SEC Filing | GIII Apparel Group

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 October 31, 2000 -------------------------------------------- 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.) ------------------- 512 Seventh Avenue, New York, New York 10018 - -------------------------------------------------------------------------- (Address of Principal Executive Office) (Zip Code) (212) 403-0500 ------------------------------------------- (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 X No --- --- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of December 1, 2000. Common Stock, $.01 par value per share: 6,553,704 shares.

Part I FINANCIAL INFORMATION Page No. Item 1. Financial Statements* Condensed Consolidated Balance Sheets - October 31, 2000 and January 31, 2000............................3 Condensed Consolidated Statements of Operations - For the Three Months Ended October 31, 2000 and 1999........................................4 Condensed Consolidated Statements of Operations - For the Nine Months Ended October 31, 2000 and 1999........................................5 Condensed Consolidated Statements of Cash Flows - For the Nine Months Ended October 31, 2000 and 1999........................................6 Notes to Condensed Consolidated Financial Statements.................7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..........................................................10 * The Balance Sheet at January 31, 2000 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 CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) ASSETS OCTOBER 31, JANUARY 31, 2000 2000 ---- ---- (unaudited) CURRENT ASSETS Cash and cash equivalents $ 594 $14,530 Accounts receivable 64,088 16,597 Allowance for doubtful accounts and sales discounts (6,652) (3,892) Inventories - net 35,059 21,175 Prepaid expenses and other current assets 4,660 894 -------- ------- Total current assets 97,749 49,304 PROPERTY, PLANT AND EQUIPMENT, NET 3,212 3,316 DEFERRED INCOME TAXES 4,676 4,676 OTHER ASSETS 1,577 2,305 -------- ------- $107,214 $59,601 ======== ======= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 28,089 $ 3,311 Current maturities of obligations under capital leases 88 116 Income taxes payable 6,460 2,874 Accounts payable 13,514 5,875 Accrued expenses 6,812 4,714 Accrued nonrecurring charges 956 1,259 -------- ------- Total current liabilities 55,919 18,149 OTHER LONG-TERM LIABILITIES 334 419 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; 6,798,521 and 6,767,921 shares issued at October 31, 2000 and January 31, 2000, respectively 68 68 Additional paid-in capital 24,946 24,874 Retained earnings 26,917 16,521 -------- ------- 51,931 41,463 Less common stock held in treasury - 244,817 shares at October 31, 2000 and 118,575 shares at January 31, 2000, at cost (970) (430) -------- ------- 50,961 41,033 -------- ------- $107,214 $59,601 ======== ======= 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 OCTOBER 31, ------------------------------ (Unaudited) 2000 1999 ----- ---- Net sales $ 87,955 $ 74,544 Cost of goods sold 62,647 54,009 --------- --------- Gross profit 25,308 20,535 Selling, general and administrative expenses 8,208 7,861 Unusual or non-recurring charge 1,500 --------- --------- Operating income 17,100 11,174 Interest and financing charges, net 1,315 954 --------- --------- Income before minority interest 15,785 10,220 and income taxes Minority interest in loss of joint venture 1,303 --------- --------- Income before income taxes 15,785 11,523 Income tax expense 6,317 4,606 --------- --------- Net income $ 9,468 $ 6,917 ========= ========= INCOME PER COMMON SHARE: Basic: ----- Net income per common share $ 1.45 $ 1.03 ========= ========= Weighted average number of shares outstanding 6,543,102 6,717,921 ========= ========= Diluted: ------- Net income per common share $ 1.31 $ 1.01 ========= ========= Weighted average number of shares outstanding 7,218,711 6,867,529 ========= ========= 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) NINE MONTHS ENDED OCTOBER 31, ----------------------------- (Unaudited) 2000 1999 ---- ---- Net sales $ 145,918 $ 116,260 Cost of goods sold 104,632 85,407 --------- --------- Gross profit 41,286 30,853 Selling, general and administrative expenses 21,790 21,520 Unusual or non-recurring charge 1,500 --------- --------- Operating income 19,496 7,833 Interest and financing charges, net 2,187 1,482 --------- --------- Income before minority interest 17,309 6,351 and income taxes Minority interest in loss of joint venture 9 2,116 --------- --------- Income before income taxes 17,318 8,467 Income tax expense 6,922 3,384 --------- --------- Net income $ 10,396 $ 5,083 ========= ========= INCOME PER COMMON SHARE: Basic: ----- Net income per common share $ 1.58 $ 0.76 ========= ========= Weighted average number of shares outstanding 6,560,483 6,717,921 ========= ========= Diluted: ------- Net income per common share $ 1.47 $ 0.75 ========= ========= Weighted average number of shares outstanding 7,095,332 6,806,789 ========= ========= 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) NINE MONTHS ENDED OCTOBER 31, (Unaudited) 2000 1999 ------- ------ Cash flows from operating activities Net income $ 10,396 $ 5,083 Adjustments to reconcile net income to net cash used in operating activities Depreciation and amortization 765 1,054 Minority interest (9) (2,116) Changes in operating assets and liabilities: Accounts receivable (44,731) (41,107) Inventories (13,884) (9,132) Income taxes 3,586 3,691 Prepaid expenses and other current assets (3,766) (547) Other assets (275) (42) Accounts payable and accrued expenses 9,737 9,437 Accrued nonrecurring charge (374) 1,838 Other long term liabilities 50 -------- -------- Net cash used in operating activities (38,505) (31,841) -------- -------- Cash flows from investing activities Capital expenditures (682) (443) Capital dispositions 21 -------- -------- Net cash used in investing activities (661) (443) -------- -------- Cash flows from financing activities Increase in notes payable, net 24,778 24,670 Payments for capital lease obligations (92) (150) Investment in joint venture by minority partner 1,012 1,000 Purchase of common stock for Treasury (540) Proceeds from exercise of stock options 72 -------- -------- Net cash from financing activities 25,230 25,520 -------- -------- Net decrease in cash and cash equivalents (13,936) (6,764) Cash and cash equivalents at beginning of period 14,530 7,241 -------- -------- Cash and cash equivalents at end of period $ 594 $ 477 ======== ======== Supplemental disclosures of cash flow information: Cash paid (received) during the period for Interest $ 1,897 $ 1,229 Income taxes 3,265 (276) The accompanying notes are an integral part of these statements. -6-

