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Table of Contents
 
As filed with the Securities and Exchange Commission on August 14, 2002
 
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x


   
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934. For the quarterly period ended June 30, 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: 0-26430
 
 
TARRANT APPAREL GROUP
(Exact name of registrant as specified in its charter)
 
California
(State or other jurisdiction of
incorporation or organization)
  
95-4181026
(I.R.S. Employer
Identification Number)
 
3151 East Washington Boulevard
Los Angeles, California 90023
(Address of principal executive offices) (Zip code)
 
Registrant’s telephone number, including area code: (323) 780-8250
 
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  ¨
 
Number of shares of Common Stock of the registrant outstanding as of August 1, 2002: 15,846,315
 

Table of Contents
TARRANT APPAREL GROUP
 
FORM 10-Q
 
INDEX
 
PART I.    FINANCIAL INFORMATION
 
         
Page
Item 1.
   
Financial Statements (Unaudited)
     
       
4
       
5
       
6
       
7
Item 2.
      
12
Item 3.
      
20
PART II.    OTHER INFORMATION
     
Item 1.
      
21
Item 2.
      
21
Item 3.
      
21
Item 4.
      
21
Item 5.
      
22
Item 6.
      
22
  
24

2

Table of Contents
 
Cautionary Legend Regarding Forward-looking Statements
 
Some of the information in this Form 10-Q may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, both as amended. These forward-looking statements are subject to various risks and uncertainties. The forward-looking statements include, without limitations, statements regarding our future business plans and strategies and our future financial position or results of operations, as well as other statements that are not historical. You can find many of these statements by looking for words like “will”, “may”, “believes”, “expects”, “anticipates”, “plans” and “estimates” and for similar expressions.
 
Because forward-looking statements involve risks and uncertainties, there are many factors that could cause the actual results to differ materially from those expressed or implied. These include, but are not limited to, economic conditions. The Annual Report of Form 10-K for the year ended December 31, 2001 contains important cautionary statements and a discussion of many of the factors that could materially affect the accuracy of Tarrant’s forward-looking statements and such statements and discussions are incorporated herein by reference.
 
Any subsequent written or oral forward-looking statements made by us or any person acting on our behalf are qualified in their entirety by the cautionary statements and factors contained or referred to in this section. We do not intend or undertake any obligation to update any forward-looking statements to reflect events or circumstances after the date of this document or the date on which any subsequent forward-looking statement is made or to reflect the occurrence of unanticipated events.

3

Table of Contents
PART I—FINANCIAL INFORMATION
 
Item 1.    Financial Statements.
 
TARRANT APPAREL GROUP
 
CONSOLIDATED BALANCE SHEETS
 
    
June 30,
2002
     
December 31,
2001
  
    
(Unaudited)
         
ASSETS
                 
Current assets:
                  
Cash and cash equivalents
   
$
1,920,707
 
   
$
1,524,447
 
Restricted cash
   
 
4,000,000
 
   
 
—  
 
Accounts receivable, net
   
 
85,037,144
 
   
 
58,576,654
 
Due from affiliates
   
 
291,539
 
   
 
2,064,923
 
Due from officers
   
 
639,731
 
   
 
87,456
 
Inventory
   
 
55,715,030
 
   
 
50,600,584
 
Temporary quota
   
 
1,904,123
 
   
 
369,849
 
Current portion of note receivable-related party
   
 
3,468,490
 
   
 
3,468,490
 
Prepaid expenses and other receivables
   
 
6,047,890
 
   
 
6,274,330
 
Deferred tax assets
   
 
2,447,564
 
   
 
—  
 
Income taxes receivable
   
 
102,565
 
   
 
692,868
 
    
  
Total current assets
   
 
161,574,783
 
   
 
123,659,601
 
Property and equipment, net
   
 
79,115,208
 
   
 
90,173,451
 
Permanent quota, net
   
 
36,989
 
   
 
73,978
 
Note receivable-related party, less current portion
   
 
41,430,564
 
   
 
41,430,564
 
Other assets
   
 
3,068,644
 
   
 
3,932,146
 
Excess of cost over fair value of net assets acquired, net
   
 
27,445,439
 
   
 
29,196,886
 
    
  
Total assets
   
$
312,671,627
 
   
$
288,466,626
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
Current liabilities:
                  
Short-term bank borrowings
   
$
26,887,931
 
   
$
22,085,349
 
Accounts payable
   
 
51,053,567
 
   
 
31,560,131
 
Accrued expenses
   
 
14,492,134
 
   
 
9,648,389
 
Income taxes
   
 
7,543,465
 
   
 
7,177,324
 
Deferred tax liabilities
   
 
—  
 
   
 
514,913
 
Due to shareholders
   
 
1,128,735
 
   
 
2,307,687
 
Current portion of long-term obligations
   
 
24,880,262
 
   
 
25,256,628
 
    
  
Total current liabilities
   
 
125,986,094
 
   
 
