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 July 31, 1996 ------------------------------------------ OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to -------------------- ----------------------- Commission File Number 0-18183 -------------------------------------------------------- G-III APPAREL GROUP, LTD. (Exact name of registrant as specified in its character) 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 - -------------------------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) (212) 629-8830 ----------------------------------------------------- (Registrant's telephone number, including area code) - -------------------------------------------------------------------------------- (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, 1996. Common Stock, $.01 par value per share: 6,467,336 shares. ---------------------
Part I FINANCIAL INFORMATION <TABLE> <CAPTION> Page No. <S> <C> Item 1. Financial Statements * Consolidated Balance Sheets - January 31, 1996 and July 31, 1996 .............................3 Consolidated Statements of Operations - For the Three Months Ended July 31, 1995 and 1996..........................................4 Consolidated Statements of Operations - For the Six Months Ended July 31, 1995 and 1996..........................................5 Consolidated Statements of Cash Flows - For the Six Months Ended July 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 Part II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Stockholders......................10 Item 6. Exhibits and Reports on Form 8-K (a) Third Amended and Restated Loan Agreement, dated as of May 31, 1996 </TABLE> * 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) <TABLE> <CAPTION> JANUARY 31, JULY 31, ASSETS 1996 1996 - ------ ---- ---- (unaudited) <S> <C> <C> Current Assets: Cash and Cash Equivalents $ 7,617 $ 631 Accounts Receivable - Net 8,995 26,865 Inventories - Net 14,207 33,482 Prepaid and Refundable Income Taxes 502 1,267 Prepaid Expense and Other Current Assets 968 1,694 -------- ------- Total Current Assets 32,289 63,939 ------ ------ Property and Equipment at Cost - Net 6,324 5,730 Deferred Income Taxes 1,717 1,717 Other Assets 927 995 -------- -------- $ 41,257 $ 72,381 ====== ====== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 2,980 $ 23,790 Current Maturities of Obligations Under Capital Leases 571 571 Accounts Payable 2,469 9,478 Accrued Expenses 1,751 6,911 Accrued Nonrecurring Charges 2,294 2,182 ------- ------- Total Current Liabilities 10,065 42,932 Obligations Under Capital Leases 919 619 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 6,467,336 shares on July 31, 1996 65 65 Additional Paid-in Capital 23,615 23,618 Retained Earnings 6,036 4,590 ------- ------- 29,716 28,273 ------ ------ $ 41,257 $ 72,381 ====== ====== See Accompanying Notes to Financial Statement. </TABLE> -3-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share amounts) <TABLE> <CAPTION> THREE MONTHS ENDED ------------------------------------- JULY 31, -------- 1995 1996 ---- ---- (Unaudited) <S> <C> <C> Net Sales $ 36,032 $ 26,209 Cost of Goods Sold 26,438 17,005 ------ ------ Gross Profit 9,594 9,204 Selling, General and Administrative Expenses 5,481 5,401 ------- ------ Operating Profit 4,113 3,803 Interest and Financing Charges, Net 991 493 ------- ------ Income Before Taxes 3,122 3,310 Income Taxes 1,403 1,316 ------- ------ Net Income $ 1,719 $ 1,994 ======= ====== Income per common share: Primary and Fully Diluted; Net Income per common share $ .27 $ .30 === === Weighted average number of shares outstanding 6,459,381 6,739,098 ========= ========= </TABLE> 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) <TABLE> <CAPTION> SIX MONTHS ENDED ------------------------------------------ JULY 31, -------- 1995 1996 ---- ---- (Unaudited) <S> <C> <C> Net Sales $ 45,307 $ 31,272 Cost of Goods Sold 35,050 21,916 ------ ------ Gross Profit 10,257 9,356 Selling, General and Administrative Expenses 10,796 11,061 ------ ------ Operating Loss (539) (1,705) Interest and Financing Charges, Net 1,397 705 ------- -------- Loss Before Taxes (1,936) (2,410) Income Taxes (Benefit) (620) (964) ------- -------- Net Loss $ (1,316) $ (1,446) ======= ======= Loss per common share: Primary and Fully Diluted; Net Loss per common share $ (.20) $ (.22) ==== ==== Weighted average number of shares outstanding 6,459,381 6,466,471 ========= ========= </TABLE> See Accompanying Notes to Financial Statements. -5-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) <TABLE> <CAPTION> SIX MONTHS ENDED ------------------ JULY 31, -------- 1995 1996 ---- ---- (Unaudited) <S> <C> <C> Cash Flows from Operating Activities: Net Loss $ (1,316) $ (1,446) Adjustments to Reconcile Net Loss: Depreciation and Amortization 636 752 Changes in Operating Assets and Liabilities: Accounts Receivable (13,685) (17,870) Inventory (6,949) (19,275) Prepaid and Refundable Income Taxes (681) (765) Prepaid Expenses (801) (726) Other Assets (6) (68) Accounts Payable and Accrued Expenses 3,694 12,169 Accrued Nonrecurring Charge (163) (112) ------ -------- (18,591) (26,647) ------ ------ Net Cash (Used in) Operating Activities (19,271) (27,341) ------ ------ Cash Flows for Investing Activities: Capital Expenditures (498) (245) Capital Dispositions 87 ------ ------ Net Cash (Used in) Investing Activities: (498) (158) ------ ------ Cash Flows from Financing Activities: Increase in Notes Payable, net 21,343 20,810 Payment of Capital Lease Obligations (275) (300) Proceeds from exercise of stock options 3 ------ ------ Net Cash Provided by Financing Activities 21,068 20,513 ------ ------ Net Increase (Decrease) in Cash 1,299 (6,986) Cash at Beginning of Period 1,421 7,617 ------- ------- Cash at End of Period $ 2,720 $ 631 ======= ======== Supplemental Disclosures of Cash Flow Information Cash Paid During the Period for: Interest $ 1,222 $ 534 Income Taxes $ 2 $ 68 </TABLE> 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 six month periods ended July 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 Inventories consist of: <TABLE> <CAPTION> January 31, July 31, 1996 1996 ---- ---- (in thousands) <S> <C> <C> Finished products................ $ 12,112 $ 29,024 Work-in-process.................. 49 292 Raw materials.................... 2,046 4,166 ------- ------- $ 14,207 $ 33,482 ====== ====== </TABLE> Note 3 - Net Income (Loss) Per Common Share Net Income (Loss) 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: <TABLE> <CAPTION> Balance 1996 Balance January 31, 1996 Activity July 31, 1996 ----------------- ---------- ------------- (in thousands) <S> <C> <C> <C> Closure of Domestic and Foreign Facilities $ 2,690 $ (32) $ 2,658 Severance and related costs 161 (80) 81 ------ ------ ------- $ 2,851 $ (112) $ 2,739 ===== ===== ===== </TABLE> -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 July 31, 1996 were $26.2 million compared to $36.0 million for the same period last year. For the six months ended July 31, 1996, net sales were $31.3 million compared to $45.3 million for the same period in the prior year. The decrease in net sales during the three and six month periods was primarily due to continued weakness in retail sales of outerwear apparel, particularly in the mid-priced garment categories (Womens, Studio, and JL Colebrook divisions), partially offset by higher sales levels in the Licensing division, and the commencement during the second quarter of sales in the Entertainment division and in branded merchandise carrying the Kenneth Cole and Polar Bear labels. Gross profit was $9.2 million for the three months ended July 31, 1996, compared to $9.6 million in the same period last year. Gross profit as a percentage of net sales was 35.1% for the three months ended July 31, 1996, compared to 26.6% for the same period last year. For the six month period ended July 31, 1996, gross profit was $9.4 million, or 29.9% of net sales, compared to $10.3 million, or 22.6% 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 branded product and sports licensing volume which has higher margins. Selling, general and administrative expenses of $5.4 million for the three months ended July 31, 1996 were approximately $80,000 less than in the same period last year. As a percentage of net sales, selling, general and administrative expenses were 20.6% in this period compared to 15.2% last year. For the six month period ended July 31, 1996, selling, general and administrative expenses were $11.1 million, or 35.4% of net sales, compared to $10.8 million, or 23.8% of net sales for the same period last year. The increase as a percentage of net sales and revenues was the result of lower reported net sales as described above. Selling, general and administrative expenses for the three and six month periods ended July 31, 1996 were affected by several factors. The Company took several actions to reduce these expenses, including the consolidation of its two New Jersey distribution centers into one location in January 1996, and the sublease of excess property beginning in March 1996. Additionally, a samples room function was eliminated and personnel reductions have been taken where appropriate. 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. The Company continues to monitor and seeks to reduce expense levels whenever appropriate. -8-
Interest expense of $493,000 was $498,000 lower in the quarter ended July 31, 1996, compared to $991,000 in the same period last year. For the six months ended July 31, 1996, interest expense was $705,000, a decrease of $692,000 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 than in the prior year when the Company was continuously in a domestic borrowing position. Income taxes of $1.3 million reflect an effective tax rate of 40% for the three months ended July 31, 1996, compared to income taxes of $1.4 million (effective tax rate of 44.9%) in the comparable period in the prior year. For the six months ended July 31, 1996, the income tax benefit of $964,000 reflects an effective tax rate of 40%, compared to an income tax benefit of $620,000 or 32.0% in the same period last year. The lower effective tax rate in the prior year resulted from the utilization of state and local losses carried forward from the fiscal year ended January 31, 1995. As a result of the foregoing, for the three month period ended July 31, 1996, the Company had net income of $2.0 million, or $.30 per share, compared to a net income of $1.7 million, or $.27 per share, for the comparable period in the prior year. For the six month period ended July 31, 1996, the Company had a net loss of $1.4 million, or $.22 per share, compared to a net loss of $1.3 million, or $.20 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 September 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 July 31, 1996, there was $20.4 million of borrowings outstanding and approximately $16.5 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 July 31, 1996, the borrowing by the Indonesian subsidiary under its line of credit approximated $3.4 million. -9-
Item 4. Submission of Matters to a Vote of Stockholders (a) The Company's Annual Meeting of Stockholders was held on June 20, 1996 (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): <TABLE> <CAPTION> Withheld Nominee Votes For Authority to Vote <S> <C> <C> Morris Goldfarb 6,255,803 8,600 Aron Goldfarb 6,254,903 9,500 Lyle Berman 6,255,803 8,600 Thomas J. Brosig 6,254,803 9,600 Alan Feller 6,255,803 8,600 Carl Katz 6,255,803 8,600 Willem van Bokhorst 6,255,803 8,600 Sigmund Weiss 6,254,903 9,500 George J. Winchell 6,253,903 10,500 </TABLE> (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, 1997. The Company's stockholders voted as follows: FOR: 6,252,327 AGAINST: 1,550 ABSTENTIONS: 14,000 BROKER NON-VOTES: 0 Item 6. Exhibits and Reports on Form 8-K (a) Third Amended and Restated Loan Agreement, dated as of May 31, 1996 -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: September 12, 1996 By: /s/ ------------------------- Morris Goldfarb President and Chief Executive Officer Date: September 12, 1996 By: /s/ ------------------------- Alan Feller Chief Financial Officer, Treasurer, and Secretary -11- STATEMENT OF DIFFERENCES ------------------------ The section symbol shall be expressed as ..... ss.