UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended July 31, 2006 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission File Number 0-18183 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 (Address of Principal Executive Offices) (Zip Code) (212) 403-0500 (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 check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. Large Accelerated Filer [_] Accelerated Filer [_] Non-Accelerated Filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [_] No [X] As of September, 2006, there were 14,364,125 common shares outstanding. Page No. -------- Part I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets - July 31, 2006, July 31, 2005 and January 31, 2006 .... 3 Condensed Consolidated Statements of Operations - For the Three Months Ended July 31, 2006 and 2005 .... 4 Condensed Consolidated Statements of Operations - For the Six Months Ended July 31, 2006 and 2005 ...... 5 Condensed Consolidated Statements of Cash Flows - For the Six Months Ended July 31, 2006 and 2005 ...... 6 Notes to Condensed Consolidated Financial Statements .... 8 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ........ 14 Item 3. Quantitative and Qualitative Disclosures About Market Risk ................................................. 19 Item 4. Controls and Procedures ................................. 19 Part II OTHER INFORMATION Item 1A. Risk Factors ............................................ 20 Item 4. Submission of Matters to a Vote of Stockholders ......... 20 Item 6. Exhibits ................................................ 21 2 PART I ITEM 1. FINANCIAL STATEMENTS G-III APPAREL GROUP, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) JULY 31, July 31, January 31, 2006 2005 2006 -------- ----------- ----------- (unaudited) (unaudited) ASSETS CURRENT ASSETS Cash and cash equivalents $ 728 $ 1,194 $ 7,031 Accounts receivable, net of allowance for doubtful accounts and sales discounts of $8,214, $4,211 and $9,443, respectively 58,301 53,078 45,751 Inventories, net 81,163 72,727 30,395 Prepaid and refundable income taxes 7,455 3,951 -- Deferred income taxes 4,101 3,357 4,101 Prepaid expenses and other current assets 13,838 11,194 7,844 -------- -------- --------- Total current assets 165,586 145,501 95,122 PROPERTY, PLANT AND EQUIPMENT, NET 4,255 3,581 4,296 DEFERRED INCOME TAXES 2,430 2,050 2,415 GOODWILL 18,787 -- 18,501 OTHER INTANGIBLES, NET 13,628 29,288 15,287 OTHER ASSETS 2,468 4,201 2,696 -------- -------- --------- $207,154 $184,621 $ 138,317 ======== ======== ========= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES Notes payable $ 48,610 $ 52,206 $ 7,370 Current maturities of obligations under capital leases 208 151 208 Income taxes payable -- -- 2,269 Accounts payable 44,708 31,336 9,749 Contingent purchase price payable -- -- 3,380 Accrued expenses 7,340 7,688 10,949 -------- -------- --------- Total current liabilities 100,866 91,381 33,925 NOTES PAYABLE 18,450 25,050 21,750 OTHER NON-CURRENT LIABILITIES 527 774 631 -------- -------- --------- TOTAL LIABILITIES 119,843 117,205 56,306 -------- -------- --------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY Preferred stock, 1,000,000 shares authorized; No shares issued and outstanding in all periods Common stock - $.01 par value; 40,000,000 shares authorized; 14,364,125, 12,581,371 and 12,701,222 shares issued, respectively 144 126 127 Additional paid-in capital 52,132 33,667 36,262 Accumulated other comprehensive income -- 62 -- Retained earnings 36,005 34,531 46,592 -------- -------- --------- 88,281 68,386 82,981 Common stock held in treasury - 367,225 shares at cost (970) (970) (970) -------- -------- --------- 87,311 67,416 82,011 -------- -------- --------- $207,154 $184,621 $ 138,317 ======== ======== ========= 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) 2006 2005 ----------- ----------- Net sales $ 69,082 $ 54,553 Cost of goods sold 52,249 41,804 ----------- ----------- Gross profit 16,833 12,749 Selling, general and administrative expenses 17,478 12,117 Depreciation and amortization 1,112 483 ----------- ----------- Operating (loss) income (1,757) 149 Interest and financing charges, net 1,264 527 ----------- ----------- Loss before income taxes (3,021) (378) Income tax benefit (1,284) (77) ----------- ----------- Net loss $ (1,737) $ (301) =========== =========== LOSS PER COMMON SHARE: Basic and Diluted: Net loss per common share $ (0.14) $ (0.03) =========== =========== Weighted average number of shares outstanding 12,756,000 11,237,000 =========== =========== 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) 2006 2005 ----------- ----------- Net sales $ 83,471 $ 68,320 Cost of goods sold 65,959 54,656 ----------- ----------- Gross profit 17,512 13,664 Selling, general and administrative expenses 31,817 20,922 Depreciation and amortization 2,197 781 ----------- ----------- Operating loss (16,502) (8,039) Interest and financing charges, net 1,911 530 ----------- ----------- Loss before income taxes (18,413) (8,569) Income tax benefit (7,826) (3,599) ----------- ----------- Net loss $ (10,587) $ (4,970) =========== =========== LOSS PER COMMON SHARE: Basic and Diluted: Net loss per common share $ (0.85) $ (0.45) =========== =========== Weighted average number of shares outstanding 12,410,000 11,007,000 =========== =========== 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) 2006 2005 -------- -------- Cash flows from operating activities Net loss $(10,587) $ (4,970) Adjustments to reconcile net loss to net cash used in operating activities, net of assets and liabilities acquired: Depreciation and amortization 2,197 781 Non-cash stock based compensation 175 Deferred financing charges 484 131 Deferred income taxes (15) Changes in operating assets and liabilities: Accounts receivable (12,550) (20,160) Inventories, net (50,768) (30,106) Income taxes, net (9,724) 50 Prepaid expenses and other current assets (5,994) (10,799) Other assets (256) (1,062) Accounts payable and accrued expenses 31,350 16,989 -------- -------- Net cash used in operating activities (55,688) (49,146) -------- -------- Cash flows from investing activities Capital expenditures (499) (648) Acquisition of Marvin Richards, net of cash acquired 143 (19,623) Acquisition of Winlit (73) (580) Contingent purchase price paid (3,380) -------- -------- Net cash used in investing activities (3,809) (20,851) -------- -------- Cash flows from financing activities Increase in notes payable, net 41,240 Proceeds from term loan 30,000 Repayment of term loan (3,300) Payments for capital lease obligations (104) (101) Proceeds from sale of common stock, net 15,035 675 Proceeds from exercise of stock options 323 83 Repayment of terminated credit facility (12,457) Proceeds from new credit facility 36,405 -------- -------- Net cash provided by financing activities 53,194 54,605 -------- -------- Effect of exchange rate changes on cash and cash equivalents 12 -------- -------- Net decrease in cash and cash equivalents (6,303) (15,380) Cash and cash equivalents at beginning of period 7,031 16,574 -------- -------- Cash and cash equivalents at end of period $ 728 $ 1,194 ======== ======== 6 G-III APPAREL GROUP, LTD. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONT'D) (in thousands) SIX MONTHS ENDED JULY 31, ------------------------- (Unaudited) 2006 2005 ------ -------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $1,744 $ 545 Income taxes 1,879 308 Supplemental schedule of non-cash investing and financing activities: Fair value of shares issued in connection with the Marvin Richards acquisition $ 356 $ 4,685 Debt assumed in connection with the Winlit asset acquisition 6,697 Detail of the Marvin Richards and Winlit acquisitions: Acquired intangibles $ 27,819 Fair value of other assets acquired 29,743 -------- Fair value of total assets acquired 57,562 Liabilities assumed (32,655) Common stock issued (4,685) -------- Net cash paid for acquisitions 20,222 Cash acquired 19 -------- Cash paid for acquisitions $ 20,203 ======== The accompanying notes are an integral part of these statements. 7 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 three and six month periods ended July 31, 2006 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 period presented have been reflected. Certain amounts in the Condensed Consolidated Balance Sheet as of July 31, 2005 and the Condensed Consolidated Statements of Operations for the three and six months ended July 31, 2005 have been reclassified to conform to the current period presentation. The Company consolidates the accounts of all its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated. All share and per share data have been adjusted to give retroactive effect to a three-for-two split of the Company's Common Stock effected on March 28, 2006. 