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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 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 offices) (Zip Code)
Registrant's telephone number, including area code: (212) 403-0500
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01
par value.
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 31, 2000, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant (based on the last sale
price for such shares as quoted by the Nasdaq National Market) was $14,534,761.
The number of outstanding shares of the registrant's Common Stock as of
March 31, 2000 was 6,634,946.
Documents incorporated by reference: Certain portions of the
registrant's definitive Proxy Statement relating to the registrant's Annual
Meeting of Stockholders to be held on or about June 13, 2000, to be filed
pursuant to Regulation 14A of the Securities Exchange Act of 1934 with the
Securities and Exchange Commission, are incorporated by reference into Part III
of this Report.
ITEM 1. BUSINESS
OVERVIEW
G-III Apparel Group, Ltd. (the "Company") designs,
manufactures, imports and markets an extensive range of leather and non-leather
apparel including coats, jackets, pants, skirts and other sportswear items under
its "G-III"'TM', "Siena"'TM', "Siena Studio"'TM', "Colebrook and Co."'TM'
labels, and under licensed and private retail labels. The Company commenced
operations in 1974, initially selling moderately priced women's leather coats
and jackets under its G-III label. The Company has continuously expanded its
product lines and began selling higher priced, more fashion oriented women's
leather apparel under its Siena and "Cayenne"'TM' (now called Siena Studio)
labels in 1981 and 1988, respectively. In 1988, the Company introduced a line
of men's leather apparel, presently consisting primarily of jackets and coats
sold under the G-III and Colebrook labels. In 1990, the Company formed a textile
division, which designs, imports and markets a moderately priced line of women's
textile outerwear and sportswear under the J.L. Colebrook (now called
Colebrook and Co.) label. The Company replaced the Cayenne label with the
Siena Studio label for its mid-priced line of women's leather apparel during
1991 and introduced a men's textile apparel line in the fall of 1992.
The sale of licensed products is a key element of the
Company's strategy and the Company has significantly expanded its offerings of
licensed products over the past several years. In 1993, the Company entered into
a licensing agreement with NFL Properties to market a line of outerwear apparel
with NFL team logos. In 1995, the Company entered into a licensing agreement
with Kenneth Cole Productions to design and market a line of women's leather and
woven outerwear under the Kenneth Cole label. In 1996, the Company entered into
an agreement with the National Hockey League ("NHL") to market a line of
outerwear apparel with NHL team logos. The Company also has license agreements
to market products under the Nine West and National Basketball Association
("NBA") trademarks. The Company is authorized to design and market women's
outerwear under the Nine West label and to market adult and children's leather
and leather/textile combination outerwear apparel utilizing the marks of the NBA
and its member teams.
The Company has continued the expansion of its portfolio of
licensed product. In July, 1999, the Company entered into a distribution
agreement for Caterpillar men's and women's apparel and in September,1999, the
Company entered into an agreement with Major League Baseball ("MLB") to market a
line of outerwear apparel with the MLB team logos. In February, 2000, the
Company entered into a license agreement with Cole Haan to design and market
men's and women's outerwear and in March, 2000, the Company entered into a
license agreement with Jones Apparel group to design and market men's outerwear
under the Jones New York label. The Company expects to begin shipping Jones New
York product in August, 2000 and Cole Haan product in September, 2000. In April
2000, a license agreement to design and market men's and boy's outerwear with
Tommy Hilfiger ended. The Company expects to continue to produce and sell goods
directly to Tommy Hilfiger under a sales and manufacturing relationship. In
November, 1999, the Company announced that BET Design Studio, a joint venture
with Black Entertainment Television, Inc. that had been formed in 1997, would be
dissolved. For information with respect to the effects of this action, see Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations-Results of Operations-General.
-2-
The Company operates its business in two segments,
non-licensed apparel and licensed apparel. The non-licensed apparel segment
includes sales of apparel under Company-owned brands and private label brands,
as well as commission fee income received on sales when the Company's customer
provides the letter of credit. The licensed apparel segment includes sales of
apparel brands licensed by the Company from third parties. See Note L to the
Company's Consolidated Financial Statements for financial information with
respect to the Company's segments.
References to the Company include the operations of all the
Company's subsidiaries.
PRODUCTS - DEVELOPMENT AND DESIGN
The Company manufactures and markets a full line of women's
leather apparel in "junior," "missy," and "half sizes" and an outerwear line of
men's leather apparel at a wide range of retail sales prices. The Company's
product offerings also include textile outerwear, woolen coats, raincoats and
sportswear. The Company's products are sold under Company-owned brand names,
licensed brand names and private retail labels.
The G-III lines of non-licensed apparel consist of both men's
and women's products. The G-III line of women's apparel consists of moderately
priced women's leather apparel, which typically sells at retail prices from $30
for sportswear items to $400 for coats. The Siena Collection, which caters to
the higher priced, designer market, typically has retail prices from $300 for
sportswear items to $1,000 for coats. Siena Studio, the Company's bridge-priced
line of women's leather apparel, primarily consists of jackets and skirts with
retail prices from $100 for skirts to $600 for outerwear. Products in the men's
line of leather outerwear, sold under the G-III and Colebrook labels, typically
have retail prices between $40 and $400. The moderately priced line of women's
textile outerwear and sportswear, sold under the Colebrook & Co. label, has
retail prices in the range of $50 to $130. The men's textile apparel line,
consisting of moderately priced outerwear, has retail prices ranging from $25 to
$175.
The G-III lines of licensed apparel consist of both men's and
women's products. Women's licensed apparel includes leather and textile garments
which typically sell at retail prices from $50 for sportswear items to $340 for
coats. Men's licensed apparel consists of leather, leather and textile
combination, and textile apparel which typically sell at retail prices from $50
for sportswear items to $560 for coats.
The Company works closely with its licensors in creating
designs and styles for each licensed brand sold by the Company. Licensors
generally must approve products to be sold under their brand names prior to
production by the Company.
The Company works with retail chains in developing product
lines sold under private retail labels. With regard to private label sales, the
Company meets frequently with buyers who custom order products by color, fabric
and style. These buyers may provide samples to the Company or may select styles
already available in the Company's showrooms. The Company has established a
reputation among such buyers for the ability to arrange for manufacture of
apparel on a reliable, expeditious and cost-effective basis.
-3-
The Company's in-house designers are responsible for the
design and look of the Company's products. The Company responds to style changes
in the apparel industry by maintaining a continuous program of style, color and
type of leather and fabric selection. In designing new products and styles, the
Company attempts to incorporate current trends and consumer preferences in the
Company's traditional product offerings. The Company seeks to design products
in response to trends in consumer preferences, rather than to attempt to
establish market trends and styles.
Design personnel meet regularly with the Company's sales and
merchandising departments, as well as with the design and merchandising staffs
of the Company's licensors, to review market trends, sales results and the
popularity of the Company's latest products. In addition, representatives of the
Company regularly attend trade and fashion shows and shop at fashion forward
stores in the United States, Europe and the Far East, and present sample items
to the Company along with their evaluation of the styles expected to be in
demand in the United States. The Company also seeks input from selected
customers with respect to product design. The Company believes that its
sensitivity to the needs of its retail customers, coupled with the flexibility
of its production capabilities and its continual monitoring of the retail
market, enables the Company to modify designs and order specifications in a
timely fashion.
The Company's arrangements with selected overseas factories
for textile apparel enables it to conduct test-marketing in cooperation with
specialty retailers and department stores prior to full manufacturing and
marketplace introduction of certain styles and products. Test-marketing
typically involves introducing a new style into approximately 20 to 30 store
locations in certain major markets. If the Company finds acceptance of the
product on a consumer level, the Company proceeds with full-scale manufacturing
and market introduction.
-4-
LEATHER APPAREL
MANUFACTURING
The Company's products are imported from independent
manufacturers located primarily in Indonesia and China, and to a lesser extent,
in South Korea, India, the Philippines and Hong Kong. Additionally, the Company
manufactures certain products at its wholly-owned factory in Indonesia and its
partially-owned factory in Northern China. A selected number of garments are
also manufactured for the Company by independent contractors located in the New
York City area.
The Company has a branch office in Seoul, South Korea, which
acts as a liaison between the Company and various manufacturers located
throughout Indonesia, China and South Korea, used to produce the Company's
leather and woven garments. Upon receipt from the Company's headquarters of
production orders stating the quantity, quality and types of garments to be
produced, this liaison office negotiates and places orders with one or more
Indonesian, Chinese, or South Korean manufacturers. In allocating production
among independent suppliers, the Company considers a number of criteria,
including quality, availability of production capacity, pricing and ability to
meet changing production requirements. At January 31, 2000, the South Korean
office employed 13 persons.
In connection with the foreign manufacture of the Company's
leather apparel, manufacturers purchase skins and necessary "submaterials" (such
as linings, zippers, buttons and trimmings) according to parameters specified by
the Company. Prior to commencing the manufacture of garments, samples of the
skins and submaterials are sent to the South Korean liaison office and the
Company's New York offices for approval. Employees of the liaison office
regularly inspect and supervise the manufacture of the products for the Company
in order to ensure timely delivery, maintain quality control, monitor compliance
with Company manufacturing specifications and inspect finished apparel.
Because of the nature of leather skins, the manufacture of
leather apparel is performed manually. A pattern is used in cutting hides to
panels which are assembled in the factory. All submaterials are also added at
this time. Products are inspected throughout this process to insure that design
and quality specifications of the order, as provided by the Company, are being
maintained as the garment is assembled. After pressing, cleaning and final
inspection, the garment is labeled and hung awaiting shipment. A final random
inspection occurs when the garments are packed for shipment.
The Company arranges for the production of apparel on a
purchase order basis, with each order to a foreign manufacturer generally backed
by an irrevocable international letter of credit. Substantially all letters of
credit arranged by the Company require as a condition of release of funds to the
manufacturer, among others, that an inspection certificate be signed by a
representative of the Company. Accordingly, if an order is not filled, the
letter of credit is not paid and the Company does not bear the risk of liability
for the goods being manufactured. The Company assumes the risk of loss on an
F.O.B. basis when goods are delivered to a shipper and is insured against
casualty losses arising during shipping.
As is customary in the leather industry, the Company has not
entered into any long-term contractual arrangement with any contractor or
manufacturer. The Company believes
-5-
that the production capacity of foreign manufacturers with which it has
developed or is developing a relationship is adequate to meet the Company's
leather apparel production requirements for the foreseeable future. The Company
believes that alternative foreign leather apparel manufacturers are readily
available.
The Company's arrangements with foreign manufacturers of its
apparel are subject to the usual risks of doing business abroad, including
currency fluctuations, political instability and potential import restrictions,
duties and tariffs. In 1997 and 1998, both Indonesia and South Korea experienced
significant currency fluctuation and devaluation. In addition, Indonesia
experienced significant inflation. In 1999, the economic situation in these
countries appeared to have stabilized, although political instability still
exists in Indonesia. Although the Company has not been materially adversely
affected by any of these factors to date, due to the significant portion of the
Company's garments that are produced abroad, political instability in Indonesia
or elsewhere, or any substantial disruption in the business of foreign
manufacturers or the Company's relationships with these manufacturers could
materially adversely affect the Company's operations. In addition, since the
Company negotiates its purchase orders with its foreign manufacturers in United
States dollars, if the value of the United States dollar against local
currencies were to go down, these manufacturers might increase the United States
dollar prices charged to the Company for products. Virtually all the Company's
imported leather products and raw materials are subject to United States Customs
duties of approximately 6%.
A majority of all finished goods manufactured abroad are
shipped to the Company's New Jersey warehouse and distribution facility for
final inspection and allocation and reshipment to customers. The goods are
delivered to the Company and its customers by independent shippers, choosing the
form of shipment (principally ship, truck or air) based upon a customer's needs,
cost, and time considerations.
