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FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended July 31, 2003
---------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-18183
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G-III APPAREL GROUP, LTD.
(Exact name of registrant as specified in its charter)
Delaware 41-1590959
-------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
512 Seventh Avenue, New York, New York 10018
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(Address of Principal Executive Offices) (Zip Code)
(212) 403-0500
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(Registrant's telephone number, including area code)
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----- -----
Indicate by checkmark if the registrant is an accelerated filer (as defined in
Rule 12b-2 of the Act).
Yes No X
----- -----
As of September 2, 2003 there were 6,882,627 common shares outstanding.
Part I FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
July 31, 2003 and January 31, 2003...................... 3
Condensed Consolidated Statements of Operations -
For the Three Months Ended July 31, 2003 and 2002....... 4
Condensed Consolidated Statements of Operations -
For the Six Months Ended July 31, 2003 and 2002......... 5
Condensed Consolidated Statements of Cash Flows -
For the Six Months Ended July 31, 2003 and 2002......... 6
Notes to Condensed Consolidated Financial Statements............ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations...................11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......15
Item 4. Controls and Procedures.........................................15
Part II OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Stockholders.................16
Item 6. Exhibits and Reports on Form 8-K................................17
Exhibits
31 - Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a)
32 - Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18.U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
-2-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
JULY 31, JANUARY 31,
2003 2003
--------- ---------
(unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 434 $ 3,408
Accounts receivable, net of allowance for doubtful accounts
and sales discounts of $6,831 and $7,711, respectively 35,449 19,157
Inventories 59,393 30,948
Deferred income taxes 5,795 5,795
Prepaid expenses and other current assets 5,290 2,847
--------- ---------
Total current assets 106,361 62,155
PROPERTY, PLANT AND EQUIPMENT, NET 2,028 2,065
DEFERRED INCOME TAXES 2,181 2,181
OTHER ASSETS 4,447 4,555
--------- ---------
$ 115,017 $ 70,956
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 33,298 $ 770
Current maturities of obligations under capital leases 114 115
Accounts payable 18,883 5,699
Accrued expenses 5,346 6,612
Income taxes payable 1,240 1,699
--------- ---------
Total current liabilities 58,881 14,895
OTHER LONG-TERM LIABILITIES 262 313
--------- ---------
Total liabilities 59,143 15,208
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock, 1,000,000 shares authorized;
no shares issued and outstanding
Common stock - $.01 par value; authorized, 20,000,000 shares; 7,126,944 and
7,120,644 shares issued at July 31, 2003 and January 31, 2003, respectively 71 71
Additional paid-in capital 26,208 26,190
Foreign currency translation adjustments 53 36
Retained earnings 30,512 30,421
--------- ---------
56,844 56,718
Less common stock held in treasury - 244,817 shares,
at cost (970) (970)
--------- ---------
55,874 55,748
--------- ---------
$ 115,017 $ 70,956
========= =========
The accompanying notes are an integral part of these statements
-3-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
THREE MONTHS ENDED JULY 31,
--------------------------
(Unaudited)
2003 2002
---------- ----------
Net sales $ 45,299 $ 40,022
Cost of goods sold 29,618 29,209
---------- ----------
Gross profit 15,681 10,813
Selling, general and administrative expenses 10,844 9,453
---------- ----------
Operating income 4,837 1,360
Interest and financing charges, net 230 396
---------- ----------
Income before income taxes 4,607 964
Income tax expense 1,889 388
---------- ----------
Net income $ 2,718 $ 576
========== ==========
NET INCOME PER COMMON SHARE:
Basic:
Net income per common share $ 0.40 $ 0.09
========== ==========
Weighted average number of shares outstanding 6,879,920 6,714,200
========== ==========
Diluted:
Net income per common share $ 0.37 $ 0.08
========== ==========
Weighted average number of shares outstanding 7,385,396 7,379,809
========== ==========
The accompanying notes are an integral part of these statements.
