View:
UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported): July 11, 2005 G-III APPAREL GROUP, LTD. (Exact name of registrant as specified in its charter) DELAWARE 0-18183 41-1590959 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 512 SEVENTH AVENUE 10018 NEW YORK, NEW YORK (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code: (212) 403-0500 NOT APPLICABLE (Former name or former address, if changed since last report) Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below): |_| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |_| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |_| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d- 2(b)) |_| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e- 4(c)) ITEM 2.01 COMPLETION OF ACQUISITION OR DISPOSITION OF ASSETS. As previously reported under Item 2.01 of the Form 8-K of G-III Apparel Group, Ltd. (the "Company") filed on July 15, 2005, on July 11, 2005, the Company and its subsidiary, G-III Leather Fashions, Inc. ("G-III Leather"), entered into an agreement with Sammy Aaron, Andrew Reid, Lee Lipton, John Pollack and Sammy Aaron, as Seller's Representative, pursuant to which G-III Leather acquired all of the outstanding capital stock of J. Percy for Marvin Richards, Ltd., all of the membership interests of CK Outerwear, LLC and 50% of the membership interests of Fabio Licensing, LLC (collectively, "Marvin Richards"). The description of the acquisition of Marvin Richards included in the Company's Form 8-K filed on July 15, 2005 is incorporated by reference herein. This amended report on Form 8-K is being filed to complete the response to Item 9.01 with respect to the Marvin Richards acquisition. On July 11, 2005, the Company and G-III Leather also entered into an agreement (the "Winlit Agreement") with Winlit Group, Ltd. ("Winlit"), David Winn and Richard Madris pursuant to which G-III Leather acquired the operating assets of Winlit. The Company has guaranteed the obligations of G-III Leather under the Winlit Agreement. The description of the acquisition of Winlit included in the Company's Form 8-K filed on July 15, 2005 is incorporated by reference herein. ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS (a) Financial Statements of Business Acquired. Audited financial statements of Marvin Richards for the year ended December 31, 2004 and the Report of Eisner, LLP, Independent Registered Public Accounting Firm, and unaudited financial statements of Marvin Richards for the six months ended June 30, 2005 and 2004, are filed as Exhibit 99.1 to this Form 8-K/A and incorporated herein by reference. (b) Pro Forma Financial Information. The following unaudited pro forma condensed consolidated financial data reflecting the effects of the Marvin Richards and Winlit acquisitions is filed as Exhibit 99.2 to this Form 8-K/A and incorporated herein by reference: Narrative overview and unaudited pro forma combined condensed financial statements, consisting of (i) unaudited pro forma condensed consolidated statements of income for the year ended January 31, 2005 and the six months ended July 31, 2005 and 2004 and notes thereto, and (ii) unaudited pro forma condensed consolidated balance sheet as of January 31, 2005 and notes thereto. (c) Shell Company Transactions. Not applicable. (d) Exhibits. 99.1 Audited financial statements of Marvin Richards for the year ended December 31, 2004 and the Report of Eisner, LLP, Independent Registered Public Accounting Firm, and unaudited financial statements of Marvin Richards for the six months ended June 30, 2005 and 2004. 99.2 Unaudited pro forma condensed consolidated financial data reflecting the effects of the Marvin Richards and Winlit acquisitions. 99.3 Consent of Eisner, LLP, Independent Registered Public Accounting Firm. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. G-III APPAREL GROUP, LTD. Date: September 26, 2005 By: /s/ Neal S. Nackman --------------------------------- Name: Neal S. Nackman Title: Chief Financial Officer EXHIBIT INDEX Exhibit No. Description --- ----------- 99.1 Audited financial statements of Marvin Richards for the year ended December 31, 2004 and the Report of Eisner, LLP, Independent Registered Public Accounting Firm, and unaudited financial statements of Marvin Richards for the six months ended June 30, 2005 and 2004. 99.2 Unaudited pro forma condensed consolidated financial data reflecting the effects of the Marvin Richards and Winlit acquisitions. 99.3 Consent of Eisner, LLP, Independent Registered Public Accounting Firm.