MARKETING AND DISTRIBUTION
The Company's products are sold primarily to department,
specialty and mass merchant retail stores in the United States. The Company
sells to approximately 2,000 customers, ranging from national and regional
chains of specialty retail and department stores, whose annual purchases from
the Company exceed $1,000,000, to small specialty stores whose annual purchases
from the Company are less than $1,000. Sales to the Sam's Club and Wal-Mart
divisions of Wal-Mart Stores, Inc. accounted for an aggregate of 17.1% of the
Company's net sales in the fiscal year ended January 31, 1998, 21.6% in the
fiscal year ended January 31, 1999, and 24.6% in the fiscal year ended January
31, 2000. The loss of this customer, which primarily purchases non-licensed
apparel, could have a material adverse affect on the Company's non-licensed
business segment, as well as on the Company's results of operations as a whole.
Almost all of the Company's sales are made in the United
States. The Company also markets its products in Canada and Europe.
Along with the Company's foreign offices, the Company's
trading company subsidiary, Global International Trading Company, located in
Seoul, Korea, assists in providing services to the Company's customers. As of
January 31, 2000, Global International Trading Company employed 19 persons.
The Company's products are sold primarily through a direct
employee sales force which consisted of 25 employees as of January 31, 2000. The
Company's principal executives
-6-
are also actively involved in sales of its products. A limited amount of the
Company's products are also sold by various retail buying offices located
throughout the United States. Final authorization of all sales of products is
solely through the Company's New York showroom, enabling the Company's
management to deal directly with, and be readily accessible to, major customers,
as well as to more effectively control the Company's selling operations.
The Company primarily relies on its reputation and
relationships to generate business. The Company believes it has developed a
significant customer following and positive reputation in the industry, as a
result of, among other things, standards of quality control, on-time delivery,
competitive pricing and willingness and ability to assist customers in their
merchandising of the Company's products. In addition, the Company has, to a
limited extent, advertised its products and engaged in cooperative ad programs
with retailers. The Company believes it has developed brand awareness of
Company-owned labels, despite the absence of general advertising, primarily
through its reputation, consumer acceptance and the fashion press.
Brand name products sold by the Company pursuant to a license
agreement are promoted by institutional and product advertisements placed by the
licensor. The Company's license agreements generally provide that the Company is
required to pay the licensor a fee, based on a percentage of net sales of
licensed product, to pay for a portion of these advertising costs.
The Company operates one retail outlet store at its Secaucus,
New Jersey warehouse. The Company's other retail outlet store in New Jersey was
closed in March 2000.
RAW MATERIALS
Most products manufactured for the Company are purchased by
the Company on a finished goods basis. Raw materials used in the production of
the Company's leather apparel are available from numerous sources and are in
adequate supply. The Company is not aware of any manufacturer of the Company's
apparel not being able to satisfy its requirements for any such raw materials
due to an inadequacy of supply.
The leather apparel industry competes with manufacturers of
other leather products for the supply of leather. Leather skins are a byproduct.
Accordingly, raw material costs are impacted by changes in meat consumption
worldwide as well as by the popularity of leather products.
TEXTILE APPAREL
The Company also produces outerwear from a variety of textiles
such as wools, cottons and synthetic blends, suitable for leisure and active
wear. The Company designs, imports and markets a moderately priced line of
women's textile outerwear and sportswear under its Colebrook & Co. label and
under private labels. Women's licensed textile outerwear is also produced under
the Kenneth Cole and Nine West labels and will be produced under the Cole Haan
label for Fall 2000. The men's textile apparel line consists of moderately
priced outerwear and better priced sportswear under the Caterpillar label. The
Company will also produce men's textile outerwear under the Jones New York and
Cole Haan labels.
The Company's development and design process as well as its
marketing and distribution strategies for textile apparel are similar to those
employed for its leather apparel.
-7-
See "Products-Development and Design" and "Leather Apparel -- Marketing and
Distribution" of this Item 1 above. Textile outerwear is manufactured for the
Company by several independent contractors located primarily in the Far East
and, to a lesser extent, domestically. Manufacturers produce finished garments
in accordance with production samples approved by the Company and obtain
necessary quota allocations and other requisite customs clearances.
To facilitate better service for the Company's textile and
leather apparel customers and accommodate and control the volume of
manufacturing in the Far East, the Company has an office in Hong Kong. Similar
to the Seoul office, the Hong Kong office acts as a liaison between the Company
and the various manufacturers of textile and leather apparel located in Hong
Kong and China. The Company utilizes its domestic and Hong Kong office employees
to monitor production at each manufacturer's facility to ensure quality control,
compliance with the Company's specifications and timely delivery of finished
garments to the Company's distribution facilities or customers. The Hong Kong
office employed 10 persons as of January 31, 2000.
The Company's arrangements with its textile manufacturers and
suppliers are subject to the risks attendant to doing business abroad, including
the availability of quota and other requisite customs clearances for textile
apparel, the imposition of export duties, political and social instability and
currency fluctuations. United States customs duties on the Company's textile
apparel presently range from 5% to 30%, depending upon the type of fabric used
and how the garment is constructed. The Company monitors duty, tariff and
quota-related developments and seeks to minimize its potential exposure to
quota-related risks through, among other measures, geographical diversification
of its manufacturing sources and shifts of production among countries and
manufacturers.
LICENSING
The sale of licensed products is a key element of the
Company's strategy and the Company has significantly expanded its offerings of
licensed products over the last several years. The Company has license
agreements to produce products under the Kenneth Cole, Nine West, Cole Haan and
Jones New York fashion labels and a distribution agreement for Caterpillar
Apparel. The Company is also licensed to produce products containing trademarks
of the Major League Baseball, National Football League, National Hockey League,
National Basketball Association, and several universities located in the United
States. The Company continues to seek other opportunities to enter into license
agreements in order to expand its product offerings under nationally recognized
labels. Revenues from the sale of licensed products accounted for 41.4% of net
sales during fiscal 2000 compared to 37.7% of net sales in fiscal 1999.
SEASONALITY
Retail sales of outerwear apparel have traditionally been
seasonal in nature. Although the Company sells its apparel products throughout
the year, net sales in the months of July through November accounted for
approximately 82% of the Company's net sales during the fiscal year ended
January 31, 1999 and 72% of the Company's net sales during the fiscal year ended
January 31, 2000. The July through November time frame is expected to continue
to provide a disproportionate amount of the Company's net sales.
-8-
BACKLOG
A significant portion of the Company's orders are short-term
purchase orders from customers who place orders on an as-needed basis. The
amount of unfilled orders at any time has not been indicative of future sales.
Information relative to open purchase orders at any date may also be materially
affected by, among other things, the timing of the initial showing of apparel to
the trade, as well as by the timing of recording of orders and shipments. As a
result, the Company does not believe that the amount of its unfilled customer
orders at any time is meaningful.
TRADEMARKS
Several trademarks owned by the Company have been granted
federal trademark protection through registration with the U.S. Patent and
Trademark Office, including for G-III, Avalanche, J.L. Colebrook, Laura Renee,
Cayenne, G-III Outerwear Company Store, JLC (& design), JLC Outerwear (&
design), J.L.C. (& design), Trouble Wanted (& design), 58 Sports & Football
Player Design, and Ladies First by G-III/Carl Banks. The Company has
applications for several additional registrations pending before the U.S. Patent
and Trademark Office.
The Company has been granted trademark registration for G-III
in France, Canada, Mexico, and European Union, for J.L. Colebrook in Germany,
Canada, Mexico, France, Great Britain, Benelux and European Union and for J.L.C.
(& design) and JLC (& design) in Canada. The Company also has several additional
applications pending in the European Community and Canada.
Although the Company regards its trademarks as valuable assets
and intends to vigorously enforce its trademark rights, the Company does not
believe that any failure to obtain federal trademark registrations for which it
has applied would have a material adverse effect on the Company.
COMPETITION AND OTHER RISKS
The apparel business is highly competitive. The Company has
numerous competitors with respect to the sale of leather and textile apparel,
including distributors that import leather apparel from abroad and domestic
retailers with established foreign manufacturing capabilities. Sales of the
Company's products are affected by style, price, quality and general fashion
trends. The Company may also be deemed to compete with vertically-integrated
apparel manufacturers that also own retail stores. In addition, the Company
competes for supplies of raw materials and manufacturing and tanning capacity.
The Company's ability to successfully compete depends on a
number of factors, including the Company's ability to effectively anticipate,
gauge and respond to changing consumer demands and tastes, to translate market
trends into attractive product offerings and operate within substantial
production and delivery constraints. There can be no assurance that the Company
will be successful in this regard. If the Company misjudges the market for its
products, it may be faced with significant excess inventories for some products
and missed opportunities with others. In addition, weak sales and resulting
markdown requests from customers could have a material adverse effect on the
Company's business, results of operations and financial condition.
-9-
The apparel industry is cyclical. Purchases of outerwear and
other apparel tend to decline during recessionary periods and sales of the
Company's products may decline at other times as well for a variety of reasons,
including changes in fashion trends and the introduction of new products or
pricing changes by the Company's competitors. Uncertainties regarding future
economic prospects could affect consumer spending habits and have an adverse
effect on the Company's results of operations.
The Company is dependent on Morris Goldfarb and other key
personnel. The loss of the services of Mr. Goldfarb and any negative market or
industry perception arising from the loss of his services could have a material
adverse effect on the Company. The Company's other executive officers have
substantial experience and expertise in the Company's business and have made
significant contributions to its success. The unexpected loss of services of one
or more of these individuals could adversely affect the Company.
A majority of the Company's products are imported from
independent foreign manufacturers. The failure of these manufacturers to ship
products to us in a timely manner or to meet required quality standards could
cause us to miss the delivery date requirements of our customers. The failure to
make timely deliveries could cause customers to cancel orders, refuse to accept
delivery of product or demand reduced prices, any of which could have a material
adverse effect on the Company's business. The Company is also dependent on these
manufacturers for compliance with the policies of the Company and its customers
regarding labor practices.
Fluctuations in the price, availability and quality of leather
or other raw materials used by the Company could have a material adverse effect
on its cost of goods sold and ability to meet customer demands. In addition,
legislation that would restrict the importation of textiles and other apparel
produced abroad has been periodically introduced in the U.S. Congress. New
legislation or executive initiatives could also result in a reevaluation of the
trading status of certain countries, including China. Any change in the trading
status of China or other countries in which the Company's products are
manufactured, or any retaliatory duties, quotas or trade sanctions, could
increase the cost of products purchased from suppliers in these countries and
materially adversely affect the Company's business and results of operations.
In addition to the factors described above, the Company's
business, including its revenues and profitability, is influenced by and subject
to a number of factors that are inherently uncertain and difficult to predict
including, among others: risks associated with the Company's dependence on its
licensing agreements for a substantial portion of its revenues, including the
risk that a license agreement will not be renewed when it expires; risks
associated with consolidations, restructurings and other ownership changes in
the retail industry; changes in regional, national and global economic
conditions; and the Company's ability to correctly balance the level of its
finished goods, leather and other raw material commitments with actual orders.
-10-
EMPLOYEES
As of January 31, 2000, the Company had 279 full-time
employees, of whom 68 worked in executive, administrative or clerical
capacities, 121 worked in design and manufacturing, 62 worked in warehouse
facilities, 25 worked in sales and 3 worked in the retail outlet stores. The
Company employs both union and non-union personnel and believes that the
Company's relations with its employees are good. The Company has not experienced
any interruption of any of its operations due to a labor disagreement with its
employees.
The Company is a party to an agreement with the Amalgamated
Clothing and Textile Workers Union (the "Union"), covering approximately 49
full-time employees as of January 31, 2000. This agreement, which is currently
in effect through October 31, 2002, automatically renews on an annual basis
thereafter unless terminated by the Company or the Union prior to September 1 of
that year.
-11-
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with
respect to the executive officers and significant employees of the Company.
