Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended November 2, 2002
--------------------------------------------------
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 333-81307
----------------
G+G Retail, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
Delaware 22-3596083
- --------------------------------------------------------------------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
520 Eighth Avenue, New York, New York 10018
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (212) 279-4961
------------------------------
- --------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report.
Indicate by check [X] whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days Yes [X] No
----- -----
Indicate by check mark [X] whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes No
------- -------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
Class B Outstanding at December 16, 2002
- ------------------------------- --------------------------------
Common $.01 par value 10 shares
Contents
Page
No.
---
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - November 2, 2002 and February 2, 2002 3
Condensed Consolidated Statements of Operations - Three and Nine Months Ended
November 2, 2002 and November 3, 2001. 4
Condensed Consolidated Statements of Cash Flows - Nine Months Ended November 2,
2002 and November 3, 2001. 5
Notes to Condensed Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Item 4. Controls and Procedures 14
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 15
Signature Page 16
Certifications 17-18
2
Part I. Financial Information
Item 1. Financial Statements
G+G Retail, Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
(In thousands, except par value and share data)
November February
2, 2002 2, 2002
------------------------------------------
Assets
Current assets:
Cash and short-term investments $ 7,094 $ 15,328
Accounts receivable 1,630 888
Merchandise inventories 28,953 15,401
Prepaid taxes and other expenses 2,064 1,730
Deferred tax assets 1,729 1,729
------------------------------------------
Total current assets 41,470 35,076
Property and equipment, net 54,145 52,075
Deferred financing, net 3,226 3,991
Goodwill, net 57,720 57,720
Trademarks, net 45,900 45,900
Deferred tax assets 960 -
Other assets 192 198
------------------------------------------
Total assets $203,613 $194,960
==========================================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable $ 23,343 $ 14,886
Accrued expenses 20,224 16,363
Accrued interest 5,460 2,517
Current portion of capital lease 1,598 1,549
------------------------------------------
Total current liabilities 50,625 35,315
Deferred tax liability - 2,105
Capital lease 1,479 2,656
Long-term debt 102,284 101,510
------------------------------------------
Total liabilities 154,388 141,586
Stockholder's equity:
Class B common stock, par value $.01 per share, 1,000 shares
authorized, 10 shares issued and outstanding - -
Additional paid-in capital 50,298 50,298
(Accumulated deficit) retained earnings (1,073) 3,076
------------------------------------------
Total stockholder's equity 49,225 53,374
------------------------------------------
Total liabilities and stockholder's equity $203,613 $194,960
==========================================
See accompanying notes.
3
G+G Retail, Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
(In thousands)
---------------------------------------------------------------------
Three months Three months Nine months Nine months
ended November ended November Ended November ended November
2, 2002 3, 2001 2, 2002 3, 2001
---------------------------------------------------------------------
Net sales $ 97,364 $ 90,601 $ 291,151 $ 264,593
Cost of sales (including occupancy costs) 61,540 56,529 184,324 170,082
Selling, general, administrative and buying expenses 32,383 30,023 95,066 87,428
Depreciation and amortization expense 2,686 3,553 8,304 10,986
--------------------------------------------------------------------
Operating income (loss) 755 496 3,457 (3,903)
Interest expense 3,596 3,624 10,777 10,831
Interest income 33 13 106 122
--------------------------------------------------------------------
Loss before benefit from income taxes (2,808) (3,115) (7,214) (14,612)
Benefit from income taxes (1,194) (1,327) (3,065) (6,225)
--------------------------------------------------------------------
Net loss $ (1,614) $ (1,788) $ (4,149) $ (8,387)
====================================================================
See accompanying notes.
