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 July 31, 1998
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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)
Delaware 41-1590959
- -------------------------- ------------------------
(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
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of September 1, 1998.
Common Stock, $.01 par value per share: 6,526,386 shares.
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements *
Condensed Consolidated Balance Sheets -
July 31, 1998 and January 31, 1998.............................3
Condensed Consolidated Statements of Operations -
For the Three Months Ended
July 31, 1998 and 1997.........................................4
Condensed Consolidated Statements of Operations -
For the Six Months Ended
July 31, 1998 and 1997.........................................5
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended
July 31, 1998 and 1997.........................................6
Notes to Condensed Consolidated Financial Statements.................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...........................................................9
* The Balance Sheet at January 31, 1998 has been taken from the audited
financial statements at that date. All other financial statements are
unaudited.
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders.....................13
Item 6. Exhibits and Reports on Form 8-K....................................13
1. Amendment No. 2 to the Fourth Amended and Restated Loan
Agreement, dated as of June 24, 1998, by and among G-III
Leather Fashions, Inc., the Banks signatory thereto and Fleet
Bank, N.A., as Agent.
2. Amendment No. 3 to the Fourth Amended and Restated Loan
Agreement, dated as of July 31, 1998, by and among G-III
Leather Fashions, Inc., the Banks signatory thereto and Fleet
Bank, N.A., as Agent.
-2-
G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
ASSETS JULY 31, JANUARY 31,
1998 1998
---- ----
(unaudited)
CURRENT ASSETS
Cash and cash equivalents $ 632 $ 5,842
Accounts receivable 35,989 12,664
Allowance for doubtful accounts and sales discounts (2,275) (1,247)
Inventories - net 41,981 20,232
Prepaid and refundable income taxes 1,905 -
Prepaid expenses and other current assets 1,555 1,758
------- -------
Total current assets 79,787 39,249
PROPERTY, PLANT AND EQUIPMENT, NET 3,720 3,431
DEFERRED INCOME TAXES 3,125 3,125
OTHER ASSETS 1,207 941
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$87,839 $46,746
======= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 41,520 $ 3,478
Current maturities of obligations under capital leases 280 256
Income taxes payable - 973
Accounts payable 7,279 2,570
Accrued expenses 4,352 2,138
Accrued nonrecurring charges 596 538
-------- --------
Total current liabilities 54,027 9,953
OTHER LONG-TERM LIABILITIES 606 806
MINORITY INTEREST - 301
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; issued
and outstanding, 6,526,386 and 6,506,276 shares on July 31, 1998
and January 31, 1998, respectively 65 65
Additional paid-in capital 23,740 23,700
Retained earnings 9,401 11,921
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33,206 35,686
------- -------
$87,839 $46,746
======= =======
The accompanying notes are an integral part of these statements.
-3-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED JULY 31,
---------------------------
(Unaudited)
1998 1997
----- ---------
Net sales $35,742 $33,109
Cost of goods sold 26,343 22,143
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Gross profit 9,399 10,966
Selling, general and administrative expenses 6,732 6,497
-------- -------
Operating income 2,667 4,469
Interest and financing charges, net 659 506
-------- --------
Income before minority interest 2,008 3,963
and income taxes
Minority interest in loss of joint venture (342) (113)
--------- ---------
Income before income taxes 2,350 4,076
Income taxes 940 1,632
--------- --------
Net income $ 1,410 $ 2,444
========= ========
INCOME PER COMMON SHARE:
Basic:
Net income per common share $ .22 $ .38
========= =========
Weighted average number of shares outstanding 6,525,700 6,482,464
========= =========
Diluted:
Net income per common share $ .20 $ .35
========= =========
Weighted average number of shares outstanding 7,074,267 7,077,113
========= =========
The accompanying notes are an integral part of these statements.
-4-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
SIX MONTHS ENDED JULY 31,
----------------------------
(Unaudited)
1998 1997
----- --------
Net sales $40,692 $39,640
Cost of goods sold 31,591 28,212
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Gross profit 9,101 11,428
Selling, general and administrative expenses 13,072 12,311
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Operating loss (3,971) (883)
Interest and financing charges, net 822 566
------- -------
Loss before minority interest (4,793) (1,449)
and income taxes
Minority interest in loss of joint venture (593) (113)
-------- --------
Loss before income taxes (4,200) (1,336)
Income tax benefit (1,680) (532)
--------- --------
Net loss $ (2,520) $ (804)
========= ========
LOSS PER COMMON SHARE:
Basic and Diluted:
Net loss per common share $ (.39) $ (.12)
========== ==========
Weighted average number of shares outstanding 6,517,822 6,479,953
========== ==========
The accompanying notes are an integral part of these statements.