Name Age Position Executive
---- --- -------- Officer or
Significant
Employee Since
--------------
Morris Goldfarb 49 Co-Chairman of the Board, Chief Executive 1974
Officer, Director
Aron Goldfarb 77 Co-Chairman of the Board, Director 1974
Jeanette Nostra-Katz 48 President 1981
Wayne S. Miller 42 Senior Vice President, Chief Financial 1998
Officer, Treasurer and Secretary
Carl Katz 59 Executive Vice President of Siena, 1981
Director
Frances Boller-Krakauer 34 Vice President - Men's Division of G-III 1993
Deborah Gaertner 45 Vice President - Women's Sales of G-III 1989
Keith Sutton Jones 51 Vice President - Foreign Manufacturing of 1989
G-III
Michael Laskau 44 Vice President - Women's Non-Branded 1994
Division of G-III
Morris Goldfarb is the Co-Chairman of Board and Chief
Executive Officer of the Company, as well as one of its directors. Until April,
1997, Mr. Goldfarb also served as President of the Company. He has served as
either President or Vice President of G-III Leather Fashions, Inc. ("G-III")
since its formation in 1974. Mr. Goldfarb is responsible for the foreign
manufacture, marketing, merchandising and financing of the G-III line of
apparel. He also has overall responsibility for developing selling programs,
customer relations and administration of the Company. Mr. Goldfarb is also a
director of Lakes Gaming, Inc. and Wilsons The Leather Experts.
Aron Goldfarb is Co-Chairman of the Board of the Company and
its founder. Mr. Goldfarb served as either President or Vice President of G-III
and as a Vice President of Siena from their respective formations until 1994
and, since January 1995, has served as a consultant to the Company.
Jeanette Nostra-Katz became President of the Company in April
1997. She had been the Executive Vice President of the Company since March 1992.
Ms. Nostra-Katz's responsibilities for the Company include sales for the women's
product lines, marketing, public
-12-
relations, and operations as they relate to sales. Since August 1989, she has
served as an Executive Vice President of Siena. Ms. Nostra-Katz has been
employed by the Company since 1981 in various capacities.
Wayne S. Miller has been employed by the Company as its Chief
Financial Officer and Senior Vice President since April 1998. In November 1998,
Mr. Miller was also elected Secretary and Treasurer. Mr. Miller served as a
consultant to Marketing Management Group from September 1997 to April 1998. From
June 1994 to September 1997, Mr. Miller was Executive Vice President, Chief
Financial Officer and Secretary of Bernard Chaus, Inc.
Carl Katz has been employed as an Executive Vice President of
Siena since August 1989 and, prior thereto, as a Vice President of Siena since
1981. Mr. Katz supervises the merchandising and designing, as well as production
and pattern and sample making, for the Siena and Sports Licensing divisions. Mr.
Katz is also a director of the Company.
Frances Boller-Krakauer is Vice President -- Men's Division of
G-III and has held the position since February 1993. Ms. Boller-Krakauer's
responsibilities include sales and merchandising for all men's products lines.
Prior to February 1993, she held various sales positions in the Men's Division.
Ms. Boller-Krakauer joined the Company in March 1989.
Deborah Gaertner is the Vice President -- Women's Non-Branded
Sales of G-III. Ms. Gaertner is responsible for sales and marketing of the
women's apparel line (excluding Kenneth Cole licensed apparel). She served
previously as Vice President, Imports since June 1989, coordinating production
and merchandising.
Keith Sutton Jones is the Vice President -- Foreign
Manufacturing of G-III and has been employed in such capacity since January
1989. His responsibilities include coordinating and controlling all aspects of
the Company's Far Eastern sourcing and production.
Michael Laskau is a Vice President -- Women's Non-Branded
Division of G-III and has been employed in such capacity since July 1994. His
responsibilities include coordinating the production and merchandising of the
Company's textile apparel. For the 18 years prior to joining the Company, Mr.
Laskau was in charge of production and sourcing at Junior Gallery, an importer
of apparel.
Aron Goldfarb and Morris Goldfarb are father and son,
respectively. Carl Katz and Jeanette Nostra-Katz are married to each other.
ITEM 2. PROPERTIES
The Company's executive offices, sales showrooms and support
staff are located at 512 Seventh Avenue, which is one of the leading outerwear
apparel buildings in New York City. The Company leases an aggregate of
approximately 39,300 square feet in this building through January 31, 2003 at a
current aggregate annual rent of approximately $600,000.
The Company's warehouse and distribution facility, located in
Secaucus, New Jersey, contains approximately 107,000 square feet, plus a 3,000
square foot retail outlet store. This facility is leased through February 2005
at an annual rent increasing to $643,000. The lease provides for one option
renewal term of five years with a rental for the renewal term based on
-13-
market rates. A majority of the Company's finished goods are shipped to the New
Jersey distribution facilities for final reshipment to customers.
In March 1996, the Company subleased its other warehouse and
distribution facility in Secaucus, New Jersey to an unaffiliated third party and
consolidated all of its warehouse and distribution operations at one location.
The sublease, provided for the sublessee to pay rent of approximately $700,000
per year to the Company and for the Company to pay all operating costs of the
facility except for utilities and internal maintenance. The Company's annual
rent obligation to the lessor of this facility was $937,000 for the last 12
months of the lease. The Company's lease and sublease expired in March 2000.
The Company maintains cutting rooms for its Siena division and
off-site storage at 345 West 37th Street in New York City. This property is
leased pursuant to a sublease from a corporation owned by Morris Goldfarb and
Aron Goldfarb for which the Company pays monthly rent, plus real estate taxes.
For the fiscal years ended January 31, 1999 and 2000, the total payments for
this building were approximately $325,000 and $296,000, respectively. The
Company has sublet a portion of the 345 West 37th Street building to four
different tenants. Three of the subleases' terms end in February, 2003 and the
other sublease ends in January, 2003. The aggregate annual rental paid to the
Company under these four subleases is approximately $185,000.
In March 2000, the Company closed a retail outlet store in
Secaucus, New Jersey. The Company's remaining retail outlet store is located at
its Secaucus, New Jersey warehouse.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-14-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
MARKET FOR COMMON STOCK
The Common Stock is publicly traded in the over-the-counter
market and is quoted on the Nasdaq Stock Market under the trading symbol "GIII".
The following table sets forth, for the fiscal periods shown, the high and low
sales prices for the Common Stock, as reported by the Nasdaq Stock Market.
Fiscal 1999 High Prices Low Prices
- ----------- ----------- ----------
Fiscal Quarter ended April 30, 1998 $ 6 7/8 $5 1/4
Fiscal Quarter ended July 31, 1998 6 3/8 3 7/8
Fiscal Quarter ended October 31, 1998 4 3/8 1 5/8
Fiscal Quarter ended January 31, 1999 12 1/4 1 5/8
Fiscal 2000
- -----------
Fiscal Quarter ended April 30, 1999 $ 3 1/2 $1 7/16
Fiscal Quarter ended July 31, 1999 3 3/4 1 7/8
Fiscal Quarter ended October 31, 1999 3 5/8 2 1/4
Fiscal Quarter ended January 31, 2000 4 1/4 2 3/4
Fiscal 2001
- -----------
Fiscal Quarter ended April 30, 2000 $ 4 15/16 $2 15/16
(through March 31, 2000)
The last sales price of the Common Stock as reported by the
Nasdaq Stock Market on March 31, 2000 was $4.625 per share.
On March 31, 2000, there were 69 holders of record and, the
Company believes, approximately 2,000 beneficial owners of the Common Stock.
DIVIDEND POLICY
The Board of Directors currently intends to follow a policy of
retaining any earnings to finance the continued growth and development of the
Company's business and does not anticipate paying cash dividends in the
foreseeable future. Any future determination as to the payment of cash dividends
will be dependent upon the Company's financial condition, results of operations
and other factors deemed relevant by the Board of Directors. Certain agreements
related to the financing of the building at 345 West 37th Street offices
prohibit the payment of cash dividends without consent. In addition, the
Company's loan agreement prohibits the
-15-
payment of cash dividends without the consent of the banks. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources" in Item 7 below.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of
and for the years ended January 31, 1996, 1997, 1998, 1999 and 2000 have been
derived from the audited consolidated financial statements of the Company. The
audited financial statements as of January 31, 1996, 1997 and 1998, and for the
years ended January 31, 1996 and 1997 are not included in this filing. The
selected consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" (Item 7 of this Report) and the audited consolidated financial
statements and related notes thereto included elsewhere herein.
-16-
(In thousands, except share and per share data)
Year Ended January 31, (1)
----------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Net Sales $ 121,663 $ 117,645 $ 120,136 $ 121,644 $ 149,632
Cost of goods sold 97,060 88,057 91,559 95,393 110,710
----------- ----------- ----------- ----------- -----------
Gross profit 24,603 29,588 28,577 26,251 38,922
Selling, general & administrative expenses 22,478 23,542 23,787 27,698 28,145
Unusual or non-recurring charge -- -- -- (463) 1,200
----------- ----------- ----------- ----------- -----------
Operating profit (loss) 2,125 6,046 4,790 (984) 9,577
Interest expense 2,433 2,075 1,534 2,115 1,857
----------- ----------- ----------- ----------- -----------
Income before minority interest an income taxes (loss) (308) 3,971 3,256 (3,099) 7,720
Minority interest -- -- 449 1,378 1,994
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes (308) 3,971 3,705 (1,721) 9,714
Income taxes (benefit) 89 885 906 (541) 3,934
----------- ----------- ----------- ----------- -----------
Net income (loss) $ (397) $ 3,086 $ 2,799 $ (1,180) $ 5,780
=========== =========== =========== =========== ===========
Basic earnings (loss) per share $ (0.06) $ 0.48 $ 0.43 $ (0.18) $ 0.86
=========== =========== =========== =========== ===========
Weighted average shares outstanding - basic 6,459,975 6,468,830 6,486,899 6,539,128 6,712,051
Diluted earnings (loss) per share $ (0.06) $ 0.46 $ 0.40 $ (0.18) $ 0.84
=========== =========== =========== =========== ===========
Weighted average shares outstanding - diluted 6,459,975 6,739,029 7,051,099 6,539,128 6,848,433
As of January 31, (1)
---------------------------------------------------
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
BALANCE SHEET DATA:
Working capital $22,224 $24,497 $29,296 $27,237 $31,155
Total assets 41,257 44,555 46,746 44,870 59,601
Short-term debt 3,551 3,835 3,734 2,893 3,427
Long-term debt, 919 554 352 180 64
excluding current portion
Total stockholders' equity 29,716 32,825 35,686 35,575 41,033
- --------------------
(1) Certain amounts have been reclassified to conform to the 2000 presentation.
-17-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this Annual Report on Form 10-K 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 matters, 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 Annual Report on form 10-K.
The following presentation of management's discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the Company's Financial Statements, accompanying
notes thereto and other financial information appearing elsewhere in this
Report.
References to fiscal years refer to the year ended January 31
of that year.
-18-
RESULTS OF OPERATIONS
The following table sets forth selected operating data of the
Company as a percentage of net sales for the fiscal years indicated below:
1998 1999 2000
----- ----- -----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 76.2 78.4 74.0
----- ----- -----
Gross profit 23.8 21.6 26.0
Selling, general and administrative expenses 19.8 22.8 18.8
Unusual or non-recurring charge -- (0.4) 0.8
----- ----- -----
Operating profit (loss) 4.0 (0.8) 6.4
Interest expense 1.3 1.7 1.2
----- ----- -----
Income (loss) before minority interest and income taxes 2.7 (2.5) 5.2
Minority interest (0.4) (1.1) 1.3
----- ----- -----
Income (loss) before income taxes 3.1 (1.4) 6.5
Income taxes 0.8 (0.4) 2.6
----- ----- -----
Net income (loss) 2.3 (1.0) 3.9
===== ===== =====
General
The Company operates its business in two segments,
non-licensed apparel and licensed apparel. The non-licensed apparel segment
includes sales of apparel under Company-owned brands and private label brands,
as well as commission fee income received on sales when the Company's customer
provides the letter of credit. The licensed apparel segment includes sales of
apparel brands licensed by the Company from third parties. See Note L to the
Company's Consolidated Financial Statements for financial information with
respect to the Company's segments.
The Company's return to profitability during fiscal 2000 was
primarily attributable to higher margins in both the Company's licensed and
non-licensed business, offset to some extent by losses from the BET Design
Studio joint venture. One of the key elements of the Company's strategy is to
expand its offering of licensed apparel. During fiscal 2000, the Company
commenced the shipment of product under the Caterpillar and Major League
Baseball labels. In the first quarter of fiscal 2001, the Company entered into
license agreements to produce apparel under the Cole Haan and Jones New York
labels. In April 2000, the Company's license with Tommy Hilfiger ended. The
Company expects to continue to produce and sell goods directly to Tommy
Hilfiger.