4
G+G Retail, Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
Nine months Nine months
ended ended
November 2, 2002 November 3, 2001
------------------------------------------------
Operating activities
Net loss $ (4,149) $ (8,387)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation and amortization 8,304 10,986
Amortization of debt issue costs 1,539 1,410
Write-off of closed store fixed assets 216 145
Deferred taxes (3,065) (6,225)
Changes in assets and liabilities:
Accounts receivable, prepaid expenses and other assets (1,070) 117
Merchandise inventories (13,552) (12,661)
Accounts payable, accrued expenses and accrued interest 15,260 10,018
------------------------------------------------
Net cash provided by (used in) operating activities 3,483 (4,597)
Investing activities
Capital expenditures, net (10,590) (10,350)
------------------------------------------------
Net cash used in investing activities (10,590) (10,350)
Financing activities
Proceeds from short-term borrowings - 19,395
Proceeds from capital lease - 375
Payment of debt issuance costs - (411)
Payment of short-term borrowings - (18,000)
Payment of capital lease (1,127) (980)
------------------------------------------------
Net cash (used in) provided by financing activities (1,127) 379
------------------------------------------------
Net decrease in cash and short-term investments (8,234) (14,568)
Cash and short-term investments, beginning of period 15,328 14,568
------------------------------------------------
Cash and short-term investments, end of period $ 7,094 $ -
================================================
Supplemental cash flow disclosures
Cash paid for:
Interest $ 6,312 $ 6,417
================================================
Income taxes, net of refunds of $31 and $40, respectively $ 286 $ 118
================================================
See accompanying notes
5
G+G Retail, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
1. Principles of Consolidation and Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with accounting principles generally accepted in the
United States ("GAAP") for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by GAAP for complete
financial statements. In the opinion of the Company's management, the
accompanying unaudited condensed consolidated financial statements contain all
adjustments (consisting of normal recurring adjustments) considered necessary to
present fairly: (1) its financial position as of November 2, 2002, (2) the
results of its operations for the three and nine months ended November 2, 2002
and November 3, 2001 and (3) its cash flows for the nine months ended November
2, 2002 and November 3, 2001. The balance sheet at February 2, 2002 has been
derived from financial statements at that date but does not include all of the
information and footnotes required by GAAP for complete financial statements.
These financial statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the Company's Form 10-K
for the fiscal year ended February 2, 2002 filed on May 2, 2002. The interim
operating results are not necessarily indicative of the results that may be
expected for an entire year.
2. Short-Term Borrowings
The Company is party to a Loan and Security Agreement, which expires in May
2004, and provides for a revolving credit facility ("Facility"), subject to
eligible inventory and credit card receivables, not to exceed $30.0 million, of
which $10.0 million can be used for letters of credit. There were no outstanding
borrowings under the Facility at November 2, 2002. Outstanding letters of credit
under the Facility totaled $698,000 at November 2, 2002. Interest on outstanding
borrowings can range either from Prime to Prime plus 0.25% or from 1.50% over
the Eurodollar Rate to a maximum 2.25% over the Eurodollar Rate, based on the
profitability and amount of indebtedness of the Company.
3. Indefinite Lived Intangible Assets
The Company adopted Statement of Financial Accounting Standards ("SFAS") No.