-5-
G-III Apparel Group, Ltd. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED JULY 31,
---------------------------------------
(Unaudited)
1998 1997
------------ ----------
Cash flows from operating activities
Net loss $ (2,520) $ (804)
Adjustments to reconcile net loss to
net cash used in operating activities
Depreciation and amortization 658 618
Minority Interest (593) (113)
Changes in operating assets and liabilities:
Accounts receivable (22,297) (15,987)
Inventories (21,749) (15,634)
Income taxes (2,878) (951)
Prepaid expenses and other current assets 203 (297)
Other assets (266) (67)
Accounts payable and accrued expenses 6,965 2,955
Accrued nonrecurring charge (35) (33)
Other long term liabilities 50 50
---------- --------
Net cash used in operating activities (42,462) (30,263)
---------- --------
Cash flows from investing activities
Capital expenditures (947) (311)
Capital dispositions - 3
Investment in joint venture by minority partner 250 100
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Net cash used in investing activities (697) (208)
--------- --------
Cash flows from financing activities
Increase in notes payable, net 38,042 18,555
Payments for capital lease obligations (133) (248)
Proceeds from exercise of stock options 40 23
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Net cash from financing activities 37,949 18,330
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Net decrease in cash and cash equivalents (5,210) (12,141)
Cash and cash equivalents at beginning of period 5,842 13,067
---------- ----------
Cash and cash equivalents at end of period $ 632 $ 926
========== ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 761 $ 415
Income taxes 1,252 442
The accompanying notes are an integral part of this statement.
-6-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
The results for the six month period ended July 31, 1998 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 1998 presentation.
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, 1998.
Note 2 - Inventories
July 31, January 31,
1998 1998
---- ----
(in thousands)
Inventories consist of:
Finished products $ 33,076 $ 14,137
Work-in-process 611 1
Raw materials 8,294 6,094
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$41,981 $20,232
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Note 3 - Income (Loss) Per Common Share
As of January 31, 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." This
statement establishes new standards for computing and presenting earnings per
share ("EPS") and applies to entities with publicly held common stock or
potential common stock. This statement replaces the presentation of primary EPS
with a presentation of basic EPS. It requires dual presentation of basic and
diluted EPS on the face of the statement of operations for all entities with
complex capital structures and requires a reconciliation of the numerators and
denominators of the basic and diluted EPS computations. This statement also
requires a restatement of all prior period EPS data presented.
Basic earnings per share amounts have been computed using the weighted average
number of common shares outstanding during each year. Diluted earnings per share
amounts have been computed using the weighted average number of common shares
and the dilutive potential common shares outstanding during the year. All prior
year amounts have been restated to conform to the new presentation.
-7-
Note 4 - Notes Payable
The Company's loan agreement, which expires on May 31, 1999, was amended during
the quarter ended July 31, 1998. The original agreement provided for a maximum
line of credit that ranged from $40 million to $56 million at specific dates
during the term. The amendments increased the maximum line of credit to amounts
that range from $40 million to $63.5 million during the same loan term.
The amended line of credit increased maximum direct borrowings from a range of
$30 million to $44 million to a range of $30 million to $50 million. 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.
Note 5 - Nonrecurring Charges
Included in non-recurring charges recorded in December 1994 was approximately
$2.0 million to sell or liquidate a factory located in Indonesia. During the
year ended January 31, 1998, the Company applied approximately $1.6 million of
the reserve as a reduction of the Indonesian property, plant and equipment,
since the Company cannot assure any recoveries in connection with its
disposition. In December 1997, the factory contracted to manufacture luggage,
and as a result, the Company has since discontinued its plan to sell or
liquidate the factory. However, due to the political and economic instability
being experienced in Indonesia, management determined that the remaining
nonrecurring balance with respect to its Indonesian assets should be maintained.
The remaining nonrecurring balance of $438,000 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 $304,000 and $397,000 of
nonrecurring charges at July 31, 1998 and January 31, 1998, respectively.
The status of the provision at the end of the period was:
Balance 1998 Balance
January 31,1998 Activity July 31, 1998
--------------- -------- -------------
(in thousands)
Closure of Domestic Facility $ 473 $ ( 35) $ 438
Uncertainty of Indonesian Assets 462 - 462
----- ------- -------
$ 935 $ ( 35) $ 900
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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 and six month
periods ended July 31, 1998 and 1997, other comprehensive income was not
material.
-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 July 31, 1998 were $35.7 million compared
to $33.1 million for the same period last year. The increase in net sales during
the quarter was primarily attributable to an increase in sales of licensed
apparel ($7.5 million), partially offset by decreases in sales of non-licensed
apparel ($5.2 million). For the six months ended July 31, 1998, net sales were
$40.7 million compared to $39.6 million for the same period in the prior year.
The increase in net sales in the six month period was also attributable to an
increase in sales of licensed apparel ($8.2 million), partially offset by
decreases in sales of non-licensed apparel ($7.2 million). It is the Company's
strategy to increase the sales of licensed apparel as a percentage of net sales.