J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC COMBINED FINANCIAL STATEMENTS TABLE OF CONTENTS Page ---- Report of Independent Registered Public Accounting Firm 2 Combined Financial Statements Balance Sheets as of December 31, 2004 3 and June 30, 2005 (Unaudited) Statements of Operations for the Year Ended December 31, 2004 and the Six Months Ended June 30, 2005 and 2004 (Unaudited) 4 Statements of Owners' Equity for the Year Ended December 31, 2004 and the Six Months Ended June 30, 2005 (Unaudited) 5 Statements of Cash Flows for the Year Ended December 31, 2004 and the Six Months Ended June 30, 2005 and 2004 (Unaudited) 6 Notes to Financial Statements 7 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM The Owners of J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC We have audited the accompanying combined balance sheet of J. Percy for Marvin Richards, Ltd. and CK Outerwear, LLC as of December 31, 2004 and the related combined statements of operations, owners' equity and cash flows for the year then ended. These combined financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these combined financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (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 enumerated above present fairly, in all material respects, the combined financial position of J. Percy for Marvin Richards, Ltd. and CK Outerwear, LLC as of December 31, 2004, and the combined results of their operations and their combined cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. EISNER LLP New York, New York September 13, 2005 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC COMBINED BALANCE SHEETS (in thousands) ASSETS December 31, June 30, 2004 2005 ---- ---- (Restated) (Unaudited) ---------- ----------- Current assets Cash $ 135 $ 19 Accounts receivable 1,707 427 Inventories 10,093 17,500 Prepaid expenses and other current assets 193 480 -------- -------- Total current assets 12,128 18,426 Property, plant, and equipment, net 892 824 Intangible, net 800 1,450 Other assets 111 87 -------- -------- $ 13,931 $ 20,787 ======== ======== LIABILITIES AND OWNERS' EQUITY Current liabilities Accounts payable $ 3,647 $ 5,526 Accrued expenses 2,247 4,367 Due to factor 545 7,592 Due to related parties 719 534 Other current liabilities 592 562 -------- -------- Total current liabilities 7,750 18,581 -------- -------- Deferred rent 568 583 -------- -------- Commitments and contingencies Owners' equity Common stock - no par value; 1,000 shares authorized, 15 shares issued and outstanding 116 116 Additional paid in capital 928 928 Retained earnings 5,968 1,978 -------- -------- 7,012 3,022 Less common stock held in treasury - 15 shares at cost (1,399) (1,399) -------- -------- 5,613 1,623 -------- -------- $ 13,931 $ 20,787 ======== ======== See notes to combined financial statements 3 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC COMBINED STATEMENTS OF OPERATIONS (in thousands) Year ended December 31, Six months ended 2004 June 30, 2005 June 30, 2004 ---- ------------- ------------- (Restated) (Unaudited) Net sales $78,281 $ 13,336 $ 8,140 Cost of goods sold 62,758 10,044 5,889 ------- -------- ------- Gross profit 15,523 3,292 2,251 Selling, general and administrative expenses 13,884 5,258 4,799 ------- -------- ------- Operating income (loss) 1,639 (1,966) (2,548) Interest and financing charges 594 238 66 ------- -------- ------- Income (loss) before income taxes 1,045 (2,204) (2,614) Income tax expense 81 6 3 ------- -------- ------- Net income (loss) $ 964 $ (2,210) $(2,617) ======= ======== ======= See notes to combined financial statements 4 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC COMBINED STATEMENTS OF OWNERS' EQUITY (in thousands) Common Additional stock Common paid-in Retained held in stock capital earnings Treasury Total ----- ------- -------- -------- ----- Balance as of January 1, 2004 $116 $928 $ 8,964 $(1,399) $ 8,609 Distribution to owners (3,960) (3,960) Net income 964 964 ---- ---- ------- ------- ------- BALANCE AS OF DECEMBER 31, 2004 (Restated) 116 928 5,968 (1,399) 5,613 ==== ==== ======= ======= ======= Distribution to owners (1,780) (1,780) Net loss (2,210) (2,210) ---- ---- ------- ------- ------- BALANCE AS OF JUNE 30, 2005 (Unaudited) $116 $928 $ 1,978 $(1,399) $ 1,623 ==== ==== ======= ======= ======= See notes to combined financial statements 5 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC COMBINED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, Six months Ended Six months Ended 2004 June 30, 2005 June 30, 2004 ---- ------------- ------------- (Restated) (Unaudited) (Unaudited) Cash flows from operating activities Net income (loss) $ 964 $(2,210) $ (2,617) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 371 191 176 Deferred rent 186 15 93 Changes in: Accounts receivable 8,401 1,280 9,937 Inventories, net (7,434) (7,407) (16,762) Prepaid expenses and other assets (5) (263) (656) Accounts payable 65 1,879 8,696 Accrued expenses 775 2,120 (423) Other liabilities 915 (215) (252) ------- ------- -------- Net cash provided by (used in) operating activities 4,238 (4,610) (1,808) ------- ------- -------- Cash flows from investing activities Capital expenditures (719) (23) (359) Intangibles (750) ------- ------- -------- Net cash used in investing activities (719) (773) (359) ------- ------- -------- Cash flows from financing activities Due to factor 545 7,047 4,326 Owners' distributions (3,960) (1,780) (2,135) ------- ------- -------- Net cash (used