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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JANUARY 31, 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 0-18183
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G-III APPAREL GROUP, LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 41-1590959
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
512 SEVENTH AVENUE, NEW YORK, NEW YORK 10018
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 403-0500
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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.
[X] Yes [ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of the Form 10-K or any
amendment to this Form 10-K. [X]
As of March 28, 2002, 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 $23,890,528.
The number of outstanding shares of the registrant's Common Stock as of
March 28, 2002 was 6,699,654.
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, 2002, 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.
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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 Studio",(TM) "Colebrook &
Co,"(TM) "JLC",(TM) "J.L. Colebrook,"(TM) and "ColeB."(TM)
The sale of licensed products is a key element of our strategy. We
initiated our strategy of offering licensed product in 1993 and, between 1993
and 1999, we significantly expanded our offerings of licensed products. 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 the four major sports leagues
(football, hockey, basketball and baseball) to manufacture outerwear using NFL,
NHL, NBA and MLB team logos.
We have continued to expand our portfolio of licensed products during the
last two years. In February 2000, we entered into a license agreement with Cole
Haan to design and market men's and women's outerwear. 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. In July 2001, we
entered into an expanded license with the NFL, effective April 2002, to
manufacture a comprehensive line of adult outerwear. In August 2001, we entered
into a license agreement to produce a men's outerwear line under the Sean John
brand name. Most recently, in December 2001, we entered into a license
agreement to design and market men's leather outerwear under the Timberland
brand. We mutually agreed to terminate our distribution agreement for
Caterpillar apparel effective December 31, 2001 and for Jones New York men's
outerwear effective January 31, 2002.
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.
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 $250 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.
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, J.L. Colebrook and ColeB labels has retail prices in
the range of $50 to $130.
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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 $100 for sportswear items to $2,500 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 $2,000 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 believe 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.
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, Hong Kong, Mexico and Europe. Additionally, we
manufacture approximately 30% of our products at our wholly owned factory in
Indonesia and partially owned factory in Northern China. Independent
contractors located in the New York City area also manufacture a selected
number of garments for us.
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, 2002, the South Korean office employed 15 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,
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compliance with our specifications and timely delivery of finished garments to
our distribution facilities or customers. The Hong Kong office employed 8
persons as of January 31, 2002.
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.
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 garment-type leather
has decreased over the past six months, after increasing significantly over the
prior two years. The supply of garment-type leather decreased as a result of
the occurrence of mad-cow and foot-and-mouth disease in Europe in 2000 and
2001. 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, 2003.
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 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. Virtually all of our imported leather products are subject to
United States Customs duties of approximately 6%.
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.
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
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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 24.6% of our net sales in fiscal 2000, and 21.1% of our net sales
in each of fiscal 2001 and fiscal 2002. 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 any of 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, 2002, Global International
Trading employed 21 persons.
G-III's products are sold primarily through a direct employee sales force
that consisted of 47 employees as of January 31, 2002. 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 pay a royalty based
on net sales of licensed products and that we must sell a specified minimum
amount of licensed product each year in order to retain the license.
RAW MATERIALS
We purchase most products manufactured for 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 occurrences of
mad-cow and foot-and-mouth disease in Europe in 2000 and 2001 decreased the
consumption of meat and the supply of leather. It also resulted in an increase
in the price of leather skins in 2001.
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, JNY Jones New
York, Sean John and Timberland fashion labels. We are also licensed to produce
products containing trademarks of the National Football League, National Hockey
League, National Basketball Association and Major League Baseball, and many
universities located in the United States.
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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 42.7% of net sales during fiscal 2002 compared to 37.9% of net
sales in fiscal 2001 and 41.4% of net sales in fiscal 2000.
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 72% of our net
sales in fiscal 2000, 75% of our net sales in fiscal 2001 and 74% of our net
sales in fiscal 2002. 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.
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 (&
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
customers' 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. For example, the tragic events of
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September 11, 2001 and the unusually warm weather aggravated a retail
environment that had already begun to slow down due to the economic downturn in
the United States. Retailers responded to this environment with increased
promotional activity which required us to grant greater allowances and
discounts in order to sell our products. These factors had a material adverse
effect on our net sales and gross profit for the fiscal year ended January 31,
2002.
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. Uncertainty with respect to consumer spending as a result of
economic downturn during fiscal 2002 caused our customers to slow the pace of
reorders during the seasonal peak of our business. This had a material 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.
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 2000 and
2001, Indonesia, where we operate our own factory, experienced significant
currency devaluation and political instability. Currently, we do not maintain
insurance for the potential lost profits due to disruptions of our overseas
factories. South Korea has also 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
financial condition and results of operations.
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. 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.
Legislation that would restrict the importation or increase the cost of
textiles and apparel produced abroad has been periodically introduced in
Congress. The enactment of new legislation or international trade regulation,
or executive action affecting international textile or trade agreements, could
adversely affect our business.
We are dependent on sales of licensed product for a substantial portion of
our revenues. In fiscal 2002, revenues from the sale of licensed product
accounted for 42.7% 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
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under this line several times in the past few years. This line of credit was
recently extended to May 31, 2005. 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 alternative 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 outbreak of mad-cow and
foot-and-mouth disease in Europe decreased the supply of leather skins in 2000
and 2001.
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.
As of March 28, 2002, 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, 2002, we had 344 full-time employees, of whom 99 worked
in executive, administrative or clerical capacities, 128 worked in design and
manufacturing, 68 worked in warehouse facilities, 47 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 53 full-time employees as of January 31,
2002. 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.
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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 51 Co-Chairman of the Board, Chief 1974
Executive Officer, Director
Aron Goldfarb 79 Co-Chairman of the Board, Director 1974
Jeanette Nostra-Katz 49 President 1981
Wayne S. Miller 44 Senior Vice President, Chief 1998
Financial Officer, Treasurer and
Secretary
Carl Katz 61 Executive Vice President of 1981
Siena, Director
Frances Boller-Krakauer 36 Vice President -- Men's Division of 1993
G-III Leather Fashions
Deborah Gaertner 47 Vice President -- Women's Sales 1989
Division of G-III Leather Fashions
Keith Sutton Jones 53 Vice President -- Foreign 1989
Manufacturing of G-III Leather
Fashions
Philip H. Litwinoff 52 Vice President and Corporate 2001
Controller
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 our Siena Leather Ltd. subsidiary 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. We have employed Ms. Nostra-Katz since 1981.
