As filed with the Securities and Exchange Commission on November 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 September 30, 2002
OR
o 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 |
|
95-4181026 |
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 |
o |
Number of shares of Common Stock of the registrant outstanding as of October 31, 2002: 15,846,315
TARRANT APPAREL GROUP
FORM 10-Q
INDEX
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| Item 1. |
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Consolidated Balance Sheets at September 30, 2002 (Unaudited) and December 31, 2001 (Audited) |
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| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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| Item 3. |
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| Item 4. |
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| Item 1. |
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| Item 2. |
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| Item 3. |
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| Item 4. |
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| Item 5. |
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| Item 6. |
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25 | ||
2
Cautionary Legend Regarding Forward-looking Statements
Some of the information in this Quarterly Report on 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. This Quarterly Report on Form 10-Q 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
PART I — FINANCIAL INFORMATION
TARRANT APPAREL GROUP
CONSOLIDATED BALANCE SHEETS
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September 30, 2002 |
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December 31, 2001 |
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(Unaudited) |
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| ASSETS |
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| Current assets: |
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Cash and cash equivalents |
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$ |
808,758 |
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$ |
1,524,447 |
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Accounts receivable, net |
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70,494,720 |
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58,576,654 |
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Due from affiliates |
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3,132,573 |
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2,064,923 |
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Due from officers |
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625,636 |
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87,456 |
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Inventory |
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54,737,723 |
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50,600,584 |
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Temporary quota |
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1,659,435 |
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369,849 |
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Current portion of note receivable-related party |
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3,468,490 |
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3,468,490 |
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Prepaid expenses and other receivables |
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5,572,981 |
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6,274,330 |
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Deferred tax assets |
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2,299,714 |
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— |
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Income taxes receivable |
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121,241 |
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692,868 |
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Total current assets |
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142,921,271 |
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123,659,601 |
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| Property and equipment, net |
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75,578,477 |
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90,173,451 |
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| Permanent quota, net |
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18,495 |
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73,978 |
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| Note receivable-related party, less current portion |
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41,430,564 |
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41,430,564 |
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| Other assets |
|
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2,835,052 |
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3,932,146 |
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| Excess of cost over fair value of net assets acquired, net |
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27,329,002 |
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29,196,886 |
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Total assets |
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$ |
290,112,861 |
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$ |
288,466,626 |
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| LIABILITIES AND SHAREHOLDERS’ EQUITY |
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| Current liabilities: |
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Short-term bank borrowings |
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$ |
26,709,172 |
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$ |
22,085,349 |
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Accounts payable |
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39,052,392 |
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31,560,131 |
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Accrued expenses |
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12,804,266 |
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9,648,389 |
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Income taxes |
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12,489,088 |
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7,177,324 |
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Deferred tax liabilities |
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— |
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514,913 |
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Due to shareholders |
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779,541 |
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2,307,687 |
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Current portion of long-term obligations |
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41,234,934 |
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25,256,628 |
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Total current liabilities |
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133,069,393 |
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98,550,421 |
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| Long-term obligations |
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40,771,464 |
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63,993,808 |
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| Minority interest |
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2,240,366 |
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757,927 |
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| Deferred tax liabilities |
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1,772,026 |
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— |
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Total liabilities |
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177,853,249 |
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163,302,156 |
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| Commitments and contingencies |
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| Shareholders’ equity: |
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Preferred stock, 2,000,000 shares authorized; none issued and outstanding |
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— |
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— |
