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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, 2001
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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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
512 Seventh Avenue, New York, New York 10018
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(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
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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 30, 2001, 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 $23,537,693.
The number of outstanding shares of the registrant's Common Stock as of
March 30, 2001 was 6,651,704.
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 12, 2001, 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
Unless the context otherwise requires, "G-III", "us", "we" and "our"
refer to G-III Apparel Group, Ltd. and its subsidiaries. References to fiscal
years refer to the year ended or ending on January 31 of that year.
Overview
G-III designs, manufactures, imports and markets an extensive range of
leather and non-leather apparel including coats, jackets, pants, skirts and
other sportswear items under our own labels, licensed labels and private retail
labels. Our own labels include "G-III,"TM "Siena",'TM' "Siena Studio",'TM'
"Colebrook & Co,"'TM' "JLC"'TM' and "J.L. Colebrook."'TM'
The sale of licensed products is a key element of our strategy. We
significantly expanded our offerings of licensed products between 1993 and 1998.
As a result, we have licenses with Kenneth Cole Productions to design and market
a line of women's leather and woven outerwear under the Kenneth Cole New York
and Reaction Kenneth Cole labels and with Nine West to design and market women's
outerwear. We also secured licenses with major sports leagues (football, hockey
and basketball) to manufacture outerwear using NFL, NHL and NBA team logos.
We have continued to expand our portfolio of licensed products during
the last two years. In July 1999, we entered into a distribution agreement for
Caterpillar men's and women's apparel. In September 1999, we entered into an
agreement with our fourth major sports league, Major League Baseball, to market
a line of outerwear apparel using MLB team logos. In February 2000, we entered
into a license agreement with Cole Haan to design and market men's and women's
outerwear. In March 2000, we added to our market breadth by entering into a
license agreement with Jones Apparel group to design and market men's outerwear
under the Jones New York label. Most recently, in January 2001, we acquired
certain assets of Gloria Gay Coats, LLC and entered into a license agreement
with Jones Apparel Group to design and market women's wool outerwear under the
Jones New York and JNY Jones New York labels.
We operate our business in two segments, non-licensed apparel and
licensed apparel. The non-licensed apparel segment includes sales of apparel
under our own brands and private label brands, as well as commission fee income
received on sales that are financed by and shipped directly to our customers.
The licensed apparel segment includes sales of apparel brands licensed by us
from third parties. See Note L to our Consolidated Financial Statements for
financial information with respect to these segments.
We are a Delaware corporation that was formed in 1989. We and our
predecessors have conducted our business since 1974.
Products - Development and Design
G-III manufactures and markets a full line of women's leather apparel
and an outerwear line of men's leather apparel at a wide range of retail sales
prices. Our product offerings also include textile outerwear, woolen coats,
raincoats and sportswear. We sell products under our own brand names, licensed
brand names and private retail labels.
-2-
G-III's non-licensed apparel consists of both men's and women's
products. The Colebrook & Co., JLC and J.L. Colebrook line of women's apparel
consists of moderately priced women's leather apparel that typically sells at
retail prices from $30 for sportswear items to $300 for coats. Siena Studio, our
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. Siena,
which caters to the higher priced, designer market, typically has retail prices
from $300 for sportswear items to $1,000 for coats. Products in our men's line
of leather outerwear, sold under the G-III and Colebrook labels, typically have
retail prices between $40 and $400. Our moderately priced line of women's
textile outerwear and sportswear, sold under the Colebrook & Co., JLC and J.L.
Colebrook labels, has retail prices in the range of $50 to $130.
G-III's licensed apparel also consists 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 $800 for coats.
Men's licensed apparel consists of leather, leather and textile combination and
textile apparel that typically sells at retail prices from $50 for sportswear
items to $500 for coats.
We work closely with our licensors in creating designs and styles for
each licensed brand sold by us. Licensors generally must approve products to be
sold under their brand names prior to production by us.
We also work with retail chains in developing product lines sold under
private labels. With regard to private label sales, we meet frequently with
buyers who custom order products by color, fabric and style. These buyers may
provide samples to us or may select styles already available in our showrooms.
We have established a reputation among these buyers for the ability to arrange
for the manufacture of apparel on a reliable, expeditious and cost-effective
basis.
Our in-house designers are responsible for the design and look of our
products. We respond to style changes in the apparel industry by maintaining a
continuous program of style, color, leather and fabric selection. In designing
new products and styles, we attempt to incorporate current trends and consumer
preferences in our product offerings. We seek 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 our sales and merchandising
departments, as well as with the design and merchandising staffs of our
licensors, to review market trends, sales results and the popularity of our
latest products. In addition, our representatives regularly attend trade and
fashion shows and shop at fashion forward stores in the United States, Europe
and the Far East. They present sample items to us along with their evaluation of
the styles expected to be in demand in the United States. We also seek input
from selected customers with respect to product design. We believe that our
sensitivity to the needs of our retail customers, coupled with the flexibility
of our production capabilities and our continual monitoring of the retail
market, enables us to modify designs and order specifications in a timely
fashion.
Our arrangements with selected overseas factories for textile apparel
enables us 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
we find acceptance of the product on a consumer level, we proceed with
full-scale manufacturing and market introduction.
-3-
Leather and Textile Apparel
Manufacturing
G-III'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, we manufacture approximately 30% of
our products at our wholly-owned factory in Indonesia and partially-owned
factory in Northern China. A selected number of garments are also manufactured
for us by independent contractors located in the New York City area.
We have a branch office in Seoul, South Korea which acts as a liaison
between us and various manufacturers located throughout Indonesia, China and
South Korea that produce leather and woven garments for us. G-III's headquarters
provides the liaison office with production orders stating the quantity, quality
and types of garments to be produced, and this liaison office negotiates and
places orders with one or more Indonesian, Chinese or South Korean
manufacturers. In allocating production among independent suppliers, we consider
a number of criteria, including quality, availability of production capacity,
pricing and ability to meet changing production requirements. At January 31,
2001, the South Korean office employed 14 persons.
To facilitate better service for our textile and leather apparel
customers and accommodate and control the volume of manufacturing in the Far
East, we also have an office in Hong Kong. Similar to the South Korean office,
the Hong Kong office acts as a liaison between G-III and the various
manufacturers of textile and leather apparel located in Hong Kong and China. We
utilize our domestic and Hong Kong office employees to monitor production at
each manufacturer's facility to ensure quality control, compliance with our
specifications and timely delivery of finished garments to our distribution
facilities or customers. The Hong Kong office employed eight persons as of
January 31, 2001.
In connection with the foreign manufacture of our leather apparel,
manufacturers purchase skins and necessary "submaterials" (such as linings,
zippers, buttons and trimmings) according to parameters specified by us. Prior
to commencing the manufacture of garments, samples of the skins and submaterials
are sent to our South Korean liaison office and our New York offices for
approval. Employees of the liaison office regularly inspect and supervise the
manufacture of products for us in order to ensure timely delivery, maintain
quality control and monitor compliance with our manufacturing specifications.
They also inspect finished apparel for us.
Because of the nature of leather skins, the manufacture of leather
apparel is performed manually. A pattern is used in cutting hides to panels that
are assembled in the factory. All submaterials are also added at this time.
Products are inspected throughout this process to insure that the design and
quality specifications of the order provided by us 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.
-4-
We arrange 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
us require as a condition, among others, of release of funds to the manufacturer
that an inspection certificate be signed by our representative. Accordingly, if
an order is not filled, the letter of credit is not paid and we do not bear the
risk of liability for the goods being manufactured. We assume the risk of loss
on a F.O.B. basis when goods are delivered to a shipper and are insured against
casualty losses arising during shipping.
We purchase skins and submaterials for our facility in Indonesia and
skins for our partially-owned factory in China. The demand for leather has
increased significantly over the past two years and we have experienced
increases in prices for the skins we purchase. The price of skins has also been
effected, to a lesser extent, by the recent spread of mad-cow and foot-and-mouth
disease in Europe. We believe we will be able to purchase a sufficient amount of
leather skins to satisfy our production requirements in the fiscal year ending
January 31, 2002.
As is customary in the leather industry, we have not entered into any
long-term contractual arrangements with any contractor or manufacturer. We
believe that the production capacity of foreign manufacturers with whom we have
developed, or are developing, a relationship is adequate to meet our leather
apparel production requirements for the foreseeable future. We believe that
alternative foreign leather apparel manufacturers are readily available.