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General Discussion The results for the nine-month period ended October 31, 2000 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 Company consolidates the accounts of all its majority-owned subsidiaries. All material intercompany balances and transactions have been eliminated. The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Company's Annual Report on Form 10K filed with the Securities and Exchange Commission for the year ended January 31, 2000. Certain reclassifications have been made to conform to the fiscal 2001 presentation. Note 2 - Inventories Inventories consist of: OCTOBER 31, January 31, 2000 2000 ------------ ----------- (in thousands) Finished products $20,359 $10,990 Work-in-process 4,378 326 Raw materials 10,322 9,859 ------- ------- $35,059 $21,175 ======= ======= Note 3 - Net Income Per Common Share Basic earnings per share amounts have been computed using the weighted average number of common shares outstanding during each year. When applicable, diluted earnings per share amounts are computed using the weighted average number of common shares and the dilutive potential common shares outstanding during the year. Note 4 - Notes Payable The Company's loan agreement, which expires on May 31, 2002, provides for a maximum line of credit in amounts that range from $45 million to $72 million during each year of the loan term. The amounts available include direct borrowings that range from $30 million to $52 million during each year of the loan term. 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. There was $26.6 million outstanding at October 31, 2000 and no loan balance outstanding at January 31, 2000 under this agreement. -7-