in) provided by financing activities (3,415) 5,267 2,191 ------- ------- -------- Net increase (decrease) in cash 104 (116) 24 Cash at beginning of period 31 135 31 ------- ------- -------- Cash at end of period $ 135 $ 19 $ 55 ======= ======= ======== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 536 $ 323 $ 83 Income taxes 229 6 126 See notes to combined financial statements 6 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC NOTES TO COMBINED FINANCIAL STATEMENTS Information for the six months ended June 30, 2005 and 2004 is unaudited NOTE A - SIGNIFICANT ACCOUNTING POLICIES A summary of the significant accounting policies consistently applied in the preparation of the accompanying combined financial statements are as follows: 1. Business Description and Basis of Presentation J. Percy for Marvin Richards, Ltd. ("JPMR"), a New York S-Corporation and CK Outerwear, LLC ("CK"), a New York Limited Liability Company, (collectively the "Company"), are manufacturers, through contractors, and importers of outerwear and market their products at the wholesale level and acts as an agent in brokering sales between its customers and overseas factories, earning commission for such services. The combined financial statements include the accounts of J. Percy for Marvin Richards, Ltd. and CK Outerwear, LLC, which are affiliated through common ownership. All material intercompany balances and transactions have been eliminated. 2. Concentrations of Credit Risk Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash, amounts due from factor and accounts receivable. The Company maintains its cash in bank deposit accounts, which at times may exceed federally insured limits. The amount due from factor arises from the sale of accounts receivable to the factor. The Company holds no collateral for this instrument. Accounts receivable arise from sales made to major U.S based mass merchandisers, specialty retailers and distributors which represent significant customers of the Company. 3. Inventories Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market. 4. Revenue Recognition Inventory is shipped in accordance with specific customer orders. The Company recognizes sales when the risks and rewards of ownership have transferred to its customer, determined by the Company to be when title to the merchandise passes to its customer. The Company recognizes commission fee income on sales that are financed by 7 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Information for the six months ended June 30, 2005 and 2004 is unaudited NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) and shipped directly to its customers. Title to goods shipped from the Company's overseas vendors transfers to customers when the goods have been delivered to the customer. The Company recognizes commission income upon the completion of the delivery by its vendor to its customer. 5. 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 years Furniture and fixtures 7 years Leasehold improvements 5 - 10 years Leasehold improvements are amortized over the lives of the respective leases or the service lives of the improvements, whichever is shorter. 6. Valuation of Long Lived Assets Long-lived assets such as property and equipment, and intangibles are reviewed at least annually for impairment or when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. An impairment loss is recognizable when estimated future undiscounted cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. 7. Income Taxes JPMR is a subchapter S corporation, which is treated as a pass through entity for federal, New York State and New Jersey income taxes. JPMR is subject to general corporate business tax in New York City. CK is a limited liability corporation, which is treated as a partnership for Federal, New York State, New Jersey and is subject to unincorporated business tax in New York City. 8 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Information for the six months ended June 30, 2005 and 2004 is unaudited NOTE A - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) No federal income taxes are payable by the Company, and no amount has been provided for in the accompanying financial statements. The owners include their respective share of the Company's profit or losses in their respective tax returns, and the owners are individually liable for federal income taxes on their share of the Company's earnings. Provision has been made for income taxes due to certain jurisdictions that do not recognize limited liability and S-corporation status for tax purposes and for minimum taxes that may be due in those jurisdictions. Income tax expense includes New Jersey, New York State and New York City taxes currently payable. 8. Advertising Costs The Company expenses advertising costs as incurred. Advertising costs charged to expense were $1,624,000, $462,000 and $70,000 for the year ended December 31, 2004 and the six months ended June 30, 2005 and 2004, respectively. 