Our arrangements with foreign manufacturers 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. By 1999, the economic situation in these countries appeared to have
stabilized. In 2000, Indonesia again experienced significant currency
devaluation and political instability. South Korea has also recently experienced
currency devaluation. Although we have not been materially adversely affected by
any of these factors to date, due to the significant portion of our products
that are produced abroad, political and/or economic instability in Indonesia,
South Korea or elsewhere, or any substantial disruption in the business of
foreign manufacturers or our relationships with these manufacturers could
materially adversely affect our operations. In addition, since we negotiate our
purchase orders with 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 us
for products. Virtually all of our imported leather products are subject to
United States Customs duties of approximately 6%.
Our arrangements with textile manufacturers and suppliers are subject
to the availability of quota and other requisite customs clearances for textile
apparel and the imposition of export duties. United States customs duties on our
textile apparel presently range from 5% to 30%, depending upon the type of
fabric used and how the garment is constructed. We monitor duty, tariff and
quota-related developments and seek to minimize our potential exposure to
quota-related risks through, among other measures, geographical diversification
of manufacturing sources and shifts of production among countries and
manufacturers.
A majority of all finished goods manufactured abroad for us are shipped
to our New Jersey warehouse and distribution facility for final inspection and
allocation and reshipment to customers. The goods are delivered to our customers
and us by independent shippers, choosing the form of shipment (principally ship,
truck or air) based upon a customer's needs, cost, and time considerations.
-5-
Marketing and Distribution
G-III's products are sold primarily to department, specialty and mass
merchant retail stores in the United States. We sell to approximately 2,000
customers, ranging from national and regional chains of specialty retail and
department stores, whose annual purchases from us exceed $1,000,000, to small
specialty stores whose annual purchases from us 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 21.6% of our net sales in fiscal 1999, 24.6% in fiscal 2000 and
21.1% in fiscal 2001. The loss of this customer, which primarily purchases
non-licensed apparel, could have a material adverse affect on our non-licensed
business segment, as well as on our results of operations as a whole. No other
customer accounted for more than 8% of our net sales during these three fiscal
years.
Almost all of our sales are made in the United States. We also market
our products in Canada and Europe.
Along with our foreign offices, our trading company subsidiary, Global
International Trading Company, located in Seoul, Korea, assists in providing
services to our customers. This office manages a sample room and assists in the
procurement of finished garments. As of January 31, 2001, Global International
Trading employed 17 persons.
G-III's products are sold primarily through a direct employee sales
force that consisted of 38 employees as of January 31, 2001. Our principal
executives are also actively involved in sales of our products. A limited amount
of our products are also sold by various retail buying offices located
throughout the United States. Final authorization of all sales of products is
solely through our New York showroom, enabling our management to deal directly
with, and be readily accessible to, major customers, as well as to more
effectively control our selling operations.
We primarily rely on our reputation and relationships to generate
business in our non-licensed segment. We believe we have 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 our products. In addition, we have, to a limited extent, advertised our own
labels and engaged in cooperative ad programs with retailers. We believe we have
developed brand awareness of our own labels, despite the absence of general
advertising, primarily through our reputation, consumer acceptance and the
fashion press.
Brand name products sold by us pursuant to a license agreement are
promoted by institutional and product advertisements placed by the licensor. Our
license agreements generally provide that we are 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. We may also be required to spend a specified
percentage of net sales of licensed product on advertising placed by us. Our
license agreements generally provide that we must sell a specified minimum
amount of licensed product each year in order to retain the license.
We operate one retail outlet store at our Secaucus, New Jersey
warehouse. Our other retail outlet store in New Jersey was closed in March 2000.
-6-
Raw Materials
Most products manufactured for us are purchased by us on a finished
goods basis. Raw materials used in the production of our apparel are available
from numerous sources. We are not aware of any manufacturer of our apparel not
being able to satisfy its requirements for any required 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. For example, the
recent spread of mad-cow and foot-and-mouth disease in Europe has decreased the
consumption of meat and the supply of leather. It has also resulted in an
increase in the price of leather skins.
Licensing
The sale of licensed products is a key element of our strategy and we
have significantly expanded our offerings of licensed products over the last
several years. We have licenses to produce products under the Kenneth Cole New
York and Reaction Kenneth Cole, Nine West, Cole Haan, Jones New York and JNY
Jones New York fashion labels and a distribution agreement for Caterpillar
apparel. We are also licensed to produce products containing trademarks of Major
League Baseball, National Football League, National Hockey League, National
Basketball Association, and many universities located in the United States. We
continue to seek other opportunities to enter into license agreements in order
to expand our product offerings under nationally recognized labels and broaden
the markets that we serve. Revenues from the sale of licensed products accounted
for 37.9% of net sales during fiscal 2001 compared to 41.4% of net sales in
fiscal 2000 and 37.7% of net sales in fiscal 1999. The recent addition of the
license to produce women's wool outerwear under the Jones New York and JNY Jones
New York labels is expected to increase the percentage of our net sales in
fiscal 2002 represented by the sale of licensed product.
Seasonality
Retail sales of outerwear apparel have traditionally been seasonal in
nature. Although we sell our apparel products throughout the year, net sales in
the months of July through November accounted for approximately 82% of our net
sales in fiscal 1999, 72% of our net sales in fiscal 2000 and 75% of our net
sales in fiscal 2001. The July through November time frame is expected to
continue to provide a disproportionate amount of our net sales.
Backlog
A significant portion of our 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, we do not believe
that the amount of our unfilled customer orders at any time is meaningful.
-7-
Trademarks
Several trademarks owned by us have been granted federal trademark
protection through registration with the U.S. Patent and Trademark Office,
including for G-III, Avalanche, J.L. Colebrook, Cayenne, 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. We have
applications for several additional registrations pending before the U.S. Patent
and Trademark Office.
We have 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. We also have several additional
applications pending in the European Community and Canada.
Although we regard our trademarks as valuable assets and intend to
vigorously enforce our trademark rights, we do not believe that any failure to
obtain federal trademark registrations for which we have applied would have a
material adverse effect on us.
Competition and Other Risks
The apparel business is highly competitive. We have 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 our products are
affected by style, price, quality and general fashion trends. We also compete
with vertically-integrated apparel manufacturers that also own retail stores. In
addition, we compete for supplies of raw materials and manufacturing and tanning
capacity.
Our ability to successfully compete depends on a number of factors,
including our 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. We
cannot be sure we will be successful in this regard. We often produce garments
to hold in inventory in order to meet our customer's delivery requirements and
to be able to quickly fulfill reorders. If we misjudge the market for our
products, we 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 our
business, results of operations and financial condition.
The apparel industry is cyclical. Purchases of outerwear and other
apparel tend to decline during recessionary periods and sales of our 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 our
competitors. Uncertainties regarding future economic prospects could affect
consumer-spending habits and have an adverse effect on our results of
operations.
We are 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 us
and the price of our shares. Our other executive officers have substantial
experience and expertise in our business and have made significant contributions
to our success. The unexpected loss of services of one or more of these
individuals could adversely affect us.
-8-
A majority of our 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 our business. We are also dependent on these manufacturers for
compliance with our policies and the policies of our licensors and customers
regarding labor practices.
We are dependent on sales of licensed product for a substantial portion
of our revenues. In fiscal 2001, revenues from the sale of licensed product
accounted for 37.9% of our net sales. We are generally required to achieve
specified minimum net sales, pay specified royalties and advertising payments
and receive prior approval of the licensor as to all elements of a garment prior
to production. If we do not satisfy any of these requirements, a licensor may
have the right to terminate our license. Even if we comply with all the terms of
a licensing agreement, we cannot be sure that we will be able to renew an
agreement when it expires.
The continued growth of our business depends on our access to
sufficient funds to support our growth. Our primary source of working capital to
support our growth is our existing line of credit. We have had this line of
credit for over ten years and have been able to increase the maximum
availability under this line several times in the past few years. This line of
credit currently expires on May 31, 2002. Our growth is dependent on our ability
to continue to extend and increase this line of credit. If we are unable to do
so, we cannot be sure we will be able to secure substitute financing on
satisfactory terms.
Fluctuations in the price, availability and quality of leather or other
raw materials used by us could have a material adverse effect on our cost of
goods sold and ability to meet customer demands. The recent spread of mad-cow
and foot-and-mouth disease in Europe has decreased the supply and increased the
price of leather skins for future purchases.
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. The recent
confrontation between the governments of the United States and China relating to
the crew of a U.S. surveillance plane that landed in China and the death of a
Chinese pilot could cause the U.S. Congress to review trading policies with
China and restrict trade between the two countries. Any change in the trading
status of China or other countries in which our 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 our business and results of operations, including operation of the
manufacturing facility that we jointly own in China.
In addition to the factors described above, our business, including
our revenues and profitability, is influenced by and subject to a number of
factors that are inherently uncertain and difficult to predict including, among
others: the variability of our results in any period due to the seasonal nature
of the business; risks associated with consolidations, restructurings and other
ownership changes in the retail industry; changes in regional, national and
global economic conditions; and our ability to correctly balance the level of
our finished goods, leather and other raw material commitments with actual
orders.