During the third quarter of fiscal 2000, the Company, together
with Black Entertainment Television ("BET"), its joint venture partner, decided
to discontinue their BET Design Studio joint venture. The Company had originally
entered into the joint venture with BET in April 1997 to design, manufacture,
and distribute sportswear and outerwear apparel
-19-
targeted to the African-American and urban consumer. The initial product
offerings by the joint venture were introduced in February 1998 and the Company
began shipping product in July 1998. The Company owns 50.1% of this joint
venture and, accordingly, its entire results of operations are consolidated with
those of the Company. The interest of BET in the joint venture is reflected in
the "Minority interest" line item in the Company's financial statements. Net of
BET's interest, the Company incurred losses from this joint venture of
approximately $450,000 in fiscal 1998, $1.4 million in fiscal 1999 and $2.0
million (inclusive of a $802,000 charge) in fiscal 2000.
Year Ended January 31, 2000 ("fiscal 2000") Compared
to year Ended January 31, 1999 ("fiscal 1999")
Net sales were $149.6 million in fiscal 2000 compared to
$121.6 million in fiscal 1999. Net sales increased as a result of increased
sales of both licensed and non-licensed apparel. Net sales of licensed apparel
increased by 35.0% to $ 61.9 million in fiscal 2000 from $45.9 million in fiscal
1999. Net sales of non-licensed apparel increased by 15.7% to $87.7 million in
fiscal 2000 from $75.8 million in fiscal 1999. Sales of licensed apparel
continued to increase as a percentage of net sales, and accounted for 41.4% of
net sales in fiscal 2000 compared to 37.7% of net sales in fiscal 1999.
Gross profit was $38.9 million in fiscal 2000 compared to
$26.3 million in fiscal 1999. Commission fee income, for which there is no
related cost of goods sold, was $3.6 million in fiscal 2000 compared to $3.5
million in fiscal 1999. As a percentage of net sales, gross profit was 26.0% in
fiscal 2000 compared to 21.6% in fiscal 1999.
Gross profit for licensed apparel was $17.8 million in fiscal
2000 compared to $10.6 million in fiscal 1999, or 28.8% of net sales of licensed
apparel in fiscal 2000 compared to 23.1% of net sales of licensed apparel in
fiscal 1999. The higher gross profit margin percentage for licensed apparel in
fiscal 2000 was due to increased sales of higher gross profit margin products.
Gross profit for non-licensed apparel was $21.1 million in fiscal 2000 as
compared to $15.7 million in fiscal 1999, or 24.1% of net sales of non-licensed
apparel in fiscal 2000 compared to 20.7% of net sales of non-licensed apparel in
fiscal 1999. The increase in the gross profit margin percentage for non-licensed
apparel was primarily attributable to increased sales of higher gross profit
products, and to improved gross margins on sales of prior season merchandise in
fiscal 2000 compared to fiscal 1999.
Selling, general and administrative expenses were $28.1
million in fiscal 2000, including $2.7 million of expenses with respect to the
BET Design Studio joint venture. Selling, general and administrative expenses in
fiscal 1999 include a provision for $463,000 relating to the uncertainty of
Indonesian assets. In the fourth quarter of fiscal 2000, the Company determined
that the local economy in Indonesia had stabilized and the imminent threat of
asset impairment relating to its facility was no longer present. As a result,
selling, general and administrative expenses were reduced because the Company
reversed this provision for the uncertainty of the Indonesian assets. Excluding
the BET Design Studio expenses and the effect of uncertainty of the Indonesian
provision and its reversal, selling, general and administrative expenses were
$25.9 million in fiscal 2000 compared to $24.5 million in fiscal 1999. The
increase in selling, general and administrative expenses is primarily
attributable to increased advertising expenses ($1.4 million) and higher
bonuses ($1.0 million), offset somewhat by lower rent expense ($500,000),
salaries ($300,000), and professional fees ($200,000). As a percentage of net
sales, selling, general and administrative expenses, excluding the BET Design
Studio expenses and the effect of Indonesian provision and its reversal, were
17.3% in fiscal 2000 compared to 20.2% in fiscal 1999.
-20-
On November 18, 1999, the Company announced that BET Design
Studio, LLC, a joint venture with BET, would be dissolved. The joint venture
was dissolved because it was not profitable and the urban market was saturated
with similar products. In connection with this decision, a $1.6 million
provision (including $798,000 allocable to Black Entertainment Television's
ownership interest) was recorded to cover the costs of dissolving the joint
venture. Of this provision, $1.2 million was recorded as a non-recurring charge,
and the balance was charged to cost of goods sold. The $1.6 million provision
consists of approximately $1.1 million of writedowns relating to accounts
receivables ($520,000), the impairment of fixed assets ($300,000), inventory
($182,000), and prepaid assets ($118,000). The balance of $480,000 relates to
provisions for miscellaneous closing costs ($225,000), accrual for accounts
payable and accrued expenses ($200,000), and severance ($55,000).
Interest expense was $1.9 million in fiscal 2000 compared to
$2.1 million in fiscal 1999. This decrease in interest expense is primarily
attributable to lower average borrowings and interest income earned on excess
cash at the beginning of the year.
As a result of the foregoing, the Company had income before
income taxes of $9.7 million in fiscal 2000 compared to a loss before income
taxes of $1.7 million in fiscal 1999.
Income taxes were $3.9 million in fiscal 2000 compared to an
income tax benefit of $541,000 in fiscal 1999. The Company's effective tax rate
for fiscal 2000 was 40.5% which included benefits from remaining net operating
loss carry forwards for state income tax purposes. In fiscal 1999, the effective
tax rate was 31.4% as a result of tax benefits derived from state net operating
loss carry forwards and deferred tax benefits.
The Company had net income of $5.8 million, or $.86 per share
on a diluted basis, in fiscal 2000 compared to a net loss of $1.2 million, or
$.18 per share on a diluted basis, in fiscal 1999.
Year Ended January 31, 1999 ("fiscal 1999") Compared
to year Ended January 31, 1998 ("fiscal 1998")
Net sales were $121.6 million in fiscal 1999 compared to
$120.1 million in fiscal 1998. Net sales were adversely affected in fiscal 1999
by the unseasonably warm weather conditions in the fall of 1998 in many sections
of the United States. An increase of $16.9 million in sales of licensed apparel
was partially offset by a decrease of $12.9 million in sales of non-licensed
apparel. In addition, certain product lines were discontinued at the end of the
prior fiscal year. These product lines accounted for $2.5 million of sales in
fiscal 1998. Sales of licensed apparel accounted for 37.7% and 24.1% of the
Company's net sales in fiscal 1999 and 1998, respectively.
Gross profit was $26.3 million in fiscal 1999 compared to
$28.6 million in fiscal 1998. As a percentage of net sales, gross profit was
21.6% in fiscal 1999 compared to 23.8% in fiscal 1998. Commission fee income,
for which there is no related cost of goods sold, was $3.5 million in fiscal
1999 compared to $6.7 million in fiscal 1998. Commission fee income decreased
because sales in which the Company acted as a broker were lower. This decrease
was due, in part, to certain customers buying directly from suppliers and not
using the Company as their broker.
-21-
Gross profit for licensed apparel was $10.6 million in fiscal
1999 compared to $5.7 million in fiscal 1998, or 23.1% of net sales of licensed
apparel in fiscal 1999 compared to 19.6% of net sales of licensed apparel in
fiscal 1998. The higher gross profit margin percentage for licensed apparel in
fiscal 1999 was due to increased sales of higher gross profit margin products
within the licensed apparel segment. Gross profit for non-licensed apparel was
$15.7 million in fiscal 1999 compared to $22.9 million in fiscal 1998, or 20.7%
of net sales of licensed apparel in fiscal 1999 compared to 25.1% of net sales
of licensed apparel in fiscal 1998. The reduction in gross profit as a
percentage of sales for non-licensed apparel resulted primarily from lower
commission fee income and increased inventory markdowns due to the unseasonably
warm weather conditions.
Selling, general and administrative expenses were $27.7
million in fiscal 1999 compared to $23.8 million in fiscal 1998. These expenses
included approximately $2.7 million of expenses in fiscal 1999 and $898,000 of
expenses in fiscal 1998 attributable to the BET Design Studio joint venture.
Excluding the BET Design Studio expenses and the provision for the uncertainty
of the Indonesian assets, selling, general and administrative expenses were
$24.5 million in fiscal 1999 compared to $22.9 million in fiscal 1998. As a
percentage of net sales, selling, general and administrative expenses, excluding
the BET Design Studio expenses and the provision of the uncertainty of
Indonesian assets, were 20.2% in fiscal 1999 compared to 19.1% in fiscal 1998.
The increase in selling, general and administrative expenses, excluding BET
Design Studio expenses, is primarily attributable to the incremental expenses in
the areas of personnel, samples and advertising fees paid to its licensees due
to the addition of the Nine West, Tommy Hilfiger and NBA licenses. BET Design
Studio expenses increased primarily in the area of personnel and advertising as
staffing levels increased and advertising programs began. In addition, the
increase also pertains to a reclassification of $463,000 from non-recurring
charges to selling, general, and administrative relating to the uncertainty of
Indonesian assets. As the Company determined that it would not close the
facility, the amount previously recorded as a non-recurring charge was reversed.
At the same time, due to the dire economic conditions in the country, the
Company also determined that a provision for asset impairment was required. A
provision of $463,000 was recorded for the uncertainty of the Indonesian assets.
Interest expense was $2.1 million in fiscal 1999 compared to
$1.5 million in fiscal 1998. The higher interest expense related to increased
borrowings as a result of higher average finished goods inventory levels, offset
in part by lower interest rates.
As a result of the foregoing, the Company incurred a loss
before income taxes of $1.7 million in fiscal 1999 compared to income before
taxes of $3.7 million in fiscal 1998.
The income tax benefit was $541,000 in fiscal 1999 compared to
income tax expense of $906,000 in fiscal 1998. The Company's effective tax
benefit rate for fiscal 1999 was 31.4%, which was lower than the statutory rate
due to the limitation of the availability of certain state and local tax
benefits. In fiscal 1998, the effective tax rate was 24.5% as a result of tax
benefits derived from state net operating loss carry forwards and deferred tax
benefits. The Company realized $331,000 in state and local net operating loss
carryforward tax benefits as well as a $57,000 benefit for the reduction of the
deferred tax valuation allowance. The deferred tax valuation allowance was
reduced, since the Company demonstrated that it was more likely than not that
they would realize the deferred tax asset.
-22-
The Company had a net loss of $1.2 million, or $.18 per share
on a diluted basis, in fiscal 1999 compared to net income of $2.8 million, or
$.40 per share on a diluted basis, in fiscal 1998.
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 under the line of credit bear interest at
the agent bank's prime rate (9.0% as of April 1, 2000) or LIBOR plus 250 basis
points (8.63% as of April 1, 2000), at the election 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. The amount borrowed under the line of credit varies based on the
Company's seasonal requirements. The maximum amount outstanding (i.e., open
letters of credit, bankers acceptances and direct borrowings) under the
Company's loan agreement was approximately $36.4 million during fiscal 1998 and
$44.9 million during fiscal 1999 and fiscal 2000. As of January 31, 2000, there
were no direct borrowings, no bankers' acceptances and $11.8 million of
contingent liability under open letters of credit. As of January 31, 1999, there
were no outstanding direct borrowings, no bankers' acceptances and $3.8 million
of contingent liability under open letters of credit.
In November 1999, the Company and BET decided to dissolve
BET Design Studio. As of January 31, 2000, BET and the Company had each
contributed $2.8 million to this joint venture. Subsequent to January 31, 2000,
the Company and BET have each contributed approximately $1.0 million to the
joint venture.
BET Design Studio utilized an asset-based credit facility
with The CIT Group. Direct borrowings bear interest at the prevailing prime
rate plus 50 basis points (9.5% at April 1, 2000). As of January 31, 2000
there were $2.2 million of direct borrowings and no contingent liability under
open letters of credit. The loan to CIT was paid in full on February 16, 2000
by drawing downboth partners' standby letters of credit.