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 Cole Haan and Sports Licensing divisions. Mr. Katz will be
retiring during the early part of 2002. Mr. Katz is also one of our directors.
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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.
Philip H. Litwinoff has been our Vice President and Corporate Controller
since April 2001. He had previously served as our Controller since November
1995.
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 42,500 square feet in
this building through March 31, 2011 at a current aggregate annual rent of
approximately $1.2 million.
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.
We maintain 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 2002, the total payments for this building were
approximately $277,000 and for fiscal 2001, the total payments for this
building were approximately $341,000. 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
$196,000.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
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 2001 HIGH PRICES LOW PRICES
----------- ----------- ----------
Fiscal Quarter ended April 30, 2000 $ 4.94 $ 2.94
Fiscal Quarter ended July 31, 2000 5.81 4.13
Fiscal Quarter ended October 31, 2000 7.50 5.13
Fiscal Quarter ended January 31, 2001 7.50 4.88
FISCAL 2002
-----------
Fiscal Quarter ended April 30, 2001 $ 8.94 $ 6.50
Fiscal Quarter ended July 31, 2001 10.40 7.25
Fiscal Quarter ended October 31, 2001 10.30 5.80
Fiscal Quarter ended January 31, 2002 7.34 4.75
FISCAL 2003
-----------
Fiscal Quarter ending April 30, 2002 (through March 28, 2002) $ 8.33 $ 6.25
The last sales price of our Common Stock as reported by the Nasdaq Stock
Market on March 28, 2002 was $8.00 per share.
On March 28, 2002, there were 63 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.
11
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
years ended January 31, 1998, 1999, 2000, 2001 and 2002 have been derived from
our audited consolidated financial statements. Our audited financial statements
as of January 31, 1998, 1999, and 2000, and for the years ended January 31,
1998 and 1999 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)
---------------------------------------------------------------------
1998 1999 2000 2001 2002
------------- ------------- ------------- ------------- -------------
INCOME STATEMENT DATA:
Net sales $ 120,136 $ 121,644 $ 149,632 $ 187,057 $ 201,426
Cost of goods sold 91,559 95,393 110,710 136,099 158,160
---------- ---------- ---------- ---------- ----------
Gross profit 28,577 26,251 38,922 50,958 43,266
Selling, general & administrative
expenses 23,787 27,698 28,145 29,860 35,814
Unusual or non-recurring charge (463) 1,200 (643)
---------- ---------- ---------- ---------- ----------
Operating profit (loss) 4,790 (984) 9,577 21,741 7,452
Interest expense 1,534 2,115 1,857 2,839 3,577
---------- ---------- ---------- ---------- ----------
Income (loss) before minority interest
and income taxes 3,256 (3,099) 7,720 18,902 3,875
Minority interest 449 1,378 1,994 (312)
---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes 3,705 (1,721) 9,714 18,590 3,875
Income taxes (benefit) 906 (541) 3,934 7,436 1,511
---------- ---------- ---------- ---------- ----------
Net income (loss) $ 2,799 $ (1,180) $ 5,780 $ 11,154 $ 2,364
========== ========== ========== ========== ==========
Basic earnings (loss) per share $ 0.43 $ (0.18) $ 0.86 $ 1.70 $ 0.35
========== ========== ========== ========== ==========
Weighted average shares outstanding --
basic 6,486,899 6,539,128 6,712,051 6,561,537 6,676,270
Diluted earnings (loss) per share $ 0.40 $ (0.18) $ 0.84 $ 1.57 $ 0.32
========== ========== ========== ========== ==========
Weighted average shares outstanding --
diluted 7,051,099 6,539,128 6,848,433 7,120,986 7,373,723
AS OF JANUARY 31, (1)
------------------------------------------------------------------
1998 1999 2000 2001 2002
---------- ---------- ---------- ---------- ----------
BALANCE SHEET DATA:
Working capital $ 29,296 $ 27,237 $ 31,155 $ 45,362 $ 46,046
Total assets 46,746 44,870 59,601 71,952 67,701
Short-term debt 3,734 2,893 3,427 1,580 906
Long-term debt, excluding current
portion 352 180 64 0 203
Total stockholders' equity 35,686 35,575 41,033 52,069 54,719
- ----------
(1) Certain amounts have been reclassified to conform to the 2002
presentation.
12
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.
USE OF ESTIMATES AND CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and revenues and expenses during the period.
Significant accounting policies employed by us, including the use of estimates,
are presented in the Notes to Consolidated Financial Statements.
Critical accounting policies are those that are most important to the
portrayal of our financial condition and the results of operations, and require
management's most difficult, subjective and complex judgments, as a result of
the need to make estimates about the effect of matters that are inherently
uncertain. Our most critical accounting policies, discussed below, pertain to
revenue recognition, accounts receivable and inventories. In applying these
policies, management must use some amounts that are based upon its informed
judgments and best estimates. On an on-going basis, we evaluate our estimates,
including those related to customer allowances and discounts, product returns,
bad debts and inventories. We base our estimates on historical experience and
on various other assumptions that we believe are reasonable under the
circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities that are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions and conditions.
Revenue Recognition
We recognize a sale at the time merchandise is shipped. We also act as an
agent in brokering sales between our customers and overseas factories. On these
transactions, we recognize commission fee income on the sales that are financed
by and shipped directly to our customers. This income is also recorded at the
time the merchandise is shipped. Net sales take into account reserves for
returns and allowances which are based on current and historical information
and trends. Sales are reported net of returns, discounts and allowances.
Discounts, allowances and estimates of future returns are recognized when the
related revenues are recognized.
Accounts Receivable
In the normal course of business, we extend credit to our customers based
on pre-defined credit criteria. Accounts receivable, as shown on our
consolidated balance sheet, are net of allowances and anticipated discounts. An
allowance for doubtful accounts is determined through analysis of the aging of
accounts receivable at the date of the financial statements, assessments of
collectability based on historical trends and an evaluation of the impact of
economic conditions. An allowance for discounts is based on reviews of open
invoices where concessions have been extended to customers. Costs associated
with
13
allowable customer advertising expenses are charged to advertising expenses in
the selling, general and administrative section of the Statements of Income.