-9-
As of March 30, 2001, Morris Goldfarb and Aron Goldfarb beneficially
own an aggregate of approximately 52% of our outstanding common stock. As a
result, they effectively have the ability to control the outcome on all matters
requiring stockholder approval including, but not limited to, the election of
directors and any merger, consolidation or sale of all or substantially all of
our assets. They also have the ability to control our management and affairs.
Employees
As of January 31, 2001, we had 338 full-time employees, of whom 90
worked in executive, administrative or clerical capacities, 126 worked in design
and manufacturing, 74 worked in warehouse facilities, 46 worked in sales and 2
worked in our retail outlet store. We employ both union and non-union personnel
and believe that our relations with our employees are good. We have not
experienced any interruption of any of our operations due to a labor
disagreement with our employees.
We are a party to an agreement with the Amalgamated Clothing and
Textile Workers Union, covering approximately 62 full-time employees as of
January 31, 2001. This agreement, which is currently in effect through October
31, 2002, automatically renews on an annual basis thereafter unless terminated
by us or the Union prior to September 1 of that year.
-10-
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information with
respect to our executive officers and significant employees.
Executive Officer
or Significant
Name Age Position Employee Since
---- --- -------- --------------
Morris Goldfarb 50 Co-Chairman of the Board, Chief Executive 1974
Officer, Director
Aron Goldfarb 78 Co-Chairman of the Board, Director 1974
Jeanette Nostra-Katz 49 President 1981
Wayne S. Miller 43 Senior Vice President, Chief Financial 1998
Officer, Treasurer and Secretary
Carl Katz 60 Executive Vice President of Siena, 1981
Director
Frances Boller-Krakauer 35 Vice President - Men's Division of G-III 1993
Leather Fashions
Deborah Gaertner 46 Vice President - Women's Sales Division of 1989
G-III Leather Fashions
Keith Sutton Jones 52 Vice President - Foreign Manufacturing of 1989
G-III Leather Fashions
Morris Goldfarb is our Co-Chairman of the Board and Chief Executive, as
well as one of our directors. Until April 1997, Mr. Goldfarb also served as our
President. He has served as either President or Vice President of our
wholly-owned subsidiary, G-III Leather Fashions, Inc., since its formation in
1974. Mr. Goldfarb is responsible for foreign manufacturing, marketing,
merchandising and finance. He also has overall responsibility for developing
selling programs, customer relations and administration. Mr. Goldfarb is also a
director of Lakes Gaming, Inc. and Wilsons The Leather Experts.
Aron Goldfarb is Co-Chairman of the Board, a director and our founder.
Mr. Goldfarb served as either President or Vice President of G-III Leather
Fashions and as a Vice President of Siena from their respective formations until
1994 and, since January 1995, has served as a consultant to us.
Jeanette Nostra-Katz became our President in April 1997. She had been
our Executive Vice President since March 1992. Ms. Nostra-Katz's
responsibilities for the Company include sales, marketing, public 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 us since
1981.
-11-
Wayne S. Miller has been our 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 an Executive Vice President of Siena since August
1989 and, from 1981 until then, was a Vice President of Siena. 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 one of our directors.
Frances Boller-Krakauer is Vice President -- Men's Division of G-III
Leather Fashions and has held this 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 us in March 1989.
Deborah Gaertner is the Vice President -- Women's Non-Branded Sales of
G-III Leather Fashions and has held this position since March 1992. Ms. Gaertner
is responsible for sales and marketing of our women's non-licensed apparel
lines. She previously served as Vice President, Imports from June 1989 until
March 1992, coordinating production and merchandising.
Keith Sutton Jones is the Vice President -- Foreign Manufacturing of
G-III Leather Fashions and has been employed in this capacity since January
1989. His responsibilities include coordinating and controlling all aspects of
our Far Eastern sourcing and production.
Aron Goldfarb and Morris Goldfarb are father and son, respectively.
Carl Katz and Jeanette Nostra-Katz are married to each other.
ITEM 2. PROPERTIES
Our 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. We lease an aggregate of approximately 39,300 square feet in this
building through March 31, 2011 at a current aggregate annual rent of
approximately $1,188,000. We also lease a sales showroom of approximately 4,500
square feet at 500 Seventh Avenue at an annual rent of $59,000. That lease
expires May 12, 2004. This showroom is used for our Jones New York women's
licensed product.
Our 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 market rates. A majority
of our finished goods are shipped to the New Jersey distribution facilities for
final reshipment to customers.
-12-
We maintain cutting rooms for our Cole Haan 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 we pay monthly rent, plus real estate taxes. For fiscal 2001,
the total payments for this building were $341,000 and for fiscal 2000, the
total payments for this building were approximately $395,000. We sublet a
portion of the 345 West 37th Street building to different tenants. The sublease
terms end in February, 2003. The aggregate annual rental paid to us under these
subleases is approximately $289,000.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
-13-
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
Market For Common Stock
Our Common Stock 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 our Common Stock, as reported by the Nasdaq Stock
Market.
Fiscal 2000 High Prices Low Prices
- ----------- ----------- ----------
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
Fiscal Quarter ended July 31, 2000 5 13/16 4 1/8
Fiscal Quarter ended October 31, 2000 7 1/2 5 1/8
Fiscal Quarter ended January 31, 2001 7 1/2 4 7/8
Fiscal 2002
- -----------
Fiscal Quarter ending April 30, 2001 $8 15/16 $6 1/2
(through March 30, 2001)
The last sales price of our Common Stock as reported by the Nasdaq
Stock Market on March 30, 2001 was $7.50 per share.
On March 30, 2001, there were 72 holders of record and, we believe,
approximately 2,000 beneficial owners of our Common Stock.
Dividend Policy
Our Board of Directors currently intends to follow a policy of
retaining any earnings to finance the continued growth and development of our
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 our financial condition, results of operations and other factors
deemed relevant by the Board. The agreements related to the financing of the
building at 345 West 37th Street offices prohibit the payment of cash dividends
without consent. In addition, our loan agreement prohibits the 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.
-14-
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of
and for the years ended January 31, 1997, 1998, 1999, 2000, and 2001 have been
derived from our audited consolidated financial statements. Our audited
financial statements as of January 31, 1997, 1998, and 1999, and for the years
ended January 31, 1997 and 1998 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 in this Annual Report on Form 10-K.
(In thousands, except share and per share data)
Year Ended January 31, (1)
-------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Income Statement Data:
Net sales $117,645 $120,136 $121,644 $149,632 $187,057
Cost of goods sold 88,057 91,559 95,393 110,710 136,099
-------- -------- -------- -------- --------
Gross profit 29,588 28,577 26,251 38,922 50,958
Selling, general & administrative expenses 23,542 23,787 27,698 28,145 29,860
Unusual or non-recurring charge -- -- (463) 1,200 (643)
-------- -------- -------- -------- --------
Operating profit (loss) 6,046 4,790 (984) 9,577 21,741
Interest expense 2,075 1,534 2,115 1,857 2,839
-------- -------- -------- -------- --------
Income (loss) before minority interest and income taxes 3,971 3,256 (3,099) 7,720 18,902
Minority interest -- 449 1,378 1,994 (312)
-------- -------- -------- -------- --------
Income (loss) before income taxes 3,971 3,705 (1,721) 9,714 18,590
Income taxes (benefit) 885 906 (541) 3,934 7,436
-------- -------- -------- -------- --------
Net income (loss) $ 3,086 $ 2,799 $ (1,180) $ 5,780 $ 11,154
======== ======== ======== ======== ========
Basic earnings (loss) per share $ 0.48 $ 0.43 $ (0.18) $ 0.86 $ 1.70
======== ======== ======== ======== ========
Weighted average shares outstanding - basic 6,468,830 6,486,899 6,539,128 6,712,051 6,561,537
Diluted earnings (loss) per share $ 0.46 $ 0.40 $ (0.18) $ 0.84 $ 1.57
======== ======== ======== ======== ========
Weighted average shares outstanding - diluted 6,739,029 7,051,099 6,539,128 6,848,433 7,120,986
As of January 31, (1)
-------------------------------------------------------------
1997 1998 1999 2000 2001
---- ---- ---- ---- ----
Balance Sheet Data:
Working capital $24,497 $29,296 $27,237 $31,155 $41,858
Total assets 44,555 46,746 44,870 59,601 71,952
Short-term debt 3,835 3,734 2,893 3,427 1,580
Long-term debt, excluding current portion 554 352 180 64 0
Total stockholders' equity 32,825 35,686 35,575 41,033 52,069
- --------------------
(1) Certain amounts have been reclassified to conform to the 2001 presentation.