BET advanced $600,000 to BET Design Studio under a lending
agreement. Borrowings under this agreement bear interest at 12.0% during the
first twelve months of the agreement and 14% thereafter. On March 15, 2000,
BET Design Studio repaid $300,000 of the loan and the balance of the loan was
contributed to Design Studio's capital by BET.
PT Balihides, the Company's Indonesian subsidiary, has a
separate credit facility with an Indonesian bank. The notes payable under this
facility represent maximum borrowings as of January 31, 2000 of approximately
$1.5 million.
On December 20, 1999, the Board of Directors authorized the
Company to repurchase up to $1,000,000 worth of shares 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. As of January 31,
-23-
2000, the Company had purchased 118,575 of its shares at a total cost of
$430,000.
There was $6.9 million of cash provided by operating
activities in fiscal 2000 resulting primarily from the net income of $5.8
million. There was $2.3 million of cash provided by operating activities in
fiscal 1999 primarily as a result of a reduction in the inventories added in
the prior year. The Company's inventories increased in fiscal 1999 because of
an increase in finished goods inventory due to an unusually mild winter season.
The Company used $6.5 million of cash in operating activities in fiscal 1998
primarily due to increased inventories and accounts receivable. Year end
accounts receivable balances were higher than the previous year primarily due
to a higher shipping volume in January 1998.
Investing activities provided $323,000 of cash in fiscal 2000.
The Company used $968,000 of cash in fiscal 1999 and $498,000 of cash in fiscal
1998 for investing activities, primarily for capital expenditures. Historically,
the Company's business has not required significant capital expenditures. The
Company's capital expenditures were approximately $1.3 million in fiscal 1998,
$1.7 million in fiscal 1999 and $1.0 million in fiscal 2000. Capital
expenditures were used primarily for new computer software, additional computer
upgrades, leasehold improvements, and furniture, fixtures and equipment. In
addition, capital expenditures in fiscal 2000 includes $580,000 of capital costs
for the expansion of the Indonesian factory. Capital expenditures in fiscal 1998
included $451,000 and in fiscal 1999 included $108,000 of capital costs for the
BET Design Studio joint venture showroom and support office.
The Company had $96,000 of cash in fiscal 2000 and $56,000 of
cash in fiscal 1999 provided by financing activities. In fiscal 2000, the
Company used $430,000 to purchase its stock on the open market. This was offset
by an increase in the amount of BET Design Studio's notes payable. In fiscal
1999, the Company used $1.0 million to reduce the amount of notes payable and
for the payment of capital lease obligations. This was more than offset by cash
and tax benefits related to the exercise of stock options and the disgorgement
of profits in stock sales profits by certain officers of the Company. The
Company used $241,000 in financing activities in fiscal 1998 primarily for the
payment of capital lease obligations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Impact of Inflation and Foreign Exchange
The results of operations of the Company for the periods
discussed have not been
-24-
significantly affected by inflation or foreign currency fluctuation. The Company
negotiates its purchase orders with its foreign manufactures in United States
dollars. Thus, notwithstanding any fluctuation in foreign currencies, the
Company's cost for any purchase order is not subject to change after the time of
the order is placed. However, if the value of the United States dollar against
local currencies were to decrease, manufacturers might increase their United
States dollar prices for products.
Interest Rate Exposure
The Company is subject to market risk from exposure to changes
in interest rates relating primarily to the Company's short-term debt
obligations. The Company primarily enters into such short-term debt obligations
to support general corporate purposes, including capital expenditures and
working capital needs. All of the Company's debt is short-term with variable
rates. To manage its exposure to changes in interest rates, the Company's policy
is to manage such interest rate exposure through the use of short-term
borrowings, which are negotiated with their lenders on a periodic basis. The
Company does not expect changes in interest rates to have a material adverse
effect on income or cash flows in fiscal 2001, although there can be no
assurance that interest rates will not significantly change.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant
to this Item begin on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Proposal No. 1-
Election of Directors" in the Company's definitive Proxy Statement (the "Proxy
Statement") relating to the Company's Annual Meeting of Stockholders to be held
on or about June 13, 2000, to be filed pursuant to Regulation 14A of the
Securities Exchange Act of 1934 with the Securities and Exchange Commission is
incorporated herein by reference. For information concerning the executive
officers and other significant employees of the Company, see "Business-Executive
Officers of the Registrant" in Item 1 above of this Report.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the heading "Executive
Compensation" in the Company's Proxy Statement is incorporated herein by
reference.
-25-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the heading "Security
Ownership of Common Stock by Certain Stockholders and Management" in the
Company's Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the heading "Certain
Relationships and Related Transactions" in the Company's Proxy Statement is
incorporated herein by reference.
-26-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements.
2. Financial Statement Schedules.
The Financial Statements and Financial Statement Schedules are
listed in the accompanying index to financial statements
beginning on page F-1 of this report.
3. Exhibits:
3.1 Certificate of Incorporation.(1)
3.2 By-Laws, as amended, of G-III Apparel Group, Ltd.
(the "Company").(8)
10.1(a) Employment Agreement, dated February 1, 1994, between
the Company and Morris Goldfarb.(5)
10.1(a) Amendment, dated October 1, 1999, to the Employment
Agreement, dated February 1, 1994, between the
Company and Morris Goldfarb.(13)
10.3 Fifth Amended and Restated Loan Agreement, dated May
31, 1999, by and among G-III Leather Fashions, Inc.
("G-III"), the banks signatories thereto (the
"Banks"), and Fleet Bank, N.A. ("Fleet Bank"), as
Agent.(12)
10.3(a) Amendment No. 1 to the Fifth Amended and Restated
Loan Agreement, dated December 20, 1999, by and among
G-III, the Banks and Fleet Bank.
10.3(b) Amendment No. 2 to the Fifth Amended and Restated
Loan Agreement, dated March 1, 2000, by and among
G-III, the Banks and Fleet Bank.
10.3(c) Amendment No. 3 to the Fifth Amended and Restated
Loan Agreement, dated April 7, 2000, by and among
G-III, the Banks and Fleet Bank.
10.4 Lease Agreement, dated as of October 20, 1987,
between 3738 West Company and G-III.(2)
10.5 Lease Agreement, dated as of September 14, 1989,
between 3738 West Company and G-III.(2)
-27-
10.6 Sublease Agreement, dated March 9, 1990, between GWC
Investments and the Company.(3)
10.7 Agreement of Sub-Sublease, dated December 27, 1995,
and First Amendment thereto, dated February 16, 1996,
between the Company and Europe Craft Imports, Inc.(7)
10.8 Lease, dated September 21, 1993, between Hartz
Mountain Associates and the Company.(4)
10.9 Lease, dated June 1, 1993, between 512 Seventh Avenue
Associates ("512") and the Company.(5)
10.10 Lease, dated January 31, 1994, between 512 and the
Company.(6)
10.11 G-III Apparel Group, Ltd. 1989 Stock Option Plan, as
amended.(5)
10.12 G-III Apparel Group, Ltd. Stock Option Plan for
Non-Employee Directors.(3)
10.13 Limited Liability Company Agreement of BET STUDIO
LLC, dated April 11, 1997, between G-III Leather
Fashions, Inc. and Black Entertainment Television,
Inc.(7)
10.14 G-III Apparel Group, Ltd. 1997 Stock Option Plan.(9)
10.15 Letter Agreement, dated October 31, 1998, between the
Company and Alan Feller.(10)
10.16 Letter Agreement, dated December 2, 1998, between the
Company and Aron Goldfarb.(11)
10.17 G-III Apparel Group, Ltd. 1999 Stock Option Plan for
Non-Employee Directors.
21 Subsidiaries of the Company.
23 Consent of Grant Thornton LLP, dated April 28, 2000.
27 Financial Data Schedule Article 5.
27.1 Restated Financial Data Schedule Article 5, Year
ended January 31, 1998.
(b) Reports on Form 8-K:
None.
-28-
- ------------------
(1) Previously filed as an exhibit to the Company's Registration Statement on
Form S-1 (no. 33-31906), which exhibit is incorporated herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1989, which exhibit is incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1991, which exhibit is incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended July 31, 1992, which exhibit is incorporated
herein by reference.
(5) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1994, which exhibit is incorporated
herein by reference.
(6) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1995, which exhibit is incorporated
herein by reference.
(7) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1997, which exhibit is incorporated
herein by reference.
(8) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1997, which exhibit is
incorporated herein by reference.
(9) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended July 31,1997, which exhibit is
incorporated herein by reference.
(10) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 31,1998, which exhibit is
incorporated herein by reference.
(11) Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 1999, which exhibit is incorporated
herein by reference.
(12) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended April 30, 1999, which exhibit is
incorporated herein by reference.
(13) Previously filed as an exhibit to the Company's Quarterly Report on Form
10-Q for the fiscal quarter ended October 31, 1999, which exhibit is
incorporated herein by reference.
-29-
Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. The Company will provide, without charge, a
copy of these exhibits to each stockholder upon the written request of any such
stockholder therefor. All such requests should be directed to G-III Apparel
Group, Ltd., 512 Seventh Avenue, 35th floor, New York, New York 10018,
Attention: Mr. Wayne S. Miller, Secretary.
-30-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
By /s/ Morris Goldfarb
__________________________________
Morris Goldfarb,
Chief Executive Officer
April 28, 2000
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Morris Goldfarb Director, Co-Chairman of the Board and Chief Executive April 28, 2000
- ------------------------- Officer (principal executive officer)
Morris Goldfarb
/s/ Wayne S. Miller Senior Vice President and Chief Financial Officer April 28, 2000
- ------------------------- (principal financial and accounting officer)
Wayne S. Miller
/s/ Aron Goldfarb
- ------------------------- Director and Co-Chairman of the Board April 28, 2000
Aron Goldfarb
- ------------------------- Director April ___, 2000
Lyle Berman
/s/ Thomas J. Brosig
- ------------------------- Director April 28, 2000
Thomas J. Brosig
/s/ Alan Feller
- ------------------------- Director April 28, 2000
Alan Feller
/s/ Carl Katz
- ------------------------- Director April 28, 2000
Carl Katz
/s/ Willem van Bokhorst
- ------------------------- Director April 28, 2000
Willem van Bokhorst
/s/ Sigmund Weiss
- ------------------------- Director April 28, 2000
Sigmund Weiss
- ------------------------- Director April ___, 2000
George J. Winchell
-31-
G-III Apparel Group, Ltd.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Page
----
Report of Independent Certified Public Accountants F-2
Financial Statements
Consolidated Balance Sheets - January 31, 2000 and 1999 F-3
Consolidated Statements of Operations - Years Ended
January 31, 2000, 1999, and 1998 F-4
Consolidated Statement of Stockholders' Equity - Years Ended January 31,
1998, 1999, and 2000 F-5
Consolidated Statements of Cash Flows - Years Ended January 31, 2000, 1999,
and 1998 F-6
Notes to Consolidated Financial Statements F-8-F-29
Financial Statement Schedules
II - Valuation and Qualifying Accounts S-1
All other schedules for which provision is made in the applicable regulations of
the Securities and Exchange Commission are not required under the related
instructions or are inapplicable and, accordingly, are omitted.
F-1
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
G-III APPAREL GROUP, LTD.
We have audited the accompanying consolidated balance sheets of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 2000 and 1999, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended January 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 2000 and 1999, and the
consolidated results of their operations and their consolidated cash flows for
each of the three years in the period ended January 31, 2000, in conformity with
accounting principles generally accepted in the United States.
We have also audited Schedule II of G-III Apparel Group, Ltd. and subsidiaries
for each of the three years in the period ended January 31, 2000. In our
opinion, this schedule presents fairly, in all material respects, the
information required to be set forth therein.