-4-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
SIX MONTHS ENDED JULY 31,
-------------------------
(Unaudited)
2003 2002
----------- -----------
Net sales $ 64,011 $ 52,713
Cost of goods sold 43,976 40,997
----------- -----------
Gross profit 20,035 11,716
Selling, general and administrative expenses 19,603 16,967
----------- -----------
Operating income (loss) 432 (5,251)
Interest and financing charges, net 278 521
----------- -----------
Income (loss) before income taxes 154 (5,772)
Income tax expense (benefit) 63 (2,179)
----------- -----------
Net income (loss) $ 91 $ (3,593)
=========== ===========
NET INCOME (LOSS) PER COMMON SHARE:
Basic:
Net income (loss) per common share $ 0.01 $ (0.54)
=========== ===========
Weighted average number of shares outstanding 6,877,909 6,708,383
=========== ===========
Diluted:
Net income (loss) per common share $ 0.01 $ (0.54)
=========== ===========
Weighted average number of shares outstanding 7,325,347 6,708,383
=========== ===========
The accompanying notes are an integral part of these statements.
-5-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
SIX MONTHS ENDED JULY 31,
-------------------------
(Unaudited)
--------------------
2003 2002
-------- --------
Cash flows from operating activities
Net income (loss) $ 91 $ (3,593)
-------- --------
Adjustments to reconcile net income (loss) to net cash
used in operating activities
Depreciation and amortization 640 722
Deferred income tax -- 19
Changes in operating assets and liabilities:
Accounts receivable (16,292) (19,111)
Inventories (28,445) (23,473)
Income taxes, net (459) (4,518)
Prepaid expenses and other current assets (2,443) (4,002)
Other assets (135) (106)
Accounts payable and accrued expenses 11,918 12,963
Other long term liabilities -- 49
-------- --------
(35,216) (37,457)
-------- --------
Net cash used in operating activities (35,125) (41,050)
-------- --------
Cash flows from investing activities
Capital expenditures (360) (222)
Purchase of certain assets of Gloria Gay Coats, LLC -- 18
-------- --------
Net cash used in investing activities (360) (204)
-------- --------
Cash flows from financing activities
Increase in notes payable, net 32,528 39,171
Payments for capital lease obligations (52) (52)
Proceeds from exercise of stock options 18 55
-------- --------
Net cash provided by financing activities 32,494 39,174
-------- --------
Effect of exchange rate changes on cash and cash equivalents 17 (41)
-------- --------
Net decrease in cash and cash equivalents (2,974) (2,121)
Cash and cash equivalents at beginning of period 3,408 2,481
-------- --------
Cash and cash equivalents at end of period $ 434 $ 360
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for
Interest $ 423 $ 347
Income taxes $ 575 $ 2,299
The accompanying notes are an integral part of these statements.
-6-
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - General Discussion
As used in these financial statements, the term "Company" refers to G-III
Apparel Group, Ltd. and its majority-owned subsidiaries. The results for the six
month period ended July 31, 2003 are not necessarily indicative of the results
expected for the entire fiscal year, given the seasonal nature of the Company's
business. The accompanying financial statements included herein are unaudited.
In the opinion of management, all adjustments (consisting of only normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the interim periods presented
have been reflected.
The Company consolidates the accounts of all its majority-owned subsidiaries.
All material intercompany balances and transactions have been eliminated.
The balance sheet at January 31, 2003 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
The accompanying financial statements should be read in conjunction with the
financial statements and notes included in the Company's Annual Report on Form
10-K filed with the Securities and Exchange Commission for the year ended
January 31, 2003.
Certain reclassifications have been made to conform to the fiscal 2004
presentation.