-15-
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Statements in this Annual Report on Form 10-K concerning our 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 our 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
our financial condition and results of operations should be read in conjunction
with our Financial Statements, the accompanying notes and other financial
information appearing elsewhere in this Report.
References to fiscal years refer to the year ended or ending January 31
of that year.
Results of Operations
The following table sets forth selected operating data as a percentage
of our net sales for the fiscal years indicated below:
1999 2000 2001
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 78.4 74.0 72.8
---- ---- ----
Gross profit 21.6 26.0 27.2
Selling, general and administrative expenses 22.8 18.8 15.9
Unusual or non-recurring charge (0.4) 0.8 (0.3)
---- --- ----
Operating profit (loss) (0.8) 6.4 11.6
Interest expense 1.7 1.2 1.5
--- --- ---
Income (loss) before minority interest and income taxes (2.5) 5.2 10.1
Minority interest 1.1 1.3 (0.2)
--- --- ----
Income (loss) before income taxes (1.4) 6.5 9.9
Income taxes (benefit) (0.4) 2.6 3.9
---- --- ---
Net income (loss) (1.0) 3.9 6.0
==== === ===
-16-
General
We operate our business in two segments, non-licensed apparel and
licensed apparel. The non-licensed apparel segment includes sales of apparel
under our own brands and private label brands, as well as commission fee income
received on sales that are financed by and shipped directly to our customers.
The licensed apparel segment includes sales of apparel brands licensed by us
from third parties. See Note L to our Consolidated Financial Statements for
financial information with respect to these segments.
During fiscal 2000, together with Black Entertainment Television
("BET"), our joint venture partner, we decided to discontinue the BET Design
Studio joint venture. We had originally entered into the joint venture with BET
in April 1997 to design, manufacture, and distribute sportswear and outerwear
apparel targeted to the African-American and urban consumer. The initial product
offerings by the joint venture were introduced in February 1998 and we began
shipping product in July 1998. We owned 50.1% of this joint venture and,
accordingly, its entire results of operations were consolidated with our results
of operations. The interest of BET in the joint venture was reflected in the
"Minority Interest" line item in our financial statements. Net of BET's
interest, we incurred losses from this joint venture of approximately $1.4
million in fiscal 1999 and $2.0 million (inclusive of a $802,000 charge) in
fiscal 2000. The joint venture company was dissolved effective January 31, 2001
and our financial statements for fiscal 2001 include a $322,000 credit (net of
minority interest) representing a reversal of the remainder of the fiscal 2000
charge following the disposition of the remaining assets and liabilities of this
joint venture.
Year ended January 31, 2001 ("fiscal 2001") compared
to year ended January 31, 2000 ("fiscal 2000")
Net sales were $187.1 million in fiscal 2001 compared to $149.6 million
in fiscal 2000. Net sales increased as a result of increased sales of both
licensed and non-licensed apparel. Net sales of licensed apparel increased by
14.5% to $ 70.9 million in fiscal 2001 from $61.9 million in fiscal 2000. Net
sales of non-licensed apparel increased by 32.5% to $116.2 million in fiscal
2001 from $87.7 million in fiscal 2000 as a result of increased sales to our
existing customers. Sales of licensed apparel constituted 37.9% of our net sales
in fiscal 2001 compared to 41.4% of our net sales in fiscal 2000. We expect that
the recent addition of our license with Jones New York to produce women's wool
outerwear will increase the percentage of our net sales in fiscal 2002
represented by licensed apparel.
Gross profit was $51.0 million in fiscal 2001 compared to $38.9 million
in fiscal 2000. Commission fee income, for which there is no related cost of
goods sold, was $6.2 million in fiscal 2001 compared to $3.6 million in fiscal
2000. As a percentage of net sales, gross profit was 27.2% in fiscal 2001
compared to 26.0% in fiscal 2000.
Gross profit for licensed apparel was $21.1 million in fiscal 2001
compared to $17.8 million in fiscal 2000, or 29.8% of net sales of licensed
apparel in fiscal 2001 compared to 28.8% of net sales of licensed apparel in
fiscal 2000. The higher gross profit margin percentage for licensed apparel in
fiscal 2001 was due to increased sales of higher gross profit margin products.
Gross profit for non-licensed apparel was $29.8 million in fiscal 2001 as
compared to $21.1 million in fiscal 2000, or 25.7% of net sales of non-licensed
apparel in fiscal 2001 compared to 24.1% of net sales of non-licensed apparel in
fiscal 2000. The increase in the gross profit margin percentage for non-licensed
apparel was primarily attributable to higher commission fee income.
-17-
Selling, general and administrative expenses were $29.9 million in
fiscal 2001 compared to $28.1 million in fiscal 2000. Expenses in fiscal 2000
included $2.7 million relating to the BET Design Studio joint venture that was
discontinued in November 1999 and the reversal of a $463,000 provision relating
to the uncertainty of our Indonesian assets. We decided that this reserve was no
longer required as the Indonesian economy had stabilized during the fourth
quarter of fiscal 2000. Excluding last year's BET Design Studio expenses and the
reversal of the provision for the Indonesian assets, our selling, general and
administrative expenses increased approximately $3.9 million compared to last
year. These increases primarily result from higher bonuses ($1.5 million),
increased salaries ($1.0 million), and expenses ($1.4 million) relating to the
start-up of the Cole Haan, Caterpillar and Jones New York divisions. Excluding
the BET Design Studio expenses and the Indonesian reversal in the prior year,
selling, general and administrative expenses were 15.9% of net sales in fiscal
2001 compared to 17.6% in the prior year as we were able to better leverage our
expenses over increased sales. We expect that selling, general and
administrative expenses will continue to increase in fiscal 2002 as several of
our new divisions that operated for only part of fiscal 2001 will be in
operation for all of fiscal 2002.
The dissolution of BET Design Studio was completed as of January 31,
2001. Of the $1.2 million recorded in fiscal 2000 as a non-recurring charge,
$643,000 ($322,000, net of minority interest) remained following the disposition
of the remaining assets and liabilities of this joint venture. This remainder
was reversed and credited to non-recurring charge in fiscal 2001.
Interest expense was $2.8 million in fiscal 2001 compared to $1.9
million in fiscal 2000. The increase in interest expense resulted primarily from
higher inventory levels in response to increased customer orders and higher
interest rates.
As a result of the foregoing, we had income before income taxes of
$18.6 million in fiscal 2001 compared to income before income taxes of $9.7
million in fiscal 2000.
Income taxes were $7.4 million in fiscal 2001 compared to $3.9 million
in fiscal 2000. Our effective tax rate for fiscal 2001 was 40.0% compared to
40.5% in fiscal 2000. The tax rate in fiscal 2001 benefited from the utilization
of a foreign net operating loss carry forwards. The tax rate in fiscal 2000
included benefits from remaining net operating loss carry forwards for state
income tax purposes.
We had net income of $11.2 million, or $1.57 per share on a diluted
basis, in fiscal 2001 compared to net income of $5.8 million, or $.86 per share
on a diluted basis, 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.
-18-
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, we determined that the local
economy in Indonesia had stabilized and the imminent threat of asset impairment
relating to the facility was no longer present. As a result, selling, general
and administrative expenses were reduced because we 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.
On November 18, 1999, we 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 BET'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, we 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.
-19-
Income taxes were $3.9 million in fiscal 2000 compared to an income tax
benefit of $541,000 in fiscal 1999. Our 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, our effective tax rate was 31.4%
as a result of tax benefits derived from state net operating loss carry forwards
and deferred tax benefits.
We 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.
Liquidity and Capital Resources
Our loan agreement, which expires May 31, 2002, is a collateralized
working capital line of credit with six banks that provides for a maximum line
of credit in amounts that range from $45 million to $85 million at specific
times during the year. The line of credit provides for maximum direct borrowings
ranging from $30 million to $64 million during the year. 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 our option
at either the prevailing prime rate (7.5% at April 19, 2001) or LIBOR plus 225
basis points (6.77% at April 19, 2001). The loan agreement requires us, among
other covenants, to maintain specified earnings and tangible net worth levels,
and prohibits the payment of cash dividends. The amount borrowed under the line
of credit varies based on our seasonal requirements. The maximum amount
outstanding (i.e., open letters of credit, bankers acceptances and direct
borrowings) under our loan agreement was approximately $44.9 million during each
of fiscal 1999 and 2000 and $68.0 million during fiscal 2001. As of January 31,
2001, there were no direct borrowings, no banker's acceptances and $10.4 million
of contingent liability under open letters of credit. As of January 31, 2000,
there were no direct borrowings, no bankers' acceptances and $9.9 million of
contingent liability under open letters of credit.