GRANT THORNTON LLP
New York, New York
March 31, 2000
F-2
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)
ASSETS 2000 1999
-------- ------
CURRENT ASSETS
Cash and cash equivalents $ 14,530 $ 7,241
Accounts receivable 16,597 12,280
Allowance for doubtful accounts and sales discounts (3,892) (1,667)
Inventories 21,175 16,355
Prepaid income taxes 767
Prepaid expenses and other current assets 894 935
--------- --------
Total current assets 49,304 35,911
PROPERTY, PLANT AND EQUIPMENT, NET 3,316 3,777
DEFERRED INCOME TAXES 4,676 3,615
OTHER ASSETS 2,305 1,567
-------- -------
$ 59,601 $44,870
======= ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 3,311 $ 2,712
Current maturities of obligations under capital leases 116 181
Income taxes payable 2,874 -
Accounts payable 5,875 2,605
Accrued expenses 4,714 2,631
Accrued nonrecurring charges 1,259 545
--------- --------
Total current liabilities 18,149 8,674
OTHER LONG-TERM LIABILITIES 419 621
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; 6,767,921 and
6,717,921 shares issued at January 31, 2000 and 1999, respectively 68 67
Additional paid-in capital 24,874 24,767
Retained earnings 16,521 10,741
-------- -------
41,463 35,575
Less common stock held in treasury - 118,575 shares, at cost (430)
-------- -------
41,033 35,575
-------- -------
$ 59,601 $44,870
======== =======
The accompanying notes are an integral part of these statements.
F-3
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended January 31,
------------------------------------------------
2000 1999 1998
-------- -------- --------
Net sales $149,632 $121,644 $120,136
Cost of goods sold 110,710 95,393 91,559
-------- -------- --------
Gross profit 38,922 26,251 28,577
Selling, general and administrative expenses 28,145 27,698 23,787
Unusual or non-recurring charge 1,200 (463) ---
-------- --------- --------
Operating profit 9,577 (984) 4,790
Interest and financing charges, net 1,857 2,115 1,534
-------- -------- --------
Income (loss) before minority interest
and income taxes 7,720 (3,099) 3,256
Minority interest in loss of joint venture 1,994 1,378 449
--------- -------- --------
Income (loss) before income taxes 9,714 (1,721) 3,705
Income taxes 3,934 (541) 906
-------- -------- --------
NET INCOME (LOSS) $ 5,780 $ (1,180) $ 2,799
======== ======== ========
INCOME (LOSS) PER COMMON SHARE:
Basic:
------
Net income (loss) per common share $ .86 $ (.18) $ .43
======== ======== ========
Weighted average number of shares outstanding 6,712 6,539 6,487
======== ======== ========
Diluted:
--------
Net income (loss) per common share $ .84 $ (.18) $ .40
======== ======== ========
Weighted average number of shares outstanding 6,848 6,539 7,051
======== ======== ========
The accompanying notes are an integral part of these statements.
F-4
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended January 31, 1998, 1999 and 2000
(in thousands)
Additional Common stock
Common paid-in Retained held in
stock capital earnings Treasury Total
----- ------- -------- -------- -----
Balance as of January 31, 1997 $65 $23,638 $ 9,122 $32,825
Employee stock options exercised 62 62
Net income for the year 2,799 2,799
--- ------- ------- -------
Balance as of January 31, 1998 65 23,700 11,921 35,686
Employee stock options exercised 2 439 441
Tax benefit from exercise of options 420 420
Disgorgement of stock sales profit by
certain officers 208 208
Net loss for the year (1,180) (1,180)
--- ------- ------- -------
Balance as of January 31, 1999 67 24,767 10,741 35,575
Employee stock options exercised 1 107 108
Purchase of 118,575 shares, at cost (430) (430)
Net income for the year 5,780 5,780
--- ------- ------- ----- ------
BALANCE AS OF JANUARY 31, 2000 $68 $24,874 $16,521 $(430) $41,033
=== ======= ======= ====== =======
The accompanying notes are an integral part of this statement.
F-5
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended January 31,
----------------------------------------------
2000 1999 1998
------ -------- -------
Cash flows from operating activities
Net income (loss) $5,780 $(1,180) $2,799
------ ------ ------
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Depreciation and amortization 1,438 1,372 1,227
Minority interest (1,994) (1,378) 449
Deferred income tax benefit (1,061) (548) (294)
Changes in operating assets and liabilities
Accounts receivable (2,092) 804 (4,241)
Inventories (4,820) 3,877 (6,246)
Income taxes 3,641 (1,740) 526
Prepaid expenses and other current assets 41 823 (789)
Deferred income taxes 58 520
Other assets (44) (626) 35
Accounts payable and accrued expenses 5,353 855 (460)
Accrued non-recurring charge 624 (73) (69)
Other long-term liabilities 4 67 57
-------- -------- -----------
1,090 3,491 (9,285)
------ ------ ---------
Net cash provided by (used in) operating activities 6,870 2,311 (6,486)
----- ------ ---------
Cash flows from investing activities
Capital expenditures (977) (1,723) (1,304)
Capital dispositions 5 56
Investment in joint venture by Minority Partner 1,300 750 750
------ ------- ----------
Net cash provided by (used in) investing activities 323 (968) (498)
------- ------- ----------
F-6
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Year ended January 31,
-----------------------------------------------
2000 1999 1998
------ ------ -----
Cash flows from financing activities
Increase (decrease) in notes payable, net $ 599 $ (766) $ 19
Payments for capital lease obligations (181) (247) (322)
Proceeds from exercise of stock options 102 441 62
Tax benefit from exercise of options 6 420
Disgorgement of stock sales profit by certain officers 208
Purchase of common stock for Treasury (430)
----- ------ -------
Net cash provided by (used in) financing activities 96 56 (241)
----- ----- -----
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 7,289 1,399 (7,225)
Cash and cash equivalents at beginning of year 7,241 5,842 13,067
------ ------ -------
Cash and cash equivalents at end of year $14,530 $ 7,241 $ 5,842
======= ======= =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 1,779 $ 2,343 $ 1,520
Income taxes $ 1,407 $ 1,355 517
The accompanying notes are an integral part of these statements.
F-7
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2000, 1999 and 1998
NOTE A - SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in
the preparation of the accompanying consolidated financial statements
follows:
1. Business Activity and Principles of Consolidation
As used in these financial statements, the term "Company" refers to
G-III Apparel Group, Ltd. and its majority-owned subsidiaries. The
Company designs, manufactures, imports, and markets an extensive range
of leather and textile apparel which is sold to retailers throughout
the United States. The Company also operates one retail outlet store.
The Company consolidates the accounts of all its majority-owned
subsidiaries. All material intercompany balances and transactions have
been eliminated.
Certain reclassifications have been made to conform to the fiscal 2000
presentation.
2. Revenue Recognition
The Company recognizes sales when merchandise is shipped. In addition,
the Company acts as an agent in brokering sales between its customers
and overseas factories. On these transactions, the Company recognizes
commission fee income on the sales that are financed by and shipped
directly to its customers. This income is recorded at the time the
merchandise is shipped.
3. Returns and Allowances
The Company establishes reserves for returns and allowances based on
current and historical information and trends. Sales and accounts
receivable have been reduced by such amounts.
4. Inventories
Inventories are stated at the lower of cost (determined by the weighted
average method, which approximates the first-in, first-out method) or
market.
5. Depreciation and Amortization
Depreciation and amortization are provided by straight-line methods in
amounts sufficient to relate the cost of depreciable assets to
operations over their estimated service lives.
F-8
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE A (CONTINUED)
The following are the estimated lives of the Company's fixed assets:
Machinery and equipment 5 to 7 years
Transportation equipment 5 years
Furniture and fixtures 5 years
Computer equipment 2 to 5 years
Building 20 years
Leasehold improvements are amortized over the lives of the respective
leases or the service lives of the improvements, whichever is shorter.
The Company annually evaluates the carrying value of its long-lived
assets to determine whether changes have occurred that would suggest
that the carrying amount of such assets may not be recoverable based on
the estimated future undiscounted cash flows of the businesses to which
the assets relate. Any impairment loss would be equal to the amount by
which the carrying value of the assets exceeded its fair value.
6. Income Taxes
Deferred income tax assets reflect the tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax
purposes.
7. Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
8. Joint Ventures
China
In fiscal 1995, the Company entered into a joint venture agreement with
a Chinese entity principally to operate a factory located in the
People's Republic of China. The Company invested $542,000 to obtain a
39% interest in the joint venture company. The joint venture company
has an initial term of twenty years. The Company accounts for the joint
venture operations, which are not material, using the equity method of
accounting.
F-9
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE A (CONTINUED)
BET Design Studio
In 1997, the Company formed BET Design Studio, LLC, a joint venture
with Black Entertainment Television, Inc. ("BET") to produce a
BET-branded clothing and accessory line. The Company has a 50.1%
ownership interest in the joint venture and includes the results of the
joint venture less the share of the minority interest in its
consolidated financial statements. Through January 31, 2000, the
Company and BET have each contributed $2,800,000 to the joint venture.
In November, 1999, the Company and BET agreed to cease the operations
of the joint venture (see Note E). Subsequent to January 31, 2000, the
Company and BET have each contributed approximately $1,000,000 to the
joint venture.
9. Net Income (Loss) Per Common Share
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.
A reconciliation between basic and diluted earnings per share is as
follows:
Years ended January 31,
---------------------------------------------
2000 1999 1998
------ ------ ------
(in thousands, except per share amounts)
Net income (loss) $ 5,780 $(1,180) $2,799
======= ======= ======
Basic EPS:
Basic common shares 6,712 6,539 6,486
======= ======= ======
Basic EPS $ .86 $(.18) $.43
======= ======= ======
Diluted EPS:
Basic common shares 6,712 6,539 6,486
Plus impact of stock options 136 - 565
------- ------ ------
Diluted common shares 6,848 6,539 7,051
======= ====== ======
Diluted EPS $ .84 $ (.18) $ .40
======= ====== ======
F-10
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE A (CONTINUED)
Excluded from the above calculations are 426,000, 1,042,000 and 50,000
of stock options which were deemed to be antidilutive for the years
ended January 31, 2000, 1999 and 1998, respectively.
10. Stock-Based Compensation
The Company grants stock options for a fixed number of shares to
employees and directors with an exercise price equal to or greater than
the fair value of the shares at the date of grant. The Company has
adopted the disclosure-only provision of SFAS No. 123, "Accounting for
Stock-Based Compensation," which permits the Company to account for
stock option grants in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees." Accordingly, the Company recognizes no
compensation expense for the stock option grants.
11. Use of Estimates
In preparing financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
the disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
12. Fair Value of Financial Instruments
Based on borrowing rates currently available to the Company for bank
loans with similar terms and maturities, the fair value of the
Company's short-term debt approximates the carrying value. Furthermore,
the carrying value of all other financial instruments potentially
subject to valuation risk (principally consisting of cash, accounts
receivable and accounts payable) also approximates fair value.
F-11
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE A (CONTINUED)
13. Foreign Currency Translation
The financial statements of subsidiaries outside the United States
other than Indonesia are measured using the local currency as the
functional currency. Assets and liabilities are translated at the rates
of exchange at the balance sheet date. The effect of this translation
for the periods presented is not significant. Income and expense items
are translated at average monthly rates of exchange. Gains and losses
from foreign currency transactions of these subsidiaries are included
in net earnings.
The financial statements of the Indonesian subsidiary use the U.S.
dollar as the functional currency and have certain transactions
denominated in a local currency which are remeasured as if the
functional currency were the U.S. dollar. The remeasurement of local
currencies into U.S. dollars creates translation adjustments which are
included in net income. Exchange gains and losses in 2000, 1999, and
1998 resulting from foreign currency transactions, including those
resulting from foreign currency translation losses, have not been
significant and are included in the respective statements of income.
NOTE B - INVENTORIES
Inventories consist of:
January 31,
2000 1999
----------(000's)------------
Finished goods $10,990 $12,939
Work-in-process 326 115
Raw materials 9,859 3,301
------- -------
$21,175 $16,355
======= =======
F-12
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost consist of:
January 31,
2000 1999
----------(000's)------------
Machinery and equipment $ 1,398 $ 1,253
Leasehold improvements 5,069 4,354
Transportation equipment 129 128
Furniture and fixtures 1,695 1,621
Computer equipment 4,692 4,423
Land and building (net of write-down of Indonesian
factory; Note E) 609 186
Property under capital leases (Note E)
Land 55 55
Building 185 185
Computer equipment 74 74
Leasehold improvement 650
-------- -------
13,906 12,929
Less accumulated depreciation and amortization
(including $237,000 and $823,000 on property
under capital leases at January 31, 2000 and
1999, respectively) 10,590 9,152
-------- -------
$ 3,316 $ 3,777
======== =======
F-13
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE D - NOTES PAYABLE
Notes payable include foreign notes payable by PT Balihides, the Company's
Indonesian subsidiary. The foreign notes payable represent maximum
borrowings under a line of credit of approximately $1.5 million with an
Indonesian bank, as of January 31, 2000 and 1999.