Costs associated with markdowns and other operational charge backs, net of
historical recoveries, are included as a reduction of net sales. All of these
are part of the allowances included in accounts receivable. We reserve against
known charge backs, as well as for an estimate of potential future customer
deductions. These provisions result from divisional seasonal negotiations, as
well as historical deduction trends, net of historical recoveries and the
evaluation of current market conditions.
Inventories
Inventories are stated at lower of cost (using the first-in, first-out
method) or market. We continually evaluate the composition of our inventories,
assessing slow-turning, ongoing product as well as fashion product from prior
seasons. Market value of distressed inventory is valued based on historical
sales trends of our individual product lines, the impact of market trends and
economic conditions, and the value of current orders relating to the future
sales of this type of inventory.
RESULTS OF OPERATIONS
The following table sets forth selected operating data as a percentage of
our net sales for the fiscal years indicated below:
2000 2001 2002
---- ---- ----
Net sales 100.0% 100.0% 100.0%
Cost of goods sold 74.0 72.8 78.5
----- ----- -----
Gross profit 26.0 27.2 21.5
Selling, general and administrative expenses 18.8 15.9 17.8
Unusual or non-recurring charge 0.8 ( 0.3)
----- ----- -----
Operating profit 6.4 11.6 3.7
Interest expense 1.2 1.5 1.8
----- ----- -----
Income before minority interest and income taxes 5.2 10.1 1.9
Minority interest 1.3 ( 0.2)
----- ----- -----
Income before income taxes 6.5 9.9 1.9
Income taxes 2.6 3.9 0.7
----- ----- -----
Net income 3.9 6.0 1.2
===== ===== =====
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.
The tragic events of September 11, 2001 aggravated a retail environment
that had already begun to slow down due to the economic downturn in the United
States. The resulting uncertainty with respect to consumer spending caused our
customers to slow the pace of reorders during what is the seasonal peak of our
business. Retailers responded to this environment with increased promotional
activity which required us to grant greater allowances and discounts in order
to sell our products. These factors, as well as the unseasonably warm weather
that continued throughout the fall and winter seasons had a negative effect on
our results of operations for fiscal 2002.
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
14
venture with BET in April 1997. 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 $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, 2002 ("fiscal 2002") compared
to year ended January 31, 2001 ("fiscal 2001")
Net sales increased to $201.4 million in fiscal 2002 from $187.1 million
in fiscal 2001. Net sales increased as a result of increased sales of licensed
apparel. Net sales of licensed apparel increased by 21.3% to $86.0 million in
fiscal 2002 from $70.9 million in fiscal 2001. Net sales of non-licensed
apparel were $115.4 million in fiscal 2002 compared to $116.2 million in fiscal
2001. Sales of licensed apparel constituted 42.7% of our net sales in fiscal
2002 compared to 37.9% of our net sales in fiscal 2001. The increase in sales
of licensed apparel was primarily attributable to the addition of our license
with Jones New York to produce and sell women's wool outerwear under the Jones
New York and JNY Jones New York labels.
Gross profit decreased to $43.3 million in fiscal 2002 from $51.0 million
in fiscal 2001. Commission fee income, for which there is no related cost of
goods sold, was $3.2 million in fiscal 2002 compared to $6.2 million in fiscal
2001. As a percentage of net sales, gross profit was 21.5% in fiscal 2002
compared to 27.2% in fiscal 2001.
Gross profit for licensed apparel was $20.5 million in fiscal 2002, or
23.8% of net sales of licensed apparel, compared to $21.1 million in fiscal
2001, or 29.8% of net sales of licensed apparel. Gross profit for non-licensed
apparel was $22.8 million in fiscal 2002, or 19.7% of net sales of non-licensed
apparel, compared to $29.8 million in fiscal 2001, or 25.7% of net sales of
non-licensed apparel. The decrease in the gross profit margin percentage for
non-licensed apparel was partly attributable to commission fee income that was
$3.0 million lower in fiscal 2002. The gross profit margin percentages for both
licensed and non-licensed apparel were also negatively impacted by an increase
in our inventory reserve reflecting the effect of excess unsold inventory ($1.5
million for non-licensed and $500,000 for licensed apparel). In addition, the
gross profit percentages for both licensed and non-licensed apparel were
negatively impacted by higher allowances and discounts necessary to sell
products into the sluggish retail market.
Selling, general and administrative expenses increased to $35.8 million,
or 17.8% of net sales, in fiscal 2002 from $29.9 million, or 15.9% of net
sales, in fiscal 2001. These increases resulted primarily from increased
advertising expenses ($1.3 million), salary expenses ($949,000), facilities
expenses ($685,000), and expenses ($3.5 million) relating to the start-up of
the Cole Haan, Sean John, and Jones New York divisions. To reduce our expenses,
we terminated 15 employees in October 2001, with expected annualized cost
savings of approximately $1.1 million. We do, however, expect that selling,
general and administrative expenses will continue to increase in fiscal 2003 as
several of our new divisions that operated for only part of fiscal 2002 will be
in operation for all of fiscal 2003.
Interest expense was $3.6 million in fiscal 2002 compared to $2.8 million
in fiscal 2001. The increase in interest expense resulted primarily from
increased borrowings to support higher inventory investments, partially offset
by lower interest rates.
As a result of the foregoing, we had income before income taxes of $3.9
million in fiscal 2002 compared to income before income taxes of $18.6 million
in fiscal 2001.
Income taxes were $1.5 million in fiscal 2002 compared to $7.4 million in
fiscal 2001. Our effective tax rate for fiscal 2002 was 39.0% compared to 40.0%
in fiscal 2001. The tax rate in fiscal 2002 benefited from the implementation
of a strategic tax plan which reduced our effective state income tax rate. The
tax rate in fiscal 2001 included benefits from remaining net operating loss
carry forwards for state income tax purposes.
15
We had net income of $2.4 million, or $.32 per share on a diluted basis,
in fiscal 2002 compared to net income of $11.2 million, or $1.57 per share on a
diluted basis, in fiscal 2001.
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.
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.
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.
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
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.
16
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.