142, "Goodwill and Other Intangible Assets" effective February 3, 2002 (the
first day of fiscal year 2003). Under SFAS 142, goodwill and other intangible
assets that have indefinite useful lives are no longer amortized. Rather, they
are reviewed for impairment annually or more frequently if certain indicators
arise by applying a fair value based test, as specifically provided in the
statement. Separable intangible assets that are not deemed to have an indefinite
life will continue to be amortized over their useful lives. The Company
completed the required initial impairment test in the first half of fiscal 2003,
and determined that there was no impairment to its recorded goodwill or
indefinite lived intangible assets. In addition to the transitional test
discussed above, the Company will complete its annual impairment test on its
6
indefinite lived intangible assets in the fourth quarter of fiscal 2003. Had the
Company been accounting for its indefinite lived intangible assets under SFAS
No. 142 for all periods presented, the Company's net loss would have been as
follows:
Three Months Ended
(In thousands) November 2, 2002 November 3, 2001
---------------- ----------------
Reported net loss $(1,614) $(1,788)
Add back amortization of indefinite lived
intangible assets, net of tax - 559
------- -------
Adjusted net loss $(1,614) $(1,229)
------- -------
------- -------
Nine Months Ended
(In thousands) November 2, 2002 November 3, 2001
---------------- ----------------
Reported net loss $(4,149) $(8,387)
Add back amortization of indefinite lived
intangible assets, net of tax - 1,677
------- -------
Adjusted net loss $(4,149) $(6,710)
------- -------
------- -------
The accumulated amortization of goodwill and trademarks as of November 2, 2002
and February 2, 2002 was $7.4 million and $5.9 million, respectively. The
accumulated amortization of definite lived intangible assets, consisting of
deferred financing costs, as of November 2, 2002 and February 2, 2002 was $3.2
million and $2.4 million, respectively.
4. Long-Lived Assets
The Company adopted SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets ("SFAS 144"), effective February 3, 2002 (the first day of
fiscal 2003). SFAS 144 addresses financial accounting and reporting for the
impairment or disposal of long-lived assets. This statement supersedes SFAS 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of, and the accounting and reporting provisions of APB Opinion No.
30, Reporting the Results of Disposal of a segment of a Business, and
Extraordinary and Unusual and Infrequently Occurring Events and Transactions,
for the disposal of a segment of a business (as previously defined in that
Opinion). The adoption of SFAS 144 did not have a material impact on the
Company's consolidated financial statements.
5. New Pronouncements
In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44, and 62, Amendment of FASB Statement No. 13, and Technical Corrections"
("SFAS 145"). SFAS 145 eliminates the requirement under SFAS No. 4, "Reporting
Gains and Losses from Extinguishment of Debt", to report gains and losses from
extinguishments of debt as extraordinary items in the income statement.
Accordingly, gains or losses from extinguishments of debt for fiscal years
beginning after May 15, 2002 shall not be reported as extraordinary items unless
the extinguishments qualifies as an extraordinary item under the provisions of
APB Opinion No. 30, "Reporting the Results of Operations - Reporting the Effects
of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions."
7
Upon adoption of this pronouncement, any gain or loss on extinguishments of debt
previously classified as an extraordinary item in prior periods presented that
does not meet the criteria of Opinion 30 for such classification should be
reclassified to conform with the provisions of SFAS 145. Management does not
believe the adoption of this standard will have a material impact on the
consolidated financial statements.
In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities" ("SFAS 146") and nullifies EITF Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." SFAS 146 requires that a liability for a cost associated with
an exit or disposal activity be recognized when the liability is incurred,
whereas EITF No. 94-3 had recognized the liability at the commitment date to an
exit plan. The Company is required to adopt the provisions of SFAS 146 effective
for exit or disposal activities initiated after December 31, 2002. Management
does not believe the adoption of this standard will have a material impact on
the consolidated financial statements.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Overview
We are a leading national mall-based retailer of popular price female junior and
pre-teen apparel. For over 30 years, we and our predecessors have built a
reputation for providing fashion apparel and accessories distinctly targeted at
teenaged women. Our core customers are young women principally between the ages
of 13 to 19 years old. We sell substantially all of our merchandise under
private label names including Rave, Rave Up, Rave Girl, R4R, and Shut Eye, which
provide our customers with fashionable, high quality apparel and accessories at
lower prices than brand name merchandise. Our emphasis on sourcing merchandise
domestically and our efficient distribution system allow for short inventory
lead times, which facilitates quick response to the latest fashion trends. As of
November 2, 2002, we had 574 operating stores principally located in major
enclosed regional shopping malls throughout the United States, Puerto Rico, and
the U.S. Virgin Islands primarily under the G+G, Rave and Rave Girl names. Our
G+G/Rave stores average approximately 2,400 gross square feet with approximately
25 feet of mall frontage and are designed to create a lively and exciting
shopping experience for teenaged customers.