On December 20, 1999, our Board of Directors authorized the repurchase
of up to $1,000,000 worth of our common stock. We purchased 244,817 shares of
our common stock at a total cost of $970,000. We concluded this buyback program
in April 2000.
PT Balihides, our Indonesian subsidiary, has a separate credit facility
with an Indonesian bank. The notes payable under this facility represent maximum
borrowings as of January 31, 2001 of approximately $1.5 million. Subsequent to
year-end, we reduced this line of credit by $550,000.
We had $2.2 million of cash provided by operating activities in fiscal
2001 resulting primarily from net income of $11.2 million, a decrease of $5.4
million in accounts receivable and an increase of $5.0 million in accounts
payable and accrued expenses. This was partially offset by an increase of $19.0
million in inventories. In addition, our purchase of certain assets from Gloria
Gay Coats, LLC included $2.3 million of inventory. The Company's inventories
increased in fiscal 2001 primarily due to an increase in raw materials
inventory as a result of purchases of leather skins to meet higher anticipated
sales volumes in fiscal 2002. We had $6.9 million of cash provided by operating
activities in fiscal 2000 resulting primarily from our net income of
$5.8 million. We had cash provided by operating activities of $2.3 million
in fiscal 1999 as a reduction of $3.9 million in inventories more than offset
our net loss of $1.2 million.
-20-
We utilized $4.2 million of cash in investing activities during fiscal
2001. Our purchase of certain assets from Gloria Gay Coats, LLC amounted to $3.4
million (including $2.3 million of inventory) and we made capital expenditures
of $852,000. We used $1.0 million of cash in fiscal 2000 and $1.7 million of
cash in fiscal 1999 for capital expenditures. Historically, our business has
not required significant capital expenditures. Capital expenditures were used
primarily for new computer software, additional computer upgrades, leasehold
improvements, and furniture, fixtures and equipment. In addition, capital
expenditures include $580,000 in fiscal 2000 and $277,000 in fiscal 2001 for
the expansion of our Indonesian factory.
We used $3.4 million of cash in financing activities during fiscal
2001. Financing activities provided $1.4 million of cash in fiscal 2000 and
$806,000 of cash in fiscal 1999. During fiscal year 2001, we repaid $1.8 million
of debt related to BET Design Studio. In addition, BET's prior investment of
$1.3 million in BET Design Studio was eliminated. We used $540,000 in fiscal
2001 and $430,000 in fiscal 2000 to purchase shares of our common stock on the
open market. In fiscal 1999, we used $1.0 million to reduce notes payable and
capital lease obligations, which was more than offset by cash and tax benefits
related to the exercise of stock options and the disgorgement of profits related
to stock sales by two of our officers.
We believe that our cash on hand and cash generated by operations,
together with the funds available under our loan agreement, will be sufficient
to meet our capital and operating requirements through fiscal 2002.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Impact of Inflation and Foreign Exchange
Our results of operations for the periods discussed have not been
significantly affected by inflation or foreign currency fluctuation. We
negotiate our purchase orders with foreign manufacturers in United States
dollars. Thus, notwithstanding any fluctuation in foreign currencies, our cost
for any purchase order is not subject to change after the time 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
We are subject to market risk from exposure to changes in interest
rates relating primarily to our line of credit. We borrow under the line of
credit to support general corporate purposes, including capital expenditures and
working capital needs. All of our debt is short-term with variable rates. We do
not expect changes in interest rates to have a material adverse effect on income
or cash flows in fiscal 2002.
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.
-21-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Proposal No. 1- Election
of Directors" in our definitive Proxy Statement (the "Proxy Statement") relating
to our Annual Meeting of Stockholders to be held on or about June 12, 2001, 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 our executive officers and other significant employees,
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
our Proxy Statement is incorporated herein by reference.
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 our 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 our Proxy Statement is incorporated herein by
reference.
-22-
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. All
other schedules, for which provision is made
in the applicable accounting regulations of
the Securities and Exchange Commission are
not required under the related instructions,
are shown in the financial statements or are
in applicable and therefore have been omitted.
3. Exhibits:
3.1 Certificate of Incorporation.(1)
3.2 By-Laws, as amended, of G-III Apparel Group, Ltd. (the
"Company").(6)
10.1 Employment Agreement, dated February 1, 1994, between the
Company and Morris Goldfarb.(4)
10.1(a) Amendment, dated October 1, 1999, to the Employment
Agreement, dated February 1, 1994, between the Company and
Morris Goldfarb.(10)
10.2 [Reserved]
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.(9)
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.(11)
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.(11)
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.(11)
10.3(d) Amendment No. 4 to the Fifth Amended and Restated Loan
Agreement, dated as of May 24, 2000, by and among G-III, the
Banks and Fleet Bank.(12)
-23-
10.3(e) Amendment No. 5 to the Fifth Amended and Restated Loan
Agreement, dated as of July 14, 2000, by and among G-III, the
Banks and Fleet Bank.(13)
10.3(f) Amendment No. 6 to the Fifth Amended and Restated Loan
Agreement, dated as of January 10, 2001, by and among G-III, the
Banks and Fleet Bank.
10.3(g) Amendment No. 7 to the Fifth Amended and Restated Loan
Agreement, dated as of February 12, 2001, by and among G-III,
the Banks and Fleet Bank.
10.3(h) Amendment No. 8 to the Fifth Amended and Restated Loan
Agreement, dated as of March 13, 2001, by and among G-III, the
Banks and Fleet Bank.
10.4 [Reserved]
10.5 [Reserved]
10.6 Lease, dated September 21, 1993, between Hartz Mountain
Associates and the Company.(3)
10.6(a) Lease renewal, dated May 27, 1999, between Hartz Mountain
Associates and the Company.
10.7 Lease, dated June 1, 1993, between 512 Seventh Avenue
Associates ("512") and the Company.(4)
10.7(a) Lease amendment, dated July 1, 2000, between 512 and the
Company.
10.8 Lease, dated January 31, 1994, between 512 and the Company.(5)
10.8(a) Lease amendment, dated July 1, 2000, between 512 the Company.
10.9 Assignment and assumption agreement dated July 1, 2000 between
BET Studio LLC and the Company of Lease dated May 1, 1997.
10.9(a) Lease amendment, dated July 1, 2000, between 512 the Company.
10.10 G-III Apparel Group, Ltd. 1989 Stock Option Plan, as amended.(4)
10.11 G-III Apparel Group, Ltd. Stock Option Plan for Non-Employee Directors.(2)
10.12 G-III Apparel Group, Ltd. 1997 Stock Option Plan.(7)
10.13 Letter Agreement, dated December 2, 1998, between the Company
and Aron Goldfarb.(8)
10.14 G-III Apparel Group, Ltd. 1999 Stock Option Plan for Non-
Employee Directors.(11)
-24-
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, dated April 27, 2001.
23.1 Consent of Grant Thornton LLP, dated April 25, 2001
(b) Reports on Form 8-K:
None.
- ------------------
(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, 1991, 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, 1992, 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 January 31, 1994, 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, 1995, which exhibit
is incorporated herein by reference.
(6) 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.
(7) 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.
(8) 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.
(9) 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.
(10) 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.
(11) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended January 31, 2000, 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, 2000, 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 July 31, 2000, which exhibit
is incorporated herein by reference.
Exhibits have been included in copies of this Report filed with the
Securities and Exchange Commission. We 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.
-25-
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 27, 2001
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 27, 2001
- ------------------------ Officer (principal executive officer)
Morris Goldfarb
/s/ Wayne Miller Senior Vice President and Chief Financial Officer April 27, 2001
- ------------------------ (principal financial and accounting officer)
Wayne Miller
/s/ Aron Goldfarb Director and Co-Chairman of the Board April 27, 2001
- ------------------------
Aron Goldfarb
/s/ Lyle Berman
- ------------------------ Director April 27, 2001
Lyle Berman
/s/ Thomas J. Brosig
- ------------------------ Director April 27, 2001
Thomas J. Brosig
/s/ Alan Feller Director April 27, 2001
- ------------------------
Alan Feller
/s/ Carl Katz Director April 27, 2001
- ------------------------
Carl Katz
/s/ Willem van Bokhorst Director April 27, 2001
- ------------------------
Willem van Bokhorst
/s/ Sigmund Weiss Director April 27, 2001
- ------------------------
Sigmund Weiss
- ------------------------ Director April __, 2000
George J. Winchell
G-III Apparel Group, Ltd. and Subsidiaries
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 14(a))
Page
----
Report of Independent Auditors, Ernst & Young LLP F-2
Report of Independent Certified Public Accountants, Grant Thornton LLP F-3
Financial Statements
Consolidated Balance Sheets - January 31, 2001 and 2000 F-4
Consolidated Statements of Operations - Years Ended
January 31, 2001, 2000, and 1999 F-5
Consolidated Statement of Stockholders' Equity - Years
Ended January 31, 1999, 2000, and 2001 F-6
Consolidated Statements of Cash Flows - Years Ended
January 31, 2001, 2000, and 1999 F-7
Notes to Consolidated Financial Statements F-9 to 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 AUDITORS
Board of Directors and Stockholders
G-III Apparel Group, Ltd.
