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 April 30, 1997 -------------------------------------- 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 of name of registrant as specified in its character) <TABLE> <S> <C> Delaware 41-1590959 - --------------------------------- ----------------------------------- (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 345 West 37th Street, New York, New York 10018 - -------------------------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) </TABLE> (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 June 1, 1997. Common Stock, $.01 par value per share: 6,479,021 shares. ---------------------
Part I FINANCIAL INFORMATION Page No. Item 1. Financial Statements * Consolidated Balance Sheets - January 31, 1997 and April 30, 1997...............3 Consolidated Statements of Operations - For the Three Months Ended April 30, 1996 and 1997...........................4 Consolidated Statements of Cash Flows - For the Three Months Ended April 30, 1996 and 1997...........................5 Notes to Financial Statements...........................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................7-8 Part II OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K 1. Fourth Amended and Restated Loan Agreement, dated May 31, 1997, by and among G-III Leather Fashions, Inc., the Banks signatory thereto and Fleet Bank, N.A. as Agent, Collateral Monitoring Agent and Issuing Bank for such Banks. 2. By laws as amended on April 17, 1997. * 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) <TABLE> <CAPTION> JANUARY 31, APRIL 30, 1997 1997 ---- ---- ASSETS (unaudited) - ------ <S> <C> <C> Current Assets: Cash and Cash Equivalents $ 13,067 $ 5,703 Accounts Receivable - Net 7,176 3,028 Inventories 13,986 19,026 Prepaid and Refundable Income Taxes 2,238 Prepaid Expenses and Other Current Assets 969 1,718 -------- -------- Total Current Assets 35,198 31,713 Property and Equipment at Cost - Net 5,030 4,850 Deferred Income Taxes 3,351 3,351 Other Assets 976 1,022 -------- -------- $ 44,555 $ 40,936 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Notes Payable $ 3,459 $ 3,477 Current Maturities of Obligations Under Capital Leases 376 369 Federal and Foreign Income Taxes Payable 447 99 Accounts Payable 2,169 1,915 Accrued Expenses 2,101 2,483 Accrued Nonrecurring Charges 2,149 2,133 ------- ------- Total Current Liabilities 10,701 10,476 Obligations Under Capital Leases 554 407 Nonrecurring Charges - Long Term 557 475 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, 6,477,156 and 6,477,656 shares on January 31, 1997 and April 30, 1997, respectively 65 65 Additional Paid-in Capital 23,638 23,639 Retained Earnings 9,122 5,874 ------- -------- 32,825 29,578 ------- -------- $ 44,555 $ 40,936 ======= ======== </TABLE> 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) <TABLE> <CAPTION> THREE MONTHS ENDED APRIL 30, ---------------------------------------- 1996 1997 ---- ---- (Unaudited) <S> <C> <C> Net Sales $ 5,063 $ 6,531 Cost of Goods Sold 4,911 6,069 ------- ------- Gross Profit 152 462 Selling, General and Administrative Expenses 5,660 5,814 ------- ------- Operating Loss (5,508) (5,352) Interest and Financing Charges, Net 212 60 ------- ------- Loss Before Taxes (5,720) (5,412) Income Taxes (Benefit) (2,280) (2,164) ------- ------- Net Loss $ (3,440) $ (3,248) ======= ======= LOSS PER COMMON SHARE: Primary and Fully Diluted; Net Loss per common share $ (.53) $ (.50) ======== ======== Weighted average number of shares outstanding 6,465,836 6,477,443 ========= ========= </TABLE> See Accompanying Notes to Financial Statements. -4-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) <TABLE> <CAPTION> THREE MONTHS ENDED APRIL 30, -------------------------------- 1996 1997 ---- ---- (Unaudited) <S> <C> <C> Cash Flows from Operating Activities: Net Loss $ (3,440) $ (3,248) Adjustment to Reconcile Net Loss: Depreciation and Amortization 364 296 Changes in Operating Assets and Liabilities: Accounts Receivable (3,838) 4,148 Inventory (3,989) (5,040) Federal and Foreign Income Taxes (2,405) (2,586) Prepaid Expenses (197) (749) Other Assets (95) (46) Accounts Payable and Accrued Expenses 1,269 128 Accrued Nonrecurring Charge (56) (16) Net Cash (Used in) Operating Activities (7,299) (7,113) -------- -------- Cash Flows for Investing Activities: Capital Expenditures (93) (118) Capital Dispositions 53 2 -------- -------- Net Cash (Used in) Investing Activities (40) (116) -------- -------- Cash Flows from Financing Activities: Increase in Notes Payable, Net 404 18 Proceeds from Exercise of Stock Options 1 Payment of Capital Lease Obligations (148) (154) -------- -------- Net Cash Provided by (used for) Financing Activities 256 (135) -------- -------- Net (Decrease) in Cash (4,495) (7,364) Cash at Beginning of Period 7,617 13,067 -------- -------- Cash at End of Period $ 3,122 $ 5,703 ======== ======== Supplemental Disclosures of Cash Flow Information Cash Paid During the Period for: Interest $ 109 $ 94 Income Taxes $ 1 $ 440 </TABLE> See Accompanying Notes to Financial Statements. -5-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General Discussion The results of the three month period ended April 30, 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. 