In July 1999, we started our Rave Girl chain of stores, which sells fashion
apparel and accessories targeted at girls aged 7 to 12 years old. At November 2,
2002, there were 101 Rave Girl stores in operation throughout the United States
and Puerto Rico. Our Rave Girl stores are approximately 2,000 gross square feet
and are designed with bright colors, unique lighting and exciting graphics.
Results of Operations
Comparison of The Third Quarter of Fiscal 2003 and The Third Quarter of Fiscal
2002
Net sales increased $6.8 million or 7.5% to $97.4 million in the third quarter
of fiscal 2003 as compared to $90.6 million in the third quarter of fiscal 2002.
The increase in net sales was due to a $1.1 million, or 1.2% increase in same
store sales compared to the third quarter of fiscal 2002 and the opening of new
stores, which contributed $5.7 million to net sales in the third quarter of
fiscal 2003. Average sales per gross square foot increased 1.4% to $72 in the
third quarter of fiscal 2003 from $71 in the third quarter of fiscal 2002. We
operated 574 stores at the end of the third quarter of fiscal 2003 as compared
to 543 stores at the end of the third quarter of fiscal 2002, as a result of
opening 46 new stores and closing 15 stores.
Cost of sales, including occupancy costs, increased 8.8% to $61.5 million in the
third quarter of fiscal 2003 from $56.5 million in the third quarter of fiscal
2002. As a percentage of net sales, cost of sales including occupancy costs,
increased from 62.4% in the third quarter of fiscal 2002 to 63.1% in the third
quarter of fiscal 2003. This 0.7% increase resulted from a 1.1% increase in cost
of merchandise and a 0.4% decrease in occupancy costs. The increase in the cost
of merchandise as a percentage of net sales was due to an increase in the
markdowns as a percent of sales.
Selling, general, administrative and buying expenses increased 8.0% from $30.0
million in the third quarter of fiscal 2002 to $32.4 million in the third
quarter of fiscal 2003. As a percentage of net sales, these expenses marginally
increased to 33.3% in the third quarter of fiscal 2003 as compared to 33.1% in
the third quarter of fiscal 2002. The $2.4 million increase resulted from
additional selling costs related to new store openings, an increase in same
store selling expenses and an increase in administrative costs. In the third
quarter of fiscal 2003, the Company recorded
9
a $125,000 consulting fee with an indirect investor in G&G Retail Holdings, Inc.
our parent company. The consulting agreement is effective as of January 1, 2002,
and provides for an annual consulting fee of $500,000.
Depreciation and amortization expense for the third quarter of fiscal 2003 was
$2.7 million as compared to $3.5 million for the third quarter of fiscal 2002.
The decrease is attributable to the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). Effective February 3, 2002 (the first day of
fiscal 2003), the Company stopped amortizing goodwill and other intangible
assets that have indefinite useful lives. The effect of implementing the
non-amortization provisions of SFAS 142, for the third quarter of fiscal 2003,
was a reduction of amortization expense of approximately $1.0 million.
Interest expense in the third quarter of fiscal 2003 was $3.6 million or 3.7% of
net sales as compared to $3.6 million or 4.0% of net sales for the third quarter
of fiscal 2002. Interest expense for both the third quarter of fiscal 2003 and
2002 reflects interest on our equipment and software capital leases and our
senior notes, as well as amortization of the $7.3 million original issue
discount on our senior notes, the $470,000 value assigned to the warrants issued
by G&G Retail Holdings, Inc., our parent company, and the deferred financing
costs.
The income tax benefit for the third quarter of fiscal 2003 was $1.2 million as
compared to $1.3 million in the third quarter of fiscal 2002. The income tax
benefit rate was 42.5% in the third quarter of fiscal 2003 as compared to 42.6%
in the third quarter of fiscal 2002.