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Common stock, no par value, 35,000,000 shares authorized; 15,846,315 shares (2002) and 15,840,815 shares (2001) issued and outstanding |
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69,369,261 |
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69,341,090 |
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Contributed capital |
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1,434,259 |
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1,434,259 |
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Retained earnings |
|
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60,063,091 |
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62,958,375 |
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Notes receivable from shareholders |
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(11,522,770 |
) |
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(12,118,773 |
) |
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Accumulated other comprehensive income |
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(7,084,229 |
) |
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3,549,519 |
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Total shareholders’ equity |
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112,259,612 |
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125,164,470 |
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Total liabilities and shareholders’ equity |
|
$ |
290,112,861 |
|
$ |
288,466,626 |
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See accompanying notes
4
TARRANT APPAREL GROUP
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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Three Months Ended September 30 |
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Nine Months Ended September 30 |
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2002 |
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2001 |
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2002 |
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2001 |
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| Net sales |
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$ |
94,327,981 |
|
$ |
78,174,618 |
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$ |
254,799,074 |
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$ |
258,630,417 |
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| Cost of sales |
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80,098,265 |
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68,103,324 |
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217,726,145 |
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218,326,575 |
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| Gross profit |
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14,229,716 |
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10,071,294 |
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37,072,929 |
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40,303,842 |
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| Selling and distribution expenses |
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2,911,129 |
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3,518,567 |
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7,973,140 |
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11,330,318 |
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| General and administrative expenses |
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7,692,584 |
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9,172,856 |
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21,524,755 |
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25,945,480 |
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| Amortization of excess of cost over fair value of net assets acquired |
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— |
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728,790 |
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— |
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2,186,370 |
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| Income (loss) from operations |
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3,626,003 |
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(3,348,919 |
) |
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7,575,034 |
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841,674 |
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| Interest expense |
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(1,375,400 |
) |
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(1,933,188 |
) |
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(3,952,075 |
) |
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(5,909,680 |
) | |
| Interest income |
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93,901 |
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1,024,730 |
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229,533 |
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3,067,122 |
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| Other income (expense) |
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274,380 |
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(479,682 |
) |
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367,779 |
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334,414 |
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| Minority interest |
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(740,948 |
) |
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(220,484 |
) |
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(2,618,287 |
) |
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125,420 |
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| Income (loss) before provision for income taxes and cumulative effect of accounting change |
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1,877,936 |
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(4,957,543 |
) |
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1,601,984 |
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(1,541,050 |
) | |
| Provision (credit) for income taxes |
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751,173 |
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(728,072 |
) |
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899,136 |
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536,030 |
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| Income (loss) before cumulative effect of accounting change |
|
$ |
1,126,763 |
|
$ |
(4,229,471 |
) |
$ |
702,848 |
|
$ |
(2,077,080 |
) | |
| Cumulative effect of accounting change, net of tax benefit |
|
|
— |
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|
— |
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(3,598,132 |
) |
|
— |
| |
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| Net income (loss) |
|
$ |
1,126,763 |
|
$ |
(4,229,471 |
) |
$ |
(2,895,284 |
) |
$ |
(2,077,080 |
) | |
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| Net income (loss) per share - Basic: |
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Before cumulative effect of accounting change |
|
$ |
0.07 |
|
$ |
(0.27 |
) |
$ |
0.04 |
|
$ |
(0.13 |
) |
|
|
Cumulative effect of accounting change |
|
|
— |
|
|
— |
|
|
(0.22 |
) |
|
— |
|
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|
After cumulative effect of accounting change |
|
$ |
0.07 |
|
$ |
(0.27 |
) |
$ |
(0.18 |
) |
$ |
(0.13 |
) |
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| Net income (loss) per share - Diluted: |
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| |
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Before cumulative effect of accounting change |
|
$ |
0.07 |
|
$ |
(0.27 |
) |
$ |
0.04 |
|
$ |
(0.13 |
) |
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|
Cumulative effect of accounting change |
|
|
— |
|
|
— |
|
|
(0.22 |
) |
|
— |
|
|
|
After cumulative effect of accounting change |
|
$ |
0.07 |
|
$ |
(0.27 |
) |
$ |
(0.18 |
) |
$ |
(0.13 |
) |
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| Weighted average common and common equivalent shares: |
|
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Basic |
|
|
15,836,049 |
|
|
15,823,554 |
|
|
15,833,390 |
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15,822,728 |
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Diluted |
|
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15,930,969 |
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15,823,554 |
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15,833,390 |
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15,822,728 |
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