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, 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 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 (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, 1997. Common Stock, $.01 par value per share: 6,485,781 shares.
<TABLE> <CAPTION> Part I FINANCIAL INFORMATION Page No. <S> <C> <C> Item 1. Financial Statements * Consolidated Balance Sheets - January 31, 1997 and July 31, 1997 ...........................................3 Consolidated Statements of Operations - For the Three Months Ended July 31, 1996 and 1997........................................................4 Consolidated Statements of Operations - For the Six Months Ended July 31, 1996 and 1997........................................................5 Consolidated Statements of Cash Flows - For the Six Months Ended July 31, 1996 and 1997........................................................6 Notes to Financial Statements.......................................................7-8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................................................9-10 Part II OTHER INFORMATION Item 4. Submission of Matters to a Vote of Stockholders......................................11 Item 6. Exhibits and Reports on Form 8-K (a) 1997 Stock Option Plan * 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> <TABLE> <CAPTION> JANUARY 31, JULY 31, ASSETS 1997 1997 - ------ ---- ---- (unaudited) <S> <C> <C> Current Assets: Cash and Cash Equivalents $ 13,067 $ 926 Accounts Receivable - Net 7,176 23,163 Inventories - Net 13,986 29,620 Prepaid and Refundable Income Taxes 607 Prepaid Expenses and Other Current Assets 969 1,266 -------- ------- Total Current Assets 35,198 55,582 Property, Plant and Equipment - Net 5,030 3,118 Deferred Income Taxes 3,351 3,351 Other Assets 976 1,043 -------- ------- $ 44,555 $ 63,094 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY - ------------------------------------ Current Liabilities: Notes Payable $ 3,459 $ 22,014 Current Maturities of Obligations Under Capital Leases 376 247 Federal and Foreign Income Taxes Payable 447 103 Accounts Payable 2,169 4,711 Accrued Expenses 2,101 2,551 Accrued Nonrecurring Charges 2,149 514 ------- -------- Total Current Liabilities 10,701 30,140 Obligations Under Capital Leases 554 435 Nonrecurring Charges - Long Term 475 475 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 shares and 6,485,781 share on January 31, 1997 and July 31, 1997, respectively 65 65 Additional Paid-in Capital 23,638 23,661 Retained Earnings 9,122 8,318 ------- ------- 32,825 32,044 ------- ------- $ 44,555 $ 63,094 ======= ======= </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 JULY 31, ---------------------------------------------------------- 1996 1997 ---- ---- (Unaudited) <S> <C> <C> Net Sales $ 26,209 $ 33,109 Cost of Goods Sold 17,005 22,743 ---------- --------- Gross Profit 9,204 10,366 Selling, General and Administrative Expenses 5,401 5,897 ---------- --------- Operating Profit 3,803 4,469 Interest and Financing Charges, Net 493 506 ---------- --------- Income Before Minority Interest and Taxes 3,310 3,963 Minority Interest 113 ---------- --------- Income Before Taxes 3,310 4,076 Income Taxes 1,316 1,632 ---------- --------- Net Income $ 1,994 $ 2,444 ========== ========= INCOME PER COMMON SHARE: Primary and Fully Diluted; Net Income per common share $ .30 $ .35 ========== ========= Weighted average number of shares outstanding 6,739,098 7,075,394 ========== ========= </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, ------------------------------------------------------- 1996 1997 ---- ---- (Unaudited) <S> <C> <C> Net Sales $ 31,272 $ 39,640 Cost of Goods Sold 21,916 28,812 -------- ------- Gross Profit 9,356 10,828 Selling, General and Administrative Expenses 11,061 11,711 -------- ------- Operating Loss (1,705) (883) Interest and Financing Charges, Net 705 566 --------- --------- Income Before Minority Interest and Taxes (2,410) (1,449) Minority Interest 113 ---------- --------- Loss Before Taxes (2,410) (1,336) Income Tax Benefit (964) (532) --------- --------- Net Loss $ (1,446) $ (804) ========= ========= LOSS PER COMMON SHARE: Primary and Fully Diluted; Net Loss per common share $ (.22) $ (.12) ========= ========= Weighted average number of shares outstanding 6,466,471 6,479,121 ========= ========= </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, --------------------------------------------- 1996 1997 (Unaudited) <S> <C> <C> Cash Flows from Operating Activities: Net Loss $ (1,446) $ (804) Adjustments to Reconcile Net Loss: Depreciation and Amortization 752 618 Changes in Operating Assets and Liabilities: Accounts Receivable (17,870) (15,987) Inventory (19,275) (15,634) Federal and Foreign Income Taxes (765) (951) Prepaid Expenses (726) (297) Other Assets (68) (67) Accounts Payable and Accrued Expenses 12,169 2,992 Accrued Nonrecurring Charge (112) (33) ---------- ---------- (26,647) (29,977) ---------- ---------- Net Cash Used in Operating Activities (27,341) (30,163) ---------- ---------- Cash Flows for Investing Activities: Capital Expenditures (245) (311) Capital Dispositions 87 3 ---------- ---------- Net Cash Used in Investing Activities: (158) (308) ---------- ---------- Cash Flows from Financing Activities: Increase in Notes Payable, net 20,810 18,555 Payment of Capital Lease Obligations (300) (248) Proceeds from Exercise of Stock Options 3 23 ---------- ---------- Net Cash Provided by Financing Activities 20,513 18,330 ---------- ---------- Net Decrease in Cash (6,986) (12,141) Cash at Beginning of Period 7,617 13,067 ---------- ---------- Cash at End of Period $ 631 $ 926 ========== ========== Supplemental Disclosures of Cash Flow Information Cash Paid During the Period for: Interest $ 534 $ 415 Income Taxes $ 68 $ 442 </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, 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 10-K filed with the Securities and Exchange Commission for the year ended January 31, 1997. Note 2 - Inventories <TABLE> <CAPTION> January 31, July 31, Inventories consist of: 1997 1997 ---- ---- (in thousands) <S> <C> <C> Finished products................. $ 10,382 $ 23,202 Work-in-process................... 27 636 Raw materials..................... 3,577 5,782 ------- ------- $ 13,986 $ 29,620 ======= ======= </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 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 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. -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 $1.2 million and $1.3 million, and a net loss of $559,000 and $413,000 for the six-month periods ended July 31, 1996 and 1997, respectively. The status of the provision at the end of the period was: <TABLE> <CAPTION> Balance 1997 Balance January 31, 1997 Activity July 31, 1997 ---------------- -------- ------------- (in thousands) <S> <C> <C> <C> Closure of domestic and foreign facilities $ 2,624 $ (1,635) $ 989 ===== ====== === </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. Had this new standard been effective during the quarter ended July 31, 1997, basic income per share would have been $.38 for the three months ended July 31, 1997 and basic loss per share would have been $.12 for the six months ended July 31, 1997. Diluted income per share would have been $.35 for the three months ended July 31, 1997 and diluted loss per share would have been $.12 for the six months ended July 31, 1997. -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, 1997 were $33.1 million compared to $26.2 million for the same period last year. For the six months ended July 31, 1997, net sales were $39.6 million compared to $31.3 million for the same period in the prior year. The revenue increase during the three and six month periods is attributable to the men's and moderately-priced women's lines, as well as continued growth in the Kenneth Cole and sports licensing product lines. Gross profit was $10.4 million for the three months ended July 31, 1997, compared to $9.2 million in the same period last year. Gross profit as a percentage of net sales was 31.3% for the three months ended July 31, 1997, compared to 35.1% for the same period last year. For the six month period ended July 31, 1997, gross profit was $10.8 million, or 27.3% of net sales, compared to $9.4 million, or 29.9% of net sales for the same period last year. The decrease in the gross profit percentage resulted primarily from a higher volume of activity in certain letter of credit