Note 2 - Inventories
Inventories consist of:
JANUARY 31, JULY 31,
2003 2003
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(in thousands)
Finished goods $48,814 $21,285
Work-in-process 3,660 208
Raw materials 6,919 9,455
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$59,393 $30,948
======= =======
-7-
Note 3 - Net Income (Loss) per Common Share
Basic net income (loss) per share amounts have been computed using the weighted
average number of common shares outstanding during each period. When applicable,
diluted income per share amounts are computed using the weighted average number
of common shares and the dilutive potential common shares, consisting of stock
options, outstanding during the period. Options to acquire an aggregate of
approximately 66,000 and 280,000 shares of common stock were not included in the
computation of diluted earnings per common share for the three and six months
ended July 31, 2003 as including them would have been anti-dilutive. Options to
acquire an aggregate of approximately 51,000 and 30,000 shares of common stock
were not included in the computation of diluted earnings per common share for
the three and six months ended July 31, 2002, as including them would have been
anti-dilutive.
Note 4 - 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 Statements of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," which permits the Company to account
for stock option grants in accordance with Accounting Principles Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees." Accordingly, the
Company recognizes no compensation expense for stock options granted to
employees and directors.
Pro forma disclosures, as required by SFAS No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure," are computed as if the Company
recorded compensation expense based on the fair value for stock-based awards at
grant date. The following pro forma information includes the effects of these
options:
Three Months ended July 31, Six Months ended July 31,
--------------------------- -------------------------
2003 2002 2003 2002
------ ---- ------ -------
(in thousands, except per share amounts)
Net income (loss) - as reported $2,718 $576 $ 91 $(3,593)
Deduct: Stock-based employee compensation
expense determined under fair value method,
net of related tax effects 101 69 151 131
------ ---- ------ -------
Pro forma net income (loss) $2,617 $507 $ (60) $(3,724)
====== ==== ====== ========
Basic income (loss) per share - as reported $ .40 $.09 $ .01 $(.54)
Pro-forma basic income (loss) per share $ .38 $.08 $(.01) $(.56)
Diluted income (loss) per share - as reported $ .37 $.08 $ .01 $(.54)
Pro-forma diluted income (loss) per share $ .35 $.07 $(.01) $(.56)
The effects of applying SFAS 123 on this pro forma disclosure may not be
indicative of future results. SFAS 123 does not apply to grants prior to 1995,
and additional awards in future years may or may not be granted.
-8-
Note 5 - Notes Payable
The Company's domestic loan agreement, which expires on 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 $90 million at
specific times during the year. The line of credit provides for maximum direct
borrowings ranging from $40 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. There was $32.5 million outstanding at July 31, 2003 and no balance
outstanding at January 31, 2003 under this agreement.
Notes payable include foreign notes payable by PT Balihides, the Company's
Indonesian subsidiary. The foreign notes payable of approximately $770,000 at
July 31, 2003 and January 31, 2003 represent borrowings by PT Balihides under a
line of credit with an Indonesian bank. The loan is secured by the property,
plant, and equipment of the subsidiary. No other Company entity has guaranteed
this loan.
Note 6 - Nonrecurring Charges
In December 2002, the Company announced its decision to close its manufacturing
facility in Indonesia due to rapidly rising costs and losses associated with
this facility, as well as the political and economic instability in Indonesia.
The fiscal quarter and year ended January 31, 2003 included charges aggregating
$4.1 million ($3.4 million on an after-tax basis) in connection with this
closedown.