The net loss decreased from $1.8 million in the third quarter of fiscal 2002 to
a loss of $1.6 million in the third quarter of fiscal 2003 due to the factors
discussed above.
Comparison of The First Nine Months of Fiscal 2003 and The First Nine Months of
Fiscal 2002
Net sales increased $26.6 million or 10% to $291.2 million in the first nine
months of fiscal 2003 as compared to $264.6 million in the first nine months of
fiscal 2002. The increase in net sales was due to a $13.7 million or 5.3%
increase in same store sales and the opening of new stores, which contributed
$12.9 million to net sales in the first nine months of fiscal 2003. Average
sales per gross square foot increased 5.8% to $219 in the first nine months of
fiscal 2003 from $207 in the first nine months of fiscal 2002.
Cost of sales, including occupancy costs, increased 8.3% to $184.3 million in
the first nine months of fiscal 2003 from $170.1 million in the first nine
months of fiscal 2002. As a percentage of net sales, cost of sales including
occupancy costs decreased 1.0% from 64.3% in the first nine months of fiscal
2002 to 63.3% in the first nine months of fiscal 2003. This 1.0% decrease
resulted from a 0.6% decrease in the cost of merchandise and a 0.4% decrease in
occupancy costs as a percent of sales. The decrease in the cost of merchandise
as a percentage of net sales was due to an increase in the initial mark-on and a
decrease in markdowns as a percent of sales. The occupancy cost decrease as a
percent of sales resulted from an increase in same store sales.
In the first nine months of fiscal 2003, selling, general, administrative and
buying expenses totaled $95.1 million compared to $87.4 million in the first
nine months of fiscal 2002. As a percent of sales, these expenses decreased from
33.0% in the first nine months of fiscal 2002 to 32.7% in the first nine months
of fiscal 2003. The $7.7 million increase resulted from additional selling costs
related to new store openings, an increase in same store selling expenses and an
increase in administrative costs. In addition, the Company entered into a
consulting agreement
10
with an indirect investor in G & G Retail Holdings, Inc., our parent company.
The agreement is effective as of January 1, 2002, and provides for an annual
consulting fee of $500,000 of which $417,000 was recorded in the first nine
months of fiscal 2003. The decrease as a percent of sales resulted from an
increase in same store sales.
Depreciation and amortization expense for the first nine months of fiscal 2003
was $8.3 million as compared to $11.0 for the first nine months of fiscal 2002.
The decrease is attributable to the adoption of SFAS No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"). Effective February 3, 2002 (the first day of
fiscal year 2003), we stopped amortizing goodwill and other intangible assets
that have indefinite useful lives. The effect of implementing the
non-amortization provisions of SFAS 142 was a reduction of amortization expense
of approximately $2.9 million for the first nine months of fiscal 2003.
Interest expense in the first nine months of fiscal 2003 was $10.8 million or
3.7% of net sales as compared to $10.8 million or 4.1% of net sales for the
first nine months of fiscal 2002. Interest expense for the first nine months of
fiscal 2003 and 2002 reflects interest on our equipment and software capital
leases and our senior notes, as well as amortization of the $7.3 million
original issue discount on our senior notes, the $470,000 value assigned to the
warrants issued by G&G Retail Holding Inc., our parent company, and the deferred
financing costs.
The income tax benefit for the first nine months of fiscal 2003 was $3.1 million
or a 42.5% income tax benefit rate as compared to $6.2 million, or an income tax
benefit rate of 42.6% for the first nine months of fiscal 2002.
The net loss decreased from $8.4 million in the first nine months of fiscal 2002
to a loss of $4.1 million in the first nine months of fiscal 2003 due to the
factors discussed above.