Gross profit was $9.4 million for the three months ended July 31, 1998, compared
to $11.0 million in the same period last year. Gross profit as a percentage of
net sales was 26.3% for the three months ended July 31, 1998 compared to 33.1%
for the same period last year. For the six month period ended July 31, 1998,
gross profit was $9.1 million, or 22.4% of net sales, compared to $11.4 million,
or 28.8%, of net sales for the same period last year. The reduction in gross
profit as a percentage of net sales in both the three and six month periods
primarily resulted from lower fee commission income with respect to Women's
non-licensed apparel coupled with the sale of prior season merchandise at deep
discounts in the non-licensed woven lines.
Selling, general and administrative expenses for the three months ended July 31,
1998 were $6.7 million compared to $6.5 million in the three months ended July
31, 1997. BET Design Studio, which commenced operations in May 1997, incurred
expenses of $700,000 in the three months ended July 31, 1998, representing a
$500,000 increase over the same period in the prior year. Excluding BET Design
Studio expenses, selling, general and administrative expenses were 17.0% of net
sales in the three months ended July 31, 1998 compared to 18.9% in the same
period last year.
-9-
For the six month period ended July 31, 1998, selling, general and
administrative expenses were $13.1 million compared to $12.3 million for the
same period last year. BET Design Studio incurred expenses of $1.1 million in
the six months ended July 31, 1998, an increase of $900,000 over the same period
in the prior year. Excluding BET Design Studio expenses, selling, general and
administrative expenses were 29.3% of net sales in the six months ended July 31,
1998 compared to 30.5% in the same period in the prior year. BET Design Studio
expenses increased primarily in the areas of personnel and advertising, as
staffing levels increased and advertising programs began. Excluding BET Design
Studio expenses, the decrease in selling, general and administrative expenses
for the three and six month periods ended July 31, 1998 was primarily
attributable to savings in personnel costs. The BET Design Studio expenses
allocable to the other shareholder (approximately one-half of these expenses)
are reflected in "Minority interest in loss of joint venture".
Interest expense and finance charges for the three months ended July 31, 1998
were $659,000 compared to $506,000 in the comparable period last year. For the
six months ended July 31, 1998, interest expense was $822,000 compared to
$566,000 in the same period in the prior year. The higher interest expense
relates to increased borrowings as a result of purchasing increased amounts of
raw materials at favorable prices, and higher finished goods inventory levels.
Income taxes of $1.0 million reflect an effective tax rate of 40.0% for the
three months ended July 31, 1998 compared to income taxes of $1.6 million (same
effective tax rate) in the comparable period in the prior year. For the six
months ended July 31, 1998, the income tax benefit of $1.7 million also reflects
an effective tax rate of 40.0%, compared to an income tax benefit of $532,000
(same effective tax rate) in the same period last year.
As a result of the foregoing, for the three months ended July 31, 1998 the
Company had net income of $1.4 million, or $.20 per diluted share, compared to
net income of $2.4 million, or $.35 per diluted share, for the comparable period
in the prior year. For the six months ended July 31, 1998, the Company had a net
loss of $2.5 million, or $.39 per share, compared to a net loss of $904,000, or
$.12 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, was amended during
the quarter ended July 31, 1998. The original agreement provided for a maximum
line of credit that ranged from $40 million to $56 million at specific dates
during the term. The amendments increased the maximum line of credit to amounts
that range from $40 million to $63.5 million during the same loan term.
The amended line of credit increased maximum direct borrowings from a range of
$30 million to $44 million to a range of $30 million to $50 million. 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 September
1, 1998) 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
includes covenants that require the Company to maintain certain earnings and
tangible net worth levels, and prohibits the payment of cash dividends. As of
July 31, 1998, there were $39.2 million in direct borrowings and approximately
$13.6 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.
-10-
In February 1997, the Company formed a joint venture with Black Entertainment
Television (BET) to provide a BET-branded clothing and accessory line. The joint
venture agreement provides for the Company and BET each to make an initial
capital contribution in the amount of $1.0 million. In addition, the agreement
provides for the Company and BET each to make an additional capital contribution
of up to $1.0 million. As of July 31, 1998, BET and the Company have each
contributed $1.0 million to this joint venture. The joint venture has negotiated
an asset-based credit facility with The CIT Group. To support the requirement
for overadvances which occur when the available collateral is not sufficient to
support the level of direct bank debt and letters of credit opened to pay for
product, both partners have opened stand-by letters of credit in the amount of
$750,000 under which The CIT Group is the beneficiary. As of July 31, 1998,
there was $804,000 in direct debt outstanding under this CIT Group credit
facility.
The Company's wholly-owned Indonesian subsidiary has a line of credit with a
bank which was partially supported by a $2.0 million stand-by letter of credit
issued under the Company's loan agreement. On May 12, 1998, the Company paid
down the $2.0 million stand-by letter of credit, reducing the factory's credit
line to $1.5 million. As of July 31, 1998, the borrowing by the Indonesian
subsidiary under its line of credit approximated $1.5 million.