The components of the nonrecurring charges are as follows:
RESERVE
Reserve JULY 31,
January 31, 2003 Utilized 2003
---------------- -------- -------
(in thousands)
Severance $ 927 $ 812 $115
Accrued expenses and other 570 100 470
Professional fees 420 371 49
------- ------ ----
$ 1,917 $1,283 $634
======= ====== ====
-9-
Note 7 - Segments
The Company's reportable segments are business units that offer different
products and are managed separately. The Company operates in two segments,
licensed and non-licensed apparel. The following information is presented for
the three and six month periods indicated below:
THREE MONTHS ENDED JULY 31,
-------------------------------------------------------------
2003 2002
------------------------- ----------------------
NON- Non-
LICENSED LICENSED Licensed Licensed
-------- --------- -------- -------
Net sales $ 33,435 $ 11,864 $ 17,408 $22,614
Cost of goods sold 21,950 7,668 12,499 16,710
-------- --------- -------- -------
Gross profit 11,485 4,196 4,909 5,904
Selling, general and administrative 8,256 2,588 5,681 3,772
-------- --------- -------- -------
Operating income (loss) 3,229 1,608 (772) 2,132
Interest expense, net 142 88 123 273
-------- --------- -------- -------
Income (loss) before income taxes $ 3,087 $ 1,520 $ (895) $ 1,859
======== ======== ========= =======
SIX MONTHS ENDED JULY 31,
-------------------------------------------------------------
2003 2002
------------------------- ----------------------
NON- Non-
LICENSED LICENSED Licensed Licensed
-------- --------- -------- -------
Net sales $ 49,787 $ 14,224 $ 25,768 $26,945
Cost of goods sold 33,733 10,243 19,427 21,570
-------- --------- -------- -------
Gross profit 16,054 3,981 6,341 5,375
Selling, general and administrative 14,660 4,943 9,859 7,108
-------- --------- -------- -------
Operating income (loss) 1,394 (962) (3,518) (1,733)
Interest expense, net 165 113 159 362
-------- --------- -------- -------
Income (loss) before income taxes $ 1,229 $ (1,075) $ (3,677) $(2,095)
======== ========= ======== =======
-10-
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations.
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.
Statements in this Quarterly Report on Form 10-Q 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 matter, are "forward-looking
statements" as that term is defined under the Federal securities laws.
Forward-looking statements are subject to risks, uncertainties and other factors
which could cause actual results to differ materially from those stated in such
statements. Such risks, uncertainties and factors include, but are not limited
to, reliance on foreign manufacturers, risks of doing business abroad, the
nature of the apparel industry, including changing consumer demand and tastes,
reliance on licensed product, seasonality, customer acceptance of new products,
the impact of competitive products and pricing, dependence on existing
management, general economic conditions, as well as other risks detailed in the
Company's filings with the Securities and Exchange Commission, including this
Quarterly Report on Form 10-Q.
RESULTS OF OPERATIONS
Three months ended July 31, 2003 compared to three months ended July 31, 2002
Net sales for the three months ended July 31, 2003 were $45.3 million compared
to $40.0 million for the same period last year. The increase in net sales during
the quarter was attributable to a $16.0 million increase in sales of licensed
apparel, partially offset by a $10.8 million decrease in sales of non-licensed
apparel. The increase in net sales of licensed apparel was primarily the result
of increased sales of our sports apparel ($12.5 million) and sales generated by
new licenses ($2.9 million). The decrease in net sales of non-licensed apparel
was primarily the result of a decrease in sales of women's and men's leather
outerwear. Net sales of non-licensed apparel was also affected by the loss of
approximately $1.0 million of sales to foreign customers that had been directly
serviced by our Indonesian facility that we closed in the fourth quarter of
fiscal 2003.
Gross profit was $15.7 million, or 34.6% of net sales, for the three months
ended July 31, 2003 compared to $10.8 million, or 27.0% of net sales, for the
same period last year. The increase in our gross profit percentage for the three
month period ended July 31, 2003 was a result of the higher gross margins for
our sports apparel product compared to our other divisions. Commission fee
income, substantially all of which is generated in the non-licensed apparel
segment, increased to $1.6 million during the three months ended July 31, 2003
from $850,000 in the comparable period of the prior year. There is no cost of
goods sold component associated with commission transactions. As a result, the
gross profit percentage of our non-licensed segment is favorably impacted when
commission fee income increases. The gross profit percentage was also favorably
impacted by a reversal in the three months ended July 31, 2003 in the amount of
$1.2 million of reserves for chargebacks and future anticipated customer
deductions. These reserves were established in the fourth quarter of fiscal
2003, but were no longer deemed necessary as discounts and allowances with
respect to the fall 2002 season were less than anticipated. In the three months
ended July 31, 2002, the gross profit percentage was favorably impacted by a
decrease in the amount of $1.1 million in our inventory reserves in the
non-licensed segment. These reserves were established in the fourth quarter of
fiscal 2002, but were no longer deemed necessary as a result of higher than
anticipated prices on sales of goods that had previously been returned.