LIQUIDITY AND CAPITAL RESOURCES
Our loan agreement, which was recently extended to May 31, 2005, 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 $72 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 (4.75% at April 1, 2002) or LIBOR plus 225
basis points (4.28% at April 1, 2002). The loan agreement requires us, among
other covenants, to maintain specified earnings and tangible net worth levels,
and prohibits the payment of cash dividends. We were not in compliance with the
covenants relating to earnings before interest, taxes, depreciation and
amortization ("EBITDA") and tangible net worth for the fiscal year ended
January 31, 2002. On March 18, 2002, we received a waiver from our lenders
relating to these covenants.
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 fiscal 2000, $68.0 million during fiscal
2001, and $82.5 million during fiscal 2002. As of January 31, 2002, there were
no direct borrowings, no banker's acceptances and $2.6 million of contingent
liability under open letters of credit. As of January 31, 2001, there were no
direct borrowings, no bankers' acceptances and $10.4 million of contingent
liability under open letters of credit.
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, 2002 of approximately $800,000. The loan
is secured by the property, plant, and equipment of this subsidiary.
We used $3.8 million of cash in our operating activities in fiscal 2002
resulting primarily because our net income of $2.4 million and a decrease of
$5.3 million in inventories was more than offset by a decrease of $5.2 million
in accounts payable and accrued expenses, an increase of $2.6 million in
accounts receivable and an increase of $2.4 million in the deferred income tax
benefit. We had $2.4 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 that were partially offset by an increase of $19.0
million in inventories. In addition, our purchase of certain assets of Gloria
Gay Coats, LLC in January 2001 included $2.3 million of inventory. Our
inventories increased in fiscal 2001 primarily due to an increase in raw
materials inventory as a result of purchases of leather skins to meet sales
volumes that were anticipated to be higher 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 utilized $2.7 million of cash in investing activities during fiscal
2002 primarily to pay an earn-out of $1.3 million in connection with the
acquisition of certain assets of Gloria Gay and for capital expenditures of
$1.2 million. We utilized $4.2 million of cash in investing activities during
fiscal 2001 primarily for $3.4 million (including $2.3 million of inventory) in
connection with the purchase of certain assets of Gloria Gay and $852,000 for
capital expenditures. We used $1.0 million of cash in fiscal 2000 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 $277,000 in
fiscal 2001 for the expansion of our Indonesian factory.
We used $323,000 of cash in during fiscal 2002 and $3.5 million of cash
during fiscal 2001 in financing activities. Financing activities provided $1.4
million of cash in fiscal 2000. In fiscal 2002, we used $700,000 to reduce our
PT Balihides' notes payable. This was partially offset by new capital lease
obligations.
17
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.
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 2003.
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 2003.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial statements and supplementary data required pursuant to this Item
begin on page F-1 of this Report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information contained under the heading "Proposal No. 1 -- Election of
Directors" in our definitive Proxy Statement (the "Proxy Statement") relating
to our Annual Meeting of Stockholders to be held on or about June 12, 2002, 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.
18
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.
19
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 not 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)
10.3 Sixth Amended and Restated Loan Agreement, dated April 29,
2002, 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.
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.(11)
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.(11)
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.(11)
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.(10)
21 Subsidiaries of the Company.
23 Consent of Ernst & Young LLP, dated April 26, 2002.
23.1 Consent of Grant Thornton LLP, dated April 26, 2002.
20
(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 October 31, 1999, which exhibit is
incorporated herein by reference.
10/ 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.
11/ Previously filed as an exhibit to the Company's Annual Report on Form 10-K
for the fiscal year ended January 31, 2001, 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.
21
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 30, 2002
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 April 30, 2002
- ----------------------- Chief Executive Officer (principal executive
Morris Goldfarb officer)
/s/ Wayne Miller Senior Vice President and Chief Financial April 30, 2002
- ----------------------- Officer (principal financial and accounting
Wayne Miller officer)
/s/ Aron Goldfarb Director and Co-Chairman of the Board April 30, 2002
- -----------------------
Aron Goldfarb
Director
- -----------------------
Lyle Berman
/s/ Thomas J. Brosig Director April 30, 2002
- -----------------------
Thomas J. Brosig
/s/ Alan Feller Director April 30, 2002
- -----------------------
Alan Feller
/s/ Carl Katz Director April 30, 2002
- -----------------------
Carl Katz
/s/ Willem van Bokhorst Director April 30, 2002
- -----------------------
Willem van Bokhorst
/s/ Sigmund Weiss Director April 30, 2002
- -----------------------
Sigmund Weiss
Director
- -----------------------
George J. Winchell
22
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, 2002 and 2001 F-4
Consolidated Statements of Income - Years Ended
January 31, 2002, 2001, and 2000 F-5
Consolidated Statements of Stockholders' Equity - Years
Ended January 31, 2002, 2001, and 2000 F-6
Consolidated Statements of Cash Flows - Years Ended
January 31, 2002, 2001, and 2000 F-7
Notes to Consolidated Financial Statements F-9 to F-24
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
To the Board of Directors and Stockholders
of 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, 2002 and 2001, and the related
consolidated statements of income, stockholders' equity, and cash flows for
each of the two years in the period ended January 31, 2002. Our audits also
included the financial statement schedule listed in the index at Item 14(a).
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 audits.
We conducted our audits 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 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 at January 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended January 31, 2002, 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.
[GRAPHIC OMITTED]
/s/ Ernst & Young LLP
New York, New York
March 20, 2002
F-2
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
G-III APPAREL GROUP, LTD.
We have audited the accompanying consolidated statements of income,
stockholders' equity and cash flows of G-III Apparel Group, Ltd. and
subsidiaries for the year 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 audit.
We conducted our audit 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 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 results of operations and consolidated
cash flows of G-III Apparel Group, Ltd. and subsidiaries for the year 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 the year ended January 31, 2000. In our opinion, this schedule presents
fairly, in all material respects, the information required to be set forth
therein.