YEAR 2000 COMPLIANCE
The Company believes that advanced information processing is essential to
maintaining its competitive position. The Company participates in the electronic
data interchange program maintained by many of its larger customers, including
Federated Department Stores, Wal-Mart, and Daytons. This program allows the
Company to receive customer orders, provide advanced shipping notices, monitor
store inventory and track orders on-line from the time such orders are placed
through delivery. The Company is also able to notify certain of its customers'
warehouses in advance as to shipments.
The Company has a formal year 2000 compliance schedule that addresses the
Company's IT systems. During the quarter ended July 31, 1998, the Company
completed its upgrade of its accounting systems, to ensure proper processing of
transactions relating to the year 2000 and beyond. In addition, the Company is
currently evaluating its other management information systems, such as
manufacturing and distribution system, microcomputers, telephones and fax
machines, and have set forth plans to upgrade, modify or replace such equipment.
The Company continues to evaluate appropriate courses of corrective actions,
including replacement of certain systems. The Company expects to complete this
process and be year 2000 compliant by mid 1999.
The Company does not expect the costs associated with ensuring year 2000
compliance to have a material effect on its financial position or results of
operations. All costs associated with year 2000 compliance are being funded with
cash flow generated from operations and are being expensed as incurred. The
Company currently estimates that it will need to expend approximately $200,000
to $300,000 to complete its year 2000 compliance. The Company expects these
amounts to be funded with cash flow generated from operations.
The Company has taken steps to determine if its major customers and suppliers
are year 2000 compliant and is in process of establishing a contingency plan in
the event that these suppliers and vendors are not year 2000 compliant. The
Company has requested written confirmation from its customers and suppliers as
to their year 2000 compliance status.
-11-
Although the Company believes that the information systems of its major
customers and vendors (insofar as they relate to the Company's business) comply
with year 2000 requirements, there can be no assurance that the year 2000 issue
will not affect the information systems of such customers and vendors as they
relate to the Company's business, or that any such impact on such customers' and
vendors/ information systems would not have a material adverse effect on the
Company's business, financial condition or results of operations.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Segment Information
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which will be effective with the Company's
financial statements for the fiscal year ending January 31, 1999. This statement
establishes standards for reporting information about segments in annual and
interim financial statements. This statement introduces a new model for segment
reporting, called the "management approach." The management approach is based on
the way the chief operating decision-maker organizes segments within a Company
for making operating decisions and assessing performance. Reportable segments
are based on products and services, geography, legal structure and management
structure. The Company does not believe that this statement will have a
significant impact on the consolidated financial statements.
-12-
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
(a) The Company's Annual Meeting of Stockholders was held on June 18,
1998 (the "Annual Meeting").
(b) The following matters were voted upon and approved by the Company's
stockholders at the Annual Meeting:
(i) The election of nine directors to serve for the ensuing year. The
following nominees were elected as directors of the Company (with
the Company's stockholders having voted as set forth below):
----------------- ---------- ---------------------------
NOMINEE VOTES FOR WITHHELD AUTHORITY TO VOTE
----------------- ---------- ---------------------------
Morris Goldfarb 6,239,650 2,855
----------------- ---------- ---------------------------
Aron Goldfarb 6,239,650 2,855
----------------- ---------- ---------------------------
Lyle Berman 6,239,545 2,960
----------------- ---------- ---------------------------
Thomas J. Brosig 6,239,650 2,855
----------------- ---------- ---------------------------
Alan Feller 6,239,650 2,855
----------------- ---------- ---------------------------
Carl Katz 6,239,650 2,855
----------------- ---------- ---------------------------
Willem van Bokhorst 6,239,650 2,855
----------------- ---------- ---------------------------
Sigmund Weiss 6,239,650 2,855
----------------- ---------- ---------------------------
George J.Winchell 6,239,650 2,855
----------------- ---------- ---------------------------
(ii) The ratification of the appointment of Grant Thornton LLP as
the Company's independent certified public accountants for the
fiscal year ending January 31, 1999. The Company's
stockholders voted as follows:
FOR: 6,240,000
AGAINST: 1,005
ABSTENTIONS: 1,500
BROKER NON-VOTES: 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
1. Amendment No. 2 to the Fourth Amended and Restated Loan Agreement, dated as
of June 24, 1998, by and among G-III Leather Fashions, Inc., the Bank's
signatory thereto and Fleet Bank, N.A., as Agent.
2. Amendment No. 3 to the Fourth Amended and Restated Loan Agreement, dated as
of July 31, 1998, by and among G-III Leather Fashions, Inc., the Bank's
signatory thereto and Fleet Bank, N.A., as Agent.