98,550,421
 
Long-term obligations
   
 
66,315,748
 
   
 
63,993,808
 
Minority interest
   
 
1,898,326
 
   
 
757,927
 
Deferred tax liabilities
   
 
1,351,478
 
   
 
—  
 
    
  
Total liabilities
   
 
195,551,646
 
   
 
163,302,156
 
Commitments and contingencies
                  
Shareholders’ equity:
                  
Preferred stock, 2,000,000 shares authorized; none issued and outstanding
   
 
—  
 
   
 
—  
 
Common stock, no par value, 35,000,000 shares authorized; 15,842,815 shares (2002) and 15,840,815 shares (2001) issued and outstanding
   
 
69,350,887
 
   
 
69,341,090
 
Contributed capital
   
 
1,434,259
 
   
 
1,434,259
 
Retained earnings
   
 
58,936,328
 
   
 
62,958,375
 
Notes receivable from shareholders
   
 
(7,989,178
)
   
 
(12,118,773
)
Accumulated other comprehensive income
   
 
(4,612,315
)
   
 
3,549,519
 
    
  
Total shareholders’ equity
   
 
117,119,981
 
   
 
125,164,470
 
    
  
Total liabilities and shareholders’ equity
   
$
312,671,627
 
   
$
288,466,626
 
    
  
 
See accompanying notes

4

Table of Contents
TARRANT APPAREL GROUP
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
    
Three Months Ended
June 30
     
Six Months ended
June 30
  
    
2002
     
2001
     
2002
     
2001
  
Net sales
   
$
95,306,909
 
   
96,125,651
 
   
$
160,471,093
 
   
180,455,799
 
Cost of sales
   
 
80,882,668
 
   
80,311,913
 
   
 
137,627,881
 
   
150,223,251
 
    
  
  
  
Gross profit
   
 
14,424,241
 
   
15,813,738
 
   
 
22,843,212
 
   
30,232,548
 
Selling and distribution expenses
   
 
2,424,999
 
   
3,888,416
 
   
 
5,062,012
 
   
7,811,426
 
General and administrative expenses
   
 
7,219,285
 
   
7,896,833
 
   
 
13,832,170
 
   
16,772,949
 
Amortization of excess of cost over fair value of net assets acquired
   
 
—  
 
   
728,790
 
   
 
—  
 
   
1,457,580
 
    
  
  
  
Income (loss) from operations
   
 
4,779,957
 
   
3,299,699
 
   
 
3,949,030
 
   
4,190,593
 
Interest expense
   
 
(1,676,709
)
   
(2,108,305
)
   
 
(2,576,675
)
   
(4,238,912
)
Interest income
   
 
77,953
 
   
1,016,063
 
   
 
135,631
 
   
2,042,392
 
Other income
   
 
72,670
 
   
500,403
 
   
 
93,400
 
   
1,076,517
 
Minority interest
   
 
(1,439,552
)
   
—  
 
   
 
(1,877,339
)
   
345,905
 
    
  
  
  
Income (loss) before provision for income taxes and cumulative effect of accounting change
   
 
1,814,319
 
   
2,707,860
 
   
 
(275,953
)
   
3,416,495
 
Provision for income taxes
   
 
511,983
 
   
1,001,908
 
   
 
147,962
 
   
1,264,102
 
    
  
  
  
Income (loss) before cumulative effect of accounting change
   
$
1,302,336
 
   
1,705,952
 
   
$
(423,915
)
   
2,152,393
 
Cumulative effect of accounting change, net of tax benefit
   
 
—  
 
   
—  
 
   
 
(3,598,132
)
   
—  
 
    
  
  
  
Net income (loss)
   
$
1,302,336
 
   
1,705,952
 
   
$
(4,022,047
)
   
2,152,393
 
    
  
  
  
Net income (loss) per share—Basic:
                                
Before cumulative effect of accounting change
   
$
0.08
 
   
0.11
 
   
$
(0.03
)
   
0.14
 
Cumulative effect of accounting change
   
 
—  
 
   
—  
 
   
 
(0.22
)
   
—  
 
After cumulative effect of accounting change
   
$
0.08
 
   
0.11
 
   
$
(0.25
)
   
0.14
 
    
  
  
  
Net income (loss) per share—Diluted:
                                
Before cumulative effect of accounting change
   
$
0.08
 
   
0.11
 
   
$
(0.03
)
   
0.14
 
Cumulative effect of accounting change
   
 
—  
 
   
—  
 
   
 
(0.22
)
   
—  
 
After cumulative effect of accounting change
   
$
0.08
 
   
0.11
 
   
$
(0.25
)
   
0.14
 
    
  
  
  
Weighted average common and common equivalent shares:
                                
Basic
   
 
15,832,474
 
   
15,832,315
 
   
 
15,832,061
 
   
15,832,315
 
    
  
  
  
Diluted
   
 
16,098,557