In connection with the joint venture agreement with Black Entertainment
Television, Inc. ("BET"), the joint venture has 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 standby letters of credit in the amount of
$750,000 under which The CIT Group is the beneficiary. Direct borrowings
bear interest at the prevailing prime rate plus 50 basis points (9.5% at
April 1, 2000). As of January 31, 2000, there were $2.2 million of direct
borrowings and no contingent liability under open letters of credit. The
loan to CIT was paid in full on February 16, 2000 by drawing down both
partners' standby letters of credit.
The Company's loan agreement, which expires May 31, 2002, is a
collateralized working capital line of credit with three banks that
provides for a maximum line of credit in amounts that range from $45
million to $72 million at specific times during the year. The line of
credit provides for maximum direct borrowings ranging from $30 million to
$52 million during the year. The unused balance may be used for letters of
credit. Amounts available for borrowing are subject to borrowing base
formulas and overadvances specified in the agreement.
All borrowings under the agreement are payable on demand and bear interest
at the option of the Company at either the prevailing prime rate (9.0% at
April 1, 2000) or LIBOR plus 250 basis points (8.6325% at April 1, 2000)
and 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.
The weighted average interest rates were 8.2% and 8.7% as of January 31,
2000 and 1999, respectively.
At January 31, 2000 and 1999, the Company was contingently liable under
letters of credit in the amount of approximately $11,800,000 and
$3,800,000, respectively.
F-14
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE E - OTHER LIABILITIES
Other long-term liabilities consist of:
January 31,
2000 1999
-----------(000's)------------
Non-recurring charges $227 $317
Capital lease obligations 64 180
Other 128 124
---- ----
$419 $621
==== ====
Non-recurring Charges
Fiscal Year 1995
----------------
During 1995, the Company formulated plans to close its domestic
manufacturing facility, to sell or liquidate a factory located in
Indonesia, to reduce costs and to streamline and consolidate operations.
The domestic factory was closed during 1995 with no loss of revenue. During
fiscal 1998, the Company applied approximately $1.6 million of the reserve
as a reduction of the Indonesian property, plant and equipment, since the
Company could not assure any recoveries in connection with a disposition of
the factory. In December 1997, the Company was approached by an outside
third party to manufacture luggage at the Indonesian factory. The Company
began producing luggage in February 1998. As a result the Company
discontinued its plan to close the factory. In the fourth quarter of fiscal
2000, the Company determined that the local economy in Indonesia had
stabilized and the imminent threat of asset impairment relating to its
facility was no longer present. As a result, the Company reversed the
provision for the uncertainty of the Indonesian assets totaling $463,000
(see Note P).
Fiscal Year 2000
----------------
In November 1999, the Company formulated a plan to cease operations of the
BET joint venture. The joint venture generated approximately $2.4 million
and $884,000 in revenues for the years ended January 31, 2000 and 1999
respectively. The joint venture did not generate any revenues in 1998. The
Company incurred losses from the joint venture of approximately $2 million,
$1.4 million, and $450,000 for the years ended January 31, 2000, 1999,
1998, respectively. In connection with the plan the Company originally
charged $1.9 million to unusual and non-recurring charges, consisting of
$1.3 million in asset writedowns and $600,000 relating to the provision for
closing
F-15
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
costs and various accrued expenses. In the fourth quarter, the provision
for losses on accounts receivables was reduced by $180,000 and the
accrued interest on outstanding debt was reduced by $120,000.
Based on current estimates, management believes that existing accruals are
adequate to cover the items presented below.
The status of the components of the nonrecurring charges was:
Balance at Current BALANCE AT
January 31, period JANUARY 31,
1999 activity 2000
------------ --------- -------
---------------------------(000's)------------------------
Domestic operating lease obligation $399 $ (83) $ 316
Uncertainty of Indonesian assets 463 (463)
Dissolution of BET Design Studio 1,170 1,170
---- ------ ------
$862 $ 624 $1,486
==== ====== ======
Capital Lease Obligations
In September 1986, the New York City Industrial Development Agency
("Agency") issued $1,442,000 of floating rate Industrial Development
Revenue Bonds to a commercial bank for the purpose of acquiring and
renovating real property located at 345 West 37th Street in New York. The
bonds bear interest at 92% of the bank's prime rate, which was 8.5% at
January 31, 2000 plus 1.48% per annum. Simultaneously, the Agency leased
the property to 345 West 37th Corp. ("345 West"), a company under the
management and control of two principal stockholders, for 15 years. 345
West, in turn, subleased the property to G-III Leather Fashions, Inc.
("G-III"), a subsidiary of the Company, on the same terms. Concurrent with
the execution of the lease and sublease agreements, 345 West and G-III
entered into lease guarantee agreements whereby they jointly and severally
guaranteed the payments and obligations under the lease and the payment of
principal and interest on the bonds. In addition, the two principal
stockholders of the Company have personally guaranteed the debt. The
accompanying financial statements reflect the above lease between G-III and
345 West as a capitalized lease (Note J).
F-16
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE E (CONTINUED)
In fiscal 1995, the Company entered into several agreements for the sale
and leaseback of the renovations of its showroom and warehouse and the
computer system installed for the retail stores. The assets were sold for
$1,548,000 (the book value of the assets). The sale and leaseback
transactions have been accounted for as a capital lease, wherein the
property remains on the books and will continue to be depreciated. A
financing obligation representing the proceeds has been recorded. The
Company has the option to purchase these assets at the end of the leases.
In addition, certain equipment leases have been treated as capital leases.
The present values of minimum future obligations are calculated based on
interest rates at the inception of the leases. The following schedule sets
forth the future minimum lease payments under capital leases at January 31,
2000:
(000's)
Year ending January 31,
2001 $124
2002 66
----
Net minimum lease payments 190
Less amount representing interest 10
----
Present values of minimum lease payments $180
====
Current portion $116
Noncurrent portion 64
----
$180
====
F-17
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE F - INCOME TAXES
The income tax provision (benefit) is comprised of the following:
Year ended January 31,
----------------------------------------------------
2000 1999 1998
-------- -------- -----
---------------------------(000's)------------------
Current
Federal $ 4,256 $ (52) $1,044
State and city 718 45 68
Foreign 20 14 88
------- ------- ------
4,994 7 1,200
Deferred expense (Benefit) (1,060) (548) (294)
------- -------- ------
$ 3,934 $ (541) $ 906
======= ======= ======
Earnings (loss) before income taxes
United States $ 9,557 $(1,956) $3,358
Non-United States 157 235 347
F-18
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE F (CONTINUED)
The significant components of the Company's deferred tax asset at January
31, 2000 and 1999 are summarized as follows:
2000 1999
---- ----
------------(000's)-----------
Supplemental employee retirement plan $ 60
Officer bonus 194
Provision for bad debts and sales allowances 1,374 $ 639
Depreciation 902 1,293
Inventory write-downs 655 647
Straight-line lease 8 102
Reserve for lease obligations 126 186
Reserve for Indonesian assets 176
Property plant and equipment written off 616 616
BET Reserve on closure 468
Inventory capitalization for tax purposes 257 48
Other 16 (92)
------ -------
$4,676 $3,615
====== =======
F-19
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE F (CONTINUED)
The following is a reconciliation of the statutory Federal income tax rate
to the effective rate reported in the financial statements:
YEAR ENDED Year ended Year ended
January 31, 2000 January 31, 1999 January 31, 1998
-------------------- ------------------ -----------------
PERCENT Percent Percent
OF of of
AMOUNT INCOME Amount income Amount income
------ ------ ------ ------ ------ ------
(000's) (000's) (000's)
Provision (benefit) for Federal income taxes at
the statutory rate $ 3,400 35.0% $(585) (34.0)% $1,263 34.0%
State and city income taxes before utilization of State NOL
carry forwards, net of Federal income tax benefit 624 6.5 30 1.8 45 1.2
Effect of foreign taxable operations (35) (.4) 66 3.8 (34) (.9)
Valuation allowance for deferred taxes (57) (1.5)
Effect of permanent differences resulting in
Federal taxable income 22 .2 35 2.0
Utilization of NOL (155) (1.6) (331) (8.9)
Other, net 78 .8 (87) (5.0) 20 .6
------- ---- ----- ------ ------- ----
Actual provision (benefit) for income taxes $ 3,934 40.5% $(541) (31.4)% $ 906 24.5%
======= ===== ===== ====== ======= ====
F-20
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company leases warehousing, executive and sales facilities, and
transportation equipment. Leases with provisions for increasing rents have
been expensed and accrued for on a straight-line basis over the life of the
lease. Future minimum rental payments for operating leases having
noncancellable lease periods in excess of one year as of January 31, 2000
are:
Sublease
Gross income Net
-----------------------(000's)----------------------
Year ending January 31,
2001 $1,640 $ 328 $1,312
2002 1,385 192 1,193
2003 1,284 199 1,085
2004 641 17 624
2005 643 643
Thereafter 54 54
------ ----- ------
$5,647 $ 736 $4,911
====== ===== ======
Rent expense on the above operating leases (including amounts leased from
345 West - Note J) for the years ended January 31, 2000, 1999 and 1998 was
approximately $1,187,000, $1,631,000 and $1,624,000, respectively, net of
sublease income of $984,000, $775,000 and $744,000, respectively.
In April 1988, 345 West received a loan from the New York Job Development
Authority ("Authority") to assist 345 West in its renovation of the 345
West property. The loan is for a period of 15 years and is presently
repayable in monthly installments of $11,000, which includes interest at a
variable rate (8.25% at January 31, 2000). The loan is financed by
long-term bonds issued by the Authority. G-III and the two principal
stockholders of the Company have signed corporate and personal guarantees
for this loan. The outstanding principal of this debt was approximately
$382,000 and $481,000 as of January 31, 2000 and 1999, respectively. In
conjunction with closing this domestic facility (described in Note E), the
Company has reflected $316,000 and $400,000 of the balance of the loan as
an accrued nonrecurring charge at January 31, 2000 and 1999, respectively.
F-21
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE G (CONTINUED)
The Company has entered into royalty agreements that provide for royalty
payments from 5% to 12% of net sales of licensed products. The Company
incurred royalty expense (included in cost of goods sold) of approximately
$5,228,000, $4,689,000 and $3,188,000 for the years ended January 31, 2000,
1999 and 1998, respectively. Based on minimum sales requirements, future
minimum royalty payments required under these agreements are:
Year ending January 31, Amount
2001 $4,180,000
2002 3,908,000
2003 4,076,000
2004 2,537,000
-----------
$14,701,000
===========
The Company has an employment agreement with its chief executive officer
which expires on January 31, 2003. Two years prior to the end of the
agreement, it will automatically be extended for an additional year unless
prior to that time, either the Company of the Chief Executive Officer
provides a notice that the term should not be extended any further. The
agreement provides for a base salary and bonus payments that vary between
3% and 6% of pretax income in excess of $2 million. If, after a change in
control of the Company, as defined in the agreement, the chief executive
officer's employment is terminated: (i) by the Company without cause, or
(ii) by him because of a material breach of the agreement by the Company,
then the chief executive officer has the right to receive an amount equal
to 2.99 times his base salary and bonus. The agreement also provides for
supplemental pension payments of $50,000 per year provided that the Company
achieves net income, as defined, in excess of $1,500,000.
F-22
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE H - STOCKHOLDERS' EQUITY
Certain agreements entered into by the Company in connection with loans by
the Agency and Authority relating to the building located at 345 West 37th
Street in New York City and the bank agreements prohibit the payment of
cash dividends without consent.
