------ ---- ----
(unaudited)
Current Assets:
Cash and Cash Equivalents $ 7,617 $ 1,244
Accounts Receivable - Net 8,995 44,293
Inventories - Net 14,207 20,147
Prepaid and Refundable Income Taxes 502
Prepaid Expense and Other Current Assets 968 1,692
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Total Current Assets 32,289 67,376
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Property and Equipment at Cost - Net 6,324 5,365
Deferred Income Taxes 1,717 1,717
Other Assets 927 1,048
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$ 41,257 $75,506
========= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 2,980 $23,477
Current Maturities of Obligations
Under Capital Leases 571 571
Accounts Payable 2,469 7,998
Accrued Expenses 1,751 3,800
Federal and Foreign Income Taxes Payable 2,676
Accrued Nonrecurring Charges 2,294 2,126
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Total Current Liabilities 10,065 40,648
Obligations Under Capital Leases 919 464
Nonrecurring Charges - Long Term 557 557
Stockholders' Equity:
Preferred Stock, 1,000,000 shares authorized;
no shares issued and outstanding
Common Stock, $.01 par value: authorized,
20,000,000 shares; issued and outstanding,
6,465,836 shares on January 31, 1996 and
6,472,856 shares on October 31, 1996 65 65
Additional Paid-in Capital 23,615 23,630
Retained Earnings 6,036 10,142
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29,716 33,837
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$ 41,257 $75,506
========= =======
See Accompanying Notes to Financial Statements
-3-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED
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OCTOBER 31,
-----------
1995 1996
---- ----
(Unaudited)
Net Sales $ 57,695 $ 65,348
Cost of Goods Sold 45,458 48,999
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Gross Profit 12,237 16,349
Selling, General and
Administrative Expenses 5,794 6,173
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Operating Profit 6,443 10,176
Interest and Financing Charges, Net 853 919
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Income Before Taxes 5,590 9,257
Income Taxes 2,237 3,705
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Net Income $ 3,353 $ 5,552
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Income per common share:
Primary:
Net Income per common share $ .50 $ .83
==== ====
Weighted average number of
shares outstanding 6,771,737 6,680,481
========= =========
Fully Diluted:
Net Income per common share $ .50 $ .83
==== ====
Weighted average number of
shares outstanding 6,771,737 6,680,481
========= =========
See Accompanying Notes to Financial Statements
-4-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
NINE MONTHS ENDED
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OCTOBER 31,
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1995 1996
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(Unaudited)
Net Sales $ 103,002 $ 96,620
Cost of Goods Sold 80,508 70,915
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Gross Profit 22,494 25,705
Selling, General and
Administrative Expenses 16,590 17,234
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Operating Profit 5,904 8,471
Interest and Financing Charges, Net 2,251 1,624
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Income Before Taxes 3,653 6,847
Income Taxes 1,617 2,741
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Net Income $ 2,036 $ 4,106
======== =======
Income per common share:
Primary:
Net Income per common share $ .31 .61
==== ===
Weighted average number of
shares outstanding 6,571,398 6,697,984
========= =========
Fully Diluted:
Net Income per common share $ .31 .61
==== ===
Weighted average number of shares
shares outstanding 6,652,744 6,697,984
========= =========
See Accompanying Notes to Financial Statements
-5-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED
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OCTOBER 31,
-----------
1995 1996
---- ----
(Unaudited)
Cash Flows from Operating Activities:
Net Income $ 2,036 $ 4,106
Adjustments to Reconcile Net Income:
Depreciation and Amortization 1,158 1,153
Changes in Operating Assets and Liabilities:
Accounts Receivable (13,632) (35,298)
Inventory 5,051 (5,940)
Federal and Foreign Income Taxes 3,939 3,178
Prepaid Expenses (474) (724)
Other Assets (457) (121)
Accounts Payable and Accrued Expenses (704) 7,578
Accrued Nonrecurring Charge (168)
Deferred Income Taxes 1,461
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Net Cash (Used in) Operating Activities (1,622) (26,236)
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Cash Flows for Investing Activities:
Capital Expenditures (688) (314)
Capital Dispositions 120
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Net Cash (Used in) Investing Activities: (688) (194)
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Cash Flows from Financing Activities:
Increase in Notes Payable, net 3,253 20,497
Payment of Capital Lease Obligations (419) (455)
Proceeds from exercise of stock options 15
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Net Cash Provided by Financing Activities 2,834 20,057
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Net Increase (Decrease) in Cash 524 (6,373)
Cash at Beginning of Period 1,421 7,617
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Cash at End of Period $ 1,945 $ 1,244
======== ========
Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 2,251 $ 1,442
Income Taxes $ 157 $ 68
See Accompanying Notes to Financial Statements
-6 -
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
The results for the three and nine month periods ended October 31, 1996 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.
Certain reclassifications have been made to conform to the 1996 presentation.
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, 1996.
Note 2 - Inventories
January 31, October 31,
Inventories consist of: 1996 1996
---- ----
(in thousands)
Finished products...................... $ 12,112 $ 16,149
Work-in-process........................ 49 604
Raw materials.......................... 2,046 3,394
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$ 14,207 $ 20,147
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Note 3 - Net Income Per Common Share
Net Income per common share is based on the weighted average number of common
shares outstanding during each of the periods, adjusted for the dilutive effect
of common stock equivalents, when applicable.
