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, 1997
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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
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.)
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, 1997.
Common Stock, $.01 par value per share: 6,489,946 shares.
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Consolidated Balance Sheets -
January 31, 1997 and October 31, 1997..................... 3
Consolidated Statements of Operations -
For the Three Months Ended
October 31, 1996 and 1997.................................. 4
Consolidated Statements of Operations -
For the Nine Months Ended
October 31, 1996 and 1997.................................. 5
Consolidated Statements of Cash Flows -
For the Nine Months Ended
October 31, 1996 and 1997.................................. 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, 1997 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 1997 1997
---- ----
(unaudited)
Current Assets:
Cash and Cash Equivalents $ 13,067 $ 2,380
Accounts Receivable - Net 7,176 32,483
Inventories - Net 13,986 23,424
Prepaid Expense and Other Current Assets 969 939
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Total Current Assets 35,198 59,226
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Property and Equipment at Cost - Net 5,030 3,171
Deferred Income Taxes 3,351 3,351
Other Assets 976 1,023
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$ 44,555 $ 66,771
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Notes Payable $ 3,459 $ 15,554
Current Maturities of Obligations
Under Capital Leases 376 237
Federal and Foreign Income Taxes Payable 447 2,818
Accounts Payable 2,169 4,156
Accrued Expenses 2,101 4,654
Accrued Nonrecurring Charges 2,149 496
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Total Current Liabilities 10,701 27,915
Obligations Under Capital Leases 554 375
Nonrecurring Charges - Long Term 475 475
Minority Interest 301
Stockholders' Equity:
Preferred Stock, 1,000,000 shares authorized;
no shares issued and outstanding
Common Stock, $.01 par value: authorized,
20,000,000 shares; issued and outstanding,
6,477,156 shares and 6,489,946 shares on
January 31, 1997 and October 31, 1997,
respectively 65 65
Additional Paid-in Capital 23,638 23,666
Retained Earnings 9,122 13,974
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32,825 37,705
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$ 44,555 $ 66,771
======= ======
See Accompanying Notes to Financial Statement.
-3-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED
OCTOBER 31,
---------------------------------
1996 1997
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(Unaudited)
Net Sales $ 65,348 $ 61,125
Cost of Goods Sold 48,999 45,589
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Gross Profit 16,349 15,536
Selling, General and
Administrative Expenses 6,173 5,966
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Operating Profit 10,176 9,570
Interest and Financing Charges, Net 919 679
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Income Before Minority Interest and Taxes 9,257 8,891
Minority Interest 136
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Income Before Taxes 9,257 9,027
Income Taxes 3,705 3,371
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Net Income $ 5,552 $ 5,656
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INCOME PER COMMON SHARE:
Primary:
Net Income per common share $ .83 $ .80
=== ===
Weighted average number of
shares outstanding 6,680,481 7,094,305
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Fully Diluted:
Net Income per common share $ .83 $ .80
=== ===
Weighted average number of
shares outstanding 6,680,481 7,094,305
========= =========
See Accompanying Notes to Financial Statements.
-4-
-4-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
NINE MONTHS ENDED
---------------------------------
OCTOBER 31,
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1996 1997
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(Unaudited)
Net Sales $ 96,620 $ 100,765
Cost of Goods Sold 70,915 74,401
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Gross Profit 25,705 26,364
Selling, General and
Administrative Expenses 17,234 17,677
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Operating Profit 8,471 8,687
Interest and Financing Charges, Net 1,624 1,245
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Income Before Minority Interest and Taxes 6,847 7,442
Minority Interest 249
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Income Before Taxes 6,847 7,691
Income Taxes 2,741 2,839
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Net Income $ 4,106 $ 4,852
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INCOME PER COMMON SHARE:
Primary:
Net Income per common share $ .61 $ .69
=== ===
Weighted average number of
shares outstanding 6,697,984 7,053,980
========= =========
Fully Diluted:
Net Income per common share $ .61 $ .69
=== ===
Weighted average number of
shares outstanding 6,697,984 7,053,980
========= =========
See Accompanying Notes to Financial Statements.