-11-
Selling, general and administrative expenses for the three months ended July 31,
2003 were $10.8 million compared to $9.5 million in the three months ended July
31, 2002. This increase primarily resulted from increased expenses in connection
with the expansion of our sports apparel business. Our sports apparel products
are primarily sold to retailers by outside sales representatives who earn a
commission on sales. Sales commissions of $806,000 for the three month period,
primarily from sales of sports apparel, represent an increase of approximately
$690,000 compared to the same period last year. The other major component of the
increase in selling, general and administrative expenses was an increase of
$600,000 in personnel expense as a result of the hiring of additional personnel.
Interest expense and finance charges for the three months ended July 31, 2003
were $230,000 compared to $396,000 in the same period last year. The decrease in
interest expense in the three month period resulted primarily from lower average
debt levels as a result of carrying less raw material inventory combined with
lower interest rates.
Income tax expense was $1.9 million for the three months ended July 31, 2003
compared to $388,000 in the same period in the prior year. Our effective tax
rate was 41% in the three months ended July 31, 2003 compared to 40% for the
three month periods ended July 31, 2002. The tax rate in the three month period
ended July 31, 2002 reflected a strategic tax plan that reduced our effective
state income tax rate. The tax rate in the period ended July 31, 2003 reflected
increased state and local income taxes.
As a result of the foregoing, for the three months ended July 31, 2003, we had
net income of $2.7 million, or $0.37 per diluted share, compared to $576,000, or
$0.08 per diluted share, for the same period in the prior year.
Six months ended July 31, 2003 compared to six months ended July 31, 2002
Net sales for the six months ended July 31, 2003 were $64.0 million compared to
$52.7 million for the same period in the prior year. The increase in net sales
in the six month period was attributable to a $24.0 million increase in sales of
licensed apparel partially offset by a $12.7 million decrease in sales of
non-licensed apparel. The increase in the net sales for licensed apparel
primarily results from the increased sales of our sports apparel ($20.8 million)
and sales generated by new licenses ($2.9 million). The decrease in net sales of
non-licensed apparel was primarily the result of a decrease in sales of women's
and men's leather outerwear. Net sales of non-licensed apparel was also affected
by the loss of approximately $1.7 million of sales to foreign customers that had
been directly serviced by our Indonesian subsidiary that was closed in the
fourth quarter of fiscal 2003.
-12-
Gross profit was $20.0 million, or 31.3% of net sales, for the six months ended
July 31, 2003 compared to $11.7 million, or 22.2% of net sales, for the same
period last year. The increase in our gross profit percentage for the six month
period ended July 31, 2003 was a result of higher gross margins from our sports
apparel product compared to our other divisions. Commission fee income,
substantially all of which is generated in the non-licensed apparel segment,
increased to $1.6 million during the six months ended July 31, 2003 from
$870,000 in the comparable period of the prior year. The gross profit percentage
in the six months ended July 31, 2003 was also favorably impacted by the
reversal in the second quarter of fiscal 2004 in the amount of $1.2 million of
reserves for chargebacks and future anticipated customer deductions. The gross
profit percentage in the six months ended July 31, 2002 was favorably impacted
by the reversal in the second quarter of fiscal 2003 in the amount of $1.1
million in our inventory reserves in the non-licensed segment.
Selling, general and administrative expenses for the six months ended July 31,
2003 were $19.6 million compared to $17.0 million for the same period last year.
This increase primarily resulted from increased expenses in connection with the
expansion of our sports apparel business. Sales commissions, primarily from
sales of sports apparel, were $1.3 million for the six month period, an increase
of approximately $1.1 million compared to the same period last year. The other
major component of the increase in selling, general and administrative expenses
was an increase of $900,000 in personnel expense, as a result of the hiring of
additional personnel.