9. Shipping and Handling Costs Shipping and handling costs consist of warehouse facility costs, freight out costs, and warehouse supervisory wages and are included in selling, general and administrative expense. 10. 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. Such estimates include depreciation and amortization. Actual results could differ from those estimates. 11. Fair Value of Financial Instruments The carrying value of financial instruments potentially subject to valuation risk (principally consisting of cash, due to/from factor, accounts receivable and accounts payable) approximates their fair values as of the balance sheet dates. 12. Effects of Recently Issued Accounting Pronouncements In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 requires certain abnormal expenditures to be recognized as expenses in the current period. It also requires that the amount of fixed production overhead allocated to inventory be based on the normal capacity of the production facility. The standard is effective for fiscal years beginning on or after June 15, 2005. The Company does not expect SFAS No. 151 to have a material effect on the Company's Combined Financial Statements. 13. Interim Financial Statement The accompanying balance sheet as of June 30, 2005, and the statements of operations, owners' equity and cash flows for the six months ended June 30, 2005 and 2004 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, include all adjustments (consisting only of normal recurring items) which are considered necessary for a fair presentation of the Company's combined financial position and results of operations and cash flows for the six months ended June 30, 2005 and 2004. The financial data and other information disclosed in the notes to the financial statements related to the six month periods are unaudited. The results for the six months ended June 30, 2005 are not necessarily indicative of the results to be expected for the year ending December 31, 2005. 9 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Information for the six months ended June 30, 2005 and 2004 is unaudited NOTE B - DUE TO/FROM FACTOR The Company has a factoring agreement with a factor pursuant to which it sells and assigns a substantial portion of its receivables, principally without recourse, to the factor. The factor assumes the credit risk of all assigned accounts approved by it, but maintains liens on all inventory, trade receivables (whether or not assigned) and the goods represented thereby. The Company has a credit line in the amount of $12,000,000. Under the terms of its factoring agreement, the Company may request advances from the factor up to 90% of aggregate receivables purchased by the factor at an interest rate of prime minus 0.5%. The Company also pays a fee equal to 0.375% of the gross invoice amount of each receivable purchased. NOTE C - INVENTORIES Inventories consist of : December 31, June 30, 2004 2005 ---- ---- Finished goods $ 6,960,000 $12,277,000 Work-in-process 157,000 1,351,000 Raw materials 2,976,000 3,872,000 ----------- ----------- $10,093,000 $17,500,000 =========== =========== Raw materials of approximately $1.4 million were maintained in the Dominican Republic at December 31, 2004. NOTE D - PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment (at cost) consist of: December 31, June 30, 2004 2005 ---- ---- Machinery and equipment $ 227,000 $ 227,000 Leasehold improvements 757,000 780,000 Furniture and fixtures 727,000 727,000 ---------- ---------- 1,711,000 1,734,000 Less: accumulated depreciation and amortization 819,000 910,000 ---------- ---------- $ 892,000 $ 824,000 ========== ========== 10 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Information for the six months ended June 30, 2005 and 2004 is unaudited NOTE E - INTANGIBLES During August 2003, CK entered into a trademark license agreement in connection with women's outerwear for an aggregate purchase price of $1,000,000 from Calvin Klein, Inc. for a period of five years expiring December 31, 2008. The license agreement, effective January 1, 2004, is being amortized over a period of five years and accordingly, the Company recorded an amortization of $200,000, $100,000 and $100,000 during the year ended December 31, 2004 and the six months ended June 30, 2005 and 2004, respectively. The license agreement is also subject to certain minimum advertising and royalty payments based on volume of sales (See Note F). NOTE F - COMMITMENTS AND CONTINGENCIES The Company leases warehousing, executive and sales facilities under operating leases with options to renew at varying terms. Leases with provisions for increasing rents have been accounted for on a straight-line basis over the life of the lease. The following schedule sets forth the future minimum rental payments for operating leases having non-cancelable lease periods in excess of one year at December 31, 2004: Operating Leases ------ Year ending December 31, 2005 $ 880,000 2006 929,000 2007 521,000 2008 626,000 2009 650,000 Thereafter 2,513,000 ----------- Minimum lease payments $ 6,119,000 =========== Rent expense, including common area charges and escalations, on the above operating leases was $1.2 million, $506,000 and $443,000 for the year ended December 31, 2004 and the six months ended June 30, 2005 and 2004, respectively. The Company has entered into license agreements that provide for royalty payments as a percentage of net sales of licensed products. The Company incurred royalty expense (included in cost of goods sold) of approximately $2.3 million, $456,000 and $183,000 for the year ended December 31, 2004 and the six months ended June 30, 2005 and 2004, respectively. Based on minimum sales requirements, future minimum royalty and advertising payments required under these agreements are: 11 J. PERCY FOR MARVIN RICHARDS, LTD. AND CK OUTERWEAR, LLC NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED) Information for the six months ended June 30, 2005 and 2004 is unaudited NOTE F - COMMITMENTS AND CONTINGENCIES (CONTINUED) Year ending December 31, Amount ------------------------ ------ 2005 $ 1,825,000 2006 2,265,000 2007 2,600,000 2008 2,800,000 ----------- $ 9,490,000 =========== The Company has standby letters of credit in an aggregate amount of $237,000 outstanding for security deposits on its leased corporate office and warehouse space as of all periods presented. At December 31, 2004, the Company was in violation of certain financial and reporting requirement covenants with Calvin Klein under its license agreement. In August 2005, the licensor entered into a new agreement with CK Outerwear, LLC and G-III Apparel Group, Ltd. (See Note I(3)). NOTE G - EMPLOYEE BENEFIT PLANS The Company maintains a 401(k) plan and trust for eligible employees. Pension costs include service costs, which are accrued and funded on a current basis. The Company provides for a discretionary matching contribution. No contribution was made for the periods presented. NOTE H - MAJOR CUSTOMERS For the year ended December 31, 2004, three customers accounted for 13.4%, 11.2% and 10.0%, respectively, of the Company's net sales. NOTE I - SUBSEQUENT EVENTS 1) In May 2005, General Electric Capital Corporation ("GECC") filed a lawsuit against JPMR seeking payment of two outstanding invoices in the total amount of approximately $63,000. GECC is a secured lender of a vendor of the Company. Management believes it has substantial defenses to the claims asserted in the lawsuit and intends to vigorously defend this matter. 2) In June 2005, the Company entered into a license agreement, effective July 8, 2005, to design, manufacture, and market men's outerwear with Calvin Klein. The Company paid a license fee in the amount of $750,000 upon inception of the agreement. The agreement provides for minimum royalty and advertising payments. The license agreement is through December 31, 2010 with an automatic five-year renewal subject to certain requirements. 3) On July 11, 2005, all of the outstanding capital stock of J. Percy for Marvin Richards, Ltd., all of the membership interests of CK Outerwear, LLC and 50% of the membership interests in Fabio Licensing, LLC, a related entity 50% owned by the stockholders and members of the Company, was acquired by G-III Leather Fashions, Inc., a wholly owned subsidiary of G-III Apparel Group, Ltd. for $23.9 million in cash and stock. The sellers are also entitled to receive additional contingent payments for the years ending January 31, 2006 through January 31, 2009, based on the future performance of the Company, as defined. NOTE J - DUE TO RELATED PARTIES The Company licenses women's outerwear from Fabio Licensing, LLC. Fabio Licensing LLC is an entity 50% owned by certain stockholders and members of the Company. During the year ended December 31, 2004 and the six months ended June 30, 2005 and 2004, the Company incurred royalty expense of $664,000, $1,000 and $4,000, respectively, in connection with this license agreement. At December 31, 2004 and June 30, 2005, the Company owed $721,000 and $537,000 to Fabio Licensing, LLC, respectively. NOTE K - RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS The Company has recorded certain adjustments to its previously issued financial statements as of December 31, 2004 and for the year then ended audited by other auditors. The effect of these adjustments are as follows: COMBINED STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 2004 AS REPORTED ADJUSTMENTS AS RESTATED ------------------------------------------ Net Sales $ 78,757,000 $ (476,000) $ 78,281,000 Cost of Goods Sold 62,679,000 79,000 62,758,000 ------------ ----------- ------------- Gross Profit 16,078,000 (555,000) 15,523,000 SG&A 13,940,000 (56,000) 13,884,000 ------------ ----------- ------------- Income Before Income Taxes 2,138,000 (499,000) 1,639,000 Interest and Financing Charges 0 594,000 594,000 ------------ ----------- ------------- Income (loss) Before Income Taxes 2,138,000 (1,093,000) 1,045,000 Provision for Income Taxes 81,000 0 81,000 ------------ ----------- ------------- Net Income $ 2,057,000 $(1,093,000) $ 964,000 ============ =========== ============= Adjustments related to the following: Net sales decreased $476,000 primarily due to sales cut-offs at year end. Cost of goods sold increased $79,000 primarily due to inventory costing at the lower of cost or market and sales cut-offs above. Interest and financing charges in the "As Reported" financial statements were recorded in SG&A. The increase of approximately $538,000 in SG&A, adjusted for interest and financing charges, is primarily attributed to additional accruals of payroll ($284,000), straight-line rent expense ($186,000) and GAAP depreciation expense ($69,000). 12