Notes payable also includes borrowings by PT Balihides, the Company's Indonesian subsidiary, under a credit facility with an Indonesian bank. Notes payable of approximately $1.5 million as of October 31, 2000 and January 31, 2000 represent maximum borrowings under this facility. In November 1999, the Company and Black Entertainment Television decided to discontinue their BET Design Studio joint venture. BET Design Studio had an asset-based credit facility. Direct borrowings bore interest at the prevailing prime rate plus 50 basis points. To support the requirement for overadvances which occurred when the available collateral was not sufficient to support the level of direct bank debt and letters of credit opened to pay for product, both partners opened standby letters of credit in the amount of $750,000 under which the lender was the beneficiary. The loan ($1.2 million at January 31, 2000) was paid off in its entirety on February 16, 2000 by drawing down both partners' standby letters of credit (See Note 5). The balance of the standby letters of credit was cancelled effective November 2, 2000. Note 5 - Nonrecurring Charges In November 1999, the Company formulated a plan to cease operations of the BET Design Studio joint venture. The joint venture generated revenues of approximately $2.4 million and $884,000 in the years ended January 31, 2000 and 1999, respectively. The Company incurred losses from the joint venture of approximately $2.0 million, $1.4 million, and $450,000 for the years ended January 31, 2000, 1999, 1998, respectively. In connection with the plan, the Company recorded $1.6 million of unusual and non-recurring charges, consisting of $1.1 million in asset writedowns and $500,000 relating to a provision for closing costs and various accrued expenses. The remaining nonrecurring balance ($251,000) 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 $156,000 and $227,000 of nonrecurring charges at October 31, 2000 and January 31, 2000, respectively. The status of the provision at the end of the period was: Balance 2000 BALANCE January 31, 2000 Activity OCTOBER 31, 2000 ---------------- -------- ---------------- (in thousands) Domestic operating lease obligation $ 316 $ (65) $ 251 Dissolution of BET Design Studio 1,170 (309) 861 ------ ----- ------ $1,486 $(374) $1,112 ====== ===== ====== -8-

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 nine-month periods ended October 31, 2000 and 1999, other comprehensive income was not material. Note 7 - Segments The Company's reportable segments are business units that offer different products and are managed separately. The Company operates in two segments, licensed and non-licensed apparel. The following information is presented for the three and nine month periods indicated below: THREE MONTHS ENDED OCTOBER 31, ------------------------------ 2000 1999 ---- ---- NON- Non- LICENSED LICENSED Licensed Licensed -------- -------- -------- -------- Net sales $31,706 $56,249 $27,385 $47,159 Cost of goods sold 21,697 40,950 18,570 35,439 ------- ------- ------- ------- Gross profit 10,009 15,299 8,815 11,720 Selling, general and administrative 3,771 4,437 2,729 5,132 Unusual or non-recurring charge 1,500 ------- ------- ------- ------- Operating income 6,238 10,862 6,086 5,088 Interest expense 547 768 337 617 ------- ------- ------- ------- Income before minority interest and income taxes 5,691 10,094 5,749 4,471 Minority interest 1,303 ------- ------- ------- ------- Income before income taxes $ 5,691 $10,094 $ 5,749 $ 5,774 ======= ======= ======= ======= NINE MONTHS ENDED OCTOBER 31, ---------------------------- 2000 1999 ---- ---- NON- Non- LICENSED LICENSED Licensed Licensed -------- -------- -------- -------- Net sales $55,124 $90,794 $46,772 $69,488 Cost of goods sold 38,772 65,860 32,898 52,509 ------- ------- ------- ------- Gross profit 16,352 24,934 13,874 16,979 Selling, general and administrative 10,229 11,561 7,260 14,260 Unusual or non-recurring charge 1,500 ------- ------- ------- ------- Operating income 6,123 13,373 6,614 1,219 Interest expense 837 1,350 394 1,088 ------- ------- ------- ------- Income before minority interest and income taxes 5,286 12,023 6,220 131 Minority interest 9 2,116 ------- ------- ------- ------- Income before income taxes $ 5,286 $12,032 $ 6,220 $ 2,247 ======= ======= ======= ======= -9-