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 <TABLE> <CAPTION> (in thousands) January 31, April 30, Inventories consist of: 1997 1997 ---- ---- <S> <C> <C> Finished products............... $ 10,382 $ 11,440 Work-in-process................. 27 452 Raw materials................... 3,577 7,134 --------- -------- $ 13,986 $ 19,026 ========= ======== </TABLE> Note 3 - Net Loss Per Common Share Net 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 share equivalents, when applicable. Note 4 - Notes Payable The Company's loan agreement has been extended for two years, with the extended term expiring 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 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. 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 a cost reduction program. The status of the components of the provision at the end of the period was: <TABLE> <CAPTION> (in thousands) Balance 1997 Balance January 31, 1997 Activity April 30, 1997 ---------------- -------- -------------- <S> <C> <C> <C> Closure of domestic and foreign facilities $2,624 $(16) $2,608 ====== ===== ====== </TABLE> 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. The effect of adopting this new standard is not expected to have a material impact on the disclosure of earnings per share in the financial statements. -6-
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 The three month period ending on April 30 is traditionally the quarter with the lowest net sales by the Company during its fiscal year. Net sales for the three months ended April 30, 1997 were $6.5 million compared to $5.1 million for the same period last year. The increase in net sales during the quarter was primarily due to higher sales in the Mens and Kenneth Cole divisions. Gross profit was $462,000 for the three months ended April 30, 1997, compared to $152,000 in the same period last year. Gross profit as a percentage of net sales was 7.1% for the three months ended April 30, 1997, compared to 3.0% for the same period last year. The increase in the gross profit percentage was achieved primarily in the mens and licensed product lines. Selling, general and administrative expenses were $5.8 million for the three months ended April 30, 1997 compared to $5.7 million in the prior year. For the three months ended April 30, 1997, interest and financing charges, net were $60,000, a decrease of $152,000 from the same period of the prior year. This decrease is primarily attributable to interest income earned on higher levels of cash equivalents as compared to last year. Income tax benefit of $2.2 million reflects an effective tax rate of 40% for the three months ended April 30, 1997, compared to an income tax benefit of $2.3 million which reflected the same effective tax rate in the comparable period of the prior year. As a result of the foregoing, for the three month period ended April 30, 1997, the Company had a net loss of $3.2 million, or $.50 per share, compared to a net loss of $3.4 million, or $.53 per share, for the comparable period in the prior year. -7-
LIQUIDITY AND CAPITAL RESOURCES The Company's loan agreement has been extended for two years, with the extended term expiring 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 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 June 1, 1997) or LIBOR plus 250 basis points at the election of the Company. All borrowing are collateralized by the assets of the Company. The loan agreement requires the Company, among other covenants, to maintain certain earnings and tangible net worth levels, and prohibits the payment of cash dividends. As of April 30, 1997, there were no direct borrowing outstanding and approximately $17.2 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 April 30, 1997, the borrowing by the Indonesian subsidiary under its line of credit approximated $3.5 million. -8-
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. G-III APPAREL GROUP, LTD. (Registrant) Date: June 16, 1997 By: /s/ Morris Goldfarb __________________________________ Morris Goldfarb Chief Executive Officer Date: June 16, 1997 By: /s/ Alan Feller __________________________________ Alan Feller Chief Financial Officer, Treasurer, and Secretary STATEMENT OF DIFFERENCES The section symbol shall be expressed as................................'SS'