Note 4 - Notes Payable
The Company has a loan agreement with three banks for $48,000,000 through
October 30, 1996 and $40,000,000 through May 31, 1997, of which $40,000,000
through October 30, 1996 and $30,000,000 through May 31, 1997 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.
Note 5 - Nonrecurring Charges
As of the year ended January 31, 1996, the Company had a remaining reserve of
approximately $2.9 million related to a cost reduction program. The status of
the components of the provision at the end of the period was:
Balance 1996 Balance
January 31, 1996 Activity October 31, 1996
---------------- -------- ----------------
(in thousands)
Closure of Domestic and
Foreign Facilities $ 2,690 $ (48) $ 2,642
Severance and related costs 161 (120) 41
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$ 2,851 $ (168) $ 2,683
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-7-
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Results of Operations
Net sales for the three months ended October 31, 1996 were $65.3 million
compared to $57.7 million for the same period last year. For the nine months
ended October 31, 1996, net sales were $96.6 million compared to $103.0 million
for the same period in the prior year. The increase in net sales during the
three month period was primarily due to sales of Kenneth Cole licensed product
($5.0 million), increased volume in the Sports Licensing division ($5.8 million)
and Men's division ($6.1 million) offset in part by reduced sales of moderately
priced women's outerwear ($9.5 million). The decrease in net sales during the
nine month period was primarily due to a reduction in sales of moderately priced
women's outerwear offset in part by increases in sales of Kenneth Cole, Sports
Licensing and Men's product.
Gross profit was $16.3 million for the three months ended October 31, 1996,
compared to $12.2 million in the same period last year. Gross profit as a
percentage of net sales was 25.0% for the three months ended October 31, 1996,
compared to 21.2% for the same period last year. For the nine month period ended
October 31, 1996, gross profit was $25.7 million, or 26.6% of net sales,
compared to $22.5 million, or 21.8% of net sales for the same period last year.
The increase in the gross profit percentage was a result of improved margins in
several product lines and an increase in sales of branded product and sports
licensing product which have higher margins.
Selling, general and administrative expenses of $6.2 million for the three
months ended October 31, 1996 were approximately $400,000 more than in the same
period last year. As a percentage of net sales, selling, general and
administrative expenses were 9.4% in this period compared to 10.0% last year.
For the nine month period ended October 31, 1996, selling, general and
administrative expenses were $17.2 million, or 17.8% of net sales, compared to
$16.6 million, or 16.1% of net sales for the same period last year.
Selling, general and administrative expenses increased compared to last year
primarily as the result of start-up costs relating to new product development in
branded merchandise, which includes licensed product under the Kenneth Cole
label, as well as development of new distribution channels which more than
offset reductions in selling, general and administrative expenses resulting from
the consolidation of the Company's two distribution centers into one location in
January 1996 and certain personnel reductions. The Company continues to monitor
and seeks to reduce expense levels whenever appropriate.
-8-
Interest expense of $919,000 was $66,000 higher in the quarter ended October 31,
1996, compared to $853,000 in the same period last year. For the nine months
ended October 31, 1996, interest expense was $1,624,000, a decrease of $627,000
from the prior year. Due to lower inventory levels, the Company was debt-free on
its domestic borrowing agreement from December 22, 1995 until May 9, 1996. This
resulted in lower interest costs for the nine month period than in the prior
year when the Company was continuously in a domestic borrowing position.
Income taxes of $3.7 million reflect an effective tax rate of 40.0% for the
three months ended October 31, 1996, compared to income taxes of $2.2 million
(effective tax rate of 40.0%) in the comparable period in the prior year. For
the nine months ended October 31, 1996, the income tax of $2.7 million reflects
an effective tax rate of 40.0%, compared to income taxes of $1.6 million in the
same period last year.
As a result of the foregoing, for the three month period ended October 31, 1996,
the Company had net income of $5.6 million, or $.83 per share, compared to a net
income of $3.4 million, or $.50 per share, for the comparable period in the
prior year. For the nine month period ended October 31, 1996, the Company had a
net income of $4.1 million, or $.61 per share, compared to a net income of $2.0
million, or $.31 per share, for the same period in the prior year.
Liquidity and Capital Resources
The Company has a loan agreement, which expires May 31, 1997, providing for a
collateralized working capital line of credit for a maximum amount of $48
million through October 30, 1996 (reduced to $40 million commencing October 31,
1996), of which a maximum of $40 million (reduced to $30 million commencing
October 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 (8.25% as of December
1, 1996) plus 1.75%. 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, 1996, there was $20.6 million of
borrowings outstanding and approximately $9.0 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 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, 1996, the borrowing by the Indonesian subsidiary under its line of
credit approximated $2.9 million.
-9-
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, 1996 By: /s/ Morris Goldfarb
-------------------------
Morris Goldfarb
President and Chief
Executive Officer
Date: December 13, 1996 By: /s/ Alan Feller
-------------------------
Alan Feller
Chief Financial Officer,
Treasurer, and Secretary
-10-
5
1,000
JAN-31-1997
FEB-1-1996
OCT-31-1996
9-MOS
1,244
0
47,876
(3,583)
20,147
67,376
12,490
(7,125)
75,506
40,648
0
65
0
0
33,772
75,506
96,620
96,620
70,915
70,915
0
0
1,624
6,847
2,741
4,106
0
0
0
4,106
0.61
0.61