-13-
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: September 14, 1998 By: /s/ Morris Goldfarb
---------------------
Morris Goldfarb
Chief Executive Officer
Date: September 14, 1998 By: /s/ Wayne S. Miller
----------------------
Wayne S. Miller
Chief Financial Officer
-14-
AMENDMENT NO. 2 TO THE FOURTH
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDMENT NO. 2 TO THE FOURTH AMENDED AND RESTATED LOAN
AGREEMENT, dated as of June 24, 1998 (this "Amendment"), by and among G-III
LEATHER FASHIONS, INC., a New York corporation (the "Borrower"), the Lenders
that have executed the signature pages hereto (individually, a "Lender" and
collectively, the "Lenders"), and FLEET BANK, N.A., a national banking
association as agent for the Lenders (in such capacity, together with its
successors in such capacity, the "Agent"),
W I T N E S S E T H:
WHEREAS:
A. The Borrower, the Lenders and the Agent are parties to the Fourth
Amended and Restated Loan Agreement, dated as of May 31, 1997, as amended by
Amendment No.1 to the Fourth Amended and Restated Loan Agreement, dated as of
June 1, 1998, and as further amended hereby (as it may be further amended,
modified and supplemented from time to time, the "Loan Agreement"); and
B. The parties hereto wish to amend the Loan Agreement as hereinafter
provided; and
C. Each capitalized term used but not otherwise defined herein shall
have the meaning ascribed thereto in the Loan Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO LOAN AGREEMENT.
1.1 This Amendment shall be deemed to be an amendment to the Loan
Agreement and shall not be construed in any way as a replacement or substitution
therefor. All of the terms and conditions of, and terms defined in, this
Amendment are hereby incorporated by reference into the Loan Agreement as if
such terms and provisions were set forth in full therein. This Amendment shall
be effective as of March 1, 1998.
1.2 The definition of "Overadvance" set forth in Article 1 of the Loan
Agreement shall be amended by deleting the overadvance chart set forth therein
and replacing it with the following:
Period Amount
------- -------
March 1, 1998 - March 31, 1998 $ 9,000,000
April 1, 1998 - April 30, 1998 $ 15,000,000
May 1, 1998 - May 31, 1998 $ 26,000,000
June 1, 1998 - June 30, 1998 $ 30,000,000
July 1, 1998 - July 27, 1998 $ 30,000,000
July 28, 1998 - July 31, 1998 $ 25,000,000
August 1, 1998 - August 24, 1998 $ 25,000,000
August 25, 1998 - August 31, 1998 $ 22,000,000
September 1, 1998 - September 28, 1998 $ 22,000,000
September 29, 1998 - September 30, 1998 $ 15,000,000
October 1, 1998 - October 26, 1998 $ 15,000,000
October 27, 1998 - October 31, 1998 $ 4,000,000
November 1, 1998 - January 31, 1999 -0-
1.3 The Loan Agreement, the Loan Documents and all agreements,
instruments and documents executed and delivered in connection with any of the
foregoing, shall each be deemed to be amended hereby to the extent necessary, if
any, to give effect to the provisions of this Amendment. Except as so amended
hereby, the Loan Agreement and the Loan Documents shall remain in full force and
effect in accordance with their respective terms.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Agent and the
Lenders that:
2.1 After giving effect to the amendment of the Loan Agreement
pursuant to this Amendment: (i) each of the representations and warranties set
forth in Article 3 of the Loan Agreement is true and correct in all respects as
if made on the date hereof; and (ii) there exists no Default or Event of
Default under the Loan Agreement after giving effect to this Amendment.
2.2 The Borrower has full corporate power and authority to execute and
deliver this Amendment and to perform the obligations on its part to be
performed thereunder and under the Loan Agreement as amended hereby.
SECTION 3. CONDITIONS PRECEDENT TO AMENDMENTS.
The effectiveness of the amendments contained in Section 1 of this
Amendment, are each and all subject to the satisfaction, in form and substance
satisfactory to the Agent, of each of the following conditions precedent:
3.1 The Borrower shall have duly executed and delivered this
Amendment.
3.2 Each of the conditions precedent set forth in Section 4.1 and
Section 4.2 of the Loan Agreement shall have been satisfied or waived in
accordance with the terms of the Loan Agreement.
3.3 The representations and warranties set forth in Section 2 hereof
shall be true, correct and complete on and as of the closing date of this
Amendment as though made on such date.
3.4 The Agent shall have received such approvals, opinions or
documents as any Lender through the Agent may reasonably request, the Borrower
and the Guarantors shall have taken all such other actions as any Lender through
the Agent may reasonably request, and all legal matters incident to the
foregoing shall be satisfactory to the Agent.
SECTION 4. EFERENCE TO AND EFFECT UPON THE LOAN AGREEMENT AND OTHER LOAN
DOCUMENTS.
4.1 Except as specifically amended in Section 1 above, the Loan
Agreement and each of the other Loan Documents shall remain in full force and
effect and each is hereby ratified and confirmed.
4.2 The execution, delivery and effect of this Amendment shall be
limited precisely as written and shall not be deemed to (i) be a consent to any
waiver of any term or condition or to any amendment or modification of any term
or condition of the Loan Agreement or any other Loan Document, except, upon the
effectiveness, if any, of this Amendment, as specifically amended in Section 1
above, or (ii) prejudice any right, power or remedy which the Agent or any
Lender now has or may have in the future under or in connection with the Loan
Agreement or any other Loan Document. Upon the effectiveness of this Amendment,
each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein" or any other word or words of similar import shall mean and be a
reference to the Loan Agreement as amended hereby, and each reference in any
other Loan Document to the Loan Agreement or any word or words of similar import
shall mean and be a reference to the Loan Agreement as amended hereby.