We have audited the accompanying consolidated balance sheet of G-III Apparel
Group, Ltd. and subsidiaries as of January 31, 2001, and the related
consolidated statement of operations, stockholders' equity, and cash flows for
the year ended January 31, 2001. Our audit also included the financial
statement schedule listed in the index at Item 14(a) for the year ended January
31, 2001. These financial statements and schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
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 audit provides 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, 2001, and the consolidated
results of their operations and their cash flows for the year ended January 31,
2001, in conformity with accounting principles generally accepted in the United
States. Also, in our opinion, the related financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
New York, New York
March 22, 2001
F-2
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 the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
two 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 the consolidated
results of their operations and their consolidated cash flows for each of the
two 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 two 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-3
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)
ASSETS 2001 2000
---- -----
CURRENT ASSETS
Cash and cash equivalents $ 9,231 $14,530
Accounts receivable 11,528 16,597
Allowance for doubtful accounts and sales discounts (4,242) (3,892)
Inventories 42,450 21,175
Prepaid expenses and other current assets 2,481 894
------- -------
Total current assets 61,448 49,304
PROPERTY, PLANT AND EQUIPMENT, NET 2,940 3,316
DEFERRED INCOME TAXES 4,889 4,676
OTHER ASSETS 2,675 2,305
------- -------
$71,952 $59,601
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 1,500 $ 3,311
Current maturities of obligations under capital leases 80 116
Income taxes payable 2,312 2,874
Accounts payable 7,411 5,875
Accrued expenses 8,190 4,714
Accrued nonrecurring charges 97 1,259
------- -------
Total current liabilities 19,590 18,149
OTHER LONG-TERM LIABILITIES 293 419
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; 1,000,000 shares authorized; no shares
issued and outstanding in all periods
Common stock - $.01 par value; authorized, 20,000,000 shares;
6,878,171 and 6,767,921 shares issued at January 31, 2001
and 2000, respectively 69 68
Additional paid-in capital 25,295 24,874
Retained earnings 27,675 16,521
------- -------
53,039 41,463
Less common stock held in treasury - 244,817 and 118,575 shares,
at cost, at January 31, 2001 and 2000, respectively (970) (430)
------- -------
52,069 41,033
------- -------
$71,952 $59,601
======= =======
The accompanying notes are an integral part of these statements.
F-4
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Year ended January 31,
----------------------
2001 2000 1999
-------- -------- ------
Net sales $187,057 $149,632 $121,644
Cost of goods sold 136,099 110,710 95,393
-------- -------- --------
Gross profit 50,958 38,922 26,251
Selling, general and administrative expenses 29,860 28,145 27,698
Unusual or non-recurring charge (643) 1,200 (463)
-------- -------- --------
Operating profit (loss) 21,741 9,577 (984)
Interest and financing charges, net 2,839 1,857 2,115
-------- -------- --------
Income (loss) before minority interest
and income taxes 18,902 7,720 (3,099)
Minority interest in (income) loss of joint venture (312) 1,994 1,378
-------- -------- --------
Income (loss) before income taxes 18,590 9,714 (1,721)
Income tax (benefit) 7,436 3,934 (541)
-------- -------- --------
NET INCOME (LOSS) $ 11,154 $ 5,780 $ (1,180)
======== ======== ========
INCOME (LOSS) PER COMMON SHARE:
Basic:
Net income (loss) per common share $ 1.70 $ .86 $ (.18)
======== ======== ========
Weighted average number of shares outstanding 6,562 6,712 6,539
======== ======== ========
Diluted:
Net income (loss) per common share $ 1.57 $ .84 $ (.18)
======== ======== ========
Weighted average number of shares outstanding 7,121 6,848 6,539
======== ======== ========
The accompanying notes are an integral part of these statements.
F-5
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years ended January 31, 1999, 2000, and 2001
(in thousands)
Additional Common stock
Common paid-in Retained held in
stock capital earnings Treasury Total
---------- ----------- --------- -------- --------
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
Employee stock option exercised 1 240 241
Tax benefit from exercise of options 181 181
Purchase of 126,242 shares, at cost (540) (540)
Net income for the year 11,154 11,154
--- ------- ------- ----- -------
Balance as of January 31, 2001 $69 $25,295 $27,675 $(970) $52,069
=== ======= ======= ===== =======
The accompanying notes are an integral part of this statement.
F-6
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year ended January 31,
----------------------------------------------
2001 2000 1999
-------- -------- ------
Cash flows from operating activities
Net income (loss) $11,154 $ 5,780 $(1,180)
------- ------- -------
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities
Depreciation and amortization 1,160 1,438 1,372
Minority interest 312 (1,994) (1,378)
Deferred income tax benefit (213) (1,061) (548)
Changes in operating assets and liabilities
Accounts receivable 5,419 (2,092) 804
Inventories (19,027) (4,820) 3,877
Income taxes (562) 3,641 (1,740)
Prepaid expenses and other current assets (1,587) 41 823
Deferred income taxes 58
Other assets 1,783 (44) (626)
Accounts payable and accrued expenses 5,012 5,353 855
Accrued non-recurring charge (1,258) 624 (73)
Other long-term liabilities 34 4 67
------- ------- -------
(8,927) 1,090 3,491
------- ------- -------
Net cash provided by operating activities 2,227 6,870 2,311
------- ------- -------
Cash flows from investing activities
Capital expenditures (852) (977) (1,723)
Capital dispositions 90 5
Purchase of certain assets of Gloria Gay Coats, LLC (3,402)
------- ------- -------
Net cash used in investing activities (4,164) (977) (1,718)
------- ------- -------
F-7
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)
Year ended January 31,
----------------------
2001 2000 1999
-------- -------- ------
Cash flows from financing activities
(Decrease) increase in notes payable, net $(1,811) $ 599 $ (766)
Payments for capital lease obligations (100) (181) (247)
Investment in joint venture by Minority Partner (1,333) 1,300 750
Proceeds from exercise of stock options 241 102 441
Tax benefit from exercise of options 181 6 420
Disgorgement of stock sales profit by certain officers 208
Purchase of common stock for Treasury (540) (430)
------- ------- --------
Net cash (used in) provided by financing activities (3,362) 1,396 806
------- ------- --------
NET (DECREASE) INCREASE IN CASH
AND CASH EQUIVALENTS (5,299) 7,289 1,399
Cash and cash equivalents at beginning of year 14,530 7,241 5,842
------- ------- --------
Cash and cash equivalents at end of year $ 9,231 $14,530 $ 7,241
======= ======= ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,780 $ 1,779 $ 2,343
Income taxes $ 8,050 $ 1,407 $ 1,355
The accompanying notes are an integral part of these statements.
F-8
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2001, 2000, and 1999
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. The fiscal year-end for the Company's Indonesian
subsidiary is December 31, and is included in the Company's
consolidation as of that date. The effect of the intervening period is
not significant to the financial results of the Company. All material
intercompany balances and transactions have been eliminated.
Certain reclassifications have been made to conform to the fiscal 2001
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.
F-9
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE A (continued)
5. Intangibles
In January 2001, the Company purchased certain assets of Gloria Gay
Coats, LLC for approximately $3.4 million. The excess of purchase price
over net assets acquired of approximately $1.1 million has been
recorded as an intangible and is being amortized using the
straight-line method over eight years. The intangible is classified in
other assets on the balance sheet.
6. 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.
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.
7. 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.
F-10
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE A (continued)
8. Cash Equivalents
The Company considers all highly liquid debt instruments purchased with
a maturity of three months or less to be cash equivalents.
9. 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.
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 had a 50.1%
ownership interest in the joint venture and included the results of the
joint venture less the share of the minority interest in its
consolidated financial statements. Through March 31, 2000, the Company
and BET had each contributed $3.8 million to the joint venture. In
November, 1999, the Company and BET agreed to cease the operations of
the joint venture (see Note E). The joint venture was dissolved
effective as of January 31, 2001.