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, risks of doing business abroad, the nature of the apparel industry, including changing consumer demand and tastes, seasonality, customer acceptance of new products, the impact of competitive products and pricing, dependence on existing management, general economic conditions, as well as other risks detailed in the Company's filings with the Securities and Exchange Commission, including this Quarterly Report on Form 10-Q. RESULTS OF OPERATIONS Net sales for the three months ended October 31, 2000 were $88.0 million compared to $74.5 million for the same period last year. The increase in net sales during the quarter was attributable to an increase in sales of non-licensed apparel ($9.1 million) and licensed apparel ($4.3 million). Net sales for the nine months ended October 31, 2000 were $145.9 million compared to $116.3 million for the same period in the prior year. The increase in net sales in the nine-month period was also attributable to an increase in sales of both non-licensed apparel ($21.3 million) and licensed apparel ($8.4 million). Gross profit was $25.3 million, or 28.8% of net sales, for the three months ended October 31, 2000 compared to $20.5 million, or 27.5% of net sales, for the same period last year. Gross profit was $41.3 million, or 28.3% of net sales, for the nine months ended October 31, 2000 compared to $30.9 million, or 26.5% of net sales, for the same period last year. The increase in gross profit as a percentage of net sales for the three months ended October 31, 2000 resulted from a higher volume of commission transactions in which the Company acted as an agent and received commission fee income. This income is included in the non-licensed apparel segment. Commission fee income on these transactions increased to $3.8 million during the three months ended October 31, 2000 from $1.9 million in the comparable period in the prior year. There is no cost of goods sold component associated with commission transactions. The increase in gross profit as a percentage of net sales for the nine months ended October 31, 2000 was due to higher gross margins in the non-licensed apparel segment as the result of more sales of higher margin products and a higher volume of commission transactions. Commission fee income increased to $5.9 million during the nine months ended October 31, 2000 from $3.2 million in the comparable period of the prior year. Selling, general and administrative expenses for the three months ended October 31, 2000 were $8.2 million compared to $7.9 million in the three months ended October 31, 1999. Selling, general and administrative expenses for the nine months ended October 31, 2000 were $21.8 million compared to $21.5 million for the same period last year. Expenses relating to the BET Design Studio joint venture that was discontinued in November 1999 were $1.0 million in the three-month period last year and $2.7 million in the nine-month period last year. Excluding last year's BET Design Studio expenses, the Company's selling, general and administrative expenses increased approximately $1.4 -10-