-5-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
NINE MONTHS ENDED
-----------------
OCTOBER 31,
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1996 1997
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(Unaudited)
Cash Flows from Operating Activities:
Net Income $ 4,106 $ 4,852
Adjustments to Reconcile Net Income:
Depreciation and Amortization 1,153 916
Changes in Operating Assets and Liabilities:
Accounts Receivable (35,298) (25,307)
Inventory ( 5,940) ( 9,438)
Federal and Foreign Income Taxes 3,178 2,371
Prepaid Expenses ( 724) 30
Other Assets ( 121) ( 47)
Accounts Payable and Accrued Expenses ( 7,578) 4,540
Accrued Nonrecurring Charge ( 168) ( 51)
Minority Interest 301
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Net Cash Used in Operating Activities (26,236) (21,833)
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Cash Flows for Investing Activities:
Capital Expenditures ( 314) ( 913)
Capital Dispositions 120 254
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Net Cash Used in Investing Activities: ( 194) ( 659)
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Cash Flows from Financing Activities:
Increase in Notes Payable, net 20,497 12,095
Payment of Capital Lease Obligations ( 455) ( 318)
Proceeds from exercise of stock options 15 28
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Net Cash Provided by Financing Activities 20,057 11,805
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Net Decrease in Cash ( 6,373) (10,687)
Cash at Beginning of Period 7,617 13,067
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Cash at End of Period $ 1,244 $ 2,380
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Supplemental Disclosures of Cash Flow Information
Cash Paid During the Period for:
Interest $ 1,442 $ 1,220
Income Taxes $ 68 $ 494
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, 1997 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.
During the quarter ended July 31, 1997, a newly formed subsidiary, BET Design
Studio, LLC commenced operations. The Company owns 50.1% of the subsidiary, and
accordingly consolidates its results from its startup date in May 1997.
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, 1997.
Note 2 - Inventories
January 31, October 31,
Inventories consist of: 1997 1997
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(in thousands)
Finished products................ $ 10,382 $ 18,932
Work-in-process.................. 27 590
Raw materials.................... 3,577 3,902
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$ 13,986 $ 23,424
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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 two year loan agreement with three banks which expires on May
31, 1999. The agreement provides for a line of credit in the amount of
$52,000,000 from May 31 to October 30, and $40,000,000 from October 31 to May 30
during each year of the agreement. The amounts available include direct
borrowing of $40,000,000 from May 31 to November 14, and $30,000,000 from
November 15 to May 30, during each year of the agreement. The balance of the
credit line may be used for letters of credit. All amounts available for
borrowing are subject to borrowing base formulas.
- 7 -
Note 5 - Nonrecurring Charges
As of the year ended January 31, 1997, the Company had a remaining reserve of
approximately $2.6 million related to closure of a domestic factory and an Asian
factory. The domestic factory was closed during the fiscal year ended January
31, 1995. During the quarter ended July 31, 1997, the Company applied
approximately $1.6 million of the reserve as a reduction of Property, Plant and
Equipment, since the Company cannot assume that there will be any recoveries in
connection with a disposition of the Asian factory. The Asian factory had net
sales of $3.0 million and $4.2 million, and a net loss of $380,000 and $183,000
for the nine-month periods ended October 31, 1996 and 1997, respectively. The
status of the provision at the end of the period was:
Balance 1997 Balance
January 31, 1997 Activity October 31, 1997
---------------- --------- -----------------
(in thousands)
Closure of Domestic and
Foreign Facilities $ 2,624 $ (1,653) $ 971
===== ====== ===
Note 6 - Future Effects of Recently Issued Accounting Pronouncements
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128, "Earnings Per Share," which is effective for
financial statements both interim and annual periods ending after December 15,
1997. Early adoption of the new standard is not permitted. The new standard
eliminates primary and fully diluted earnings per share and requires
presentation of basic and diluted earnings per share together with disclosure of
how the per share amounts were computed. Had this new standard been effective
during the quarters ended October 31, 1996 and 1997, basic income per share
would have been $.86 and $.87, respectively. Basic income per share would have
been $.63 and $.75 for the nine months ended October 31, 1996 and 1997,
respectively. Diluted income per share would have been $.83 and $.80 for the
three months ended October 31, 1996 and 1997, respectively and diluted income
per share would have been $.61 and $.69 for the nine months ended October 31,
1997, respectively.
- 8 -
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, 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, 1997 were $61.1 million
compared to $65.3 million for the same period last year. For the nine months
ended October 31, 1997, net sales were $100.8 million compared to $96.6 million
for the same period in the prior year. The decrease in net sales during the
three month period was primarily due to lower volume in the Women's ($1.3
million) and Men's ($5.4 million) outerwear divisions and the discontinuance of
two divisions ($1.5 million) offset in part by increases in the Sports Licensing
division ($3.8 million) and JL Colebrook division ($1.6 million). The increase
in net sales during the nine-month period was primarily due to increases in the
Sports Licensing, Kenneth Cole, and JL Colebrook divisions partially offset by a
decrease in the Men's division and the discontinuance of two divisions.