Treasury Stock
On December 20, 1999, the Board of Directors authorized the Company, to
repurchase, or to cause the repurchase of, up to $1,000,000 worth of shares
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. As of January 31, 2000, the Company purchased 118,575 shares at a
total cost of $430,000.
Stock Options
The Company's stock plans authorize the granting of 1,630,000 options to
executive and key employees and 81,500 to directors of the Company. It is
the Company's policy to grant stock options at prices not less than the
fair market value on the date of the grant. Option terms, vesting and
exercise periods vary, except that the term of an option may not exceed ten
years.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock Based Compensation." Accordingly, no compensation
cost has been recognized for the stock options granted to employees and
directors. Had compensation cost been determined based on the fair value at
the grant date for stock option awards in 2000, 1999 and 1998 consistent
with the provisions of SFAS No. 123, the Company's net income (loss) and
earnings (loss) per share for the years ended January 31, 2000, 1999 and
1998 would have been as follows:
2000 1999 1998
------- -------- -----
Net income (loss) - as reported $5,780 $(1,180) $2,799
Net income (loss) - adjusted 5,390 (1,494) 2,569
Diluted earnings (loss) per share - as reported $ .84 $ (.18) $ .40
Diluted earnings (loss) per share - adjusted $ .79 $ (.23) $ .37
F-23
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE H (CONTINUED)
The weighted average fair value at date of grant for options granted during
2000, 1999 and 1998 was $1.77, $2.58 and $3.19 per option, respectively.
The fair value of each option at date of grant was estimated using the
Black-Scholes option pricing model. Such compensation calculation may not
be representative of the future effects of applying SFAS 123. The following
weighted average assumptions were used in the Black-Scholes option pricing
model for grants in 2000, 1999 and 1998, respectively:
2000 1999 1998
---------- ---------- ------
Expected stock price volatility 71.1% 61.8% 68.9%
Expected lives of options
Directors and officers 7 years 7 years 7 years
Employees 6 years 6 years 6 years
Risk-free interest rate 6.1% 5.4% 6.6%
Expected dividend yield 0% 0% 0%
Information regarding these option plans for 2000, 1999 and 1998 is as
follows:
2000 1999 1998
---------------------- ----------------------- -------------
WEIGHTED Weighted Weighted
AVERAGE average average
EXERCISE exercise exercise
SHARES PRICE Shares price Shares price
--------- ------- -------- ------- ------- --------
Options outstanding at
beginning of year 1,042,100 $2.86 1,133,020 $2.56 989,465 $2.15
Exercised (50,000) 2.15 (211,645) 2.08 (38,565) 2.00
Granted 289,750 2.54 124,150 4.18 199,000 4.54
Cancelled or forfeited (2,050) 2.98 (3,425) 2.00 (16,880) 2.54
----------- ---------- --------
Options outstanding at
end of year 1,279,800 2.97 1,042,100 $2.86 1,133,020 2.56
========== ========= =========
Exercisable 817,550 2.83 789,140 $2.47 889,120 2.24
======= ======= =======
F-24
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE H (CONTINUED)
The following table summarizes information about stock options outstanding:
Weighted Number
Number out- average Weighted exercisable Weighted
standing as of remaining average as of average
Range of January 31, contractual exercise January 31, exercise
exercise prices 2000 life price 2000 price
--------------- -------------- ----------- ----------- ------------ -------
$1.625-$3.00 889,000 5.1 years $2.22 617,520 $2.18
$3.01-$6.50 390,800 7.2 years 4.67 200,030 4.82
-------- --------
1,279,800 817,550
========== ========
Included in the above outstanding options as of January 31, 2000, 1999, and
1998 are 25,000 options with an exercises price of $6.50 and 25,000
options with an exercise price of $5.50 for which the fair value at the
date of grant was $3.75. All other options were issued at an amount equal
to the fair market value at the date of grant.
NOTE I - MAJOR VENDORS AND CUSTOMERS
For the years ended January 31, 2000, 1999 and 1998, the Company purchased
6%, 13% and 12%, respectively, of total purchases through one buying agent.
The Company believes that alternative foreign leather apparel manufacturers
are readily available and that the loss of any manufacturer or the buying
agent would not materially adversely affect the Company's operations.
For the years ended January 31, 2000, 1999 and 1998, one customer accounted
for 24.6%, 21.6% and 17.1%, respectively, of the Company's net sales. The
Company estimates an allowance for doubtful accounts based on the
creditworthiness of its customers as well as general economic conditions.
Consequently, an adverse change in those factors could affect the Company's
estimate.
NOTE J - RELATED PARTY TRANSACTIONS
During the years ended January 31, 2000, 1999 and 1998, G-III leased space
from 345 West (Notes E and G). Operating expenses paid by G-III to 345 West
during the years ended January 31, 2000, 1999 and 1998, amounted to
approximately $ 181,000, $200,000 and $229,000, respectively.
F-25
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE J (CONTINUED)
An executive of the Company owns approximately a 20% equity interest on a
fully diluted basis in Wilsons the Leather Experts Inc. ("Wilsons"), a
customer of the Company. In addition, an outside director of the Company
owns approximately a 3% direct and 17% indirect equity interest on a fully
diluted basis of Wilsons. During the years ended January 31, 2000, 1999 and
1998, Wilsons accounted for approximately $ 8,620,000, $8,183,000 and
$7,121,000, respectively, of the Company's net sales. Accounts receivable
from Wilsons at January 31, 2000 and 1999 were approximately $183,000 and
$64,000, respectively.
NOTE K - PENSION PLANS
The Company maintains a 401(k) profit-sharing plan and trust for nonunion
employees. The Company matches 50% of employee contributions up to 3% of
the participant's compensation. The Company's matching contributions
amounted to approximately $122,000, $150,000 and $140,000, for the years
ended January 31, 2000, 1999 and 1998, respectively.
G-III contributed approximately $65,000, $57,000 and $45,000 for the years
ended January 31, 2000, 1999 and 1998, respectively, to a multi-employer
pension plan for employees covered by a collective bargaining agreement.
This plan is not administered by G-III and contributions are determined in
accordance with the provisions of a negotiated labor contract. Information
with respect to G-III's proportionate share of the excess, if any, of the
actuarial computed value by vested benefits over the total of the pension
plan's new assets is not available from the plan's administrator.
F-26
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE L - 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 nonlicensed apparel. The following information is presented
for the fiscal years indicated below:
2000 1999 1998
------------------------ --------------------- ----------------------
NON- Non- Non-
LICENSED LICENSED Licensed Licensed Licensed Licensed
-------- -------- -------- -------- -------- --------
Net sales $61,900 $87,732 $45,854 $75,790 $28,986 $91,150
Cost of goods sold 44,100 66,610 35,257 60,136 23,295 68,264
--------- ------ ------ ------ ------ ------
Gross profit 17,800 21,122 10,597 15,654 5,691 22,886
Selling, general and
administrative 10,113 18,032 7,996 19,702 7,039 16,748
Unusual or non-recurring charge 1,200 (463)
--------- ------ ------ ------ ------ ------
Operating profit (loss) 7,687 1,890 2,601 (3,585) (1,348) 6,138
Interest expense 491 1,366 480 1,635 467 1,067
--------- ------ ------ ------ ------ ------
Income (loss) before minority
interest and income taxes 7,196 524 2,121 (5,220) (1,815) 5,071
Minority interest 1,994 1,378 449
--------- ------ ------ ------ ------ ------
Income (loss) before income
taxes $ 7,196 $2,518 $ 2,121 $(3,842) $(1,815) $5,520
========= ====== ======= ======= ======= ======
Commission fee income was $3.6 million, $3.5 million, and $6.7 million for
fiscal 2000, 1999 and 1998, respectively. This fee income is included in
nonlicensed net sales and gross profit.
2000 1999 1998
----------------------- ----------------------- ------------------------
LONG-LIVED Long-Lived Long-Lived
REVENUES ASSETS Revenues Assets Revenues Assets
-------- ---------- -------- ------ -------- ------
Geographic region
United States $147,001 $8,294 $118,976 $7,482 $114,584 $6,582
Non-United States 2,631 2,003 2,668 1,476 5,552 915
-------- ------- -------- ------ -------- ------
$149,632 $10,297 $121,644 $8,958 $120,136 $7,497
========= ======= ======== ====== ======== =======
F-27
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE L (CONTINUED)
Included in finished goods inventory at January 31, 2000, 1999 and 1998 are
$5.8 million and $5.2 million, $5.2 million and $7.8 million, and $2.2
million and $11.9 million, respectively, of licensed and non-licensed
inventories, respectively. All other assets are commingled.
NOTE M - QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data in thousands except per share numbers
for the fiscal years ended January 31, 2000 and 1999 are as follows:
Quarter ended
----------------------------------------------------------------
April 30, July 31, October 31, January 31,
1999 1999 1999 2000
--------- ------- ----------- -----------
January 31, 2000
Net sales $ 8,470 $33,246 $74,544 $33,372
Gross profit 833 9,485 20,535 8,069
Net income (loss) (3,433) 1,599 6,917 697
Net income (loss) per common share
Basic $ (0.51) $0.24 $1.03 $0.10
Diluted (0.51) 0.24 1.01 0.10
Quarter ended
----------------------------------------------------------------
April 30, July 31, October 31, January 31,
1998 1998 1998 1999
--------- -------- ---------- -----------
January 31, 1999
Net sales $ 4,950 $35,742 $ 61,210 $ 19,742
Gross profit (298) 9,399 15,258 1,892
Net income (loss) (3,930) 1,410 4,426 (3,086)
Net income (loss) per common share
Basic $(0.60) $0.22 $0.68 $(0.47)
Diluted (0.60) 0.20 0.66 (0.47)
F-28
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2000, 1999 and 1998
NOTE N - FUTURE EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Derivatives
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133 ("SFAS No. 133"), "Accounting for Derivative Instruments and Hedging
Activities," which is effective for the Company's fiscal year ending
December 31, 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.
NOTE O - 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 years ended January 31, 2000, 1999 and 1998, other
comprehensive income was not material.
NOTE P - EFFECT OF INDONESIAN ECONOMY
In December 1997, the Company ceased its plan to close the Indonesian
factory (Note E). In 1998, many Asia/Pacific countries, including
Indonesia, experienced an economic crisis mainly resulting from currency
devaluation in the region, the principal consequences of which have been
an extreme lack of liquidity and highly volatile exchange and interest
rates. The crisis had also involved declining prices in shares listed on
the Indonesian stock exchanges, tightening of available credit, stoppage
or postponement of certain construction projects, and a growing oversupply
of real property. There were frequent riots and many businesses suffered
losses. As a result, in 1998, the Company reserved $463,000 against
certain assets due to the probable threat that the Indonesian government
would seize the assets of the Company. In the fourth quarter of fiscal
2000, the economic situation had stabilized and the threat
for loss of assets was no longer probable, as a result, the Company
reversed its reserve.
F-29
G-III Apparel Group, Ltd. and Subsidiaries
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
-------- --------- -------- --------- ---------
Additions
-----------------------
(1) (2)
Balance at Charged to Charged Balance at
beginning costs and to other Deductions end of
Description of period expenses accounts (a) period
----------- --------- -------- -------- ---------- -----------
Year ended January 31, 2000
Deducted from asset accounts
Allowance for doubtful accounts $ 499 $ 539 $ 232 $ 806
Allowance for sales discounts 1,168 4,914 2,996 3,086
------ ------ ------ -------
$1,667 $5,453 $3,228 $ 3,892
====== ====== ====== =======
Year ended January 31, 1999
Deducted from asset accounts
Allowance for doubtful accounts $ 685 $ 23 $ 209 $ 499
Allowance for sales discounts 562 2,146 1,540 1,168
------ ------ ------ ------
$1,247 $2,169 $1,749 $1,667
====== ====== ====== -=====
Year ended January 31, 1998
Deducted from asset accounts
Allowance for doubtful accounts $1,894 $ 177 $1,386 $ 685
Allowance for sales discounts 800 2,169 2,407 562
------ ------ ------ ------
$2,694 $2,346 $3,793 $1,247
====== ====== ====== ======
(a) Accounts written off as uncollectible, net of recoveries.
S-1