Interest expense and finance charges for the six month period ended July 31,
2003 were $278,000 compared to $521,000 in the same period last year. The
decrease in interest expense in the six month period resulted primarily from
lower average debt levels as a result of carrying less raw material inventory
combined with lower interest rates.
Income tax expense was $63,000 for the six months ended July 31, 2003 compared
to an income tax benefit of $2.2 million in the same period last year. Our
effective tax rate was 41% in the six month period ended July 31, 2003 compared
to 38% in the same period last year. The tax rate in the six month period ended
July 31, 2002 reflected a strategic tax plan which reduced our effective state
income tax rate. The tax rate in the period ended July 31, 2003 reflects
increased state and local income taxes.
As a result of the foregoing, for the six months ended July 31, 2003, we had net
income of $91,000, or $0.01 income per diluted share, compared to a net loss of
$3.6 million, or $0.54 loss per diluted share, for the same period in the prior
year.
LIQUIDITY AND CAPITAL RESOURCES
Our loan agreement, which expires on 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 $90 million at specific times during
the year. The line of credit provides for maximum direct borrowings ranging from
$40 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 loan agreement also
includes a requirement that we have no loans outstanding for 45 consecutive days
during each year of the agreement.
-13-
Direct borrowings under the line of credit bear interest at our option at either
the prevailing prime rate (4.0% as of September 2, 2003) or LIBOR plus 225 basis
points (3.4% at September 2, 2003). Our assets collateralize all borrowings. 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 in compliance with all covenants as of July 31, 2003.
The amount borrowed under the line of credit varies based on our seasonal
requirements. As of July 31, 2003, there were direct borrowings of $33.3 million
and open letters of credit in the amount of approximately $29.5 million compared
to direct borrowings of $39.2 million and open letters of credit of
approximately $23.2 million as of July 31, 2002. Higher borrowings were required
last year primarily because we had a net loss of $3.6 million in the six month
period ended July 31, 2002 compared to net income of $91,000 in the six month
period ended July 31, 2003. In addition, we had a reduced need for raw materials
and work-in-process inventories in the six months ended July 31, 2003 due to the
closure of our Indonesian subsidiary in the fourth quarter of fiscal 2003,
partially offset by an increase in finished goods inventory.
PT Balihides, our Indonesian subsidiary, had a separate credit facility with an
Indonesian bank. There were notes payable outstanding under this facility of
approximately $770,000 as of July 31, 2003 and 2002. The loan is secured by the
property, plant, and equipment of the subsidiary. No other G-III entity has
guaranteed this loan. In December 2002, we closed the manufacturing facility
operated by this subsidiary.
CRITICAL ACCOUNTING POLICIES
Our discussion of results of operations and financial condition relies on our
consolidated financial statements that are prepared based on certain critical
accounting policies that require management to make judgments and estimates that
are subject to varying degrees of uncertainty. We believe that investors need to
be aware of these policies and how they impact our financial statements as a
whole, as well as our related discussion and analysis presented herein. While we
believe that these accounting policies are based on sound measurement criteria,
actual future events can and often do result in outcomes that can be materially
different from these estimates or forecasts. The accounting policies and related
risks described in our Annual Report on Form 10-K for the year ended January 31,
2003 are those that depend most heavily on these judgments and estimates. As of
July 31, 2003, there have been no material changes to any of these critical
accounting policies.
EFFECT OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January 2003, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 46, ("FIN 46"), "Consolidation of Variable Interest
Entities." FIN 46 requires an investor with a majority of the variable interests
(primary beneficiary) in a variable interest entity ("VIE") to consolidate the
entity and also requires majority and significant variable interest investors to
provide certain disclosures. A VIE is an entity in which the voting equity
investors do not have a controlling interest, or the equity investment at risk
is insufficient to finance the entity's activities without receiving additional
subordinated financial support from other parties. For arrangements entered into
with VIE's created prior to January 31, 2003, the provisions of FIN 46 are
required to be adopted at the beginning of the first interim or annual period
beginning after June 15, 2003. The provisions of FIN 46 were effective
immediately for all arrangements entered into with new VIEs created after
January 31, 2003.