[GRAPHIC OMITTED]
/s/ GRANT THORNTON LLP
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)
2002 2001
---- ----
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 2,481 $ 9,231
Accounts receivable, net of allowance for doubtful accounts and
sales discounts of $6,169 and $4,242, respectively 9,922 7,286
Inventories 37,172 42,450
Deferred income taxes 5,286 3,504
Prepaid expenses and other current assets 3,749 2,481
------- -------
Total current assets 58,610 64,952
PROPERTY, PLANT AND EQUIPMENT, NET 3,021 2,940
DEFERRED INCOME TAXES 1,954 1,385
OTHER ASSETS 4,116 2,675
------- -------
$67,701 $71,952
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 800 $ 1,500
Current maturities of obligations under capital leases 106 80
Income taxes payable 1,118 2,312
Accounts payable 5,079 7,411
Accrued expenses 5,356 8,190
Accrued nonrecurring charges 105 97
------- -------
Total current liabilities 12,564 19,590
OTHER LONG-TERM LIABILITIES 418 293
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;
6,944,071 and 6,878,171 shares issued at January 31, 2002 and
2001, respectively 69 69
Additional paid-in capital 25,581 25,295
Retained earnings 30,039 27,675
------- -------
55,689 53,039
Less common stock held in treasury -- 244,817 shares,at cost, at
January 31, 2002 and 2001 (970) (970)
------- -------
54,719 52,069
------- -------
$67,701 $71,952
======= =======
The accompanying notes are an integral part of these statements.
F-4
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Year ended January 31,
-------------------------------------------
2002 2001 2000
------------- ----------- -------------
Net sales $ 201,426 $187,057 $ 149,632
Cost of goods sold 158,160 136,099 110,710
--------- -------- ---------
Gross profit 43,266 50,958 38,922
Selling, general and administrative expenses 35,814 29,860 28,145
Unusual or non-recurring charge (643) 1,200
-------- -------- ---------
Operating profit 7,452 21,741 9,577
Interest and financing charges, net 3,577 2,839 1,857
--------- -------- ---------
Income before minority interest and income
taxes 3,875 18,902 7,720
Minority interest in (income) loss of joint venture (312) 1,994
-------- -------- ---------
Income before income taxes 3,875 18,590 9,714
Income tax 1,511 7,436 3,934
--------- -------- ---------
NET INCOME $ 2,364 $ 11,154 $ 5,780
========= ======== =========
INCOME PER COMMON SHARE:
Basic:
- ------
Net income per common share $ .35 $ 1.70 $ .86
========= ======== =========
Weighted average number of shares outstanding 6,676 6,562 6,712
========= ======== =========
Diluted:
- --------
Net income per common share $ .32 $ 1.57 $ .84
========= ======== =========
Weighted average number of shares outstanding 7,374 7,121 6,848
========= ======== =========
The accompanying notes are an integral part of these statements.
F-5
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended January 31, 2002, 2001, and 2000
(in thousands)
Additional Common stock
Common paid-in Retained held in
stock capital earnings Treasury Total
-------- ------------ ---------- ------------- ----------
Balance as of January 31, 1999 $67 $24,767 $10,741 $35,575
Employee stock options exercised 1 101 102
Tax benefit from exercise of options 6 6
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 options 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
Employee stock options exercised 148 148
Tax benefit from exercise of options 138 138
Net income for the year 2,364 2,364
--- ------- ------- ------ -------
BALANCE AS OF JANUARY 31, 2002 $69 $25,581 $30,039 $ (970) $54,719
=== ======= ======= ====== =======
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,
---------------------------------------
2002 2001 2000
---------- ------------ -----------
Cash flows from operating activities
Net income $ 2,364 $ 11,154 $ 5,780
-------- --------- --------
Adjustments to reconcile net income to net cash (used
in) provided by operating activities
Depreciation and amortization 1,216 1,160 1,438
Minority interest 312 (1,994)
Deferred income tax benefit (2,351) (213) (1,061)
Changes in operating assets and liabilities
Accounts receivable (2,636) 5,419 (2,092)
Inventories 5,278 (19,027) (4,820)
Income taxes (1,194) (562) 3,641
Tax benefit from exercise of options 138 181 6
Prepaid expenses and other current assets (1,268) (1,587) 41
Other assets (80) 1,783 (44)
Accounts payable and accrued expenses (5,166) 5,012 5,353
Accrued non-recurring charge (96) (1,258) 624
Other long-term liabilities 26 34 4
-------- --------- --------
(6,133) (8,746) 1,096
-------- --------- --------
Net cash (used in) provided by operating activities (3,769) 2,408 6,876
-------- --------- --------
Cash flows from investing activities
Capital expenditures (1,167) (852) (977)
Capital dispositions 32 90
Purchase of certain assets of Gloria Gay Coats, LLC (1,523) (3,402)
-------- --------- --------
Net cash used in investing activities (2,658) (4,164) (977)
-------- --------- --------
F-7
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(in thousands)
Year ended January 31,
----------------------------------------
2002 2001 2000
----------- ------------ -----------
Cash flows from financing activities
(Decrease) increase in notes payable, net $ (700) $ (1,811) $ 599
Proceeds from capital lease obligations 381
Payments for capital lease obligations (152) (100) (181)
Investment in joint venture by Minority Partner (1,333) 1,300
Proceeds from exercise of stock options 148 241 102
Purchase of common stock for Treasury (540) (430)
-------- -------- -------
Net cash (used in) provided by financing activities (323) (3,543) 1,390
-------- -------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (6,750) (5,299) 7,289
Cash and cash equivalents at beginning of year 9,231 14,530 7,241
-------- -------- -------
Cash and cash equivalents at end of year $ 2,481 $ 9,231 $14,530
======== ======== =======
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,235 $ 2,780 $ 1,779
Income taxes $ 3,488 $ 8,050 $ 1,407
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, 2002, 2001, and 2000
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.
References to fiscal years refer to the year ended or ending on January 31
of that year.
Certain reclassifications have been made to conform to the fiscal 2002
presentation.
2. Revenue Recognition
The Company recognizes sales when merchandise is shipped. In addition, the
Company acts as an agent in brokering sales between its customers and
overseas factories. On these transactions, the Company recognizes
commission fee income on the sales that are financed by and shipped
directly to its customers. This income is recorded at the time the
merchandise is shipped.
3. Returns and Allowances
The Company establishes reserves for returns and allowances based on
current and historical information and trends. Sales and accounts
receivable have been reduced by such amounts.
4. Inventories
Inventories are stated at the lower of cost (determined by the weighted
average method, which approximates the first-in, first-out method) or
market.