F-11
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE A (continued)
10. 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,
-----------------------------------------------
2001 2000 1999
-------- -------- -------
(in thousands, except per share amounts)
Net income (loss) $11,154 $5,780 $(1,180)
======= ====== =======
Basic EPS:
Basic common shares 6,562 6,712 6,539
======= ====== =======
Basic EPS $ 1.70 $ 0.86 $ (0.18)
======= ====== =======
Diluted EPS:
Basic common shares 6,562 6,712 6,539
Plus impact of stock options 559 136
------- ------ --------
Diluted common shares 7,121 6,848 6,539
======= ====== =======
Diluted EPS $ 1.57 $ 0.84 $(0.18)
======= ====== =======
Excluded from the above calculations are 217,000, 426,000, and
1,042,000 of stock options which were deemed to be antidilutive for the
years ended January 31, 2001, 2000, and 1999, respectively.
F-12
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE A (continued)
11. 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.
12. 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.
13. 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.
14. Advertising Costs
The Company expenses advertising costs as incurred. Advertising costs
charged to expense were $2.4 million, $3.0 million, and $2.6 million in
fiscal 2001, 2000, and 1999, respectively.
F-13
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE A (continued)
15. 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 2001, 2000, and
1999 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,
-----------------------------
2001 2000
-------- -------
------------(000's)----------
Finished goods $17,605 $10,990
Work-in-process 1,707 326
Raw materials 23,138 9,859
------- -------
$42,450 $21,175
======= =======
F-14
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE C - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost consist of:
January 31,
2001 2000
-------- ------
----------(000's)--------
Machinery and equipment $ 1,577 $ 1,398
Leasehold improvements 4,923 5,069
Transportation equipment 140 129
Furniture and fixtures 1,704 1,695
Computer equipment 4,891 4,692
Land and building (net of write-down of Indonesian
factory; Note E) 692 609
Property under capital leases (Note E)
Land 55 55
Building 185 185
Computer equipment 74
------- ------
14,167 13,906
Less accumulated depreciation and amortization
(including $200,000 and $237,000 on property
under capital leases at January 31, 2001 and
2000, respectively) 11,227 10,590
------- -------
$ 2,940 $ 3,316
======= =======
F-15
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
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, 2001 and 2000. Subsequent to year-end,
the Company reduced this line of credit by $550,000.
The Company's loan agreement, which expires May 31, 2002, is a
collateralized working capital line of credit with six banks that provides
for a maximum line of credit in amounts that range from $45 million to $85
million at specific times during the year. The line of credit provides for
maximum direct borrowings ranging from $30 million to $64 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 bear interest at the option of the
Company at either the prevailing prime rate (7.5% at April 19, 2001) or
LIBOR plus 225 basis points (6.77% at April 19, 2001) 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 9.3% and 8.2% as of January 31,
2001 and 2000, respectively.
At January 31, 2001 and 2000, the Company was contingently liable under
letters of credit in the amount of approximately $10.4 million and $9.9
million, respectively.
F-16
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE E - OTHER LIABILITIES
Other long-term liabilities consist of:
January 31,
-------------------------------
2001 2000
-------- ------
-------------(000's)-----------
Non-recurring charges $131 $227
Capital lease obligations 64
Other 162 128
---- ----
$293 $419
==== ====
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 Years 2000 and 2001
--------------------------
In November 1999, the Company formulated a plan to cease operations of the
BET Design Studio 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 Company incurred losses from the joint venture
of approximately $2.0 million and $1.4 million for the years ended January
31, 2000 and 1999, respectively. In connection with the plan, the Company
charged $1.6 million to unusual and non-recurring charges in the year ended
January 31, 2000. Following the disposition of the remaining assets and
liabilities, the excess amount of $643,000 was credited to unusual and
non-recurring charges in the year ended January 31, 2001.
F-17
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE E (continued)
Based on current estimates, management believes that existing accruals are
adequate to cover the items presented below.
The status of the components of the non-recurring charges was:
Balance at Current Balance at
January 31, period January 31,
2000 activity 2001
------------ -------- -----------
------------------------(000's)----------------------
Domestic operating lease obligation $ 316 $ (88) $228
Dissolution of BET Design Studio 1,170 (1,170)
------ -------- ----
$1,486 $(1,258) $228
====== ======= ====
The financing of one of the Company's properties is treated as a capital
lease. The present value of minimum future obligations are calculated based
on interest rates at the inception of the lease. This lease expires in
October 2001. The future minimum lease payments at January 31, 2001 is
$82,000, of which $2,000 represents interest and $80,000 is the present
value of the minimum lease payments.
F-18
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE F - INCOME TAXES
The income tax provision (benefit) is comprised of the following:
Year ended January 31,
--------------------------------------------------------
2001 2000 1999
-------- -------- ------
-------------------------(000's)------------------------
Current
Federal $ 5,993 $ 4,256 $ (52)
State and city 1,230 718 45
Foreign 426 20 14
------- ------- -------
7,649 4,994 7
Deferred expense (benefit) (213) (1,060) (548)
-------- -------- --------
$ 7,436 $ 3,934 $ (541)
======= ======= =======
Earnings (loss) before income taxes
United States $16,881 $ 9,557 $(1,956)
Non-United States 1,709 157 235
The significant components of the Company's deferred tax asset at January 31,
2001 and 2000 are summarized as follows:
2001 2000
-------- -----
------------(000's)------------
Supplemental employee retirement plan $ 90 $ 60
Officer bonus 440 194
Provision for bad debts and sales allowances 1,604 1,374
Depreciation 1,433 902
Inventory write-downs 942 655
Straight-line lease (138) 8
Reserve for lease obligations 67 126
Property plant and equipment written off 616
BET reserve on closure 468
Inventory capitalization for tax purposes 242 257
Vacation accrual 99
Advertising allowance 107
Other 3 16
--------- --------
$ 4,889 $ 4,676
========= ========
F-19
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
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, 2001 January 31, 2000 January 31, 1999
----------------------- --------------------- -----------------
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 $ 6,507 35.0% $ 3,400 35.0% $(585) (34.0)%
State and city income taxes before utilization of State NOL
carry forwards, net of Federal income tax benefit 774 4.2 624 6.5 30 1.8
Effect of foreign taxable operations (236) (1.3) (35) (.4) 66 3.8
Effect of permanent differences resulting in
Federal taxable income 21 .1 22 .2 35 2.0
Utilization of NOL (155) (1.6)
Other, net 370 2.0 78 .8 (87) (5.0)
-------- ----- -------- ------ ------ ------
Actual provision (benefit) for income taxes $ 7,436 40.0% $ 3,934 40.5% $(541) (31.4)%
======== ===== ======== ====== ====== ======
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $1.9 million at January 31, 2001. Those earnings are considered to
be indefinitely reinvested and, accordingly, no provision for U.S. income taxes
has been provided thereon. Upon distribution of those earnings in the form of
dividends or otherwise, the Company would be subject to both U.S. income taxes
(subject to an adjustment for foreign tax credits) and withholding taxes payable
to the various foreign countries, as applicable.
F-20
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE G - COMMITMENTS AND CONTINGENCIES
The Company leases warehousing, executive and sales facilities, and
transportation equipment under operating leases with options to renew at
varying terms. 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, 2001
are:
Sublease
Gross income Net
------- ---------- -----
--------------------(000's)---------------------
Year ending January 31,
2002 $ 1,990 $ 192 $ 1,798
2003 1,905 199 1,706
2004 1,822 17 1,805
2005 1,808 1,808
2006 1,129 1,129
Thereafter 7,251 7,251
------ ------ ------
$15,905 $ 408 $15,497
====== ====== ======
In April 1988, 345 West 37th Street Corp. ("345 West"), a property owned by
two principal stockholders (Note J), 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 8.25%. 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 $284,000 and $382,000 as of
January 31, 2001 and 2000, respectively. In conjunction with closing this
domestic facility (described in Note E), the Company has reflected $228,000
and $316,000 of the balance of the loan as an accrued nonrecurring charge
at January 31, 2001 and 2000, respectively.
Rent expense on the above operating leases (including amounts leased from
345 West) for the years ended January 31, 2001, 2000, and 1999 was
approximately $1,768,000, $1,187,000, and $1,631,000, respectively, net of
sublease income of $289,000, $984,000, and $775,000, respectively.
F-21
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE G (continued)
The Company has entered into license 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
$4,858,000, $5,228,000, and $4,689,000 for the years ended January 31,
2001, 2000, and 1999, respectively. Based on minimum sales requirements,
future minimum royalty payments required under these agreements are:
Year ending January 31, Amount
----------------------- ------
2002 $ 5,317,000
2003 3,882,000
2004 2,792,000
2005 2,562,000
----------
$14,553,000
==========
The Company has an employment agreement with its chief executive officer
which expires on January 31, 2004. The agreement provides for a base salary
and bonus payments that vary between 3% and 6% of pretax income in excess
of $2 million.