million in this year's three-month period and $3.0 million in this year's nine-month period compared to the comparable periods last year. These increases are primarily a result of expenses relating to the start-up of the Cole Haan, Caterpillar and Jones New York Men's divisions, which caused increased expenses in the licensed apparel segment. In addition, personnel expenses increased over the prior year. Excluding the BET Design Studio expenses in the prior year, selling, general and administrative expenses were 9.3% of net sales in the three months ended October 31, 2000 and 1999, and 14.9% of net sales in the nine months ended October 31, 2000 compared to 16.5% in the same period in last year. Interest expense and finance charges for the three months ended October 31, 2000 were $1.3 million compared to $1.0 million in the same period last year. Interest expense and finance charges for the nine months ended October 31, 2000 were $2.2 million compared to $1.5 million in the same period last year. The increase in interest expense resulted primarily from higher inventory levels in response to increased customer orders and higher interest rates. Income tax expense of $6.3 million reflect an effective tax rate of 40% for the three months ended October 31, 2000 compared to income tax expense of $4.6 million (same effective tax rate) in the comparable period in the prior year. Income tax expense of $6.9 million for the nine months ended October 31, 2000 also reflects an effective tax rate of 40%, compared to income tax expense of $3.4 million (same effective tax rate) in the same period last year. For the three months ended October 31, 2000, the Company had net income of $9.5 million, or $1.31 per diluted share, compared to net income of $6.9 million, or $1.01 per diluted share, for the comparable period in the prior year. For the nine months ended October 31, 2000, the Company had net income of $10.4 million, or $1.47 per diluted share, compared to net income of $5.1 million, or $0.75 per diluted share, for the same period in the prior year. Net income in the three- and nine-month periods increased as a result of the foregoing factors. LIQUIDITY AND CAPITAL RESOURCES The Company's loan agreement, which expires on May 31, 2002, provides for a maximum line of credit in amounts that range from $45 million to $72 million during each year of the loan term. The amounts available include direct borrowings that range from $30 million to $52 million during each year of the loan term. 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 (9.5% as of December 1, 2000) or LIBOR plus 225 basis points (9.1% at December 1, 2000), at the election of the Company. All borrowings are collateralized by the assets of the Company. The loan agreement requires the Company, among other covenants, to maintain certain earnings and tangible net worth levels, and prohibits the payment of cash dividends. As of October 31, 2000, direct borrowings were $26.6 million and contingent liability under open letters of credit approximated $9.4 million. The amount borrowed under the line of credit varies based upon the Company's seasonal requirements. PT Balihides, the Company's Indonesian subsidiary, has a separate credit facility with an Indonesian bank. Notes payable of approximately $1.5 million as of October 31, 2000 and January 31, 2000 represent maximum borrowings under this facility. -11-

In November 1999, the Company and Black Entertainment Television ("BET") decided to discontinue their BET Design Studio joint venture. The joint venture was started in February 1997 to provide a BET-branded clothing and accessory line. As of October 31, 2000, BET and the Company had each contributed $3.8 million to this joint venture. BET Design Studio had an asset-based credit facility. Direct borrowings bore interest at the prevailing prime rate plus 50 basis points. To support the requirement for overadvances which occurred when the available collateral was not sufficient to support the level of direct bank debt and letters of credit opened to pay for product, both partners opened standby letters of credit in the amount of $750,000 under which the lender was the beneficiary. The loan was paid off in its entirety on February 16, 2000 by drawing down both partners' standby letters of credit. The balance of the standby letters of credit was cancelled effective November 2, 2000. BET advanced $600,000 to BET Design Studio under a lending agreement. Borrowings under this agreement bore interest at 12% during the first twelve months of the agreement and 14% thereafter. The loan was paid off in its entirety on March 9, 2000. On December 20, 1999, the Board of Directors authorized the Company to repurchase up to $1,000,000 worth of the Company's common stock, from time to time, until September 30, 2000, in open market purchases at market prices or in privately negotiated transactions, at the discretion of the Chief Executive Officer of the Company. The Company purchased 244,817 shares of its common stock at a total cost of $970,000. The Company concluded its buyback program in April 2000. EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Derivatives In June 1998, the FASB issued Statement of Financial Accounting Standards No. 133 ("SFAS NO. 133"), "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS NO. 137, is effective with the first quarter of fiscal years beginning after June 15, 2000. SFAS No. 133 will require the Company to recognize all derivatives on the balance sheet at fair value. Adoption of SFAS No. 133 is not expected to have a material effect on the Company's financial statements. -12-

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. G-III APPAREL GROUP, LTD. (Registrant) Date: December 14, 2000 By: /s/ Morris Goldfarb ------------------------- Morris Goldfarb Chief Executive Officer Date: December 14, 2000 By: /s/ Wayne S. Miller ------------------------ Wayne S. Miller Chief Financial Officer

5 1,000 JAN-31-2001 FEB-01-2000 OCT-31-2000 9-MOS 594 0 64,088 (6,652) 35,059 97,749 14,432 (11,220) 107,214 55,919 0 68 0 0 50,893 107,214 145,918 145,918 104,632 104,632 0 0 2,187 17,309 6,922 10,396 0 0 0 10,396 1.58 1.47