Gross profit was $15.5 million for the three months ended October 31, 1997,
compared to $16.3 million in the same period last year. Gross profit as a
percentage of net sales was 25.4% for the three months ended October 31, 1997,
compared to 25.0% for the same period last year. For the nine months ended
October 31, 1997, gross profit was $26.4 million, or 26.2% of net sales,
compared to $25.7 million, or 26.6% of net sales for the same period last year.
The increase in the gross profit percentage for the three months ended October
31, 1997 is primarily attributed to an improvement in the margins of the Men's
division. The decrease in the gross profit percentage for the nine month period
is primarily the result of lower margins in the Women's outerwear division.
Selling, general and administrative expenses of $6.0 million for the three
months ended October 31, 1997 were approximately $200,000 less than in the same
period last year. The decrease was primarily due to lower bad debt expenses and
freight out costs, partially offset by 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. As a
percentage of net sales, selling, general and administrative expenses were 9.8%
in this period compared to 9.4% last year.
For the nine months ended October 31, 1997, selling, general and administrative
expenses were $17.7 million, or 17.5% of net sales, compared to $17.2 million,
or 17.8% of net sales, for the same period last year. The increase resulted
from the incurrence of $450,000 of expenses in connection with the start-up of
BET Design Studio, LLC, which commenced operations in May, 1997. The Company
owns 50.1% of this subsidiary and accordingly consolidates its results of
operations. The Company continues to monitor and seeks to reduce expense levels
whenever appropriate.
- 9 -
Interest expense of $679,000 was $240,000 lower in the quarter ended October 31,
1997, compared to $919,000 in the same period last year. For the nine months
ended October 31, 1997, interest expense was $1,245,000, a decrease of $379,000
from the prior year. Lower interest rates under the Company's amended bank
facility was the primary cause of lower interest expense.
Income taxes of $3.4 million reflect an effective tax rate of 37% for the three
months ended October 31, 1997, compared to income taxes of $3.7 million
(effective tax rate of 40%) in the comparable period in the prior year. For the
nine months ended October 31, 1997, the income tax of $2.8 million reflects an
effective tax rate of 37%, compared to income taxes of $2.7 million (effective
tax rate of 40%) in the same period last year. The lower effective tax rate is
primarily the result of a net operating loss carry forward for state income
taxes which will result in a reduction of state income taxes in the current
fiscal year.
As a result of the foregoing, for the three months ended October 31, 1997, the
Company had net income of $5.7 million, compared to a net income of $5.6 million
for the comparable period in the prior year. Net income per share decreased to
$.80 per share in the three months ended October 31, 1997 from $.83 per share
for the comparable period in the prior year as the result of an increase in the
weighted average number of shares outstanding. For the nine months ended October
31, 1996, the Company had a net income of $4.9 million, or $.69 per share,
compared to a net income of $4.1 million, or $.61 per share, for the same period
in the prior year.
Liquidity and Capital Resources
The company's loan agreement, which expires on May 31, 1999 provides for a line
of credit in the amount of $52,000,000 from May 31 to October 30, and
$40,000,000 from October 31 to May 30 during each year of the agreement. The
amounts available include direct borrowings of $40,000,000 from May 31 to
November 14, and $30,000,000 from November 15 to May 30, during each year of the
agreement. 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 (8.5% as of December
1, 1997) or LIBOR plus 250 basis points 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, 1997, there were $12.6 million in direct borrowings and
approximately $9.5 million of contingent liability under open letters of credit.
The amount borrowed under the line of credit varies based upon 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, 1997, the borrowing by the Indonesian subsidiary under its line of
credit approximated $3.1 million and there were approximately $400,000 of
contingent liability under open letters of credit.
-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: December 12, 1997 By: /s/ Morris Goldfarb
-------------------------
Morris Goldfarb
Chief Executive Officer
Date: December 12, 1997 By: /s/ Alan Feller
--------------------------
Alan Feller
Chief Financial Officer,
Treasurer, and Secretary
5
1,000
JAN-31-1998
FEB-01-1997
OCT-31-1997
9-MOS
2,380
0
35,810
(3,327)
23,424
59,226
10,782
(7,611)
66,771
27,915
0
65
0
0
37,640
66,771
100,765
100,765
74,401
74,401
0
0
1,245
7,691
2,839
4,852
0
0
0
4,852
0.69
0.69