5. Intangibles
In January 2001, the Company purchased the operations and certain assets
of Gloria Gay Coats, LLC for $3.4 million. Approximately $1.1 million of
the purchase price was allocated to a license agreement acquired in
connection with this transaction. The Company is also contractually
obligated to make certain contingent payments if the division meets
certain performance criteria in each of the two years ending January 31,
2003. The Company recorded an additional $1.5 million as of January 31,
2002 related to the contingent payment for the year ended January 31, 2002
and to other amounts paid in accordance with the purchase agreement. These
additional payments were allocated to the license agreement. The $2.6
million aggregate intangible is included in other assets on the balance
sheet and is being amortized using the straight-line method through 2009,
the life of this license.
F-9
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
8. Cash Equivalents
The Company considers all highly liquid investments 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"). 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-10
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
10. Net Income Per Common Share
Basic earnings per share amounts have been computed using the weighted
average number of common shares outstanding during each year. 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,
-----------------------------------------
2002 2001 2000
------------ ------------ -----------
(in thousands, except per share amounts)
Net income $ 2,364 $ 11,154 $ 5,780
======== ======== =======
Basic EPS:
Basic common shares 6,676 6,562 6,712
======== ======== =======
Basic EPS $ 0.35 $ 1.70 $ 0.86
======== ======== =======
Diluted EPS:
Basic common shares 6,676 6,562 6,712
Plus impact of stock options 698 559 136
-------- -------- -------
Diluted common shares 7,374 7,121 6,848
======== ======== =======
Diluted EPS $ 0.32 $ 1.57 $ 0.84
======== ======== =======
Excluded from the above calculations are stock options for 6,000, 217,000,
and 426,000 shares which were deemed to be antidilutive for the years
ended January 31, 2002, 2001, and 2000, respectively.
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 accounting principles
generally accepted in the United States, 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.
F-11
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 $4.5 million, $2.4 million, and $3.0 million in
fiscal 2002, 2001, and 2000, respectively.
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 2002, 2001, and 2000 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.
16. 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, 2002, 2001, and 2000, other
comprehensive income was not material.
17. Future Effects of Recently Issued Accounting Pronouncements
Business Combination and Goodwill and Other Intangible Assets
In June 2001, the Financial Accounting Standards Board ("FASB") issued
Statements of Financial Accounting Standards ("SFAS") No. 141, Business
Combinations, and No. 142, Goodwill and Other Intangible Assets, effective
for fiscal years beginning after December 15, 2001. Under the new
guidelines, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized, but will be subject to annual impairment
tests in accordance with these statements.
F-12
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE A -- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other intangible assets will continue to be amortized over their useful
lives. The Company adopted these pronouncements effective as of February
1, 2002. Management does not believe that the adoption of this Statement
will have a material impact on the Company's consolidated results of
operations and financial position.
Impairment or Disposal of Long-Lived Assets
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement supercedes
Statement No. 121. Although this Statement retains many of the fundamental
provisions of Statement No. 121, it expands the scope of discontinued
operations and significantly changes the criteria for classifying an asset
as held-for-sale. The provisions of this statement are effective for
fiscal years beginning after December 15, 2001. The Company adopted this
pronouncement effective as of February 1, 2002. Management does not
believe that the adoption of this Statement will have a material impact on
the Company's consolidated results of operations and financial position.
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 was 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
did not have a material effect on the Company's financial statements.
NOTE B -- INVENTORIES
Inventories consist of:
January 31,
------------------------
2002 2001
----------- ----------
(000's)
Finished goods $ 18,240 $17,605
Work-in-process 576 1,707
Raw materials 18,356 23,138
-------- -------
$ 37,172 $42,450
======== =======
Raw materials of $8.0 million and $11.8 million were maintained in
Indonesia at January 31, 2002 and January 31, 2001, respectively. Raw
materials of $8.2 million and $8.7 million were maintained in China at
January 31, 2002 and January 31, 2001, respectively.
F-13
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE C -- PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost consist of:
January 31,
----------------------
2002 2001
---------- ---------
(000's)
Machinery and equipment $ 1,621 $ 1,577
Leasehold improvements 5,061 4,923
Transportation equipment 111 140
Furniture and fixtures 1,752 1,704
Computer equipment 5,288 4,891
Land and building (net of write-down of Indonesian
factory; Note E) 969 692
Property under capital leases (Note E)
Land 55
Building 185
Computer equipment 180
Leasehold improvements 200
------- -------
15,182 14,167
Less accumulated depreciation and amortization
(including $43,000 and $200,000 on property
under capital leases at January 31, 2002 and 2001,
respectively) 12,161 11,227
------- -------
$ 3,021 $ 2,940
======= =======
F-14
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
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 $800,000 and $1.5
million with an Indonesian bank, as of January 31, 2002 and 2001. The loan
is secured by the property, plant, and equipment of the subsidiary.
The Company's domestic loan agreement, which expires May 31, 2002, was
extended to May 31, 2005 subsequent to January 31, 2002. It 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 $72 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. The line of credit includes a
requirement that the Company have no loans and acceptances outstanding for
45 consecutive days each year of the lending agreement. The Company met
this requirement.
All borrowings under the agreement bear interest at the option of the
Company at either the prevailing prime rate (4.75% at April 1, 2002) or
LIBOR plus 225 basis points (4.28% at April 1, 2002) 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 for amounts borrowed under the
domestic loan agreement and the PT Balihides notes were 6.0% and 9.3% for
the years ended January 31, 2002 and 2001, respectively.
At January 31, 2002 and 2001, the Company was contingently liable under
letters of credit in the amount of approximately $2.6 million and $10.4
million, respectively.
NOTE E -- OTHER LIABILITIES
Other long-term liabilities consist of:
JANUARY 31,
------------------
2002 2001
-------- -------
(000's)
Non-recurring charges $ 27 $131
Capital lease obligations 203
Other 188 162
----- ----
$ 418 $293
===== ====
Non-recurring Charges
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
F-15
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE E -- OTHER LIABILITIES (CONTINUED)
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, in
the year ended January 31, 2000, the Company reversed the then remaining
provision for the uncertainty of the Indonesian assets totaling $463,000
(see Note N).
The nonrecurring charges refer to the reserve associated with the closure
of the Company's domestic factory that was completed by January 31, 1995.
The balances of $132,000 at January 31, 2002 and $228,000 at January 31,
2001 relate to the remaining obligation under an operating lease and are
classified on the balance sheet as current and noncurrent liabilities.
Based on current estimates, management believes that existing accruals are
adequate.