SECTION 5. MISCELLANEOUS
5.1 This Amendment may be executed in any number of counterparts, each of
which when so executed shall be deemed an original, but all such counterparts
shall constitute one and the same instrument.
5.2 The Borrower shall pay on demand all reasonable fees, costs and
expenses incurred by Agent in connection with the preparation, execution and
delivery of this Amendment (including, without limitation, all reasonable
attorneys' fees).
5.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF
THE STATE OF NEW YORK.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed on the date first above written.
G-III LEATHER FASHIONS, INC.
By: /s/ Wayne S. Miller
-------------------------
Name: Wayne S. Miller
-----------------------
Title: Chief Financial Officer
FLEET BANK, N.A., as Lender
By: /s/ Steven R. Navaro
---------------------------
Name: Steven R. Navaro
-------------------------
Title: Senior Vice President
------------------------
THE CHASE MANHATTAN BANK,
as Lender
By: /s/ Mala Popli
----------------------------
Name: Mala Popli
-----------------------
Title: Assistant Vice President
------------------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Lender
By: /s/ Kelly A. Colleran
----------------------------
Name: Kelly A. Colleran
--------------------------
Title: Assistant Vice President
-------------------------
FLEET BANK, N.A., as Agent
By: /s/ Steven R. Navaro
--------------------------
Name: Steven R. Navaro
------------------------
Title: Senior Vice President
-----------------------
AMENDMENT NO. 3 TO THE FOURTH
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDMENT NO. 3 TO THE FOURTH AMENDED AND RESTATED LOAN AGREEMENT,
dated as of July 31, 1998 (this "Amendment"), by and among G-III LEATHER
FASHIONS, INC., a New York corporation (the "Borrower"), the Lenders that have
executed the signature pages hereto (individually, a "Lender" and collectively,
the "Lenders"), and FLEET BANK, N.A., a national banking association as agent
for the Lenders (in such capacity, together with its successors in such
capacity, the "Agent"),
W I T N E S S E T H:
WHEREAS:
A. The Borrower, the Lenders and the Agent are parties to the Fourth
Amended and Restated Loan Agreement, dated as of May 31, 1997, as amended by
Amendment No. 1 to the Fourth Amended and Restated Loan Agreement, dated as of
June 1, 1998, as further amended by Amendment No. 2 to the Fourth Amended and
Restated Loan Agreement, dated as of June 24, 1998, and as further amended
hereby (as it may be further amended, modified and supplemented from time to
time, the "Loan Agreement"); and
B. The parties hereto wish to amend the Loan Agreement as hereinafter
provided; and
C. Each capitalized term used but not otherwise defined herein shall have
the meaning ascribed thereto in the Loan Agreement;
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. AMENDMENT TO LOAN AGREEMENT.
1.1 This Amendment shall be deemed to be an amendment to the Loan Agreement
and shall not be construed in any way as a replacement or substitution therefor.
All of the terms and conditions of, and terms defined in, this Amendment are
hereby incorporated by reference into the Loan Agreement as if such terms and
provisions were set forth in full therein. This Amendment shall be effective as
of July 28, 1998.
1.2 The following definitions set forth in Article 1 of the Loan Agreement
are amended by deleting such existing definitions in their entirety and
replacing them with the following:
"`COMMITMENT' - (i) Fifty-six Million ($56,000,000) Dollars during the
period from June 15, 1998 through and including July 28, 1998, (ii) Sixty-three
Million Five Hundred Thousand ($63,500,000) Dollars during the period from July
29, 1998 through and including September 30, 1998, (iii) Fifty-nine Million
($59,000,000) Dollars during the period from October 1, 1998 through and
including October 15, 1998, (iv) Fifty-two Million ($52,000,000) Dollars during
the period from October 16, 1998 through and including October 30, 1998, (v)
Forty-five Million ($45,000,000) Dollars during the period from October 31, 1998
through and including November 20, 1998, and (vi) Forty Million ($40,000,000)
Dollars during the period from November 21, 1998 through and including the
Commitment Termination Date, in each case in the aggregate, allocated among each
of the Lenders, respectively, in the amount set forth opposite such Lender's
name on the signature pages hereof under the caption `Commitment,' as such
amount is reduced in accordance with the terms hereof."
"`DIRECT DEBT SUBLIMIT' - (i) Fifty Million ($50,000,000) Dollars from July
29, 1998 through and including September 30, 1998, (ii) Forty-six Million
($46,000,000) Dollars during the period from October 1, 1998 through and
including October 25, 1998, (iii) Forty Million ($40,000,000) Dollars during the
period from October 26, 1998 through and including November 25, 1998, and (iv)
Thirty Million ($30,000,000) Dollars during the period from November 26, 1998,
through the Commitment Termination Date; provided that, at the Lenders'
discretion, upon the request of the Borrower, the applicable Direct Debt
Sublimit may be increased by an amount of Two Million ($2,000,000) Dollars."