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA Except as otherwise indicated in the information included in this Exhibit 99.2, or as the context may otherwise require, references to (i) the terms "we," "us," "G-III," and "our" refer to G-III Apparel Group, Ltd. and its subsidiaries; (ii) the term "Marvin Richards" refers to J. Percy for Marvin Richards, CK Outerwear, LLC and 50% ownership in Fabio Licensing, LLC; (iii) the term "Winlit" refers to certain operating assets purchased from the Winlit Group Ltd.; (iv) the term "Acquisitions" refers to (a) our acquisition of the stock of J. Percy for Marvin Richards, Ltd., the members' interests in CK Outerwear, LLC and 50% of the members' interests in Fabio Licensing, LLC and (b) the acquisition of certain operating assets of Winlit; and (v) "Transactions" refers to the Acquisitions, proceeds from the $30 million term loan due July 2008 and the application of the proceeds therefrom. The following unaudited pro forma condensed consolidated financial data as of and for the year ending January 31, 2005 give effect to the Transactions as if they had occurred on the dates indicated below and after giving effect to the pro forma adjustments. The unaudited pro forma condensed consolidated statement of income for the fiscal year ended January 31, 2005 has been derived from G-III's audited statement of income for the fiscal year ended January 31, 2005, Marvin Richards' audited statement of income for the year ended December 31, 2004, and Winlit's unaudited statement of income for the year ended December 31, 2004 and gives effect to the consummation of the Transactions, as if they had occurred on February 1, 2004. The unaudited pro forma condensed consolidated balance sheet as of January 31, 2005 has been derived from G-III's audited balance sheet as of January 31, 2005, Marvin Richards' audited balance sheet as of December 31, 2004, and Winlit's unadjusted balance sheet as of December 31, 2004, as adjusted to give effect to the Transactions as if they occurred on January 31, 2005. The following unaudited pro forma condensed consolidated statements of income for the six months ended July 31, 2005 give effect to the Transactions as if they had occurred on the dates indicated below and after giving effect to the pro forma adjustments. The unaudited pro forma condensed consolidated statement of income for the six months ended July 31, 2005 has been derived from G-III's unaudited statement of income for the six months ended July 31, 2005, and the unadjusted statement of income for the six months ended June 30, 2005 of each of Marvin Richards and Winlit, and gives effect to the consummation of the Transactions, as if they had occurred on February 1, 2004. The pro forma adjustments are based upon available information and certain assumptions that we consider reasonable. The pro forma results of operations are not necessarily indicative of the results of operations that we would have achieved had the Transactions reflected therein been consummated on the date indicated or that we will achieve in the future. The unaudited pro forma condensed consolidated financial data are based on preliminary estimates and assumptions set forth in the accompanying notes. Pro forma adjustments are necessary to reflect the estimated purchase price and to adjust amounts related to the assets and liabilities of each of Marvin Richards and Winlit to a preliminary estimate of their fair values. Pro forma adjustments are also necessary to reflect the changes in depreciation and amortization expense resulting from fair value adjustments to assets, interest expense due to the new term loan, and the taxation of Marvin Richards' and Winlit's income as a result of the Transactions, as well as the tax effects related to such pro forma adjustments. The pro forma adjustments and allocation of purchase price are preliminary and are based on our estimates of the fair value of the assets acquired and liabilities assumed. The final purchase price allocation will be completed after asset and liability valuations are finalized. This final valuation will be based on the actual assets and liabilities of Marvin Richards and Winlit that exist as of the date of the completion of the Transactions. Any final adjustments may materially change the allocation of the purchase price, which could affect the fair value assigned to the assets and liabilities and could result in a significant change to the unaudited pro forma condensed consolidated financial data. Additionally, the purchase agreements for each of Marvin Richards and Winlit provide for annual contingent payments for the years ending January 31, 2006 through January 31, 2009, based on the performance of the respective operations acquired. The contingent payments, if earned, will be accounted for as additional purchase price and classified as goodwill. The following pro forma financial statements do not include any adjustments for any of these potential contingent payments. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET AS OF JANUARY 31, 2005 (IN THOUSANDS) G-III Pro Forma Historical Historical Historical Pro Forma Condensed G-III Marvin Richards Winlit Adjustments Consolidated -------------------------------------------------------------- -------------- ASSETS Current Assets Cash and cash equivalents $ 16,574 $ 135 $ 31 $ 7,796 (a) $ 24,536 Receivables, net of allowances 24,783 1,707 1,910 28,400 Inventories, net 24,108 10,093 2,650 36,851 Deferred income taxes 3,357 3,357 Prepaid expenses and other current assets 3,887 193 634 4,714 -------- -------- ------- -------- --------- Total current assets 72,709 12,128 5,225 7,796 97,858 Property, plant and equipment, net 2,350 892 1,045 4,287 Deferred income tax 2,050 2,050 Intangibles, net 800 20,704 (b) 21,504 Other assets 3,486 111 146 1,820 (c) 5,563 -------- -------- ------- -------- --------- $ 80,595 $ 13,931 $ 6,416 $ 30,320 $ 131,262 ======== ======== ======= ======== ========= LIABILITIES AND OWNERS' EQUITY Current liabilities Notes payable $ 770 $ 30,000 (d) $ 30,770 Due to factor $ 545 $ 4,896 5,441 Current maturities, capital lease obligations 202 202 Income taxes payable 104 104 Other current liabilities 592 592 Accounts payable 6,565 3,647 2,930 13,142 Due to related parties 719 719 Accrued expenses 5,200 2,247 7,447 -------- -------- ------- -------- --------- Total current liabilities 12,841 7,750 7,826 30,000 58,417 Other non-current liabilities 824 568 1,392 -------- -------- ------- -------- --------- Total owners' equity 66,930 5,613 (1,410) 320 (e) 71,453 -------- -------- ------- -------- --------- $ 80,595 $ 13,931 $ 6,416 $ 30,320 $ 131,262 ======== ======== ======= ======== ========= See accompanying notes to the unaudited pro forma condensed consolidated balance sheet. NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (a) THE PRO FORMA ADJUSTMENT TO CASH WAS DETERMINED AS FOLLOWS: Proceeds from term loan $ 30,000 Cash portion of purchase price of Marvin Richards (19,150) Cash portion of purchase price of Winlit (580) Cash paid for acquisition fees and expenses (492) Estimated fees and expenses associated with debt issuance (1,982) -------- $ 7,796 ======== (b) GOODWILL AND INTANGIBLES, NET Estmated Marvin Richards goodwill $ 4,764 Estimated acquired intangibles from Marvin Richards 10,000 Estimated Winlit goodwill 1,940 Estimated acquired intangibles from Winlit 4,000 -------- $ 20,704 ======== (c) OTHER ASSETS Fees and expenses associated with debt issuance $ 1,982 Write off of deferred financing costs (162) -------- $ 1,820 ======== (d) LONG-TERM DEBT Proceeds from term loan $ 30,000 ======== (e) TOTAL OWNERS' EQUITY Elimination of equity resulting from purchase accounting adjustments $ (4,203) Shares issued in connection with Marvin Richards acquisition 4,685 Write off of deferred financing costs (162) -------- $ 320 ======== UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE YEAR ENDED JANUARY 31, 2005 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) G-III Pro Forma Historical Historical Historical Pro Forma Condensed G-III Marvin Richards Winlit Adjustments Consolidated ---------------------------------------------------------- ------------ Net sales $ 214,278 $ 78,281 $ 31,247 $ 323,806 Cost of goods sold 161,534 62,758 21,420 245,712 --------------------------------------------------------- ------------ Gross profit 52,744 15,523 9,827 78,094 Selling, general and administrative expenses 48,796 13,884 10,937 $ 3,000 (a) 76,617 Non recurring charge 882 882 --------------------------------------------------------- ------------ Operating profit (loss) 3,066 1,639 (1,110) (3,000) 595 Interest and financing charges, net 1,086 594 599 2,175 (b) 4,454 --------------------------------------------------------- ------------ Income (loss) before incomes taxes 1,980 1,045 (1,709) (5,175) (3,859) Income tax expense (benefit) 1,277 81 (2,533)(c) (1,175) --------------------------------------------------------- ------------ NET INCOME (LOSS) $ 703 $ 964 $ (1,709) $(2,642) $ (2,684) ========================================================= ============ LOSS PER SHARE: Basic and diluted loss per common share $ (0.33) ========== Historical weighted average number of shares outstanding 7,528 Shares issued in connection with acquistion of Marvin Richards 617 ---------- Proforma weighted average number of shares outstanding 8,145 ========== (A) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Estimated amortization of acquired intangible assets which consist of licenses aquired in the acquisition $ 2,000 An estimated term of five years was used for the licenses acquired from Marvin Richards and four years 1,000 for licenses acquired from Winlit ---------- $ 3,000 ========== (B) INTEREST EXPENSE Interest expense calculated on incremental borrowing used to acquire Marvin Richards and Winlit $ 30,000 Interest rate 7.25% ---------- Annual interest $ 2,175 ========== (C) INCOME TAX PROVISION Tax effect of pro forma Marvin Richard's amortization $ (840) Tax effect of pro forma Winlit's amortization (420) Tax effect of pro forma interest expense (914) Adjustment of acquired entities effective tax rates(1) (360) ---------- $ (2,533) ========== (1) Historically, Marvin Richards and Winlit have been treated as partnerships for federal and state income tax purposes. Consequently, federal and state tax liabilities flowed through to the members and shareholders of each company. Following the transactions, the acquired entities will be subject to taxation as part of the G-III Apparel Group, Ltd. consolidated tax returns. The proforma adjustment reflects the estimated incremental U.S. federal and state income tax provision as if the acquired companies had been subject to taxation under subchapter C of the Internal Revenue Code for the full fiscal year. UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF INCOME SIX MONTHS ENDED JULY 31, 2005 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) G-III Pro Forma Historical Historical Historical Pro Forma Condensed G-III Marvin Richards Winlit Adjustments Consolidated ----------------------------------------------------------- ------------ Net sales $ 62,169 $ 13,336 $ 1,798 $ 77,303 Cost of goods sold 50,371 10,044 3,583 63,998 ----------------------------------------------------------- ---------- Gross profit 11,798 3,292 (1,785) 13,305 Selling, general and administrative expenses 20,572 5,258 4,945 $ 1,500 (a) 32,275 ----------------------------------------------------------- ---------- Operating loss (8,774) (1,966) (6,730) (1,500) (18,970) Interest and financing charges, net 513 238 385 1,088 (b) 2,224 ----------------------------------------------------------- ---------- Loss before incomes taxes (9,287) (2,204) (7,115) (2,588) (21,194) Income tax benefit (3,901) 6 (5,007)(c) (8,902) ----------------------------------------------------------- ---------- NET LOSS $ (5,386) $ (2,210) $ (7,115) $ 2,419 $ (12,292) =========================================================== ========== LOSS PER SHARE: Basic and diluted loss per common share $ (1.58) ========== Historical weighted average number of shares outstanding 7,141 Shares issued in connection with acquistion of Marvin Richards 617 ---------- Proforma weighted average number of shares outstanding 7,758 ========== (a) SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Estimated amortization of acquired intangible assets which consist of licenses aquired in the acquisition. $ 1,000 An estimated term of five years was used for the licenses acquired from Marvin Richards and four years for licenses acquired from Winlit. 500 ---------- $ 1,500 ========== (b) INTEREST EXPENSE Interest expense calculated on incremental borrowing used to acquire Marvin Richards and Winlit. $ 30,000 Interest rate 7.25% Annual interest 2,175 ---------- $ 1,088 ========== (c) INCOME TAX PROVISION Tax effect of pro forma Marvin Richard's amortization $ (420) Tax effect of pro forma Winlit's amortization (210) Tax effect of pro forma interest expense (457) Adjustment of acquired entities effective tax rates (1) (3,920) ---------- $ (5,007) ========== (1) Historically, Marvin Richards and Winlit have been treated as partnerships for federal and state income tax purposes. Consequently, federal and state tax liabilities flowed through to the members and shareholders of each company. Following the transactions, the acquired entities will be subject to taxation as part of the G-III Apparel Group, Ltd. consolidated tax returns. The proforma adjustment reflects the estimated incremental U.S. federal and state income tax provision as if the acquired companies had been subject to taxation under subchapter C of the Internal Revenue Code for the full fiscal year.
Consent of Independent Registered Public Accounting Firm We consent to the incorporation by reference in the Registration Statement for the G-III Apparel Group, Ltd. 2005 Stock Incentive Plan on Form S-8 (Registration Statement Number 333-125804) of G-III Apparel Group, Ltd. (the "Company") of our report dated September 13, 2005, relating to our audit of the combined financial statements of J. Percy for Marvin Richards, Ltd. and CK Outerwear, LLC as of December 31, 2004 and the related consolidated statements of operations, owners' equity, and cash flows for the year then ended, included in this Form 8-K/A of G-III Apparel Group, Ltd. /s/ EISNER LLP New York, New York September 26, 2005