Liquidity and Capital Resources
Our primary sources of liquidity are cash flow from operating activities and
borrowings under our revolving credit facility. Our primary cash requirements
are for (i) seasonal working capital, (ii) the construction of new stores, (iii)
the remodeling or upgrading of existing stores as necessary, and (iv) upgrading
and maintaining our computer system.
Our revolving credit facility provides for a line of credit in an amount of up
to $30.0 million (including a sub limit of $10.0 million for letters of credit)
and matures in May 2004. We may use the revolving credit facility for general
operating, working capital and other general corporate purposes. Amounts
available under the revolving credit facility are subject to the value of our
eligible inventory and credit card receivables, subject to certain conditions.
The borrowing base provides for seasonal fluctuations in inventory with peak
borrowing availability during the months of July through November. Interest on
outstanding borrowings can range either from Prime to Prime plus 0.25% or from
1.50% over the Eurodollar Rate to a maximum 2.25% over the Eurodollar Rate,
based on the profitability and amount of indebtedness of the Company. The
revolving credit facility subjects us to a minimum net worth (as defined)
covenant of $40.0 million if excess availability under the facility is $7.5
million or less during any month. The facility also contains other customary
restrictive covenants. Our obligations under the revolving credit facility are
secured by a lien on substantially all of our assets, excluding our leasehold
interests. As of November 2, 2002, we had no borrowings outstanding under the
revolving credit facility, but had $698,000 of letters of credit outstanding.
Net cash provided by operating activities in the first nine months of fiscal
2003 was $3.5 million as compared to net cash used in operating activities of
$4.6 million in the first nine months of
11
fiscal 2002. The change in net cash provided by operating activities in the
first nine months of fiscal 2003, as compared to the first nine months of fiscal
2002 was primarily due to our loss before benefit for income taxes decreasing by
$7.4 million.
Capital expenditures for the first nine months of fiscal 2003 and the first nine
months of fiscal 2002 were $10.6 million and $10.4 million, respectively.
Management estimates that capital expenditures for the remaining three months of
fiscal 2003 will be between $2.0 million and $3.0 million.
As of November 2, 2002, our capital lease obligation for the purchase of point
of sale equipment and software was $3.1 million. The lease term is five years
from the date the initial equipment was financed with variable interest rates,
based on the purchase date. Principal and interest payments are $2.0 million,
$1.9 million and $961,000 for the fiscal years ending in 2003, 2004 and 2005,
respectively.
We review the operating performance of our stores on an ongoing basis to
determine which stores, if any, to expand or close. We closed eighteen stores in
fiscal 2002, eight stores in the first nine months of fiscal 2003 and anticipate
closing an additional ten stores during the remaining three months of fiscal
2003. Eleven stores were closed in the first nine months of fiscal 2002.
As of November 2, 2002, we had $7.1 million in cash. We historically have
maintained negligible accounts receivable balances since our customers primarily
pay for their purchases with cash, checks and third-party credit cards that are
promptly converted to cash.
As of November 2, 2002, our indebtedness under our senior notes totaled $102.3
million, which reflects the aggregate face amount of the notes of $107.0
million, net of $4.5 million of unamortized original issue discount, and
approximately $238,000 of unamortized value assigned to the warrants issued by
our parent company in connection with our senior note issuance. The notes are
due May 15, 2006 and bear interest at 11% per annum, which is payable
semi-annually on May 15 and November 15.
We have minimum lease commitments (excluding percentage rents and early
termination provisions) under noncancelable operating leases as follows (in
millions):
Fiscal year ending in:
2003 $ 28.6
2004 24.0
2005 21.0
2006 18.2
2007 13.8
Thereafter 36.1
-----------
$141.7
===========
We believe that our cash flow from operating activities and borrowings available
under the revolving credit facility will be sufficient to meet our operating and
capital expenditure requirements through the end of fiscal 2003. In addition, we
believe that cash flow from operations will be sufficient to cover the interest
expense arising from the revolving credit facility, capital lease and our
long-term debt. However, the sufficiency of our cash flow is affected by
numerous factors affecting our operations, including factors beyond our control.