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 in revenues and incurred losses of approximately $2.0 million
in the year ended January 31, 2000. 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.
In addition, certain equipment leases have been treated as capital leases.
The present values of minimum future obligations are calculated based on
interest rates at the inception of the leases. The following schedule sets
forth the future minimum lease payments under capital leases at January
31, 2002:
(000'S)
--------
Year ending January 31,
2003 $122
2004 127
2005 90
2006 5
----
Net minimum lease payments 344
Less amount representing interest 35
----
Present values of minimum lease payments $309
====
Current portion $106
Noncurrent portion 203
----
$309
====
F-16
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE F -- INCOME TAXES
The income tax provision is comprised of the following:
Year ended January 31,
---------------------------------------
2002 2001 2000
----------- ----------- -----------
(000's)
Current
Federal $ 3,127 $ 5,993 $ 4,256
State and city 519 1,230 718
Foreign 216 426 21
--------- ------- --------
3,862 7,649 4,995
Deferred expense (2,351) (213) (1,061)
--------- ------- --------
$ 1,511 $ 7,436 $ 3,934
========= ======= ========
Income before income taxes
United States $ 3,216 $16,881 $ 9,557
Non-United States 659 1,709 157
The significant components of the Company's deferred tax asset at January
31, 2002 and 2001 are summarized as follows:
2002 2001
---------- -----------
(000's)
Supplemental employee retirement plan $ 116 $ 90
Officer bonus 120 440
Provision for bad debts and sales
allowances 2,066 1,604
Depreciation 1,578 1,433
Inventory write-downs 1,648 942
Advertising allowance 381 107
Sales return accrual 888
Straight-line lease 260 (138)
Other 183 411
------- -------
$ 7,240 $ 4,889
======= =======
F-17
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE F -- INCOME TAXES (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, 2002 January 31, 2001 January 31, 2000
------------------- ------------------- ---------------------
PERCENT Percent Percent
OF of of
AMOUNT INCOME Amount Income Amount Income
--------- --------- --------- --------- ---------- ----------
(000'S) (000's) (000's)
Provision for Federal income taxes at
the statutory rate $ 1,356 35.0% $6,507 35.0% $3,400 35.0%
State and city income taxes, net of
Federal income tax benefit 33 .9 774 4.2 624 6.5
Effect of foreign taxable operations 42 1.1 (236) (1.3) (35) ( .4)
Effect of permanent differences
resulting in
Federal taxable income 45 1.2 21 .1 22 .2
Utilization of loss carryforwards (155) (1.6)
Other, net 35 .8 370 2.0 78 .8
------- ---- ------ ---- ------ ----
Actual provision for income taxes $ 1,511 39.0% $7,436 40.0% $3,934 40.5%
======= ==== ====== ==== ====== ====
Undistributed earnings of the Company's foreign subsidiaries amounted to
approximately $2.0 million at January 31, 2002. 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.
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, 2002
are:
F-18
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE G -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
Sublease
GROSS income Net
--------- --------- ---------
(000's)
Year ending January 31,
2003 $ 2,031 $199 $ 1,832
2004 1,919 17 1,902
2005 1,881 1,881
2006 1,198 1,198
2007 1,196 1,196
Thereafter 6,061 6,061
------- ---- -------
$14,286 $216 $14,070
======= ==== =======
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 $159,000 and $284,000
as of January 31, 2002 and 2001, respectively. In conjunction with closing
this domestic facility (described in Note E), the Company has reflected
$132,000 and $228,000 of the balance of the loan as an accrued
nonrecurring charge at January 31, 2002 and 2001, respectively.
Rent expense on the above operating leases (including amounts leased from
345 West) for the years ended January 31, 2002, 2001, and 2000 was
approximately $2,114,000, $1,768,000, and $1,187,000, respectively, net of
sublease income of $196,000, $289,000, and $984,000, respectively.
The Company has entered into license agreements that provide for royalty
payments from 3.5% to 12% of net sales of licensed products. The Company
incurred royalty expense (included in cost of goods sold) of approximately
$6,855,000, $4,858,000, and $5,228,000 for the years ended January 31,
2002, 2001, and 2000, respectively. Based on minimum sales requirements,
future minimum royalty payments required under these agreements are:
Year ending January 31, Amount
----------------------- ------
2003 $ 6,106,000
2004 7,257,000
2005 4,869,000
2006 410,000
-----------
$18,642,000
===========
The Company has an employment agreement with its chief executive officer
which expires on January 31, 2005. The agreement provides for a base
salary and bonus payments that vary between 3% and 6% of pretax income in
excess of $2 million.
F-19
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE G -- COMMITMENTS AND CONTINGENCIES (CONTINUED)
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 in
each of the two years ending January 31, 2003. The contingent payment for
the year ended January 31, 2002 amounted to $1.3 million
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.