transactions where the Company acts as agent for the retailer and charges a commission for services rendered. Selling, general and administrative expenses of $5.9 million for the three months ended July 31, 1997 were approximately $500,000 higher than in the same period last year. As a percentage of net sales, selling, general and administrative expenses were 17.8% in this period compared to 20.6% last year. For the six month period ended July 31, 1997, selling, general and administrative expenses were $11.7 million, or 29.5% of net sales, compared to $11.1 million, or 35.4% of net sales for the same period last year. The decrease as a percentage of net sales was the result of spreading such expenses over a higher sales base. The increase in selling, general and administrative expenses for the three and six month periods ended July 31, 1997 was primarily attributable to salary increases, increased advertising costs resulting from the requirements of certain license agreements, and start-up expenses in BET Design Studio, LLC. - 9 -
Interest expense of $506,000 was $13,000 higher in the quarter ended July 31, 1997, compared to $493,000 in the same period last year. For the six months ended July 31, 1997, interest expense was $566,000, a decrease of $139,000 from the prior year. Lower interest rates under the Company's amended bank facility, partially offset by an increase in the average outstanding balance during the quarter ended July 31, 1997, were the primary cause of lower interest expense. Income taxes of $1.6 million reflect an effective tax rate of 40.0% for the three months ended July 31, 1997, compared to income taxes of $1.3 million (effective tax rate of 40.0%) in the comparable period in the prior year. For the six months ended July 31, 1997, the income tax benefit of $532,000 reflects an effective tax rate of 40.0%, compared to an income tax benefit of $964,000 or 40.0% in the same period last year. As a result of the foregoing, for the three month period ended July 31, 1997 the Company had net income of $2.4 million, or $.35 per share, compared to a net income of $2.0 million, or $.30 per share, for the comparable period in the prior year. For the six month period ended July 31, 1997, the Company had a net loss of $804,000, or $.12 per share, compared to a net loss of $1.4 million, or $.22 per share, for the same period in the prior year. LIQUIDITY AND CAPITAL RESOURCES During the second quarter, the Company's loan agreement was 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 September 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 July 31, 1997, there were $18.8 million in direct borrowings and approximately $19.5 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 July 31, 1997, the borrowing by the Indonesian subsidiary under its line of credit approximated $3.2 million. -10-
Item 4. Submission of Matters to a Vote of Stockholders (a) The Company's Annual Meeting of Stockholders was held on June 19, 1997 (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> NOMINEE VOTES FOR WITHHELD AUTHORITY TO VOTE <S> <C> <C> Morris Goldfarb 6,262,685 4,313 Aron Goldfarb 6,263,685 3,313 Lyle Berman 6,263,685 3,313 Thomas J. Brosig 5,900,805 366,193 Alan Feller 6,263,685 3,313 Carl Katz 6,263,685 3,313 Willem van Bokhorst 5,900,805 366,193 Sigmund Weiss 5,900,805 366,193 George J. Winchell 5,900,805 366,193 </TABLE> (ii) The adoption of the 1997 Stock Option Plan. The Company's stockholders voted as follows: <TABLE> <S> <C> FOR: 4,356,248 AGAINST: 570,062 ABSTENTIONS: 12,335 BROKER NON-VOTES: 1,328,353 </TABLE> (iii)The ratification of the appointment of Grant Thornton LLP as the Company's independent certified public accountants for the fiscal year ending January 31, 1998. The Company's stockholders voted as follows: <TABLE> <S> <C> FOR: 6,259,744 AGAINST: 1,044 ABSTENTIONS: 6,210 BROKER NON-VOTES: 0 </TABLE> Item 6. Exhibits and Reports on Form 8-K (a) 1997 Stock Option Plan -11-
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, 1997 By: /s/ MORRIS GOLDFARB ------------------------------------ Morris Goldfarb President and Chief Executive Officer Date: September 12, 1997 By: /s/ ALAN FELLER ------------------------------------ Alan Feller Chief Financial Officer, Treasurer, and Secretary