See the "Statement Regarding Forward Looking Disclosures" below.
If a "change of control" (as defined in the indenture agreement for our senior
notes) occurs, we will be required under the indenture to offer to repurchase
all the notes. However, we may not
12
have sufficient funds at the time of the change of control to make the required
repurchases, or restrictions in our revolving credit facility may prohibit the
repurchases. We may not be able to raise enough money to finance the change of
control offer required by the indenture related to the senior notes. If there is
a change in control, we could be in default under the indenture. In addition,
upon a change of control (as defined in our parent company's certificate of
incorporation) our parent company may not have sufficient funds to redeem its
preferred stock unless we pay a dividend of such amount to it.
Critical Accounting Policies
The preparation of the foregoing condensed consolidated financial statements in
conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts
reported in the condensed consolidated financial statements and accompanying
notes. These estimates and assumptions are based on management's judgment and
available information and, consequently, actual results could be different from
these estimates.
The condensed consolidated financial statements should be read in conjunction
with the audited consolidated financial statements included in the Company's
Annual Report on Form 10-K for the fiscal year ended February 2, 2002 for a
description of the Company's critical accounting policies involving significant
judgment by the Company's management.
Seasonality and Quarterly Operating Results
Our fourth fiscal quarter historically accounts for the largest percentage of
our annual net sales. Our first fiscal quarter historically accounts for the
smallest percentage of annual net sales. In fiscal 2002, our first quarter and
fourth quarter accounted for approximately 22.2% and 30.4% of annual net sales,
respectively.
Our quarterly results of operations may also fluctuate significantly as a result
of a variety of factors, including the timing of store openings, the amount of
revenue contributed by new stores, changes in the mix of products sold, the
timing and level of markdowns, the timing of store closings and expansions,
competitive factors, weather fluctuations and general economic conditions.
Inflation
We do not believe that inflation has had a material effect on the results of
operations during the past three fiscal years. However, our business may be
affected by inflation in the future.
Statement Regarding Forward Looking Disclosure
Certain sections of this Report, including the preceding "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
contain various forward looking statements within the meaning of Section 27A of
the Securities Act of 1933, and Section 21E of the Securities Exchange Act of
1934, which represent our expectations or beliefs concerning future events. We
caution that these statements are further qualified by important factors that
could cause actual results to differ materially from those in the forward
looking statements, including, without limitation, our ability to expand and to
increase comparable store sales, the sufficiency of our working capital and cash
flows from operating activities, a decline in the demand for our merchandise,
our ability to locate and obtain acceptable store sites and lease terms or renew
existing leases, our ability to gauge the fashion tastes of our customers and
provide merchandise
13
that satisfies customer demand, our management's ability to manage expansion,
the effect of economic conditions, changes in customer shopping habits,
including the effect that the September 11, 2001 terrorist attacks had on the
United States and events following the attacks may have on mall shopping, the
effect of severe weather or natural disasters and the effect of competitive
pressures from other retailers. For a discussion of these and other factors that
could cause results to differ from the expectations and projections expressed in
this report, see the Forward Looking Statements and Factors Affecting Future
Performance section of the Company's Annual Report on Form 10-K for the fiscal
year ended February 2, 2002, filed with the Securities and Exchange Commission
on May 2, 2002.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable
Item 4. Controls and Procedures
Within the 90-day period prior to the filing date of this report, an evaluation
was carried out under the supervision and with the participation of the
Company's management, including the Chief Executive Officer ("CEO") and Chief
Financial Officer ("CFO"), of the effectiveness of the design and operation of
our disclosure controls and procedures. Based on that evaluation, the CEO and
CFO have concluded that the Company's disclosure controls and procedures are
effective to ensure that material information relating to the Company and its
consolidated subsidiaries is made known to them, particularly during the period
when our periodic reports are being prepared. Subsequent to the date of
management's evaluation, there were no significant changes in the Company's
internal controls or in other factors that could significantly affect the
internal controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
14
Part II. Other Information
Item 6 - Exhibits and Reports on Form 8-K:
--------------------------------
(a) Exhibits
3.01 Certificate of Incorporation of G+G Retail, Inc., incorporated by
reference to the registrant's Registration Statement on Form S-4,
declared effective by the SEC on October 4, 1999 (File No.