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The Company is currently evaluating the requirements and impact of FIN 46 and
does not expect that the adoption of FIN 46 will have a material effect on its
consolidated results of operations or financial position.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has no material changes to the disclosure made with respect to these
matters in the Company's Annual Report on Form 10-K for the year ended January
31, 2003.
ITEM 4. CONTROLS AND PROCEDURES
The Company's management, including the Chief Executive Officer and Chief
Financial Officer, carried out an evaluation of the effectiveness of the design
and operation of the Company's disclosure controls and procedures as of the end
of the period covered by this report. Based on that evaluation, the Company's
Chief Executive Officer and Chief Financial Officer concluded that, as of the
end of the period covered by this report, the Company's disclosure controls and
procedures are effective in alerting them to material information , on a timely
basis, required to be included in the Company's periodic SEC filings. There have
been no changes in the Company's internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, the Company's internal control over
financial reporting.
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PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS
(a) Our Annual Meeting of Stockholders was held on June 12, 2003.
(b) The following matters were voted on and approved by our
stockholders at the Annual Meeting:
(i) The election of nine directors to serve for the ensuing
year. The following nominees were elected as directors
(with our stockholders having voted as set forth below):
==================== ============= ============================
NOMINEE VOTES FOR WITHHELD AUTHORITY TO VOTE
-------------------- ------------- ----------------------------
Morris Goldfarb 6,245,478 504,889
-------------------- ------------- ----------------------------
Aron Goldfarb 6,257,473 492,894
-------------------- ------------- ----------------------------
Lyle Berman 6,308,178 442,189
-------------------- ------------- ----------------------------
Thomas J. Brosig 6,256,747 493,620
-------------------- ------------- ----------------------------
Alan Feller 6,197,678 552,689
-------------------- ------------- ----------------------------
Carl Katz 6,257,578 492,789
-------------------- ------------- ----------------------------
Willem van Bokhorst 6,257,747 492,620
-------------------- ------------- ----------------------------
Richard White 6,233,847 516,520
-------------------- ------------- ----------------------------
George J. Winchell 6,308,847 441,520
==================== ============= ============================
(ii) An amendment to the Company's 1997 Stock Option Plan to
increase the number of shares available for issuance from
750,000 to 1,050,000. Our stockholders voted as follows:
FOR: 4,324,271
AGAINST: 559,817
ABSTENTIONS: 1,868
BROKER NON-VOTES: 1,864,411
(iii) An amendment of the Company's 1999 Stock Option Plan for
the Non - Employee Directors to increase the number of
shares available for issuance from 50,000 to 150,000. Our
stockholders voted as follows:
FOR: 4,384,166
AGAINST: 500,222
ABSTENTIONS: 1,568
BROKER NON-VOTES: 1,864,411
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(iv) The ratification of the appointment of Ernst & Young LLP
as our independent certified public accountants for the
fiscal year ending January 31, 2004. Our stockholders
voted as follows:
FOR: 6,456,329
AGAINST: 291,866
ABSTENTIONS: 2,172
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A.) EXHIBITS
31 - Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(a)/15(d)-14(a).
32 - Certifications of Chief Executive Officer and Chief
Financial Officer pursuant to 18.U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(B.) REPORTS ON FORM 8-K
(i) On May 29, 2003, the Company furnished a report on Form 8-K
relating to its financial information for the quarter ended
April 30, 2003.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
G-III APPAREL GROUP, LTD.
(Registrant)
Date: September 15, 2003 By: /s/ Morris Goldfarb
-------------------
Morris Goldfarb
Chief Executive Officer
Date: September 15, 2003 By: /s/ Wayne Miller
----------------
Wayne S. Miller
Chief Financial Officer