"'G-III STANDBY L/C' - the standby letters of credit in the aggregate face
amount of $1,750,000 issued by the Borrower for the benefit of The CIT
Group/Commercial Services, Inc. to secure certain obligations of BET Studio LLC
under its credit facility with The CIT Group/Commercial Services, Inc."
"`OVERADVANCE' - the amount set forth below for the period indicated:
Period Amount
------ ------
July 1, 1998 - July 27, 1998 $ 30,000,000
July 28, 1998 - August 30, 1998 $ 30,000,000
August 31, 1998 - September 27, 1998 $ 25,000,000
September 28, 1998 - October 18, 1998 $ 22,000,000
October 19, 1998 - October 25, 1998 $ 15,000,000
October 26, 1998 - October 31, 1998 $ 4,000,000
November 1, 1998 - January 31, 1999 -0-
and the periods and amounts from February 1, 1999 through and including the
Commitment Termination Date shall be as determined by the Lenders based on the
Projections and the business plan for the period from February 1, 1999 through
the Commitment Termination Date, which shall each be satisfactory in form and
substance to the Lenders, but in no event shall the periods be of different
durations or the amounts be less than the amounts for the
2
periods corresponding to the periods set forth above unless the Lenders
determine (in their reasonable discretion) that such periods and amounts warrant
adjustment based upon such Projections or business plan which determination
shall be made within 30 days of receipt by the Lenders of such Projections;
provided, however, that with respect to the Overadvance at all times (x) the
then applicable Overadvance amount and all subsequent Overadvance amounts shall
be reduced by (i) 50% of all tax refunds paid to the Borrower or the Parent (or
paid to the Collection Account, in accordance with the terms hereof), (ii) the
proceeds of the sale of any assets other than in the ordinary course of
business, and (iii) 50% of the proceeds of any sale-leaseback, all of such
reductions to be effective immediately upon the Borrower's receipt (or, if
applicable, the Collateral Monitoring Agent's receipt for the account of the
Borrower) of such refunds or proceeds; but there shall be no reduction to the
then applicable Overadvance amount in the case of any sale-leaseback of newly
acquired assets, provided that (A) the sale-leaseback transaction is closed
within 90 days of the acquisition of the assets and (B) both the acquisition and
the closing of the sale-leaseback are completed during the same fiscal year; and
(y) at any time when Outstanding Obligations have exceeded the Borrowing Base as
a result of (A) Accounts or Inventory believed to be Eligible Accounts or
Eligible Inventory, as the case may be, in fact being or becoming ineligible or
(B) the return of uncollected checks or other items applied to reduce Loans, the
Collateral Monitoring Agent shall have the discretion to continue to advance
Loans and to instruct the Issuing Bank to issue L/Cs, Acceptances, Steamship
Guaranties and Airway Releases, as the case may be, up to an amount which would
result in the relevant Overadvance amount specified above being exceeded by a
factor of 10% (it being understood that the Collateral Monitoring Agent shall
advise the Lenders of all such issuances and advances within 24 hours); and (z)
the applicable Overadvance amount shall be increased by the amount of (a) any
cash collateral held by the Collateral Monitoring Agent for the sole purpose of
securing such increases to the applicable Overadvance amount, and (b) any
amounts invested in U.S. government securities or money market mutual funds
backed by U.S. government securities maintained in an account with Fleet Bank,
N.A. by the Borrower or the Parent and pledged or assigned to the Agent for the
benefit of the Lenders by the Borrower or the Parent, as the case may be, as
collateral security for the Obligations pursuant to documentation satisfactory
to the Lenders."
1.3 Section 7.1(f) of the Loan Agreement is amended by deleting such
Section in its entirety and replacing it with the following:
"(f) Indebtedness of the Borrower under the G-III Standby L/C; provided,
that the amount of Indebtedness pursuant to this subsection (f) shall not exceed
in the aggregate $1,750,000 at any time;"
1.4 Section 7.9(d) of the Loan Agreement is amended by deleting such
Section in its entirety and replacing it with the following:
"(d) Investments in BET Studio LLC; provided that the amount of Investments
pursuant to this subsection (d) shall not exceed in the aggregate $2,750,000
including the G-III Standby L/C (to the extent permitted by this Agreement),
which standby letter of credit
3
is an Investment expressly permitted under this Section 7.9;"
1.5 The Loan Agreement, the Loan Documents and all agreements, instruments
and documents executed and delivered in connection with any of the foregoing,
shall each be deemed to be amended hereby to the extent necessary, if any, to
give effect to the provisions of this Amendment. Except as so amended hereby,
the Loan Agreement and the Loan Documents shall remain in full force and effect
in accordance with their respective terms.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower hereby represents and warrants to the Agent and the Lenders
that:
2.1 After giving effect to the amendment of the Loan Agreement pursuant to
this Amendment: (i) each of the representations and warranties set forth in
Article 3 of the Loan Agreement is true and correct in all respects as if made
on the date hereof and (ii) there exists no Default or Event of Default under
the Loan Agreement after giving effect to this Amendment.