333-81307) (the "S-4").
3.02 Amended and Restated By-Laws of G+G Retail, Inc., incorporated by
reference to the S-4.
4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail,
Inc., as issuer, and U.S. Bank Trust National Association, as
trustee, incorporated by reference to the S-4.
4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc., incorporated
by reference to the S-4.
4.03 A/B Exchange Registration Rights Agreement, dated as of May 17,
1999, by and between G+G Retail, Inc. and U.S. Bancorp Libra,
incorporated by reference to the S-4.
10.01 Amendment No. 4 to Employment Agreement, dated as of January 22,
2001, by and between G+G Retail, Inc. and Jay Galin.
10.02 Amendment No. 4 to Employment Agreement, dated as of January 22,
2001, by and between G+G Retail, Inc. and Scott Galin.
10.03 Agreement, dated September 11, 2002, between G+G Retail, Inc. and
Pegasus Investors, L.P.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
None
15
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
G+G RETAIL, INC.
December 16, 2002 By /s / Michael Kaplan
-------------------------------------------
Michael Kaplan, Chief Financial Officer
(signing on behalf of the registrant and
as principal financial officer)
16
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES
EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Jay Galin, Chief Executive Officer of G+G Retail, Inc., certify
that:
1. I have reviewed this quarterly report on Form 10-Q of G+G Retail,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a.) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b.) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c.) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a.) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b.) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: December 16, 2002
/s/ Jay Galin
------------------------------
Jay Galin
Chief Executive Officer
17
CERTIFICATION PURSUANT TO RULE 13a-14 OF THE SECURITIES EXCHANGE
ACT OF 1934, AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Michael Kaplan, Chief Financial Officer of G+G Retail,
Inc., certify that:
1. I have reviewed this quarterly report on Form 10-Q of G+G Retail,
Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a.) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this quarterly report is being prepared;
b.) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the filing date of
this quarterly report (the "Evaluation Date"); and
c.) Presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):
a.) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b.) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Dated: December 16, 2002
/s/ Michael Kaplan
-------------------------------
Michael Kaplan
Chief Financial Officer
18
EXHIBIT INDEX
Exhibit Description
------- ------------
3.01 Certificate of Incorporation of G+G Retail, Inc., incorporated by
reference to the registrant's Registration Statement on Form S-4,
declared effective by the SEC on October 4, 1999 (File No.
333-81307) (the "S-4").
3.02 Amended and Restated By-Laws of G+G Retail, Inc., incorporated by
reference to the S-4.
4.01 Indenture, dated as of May 17, 1999, by and between G+G Retail,
Inc., as issuer, and U.S. Bank Trust National Association, as
trustee, incorporated by reference to the S-4.
4.02 Form of 11% Senior Note due 2006 of G+G Retail, Inc., incorporated
by reference to the S-4.
4.03 A/B Exchange Registration Rights Agreement, dated as of May 17,
1999, by and between G+G Retail, Inc. and U.S. Bancorp Libra,
incorporated by reference to the S-4.
10.01 Amendment No. 4 to Employment Agreement, dated as of January 22,
2001, by and between G+G Retail, Inc. and Jay Galin.
10.02 Amendment No. 4 to Employment Agreement, dated as of January 22,
2001, by and between G+G Retail, Inc. and Scott Galin.
10.03 Agreement, dated September 11, 2002, between G+G Retail, Inc. and
Pegasus Investors, L.P.
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
19