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 fiscal 2002, 2001 and 2000
consistent with the provisions of SFAS No. 123, the Company's net income
and diluted earnings per share for the years ended January 31, 2002, 2001,
and 2000 would have been as follows:
2002 2001 2000
---- ---- ----
Net income - as reported $ 2,364 $ 11,154 $ 5,780
Net income - adjusted $ 2,029 $ 10,900 $ 5,390
Diluted earnings per share - as reported $ .32 $ 1.57 $ .84
Diluted earnings per share - adjusted $ .28 $ 1.53 $ .79
The weighted average fair value at date of grant for options granted
during 2002, 2001 and 2000 was $5.25, $4.24, and $1.77 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 2002, 2001, and 2000,
respectively:
2002 2001 2000
---- ---- ----
Expected stock price volatility 65.9% 72.9% 71.1%
Expected lives of options
Directors and officers 7 YEARS 7 years 7 years
Employees 6 YEARS 6 years 6 years
Risk-free interest rate 4.9% 6.0% 6.1%
Expected dividend yield 0% 0% 0%
F-20
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE H -- STOCKHOLDERS' EQUITY (CONTINUED)
Information regarding these option plans for 2002, 2001, and 2000 is as
follows:
2002 2001 2000
-------------------------------- -------------------------------- -------------------------------
WEIGHTED AVERAGE Weighted Average Weighted Average
SHARES EXERCISE PRICE Shares Exercise Price Shares Exercise Price
------------- ------------------ ------------- ------------------ ------------- -----------------
Options outstanding at
beginning of year 1,243,250 $ 3.23 1,279,800 $ 2.97 1,042,100 $ 2.86
Exercised (65,900) 2.25 (110,250) 2.17 (50,000) 2.15
Granted 11,000 7.82 81,000 6.07 289,750 2.54
Cancelled or forfeited (5,700) 4.31 (7,300) 3.59 (2,050) 2.98
--------- --------- ---------
Options outstanding at
end of year 1,182,650 $ 3.33 1,243,250 $ 3.23 1,279,800 $ 2.97
========= ========= =========
Exercisable 875,440 $ 3.14 818,736 $ 2.98 817,550 $ 2.83
========= ========= =========
The following table summarizes information about stock options
outstanding:
Weighted
Average Weighted Number Weighted
Number out- Remaining Average Exercisable Average
Range of standing as of Contractual Exercise as of Exercise
Exercise Prices January 31, 2002 Life Price January 31, 2002 Price
--------------- ---------------- ----------- -------- ---------------- --------
$1.62 -- $3.00 721,332 4.1 years $ 2.24 573,992 $ 2.22
$3.01 -- $6.00 358,818 5.8 years $ 4.62 262,148 $ 4.66
$6.01 -- $9.55 102,500 7.1 years $ 6.46 39,300 $ 6.39
------- -------
1,182,650 875,440
========= =======
Included in the above outstanding options as of January 31, 2002, 2001,
and 2000 are 25,000 options with an exercise 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, 2002, 2001, and 2000, one customer
accounted for 21.1%, 21.1%, and 24.6%, respectively, of the Company's net
sales, primarily for purchases of 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-21
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE J -- RELATED PARTY TRANSACTIONS
During the years ended January 31, 2002, 2001, and 2000, G-III leased
space from 345 West (Note G). Operating expenses paid by G-III to 345 West
during the years ended January 31, 2002, 2001, and 2000, amounted to
approximately $202,000, $233,000, and $280,000, respectively.
An executive of the Company owns approximately an 11% 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 10% indirect equity interest on a fully
diluted basis of Wilsons. During the years ended January 31, 2002, 2001
and 2000, Wilsons accounted for approximately $11,590,000, $13,121,000,
and $8,620,000, respectively, of the Company's net sales. Accounts
receivable from Wilsons at January 31, 2002 were approximately $21,000.
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 $200,000, $157,000, and $122,000, for the years
ended January 31, 2002, 2001, and 2000, respectively.
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:
2002 2001 2000
----------------------- ----------------------- --------------------
NON- Non- Non-
LICENSED LICENCED Licensed Licensed Licensed Licensed
------------ ---------- ---------- ------------ ---------- ---------
Net sales $ 85,977 $115,449 $70,855 $116,202 $61,900 $87,732
Cost of goods sold 65,479 92,681 49,738 86,361 44,100 66,610
-------- -------- ------- -------- ------- -------
Gross profit 20,498 22,768 21,117 29,841 17,800 21,122
Selling, general and administrative 19,510 16,304 13,687 16,173 10,113 18,032
Unusual or non-recurring charge (643) 1,200
-------- -------- ------- -------- ------- -------
Operating profit 988 6,464 7,430 14,311 7,687 1,890
Interest expense 1,681 1,896 1,067 1,772 491 1,366
-------- -------- ------- -------- ------- -------
Income (loss) before minority interest
and income taxes (693) 4,568 6,363 12,539 7,196 524
Minority interest (312) 1,994
-------- -------- ------- -------- ------- -------
Income (loss) before income taxes $ (693) $ 4,568 $ 6,363 $ 12,227 $ 7,196 $ 2,518
======== ======== ======= ======== ======= =======
Commission fee income was $3.2 million, $6.2 million, and $3.6 million for
fiscal 2002, 2001, and 2000, respectively. This fee income is included in
non-licensed net sales and gross profit. The Company allocates all
expenses to its two reportable segments.
F-22
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
January 31, 2002, 2001, and 2000
NOTE L -- SEGMENTS (CONTINUED)
2002 2001 2000
----------------------- ----------------------- ----------------------
LONG-LIVED Long-Lived Long-Lived
REVENUES ASSETS Revenues Assets Revenues Assets
---------- ------------ ---------- ------------ ---------- -----------
Geographic region
United States $194,921 $ 12,122 $181,215 $ 8,306 $147,001 $ 8,294
Non-United States 6,505 2,254 5,842 2,329 2,631 2,003
-------- -------- -------- -------- -------- -------
$201,426 $ 14,376 $187,057 $ 10,635 $149,632 $10,297
======== ======== ======== ======== ======== =======
Included in finished goods inventory at January 31, 2002, 2001, and 2000
are $9.3 million and $8.9 million, $8.6 million and $9.0 million, and $5.8
million and $5.2 million, respectively, of inventories for licensed and
non-licensed apparel, 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, 2002 and 2001 are as
follows:
Quarter ended
---------------------------------------------------
April 30, July 31, October 31, January 31,
2001 2001 2001 2002
----------- ------------ ------------- ------------
January 31, 2002
Net sales $ 17,167 $ 62,913 $ 90,623 $ 30,723
Gross profit 2,950 16,615 20,718 2,983
Net income (loss) (2,892) 3,885 5,033 (3,662)
Net income (loss) per common share
Basic $ (0.44) $ 0.58 $ 0.75 $ (0.55)
Diluted (0.44) 0.52 0.68 (0.55)
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
(a) Includes $192,000 of income, net of tax, or $0.03 per diluted
share, associated with the reversal of a charge previously taken
in connection with the disposition of the assets and liabilities
of the BET Design Studio joint venture.
F-23
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONCLUDED)
January 31, 2002, 2001, and 2000
NOTE N -- 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 this reserve. In fiscal 2001
and 2002, Indonesia again experienced significant currency devaluation and
political instability. During fiscal 2003, the Company will continue to
monitor conditions in Indonesia and their affect on the stability of its
Indonesian operations.
F-24
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, 2002
Deducted from asset accounts
Allowance for doubtful accounts $ 466 $ 234 $ 86 $ 614
Allowance for sales discounts 3,776 6,370 4,591 5,555
------ ------ ------ ------
$4,242 $6,604 $4,677 $6,169
====== ====== ====== ======
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
====== ====== ====== ======
(a) Accounts written off as uncollectible, net of recoveries.
S-1