In January 2001, the Company purchased certain assets of Gloria Gay Coats,
LLC (see Note A). The Company is contractually obligated to make certain
contingent payments if the division meets certain performance criteria.
F-22
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
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 up to $1,000,000 worth of shares of the Company's common stock.
As of January 31, 2001, the Company purchased 244,817 shares of its common
stock at a total cost of $970,000. The Company concluded its buyback
program in April 2000.
Stock Options
The Company's stock plans authorize the granting of 1,880,000 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 2001, 2000 and 1999 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, 2001, 2000, and
1999 would have been as follows:
2001 2000 1999
------- -------- --------
Net income (loss) - as reported $ 11,154 $ 5,780 $(1,180)
Net income (loss) - adjusted $ 10,900 $ 5,390 $(1,494)
Diluted earnings (loss) per share - as reported $ 1.57 $ .84 $ (.18)
Diluted earnings (loss) per share - adjusted $ 1.53 $ .79 $ (.23)
F-23
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE H (continued)
The weighted average fair value at date of grant for options granted during
2001, 2000 and 1999 was $4.24, $1.77, and $2.58 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 2001, 2000, and 1999, respectively:
2001 2000 1999
---------- ---------- ------
Expected stock price volatility 72.9% 71.1% 61.8%
Expected lives of options
Directors and officers 7 years 7 years 7 years
Employees 6 years 6 years 6 years
Risk-free interest rate 6.0% 6.1% 5.4%
Expected dividend yield 0% 0% 0%
Information regarding these option plans for 2001, 2000, and 1999 is as
follows:
2001 2000 1999
------------------------ ------------------------ -----------------------
Weighted Weighted Weighted
average average Average
exercise exercise Exercise
Shares price Shares price Shares Price
-------- -------- --------- ------- --------- --------
Options outstanding at
beginning of year 1,279,800 $2.97 1,042,100 $2.86 1,133,020 $2.56
Exercised (110,250) 2.17 (50,000) 2.15 (211,645) 2.08
Granted 81,000 6.07 289,750 2.54 124,150 4.18
Cancelled or forfeited (7,300) 3.59 (2,050) 2.98 (3,425) 2.00
---------- ---------- -------
Options outstanding at
end of year 1,243,250 $3.23 1,279,800 $2.97 1,042,100 $2.86
========= ========== =========
Exercisable 818,736 $2.98 817,550 $2.83 789,140 $2.47
======= ======= =======
F-24
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
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 2001 life price 2001 price
--------------- -------------- ----------- ----------- ------------ -------
$1.62-$3.00 784,682 4.8 years $2.23 576,738 $2.21
$3.01-$6.50 458,568 7.0 years $4.95 241,998 $4.82
--------- -------
1,243,250 818,736
========= =======
Included in the above outstanding options as of January 31, 2001, 2000, and
1999 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, 2001, 2000, and 1999, one customer
accounted for 21.1%, 24.6%, and 21.6%, respectively, of the Company's net
sales, which primarily purchases non-licensed apparel.
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.
F-25
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE J - RELATED PARTY TRANSACTIONS
During the years ended January 31, 2001, 2000, and 1999, G-III leased space
from 345 West (Note G). Operating expenses paid by G-III to 345 West during
the years ended January 31, 2001, 2000, and 1999, amounted to approximately
$233,000, $280,000, and $200,000, respectively.
An executive of the Company owns approximately a 14% 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 14% indirect equity interest on a fully
diluted basis of Wilsons. During the years ended January 31, 2001, 2000 and
1999, Wilsons accounted for approximately $13,121,000, $8,620,000, and
$8,183,000, respectively, of the Company's net sales. At January 31, 2001,
the Company owed Wilsons $253,000. Accounts receivable from Wilsons at
January 31, 2000 were approximately $183,000.
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 $157,000, $122,000, and $150,000, for the years
ended January 31, 2001, 2000, and 1999, respectively.
G-III contributed approximately $58,000, $65,000, and $57,000 for the years
ended January 31, 2001, 2000, and 1999, 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, 2001, 2000, and 1999
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 non-licensed apparel. The following information is presented
for the fiscal years indicated below:
2001 2000 1999
------------------------ --------------------- ---------------------
Non- Non- Non-
Licensed Licensed Licensed Licensed Licensed Licensed
-------- -------- -------- -------- -------- --------
Net sales $70,855 $116,202 $61,900 $87,732 $45,854 $75,790
Cost of goods sold 49,738 86,361 44,100 66,610 35,257 60,136
------ ------ ------ ------ ------ ------
Gross profit 21,117 29,841 17,800 21,122 10,597 15,654
Selling, general and
administrative 13,687 16,173 10,113 18,032 7,996 19,702
Unusual or non-recurring charge (643) 1,200 (463)
------ ------ ------ ------ ------ ------
Operating profit (loss) 7,430 14,311 7,687 1,890 2,601 (3,585)
Interest expense 1,067 1,772 491 1,366 480 1,635
------ ------ ------ ------ ------ ------
Income (loss) before minority
interest and income taxes 6,363 12,539 7,196 524 2,121 (5,220)
Minority interest (312) 1,994 1,378
------ ------ ------ ------ ------ ------
Income (loss) before income
taxes $6,363 $12,227 $7,196 $2,518 $2,121 $(3,842)
====== ====== ===== ===== ===== ======
Commission fee income was $6.2 million, $3.6 million, and $3.5 million for
fiscal 2001, 2000, and 1999, respectively. This fee income is included in
non-licensed net sales and gross profit. The Company allocates all expenses
to its two reportable segments.
2001 2000 1999
-------------------------- ------------------------- -----------------------
Long-Lived Long-Lived Long-Lived
Revenues Assets Revenues Assets Revenues Assets
-------- ------------ -------- ------------ -------- ----------
Geographic region
United States $181,215 $ 8,306 $147,001 $ 8,294 $118,976 $7,482
Non-United States 5,842 2,329 2,631 2,003 2,668 1,476
--------- ------- --------- ------- --------- ------
$187,057 $10,635 $149,632 $10,297 $121,644 $8,958
======= ====== ======= ====== ======= =====
F-27
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE L (continued)
Included in finished goods inventory at January 31, 2001, 2000, and 1999
are $8.5 million and $8.9 million, $5.8 million, and $5.2 million, and $5.2
million, and $7.8 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, 2001 and 2000 are as follows:
Quarter ended
-------------------------------------------------------------
April 30, July 31, October 31, January 31,
2000 2000 2000 2001
--------- -------- ------------ -----------
January 31, 2001
Net sales $10,578 $47,385 $87,955 $41,139
Gross profit 2,180 13,798 25,308 9,672
Net income (loss) (2,519) 3,447 9,468 758 (a)
Net income (loss) per common share
Basic $(0.38) $0.53 $1.45 $0.12
Diluted (0.38) 0.49 1.31 0.11
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 (a) 697 (b)
Net income (loss) per common share
Basic $ (0.51) $0.24 $1.03 $0.10
Diluted (0.51) 0.24 1.01 0.10
(a) Includes items associated with the disposition of the BET Design Studio
joint venture as follows: January 31, 2001 - $192,000 income, net of tax,
or $0.03 per diluted share. October 31, 1999 - $451,000 expense, net of
tax, or $0.07 per diluted share.
(b) Includes $365,000 income, net of tax, or $0.05 per diluted share associated
with the disposition of the BET Design Studio joint venture and the
Indonesia subsidiary.
F-28
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
January 31, 2001, 2000, and 1999
NOTE N - FUTURE EFFECTS OF RECENTLY ISSUED
ACCOUNTING PRONOUNCEMENTS
Derivatives
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 ("SFAS NO. 133"), "Accounting for Derivative Instruments and
Hedging Activities," and its amendment statements 137 and 138, in June 1999
and June 2000, respectively, which the Company is required to adopt on
February 1, 2001. The Statement requires the Company to recognize all
derivatives on the balance sheet at fair value. Adoption of SFAS No. 133
does not 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, 2001, 2000, and 1999, other
comprehensive income was not material.
NOTE P - EFFECT OF INDONESIAN ECONOMY
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. In fiscal 2001, Indonesia again
experienced significant currency devaluation and political instability. The
Company remains committed to its Indonesian operations.
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, 2001
Deducted from asset accounts
Allowance for doubtful accounts $ 806 $ 30 $ 370 $ 466
Allowance for sales discounts 3,086 4,937 4,247 3,776
----- ----- ----- -----
$3,892 $4,967 $4,617 $4,242
===== ===== ===== =====
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
===== ===== ===== =====
(a) Accounts written off as uncollectible, net of recoveries.
S-1
STATEMENT OF DIFFERENCES
------------------------
The trademark symbol shall be expressed as............................'TM'
The section symbol shall be expressed as..............................'SS'