2.2 The Borrower has full corporate power and authority to execute and
deliver this Amendment and to perform the obligations on its part to be
performed thereunder and under the Loan Agreement as amended hereby.
SECTION 3. CONDITIONS PRECEDENT TO AMENDMENTS.
The effectiveness of the amendments contained in Section 1 of this
Amendment, are each and all subject to the satisfaction, in form and substance
satisfactory to the Agent, of each of the following conditions precedent:
3.1 The Borrower shall have duly executed and delivered this Amendment.
3.2 Each of the conditions precedent set forth in Section 4.1 and Section
4.2 of the Loan Agreement shall have been satisfied or waived in accordance with
the terms of the Loan Agreement.
3.3 The representations and warranties set forth in Section 2 hereof shall
be true, correct and complete on and as of the closing date of this Amendment as
though made on such date.
3.4 The Agent shall have received such approvals, opinions or documents as
any Lender through the Agent may reasonably request, the Borrower and the
Guarantors shall have taken all such other actions as any Lender through the
Agent may reasonably request, and all legal matters incident to the foregoing
shall be satisfactory to the Agent.
SECTION 4. REFERENCE TO AND EFFECT UPON THE LOAN AGREEMENT AND OTHER LOAN
DOCUMENTS.
4.1 Except as specifically amended in Section 1 above, the Loan Agreement
and
4
each of the other Loan Documents shall remain in full force and effect and each
is hereby ratified and confirmed.
4.2 The execution, delivery and effect of this Amendment shall be limited
precisely as written and shall not be deemed to (i) be a consent to any waiver
of any term or condition or to any amendment or modification of any term or
condition of the Loan Agreement or any other Loan Document, except, upon the
effectiveness, if any, of this Amendment, as specifically amended in Section 1
above, or (ii) prejudice any right, power or remedy which the Agent or any
Lender now has or may have in the future under or in connection with the Loan
Agreement or any other Loan Document. Upon the effectiveness of this Amendment,
each reference in the Loan Agreement to "this Agreement", "hereunder", "hereof",
"herein" or any other word or words of similar import shall mean and be a
reference to the Loan Agreement as amended hereby, and each reference in any
other Loan Document to the Loan Agreement or any word or words of similar import
shall mean and be a reference to the Loan Agreement as amended hereby.
SECTION 5. MISCELLANEOUS
5.1 This Amendment may be executed in any number of counterparts, each of
which when so executed shall be deemed an original, but all such counterparts
shall constitute one and the same instrument.
5.2 The Borrower shall pay on demand all reasonable fees, costs and
expenses incurred by Agent in connection with the preparation, execution and
delivery of this Amendment (including, without limitation, all reasonable
attorneys' fees).
5.3 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO CONFLICTS OF LAW PROVISIONS) OF
THE STATE OF NEW YORK.
[SIGNATURE PAGE FOLLOWS]
5
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed on the date first above written.
G-III LEATHER FASHIONS, INC.
By: /s/ Wayne S. Miller
-------------------------
Name: Wayne S. Miller
-----------------------
Title: Chief Financial Officer
FLEET BANK, N.A., as Lender
By: /s/ Joseph J. Zautra
---------------------------
Name: Joseph J. Zautra
-------------------------
Title: Vice President
------------------------
THE CHASE MANHATTAN BANK,
as Lender
By: /s/ Mala Popli
----------------------------
Name: Mala Popli
-----------------------
Title: Assistant Vice President
------------------------
THE CIT GROUP/COMMERCIAL SERVICES,
INC., as Lender
By: /s/ Kelly A. Colleran
----------------------------
Name: Kelly A. Colleran
--------------------------
Title: Assistant Vice President
-------------------------
FLEET BANK, N.A., as Agent
By: /s/ Joseph J. Zautra
--------------------------
Name: Joseph J. Zautra
------------------------
Title: Vice President
5
1,000
JAN-31-1999
FEB-1-1998
JUL-31-1998
6-MOS
632
0
35,989
(2,275)
41,981
79,787
12,444
(8,724)
87,839
54,027
0
65
0
0
33,141
87,839
40,692
40,692
31,591
31,591
0
0
822
(4,200)
(1,680)
(2,520)
0
0
0
(2,520)
(0.39)
(0.39)
5
1,000
JAN-31-1998
FEB-1-1997
JUL-31-1997
6-MOS
926
0
26,023
(2,860)
29,620
55,582
10,648
(7,530)
63,094
30,140
0
65
0
0
31,979
63,094
39,640
39,640
28,212
28,212
0
0
566
(1,449)
(532)
(804)
0
0
0
(804)
(0.12)
(0.12)