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, 2006. Note 2 - Private Placement On July 13, 2006, the Company completed a private placement of its Common Stock and five-year warrants to purchase its Common Stock. The Company issued 1,500,000 shares of Common Stock at a price of $10.11 per share, resulting in aggregate proceeds to the Company of $15,165,000. The Company also issued warrants to purchase an aggregate of up to 375,000 shares of its Common Stock, exercisable beginning six months after the closing date of the private placement, at an exercise price of $11.00 per share, subject to adjustment upon the occurrence of specified events, including customary weighted average price anti-dilution adjustments. The proceeds were used to repay a portion of the outstanding balance under the Company's revolving credit line. For two years after the closing date of the private placement, the investors will, subject to exceptions and qualifications specified in the purchase agreement, have a right of first refusal with respect to the proposed sale by the Company of its equity or equity equivalent securities if such sale is at an effective price per share of $10.00 or less. The Company also entered into a registration rights agreement with the investors, in which it agreed to file a registration statement with the Securities and Exchange Commission to register under the Securities Act of 1933, as amended, resales from time to time of the shares, any warrant shares issued upon exercise of the warrants and an additional 500,000 shares of Common Stock sold to the investors by Mr. Aron Goldfarb on July 13, 2006. The Company filed the registration statement within the required time period and the registration statement has been declared effective. Note 3 - Stock Based Compensation Effective February 1, 2006, the Company adopted Statement of Financial Accounting Standards No. 123R, "Share Based Payment" ("SFAS 123R"). The Company elected to use the modified prospective transition method; therefore, prior period results were not restated. Prior to the adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the common stock on the grant date, in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees." As a result, the 8 recognition of stock-based compensation expense in prior periods was generally limited to the expense attributed to restricted stock awards. SFAS 123R requires all share-based payments to employees, including grants of employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) in the consolidated financial statements based on their fair values. Under the modified prospective method, awards that were granted, modified, or settled on or after February 1, 2006 are measured and accounted for in accordance with SFAS 123R. Unvested equity-based awards that were granted prior to February 1, 2006 will continue to be accounted for in accordance with SFAS 123, except that all awards are recognized in the results of operations over the remaining vesting periods. The impact of forfeitures that may occur prior to vesting is also estimated and considered in the amount recognized. Also, the realization of tax benefits in excess of amounts recognized for financial reporting purposes will be recognized in the Consolidated Statement of Cash Flows as a financing activity rather than an operating activity as it was classified in the past. It is the Company's policy to grant stock options at prices not less than the fair market value on the date of the grant. Option terms, vesting and exercise periods vary, except that the term of an option may not exceed ten years. The following table summarizes the pro forma effect of stock-based compensation as if the fair value method of accounting for stock compensation had been applied for the three and six months ended July 31, 2005. Three Months Six Months Ended July 31, Ended July 31, -------------- -------------- 2005 2005 ------ ------- (in thousands, except per share amounts) Net loss - as reported $ (301) $(4,970) Deduct: Stock-based employee compensation expense determined under fair value method, net of related tax effects 79 154 ------ ------- Pro forma net loss $ (380) $(5,124) ====== ======= Basic and diluted loss per share - as reported $(0.03) $ (0.45) Pro forma basic and diluted loss per share $(0.03) $ (0.47) The fair value of stock options was estimated using the Black-Scholes option-pricing model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The assumptions for the current period grants were developed based on SFAS 123R and Securities and Exchange Commission guidance contained in Staff Accounting Bulletin (SAB) No. 107, "Share-Based Payment." The following table summarizes the assumptions used to compute the weighted average fair value of stock option grants. The following weighted average assumptions were used in the Black-Scholes option pricing model for grants in fiscal 2006 and 2005, respectively: 2006 2005 ------- ------- Expected stock price volatility 48.7% 67.5% Expected lives of options Directors and officers 7 YEARS 7 years Employees 6 YEARS 6 years Risk-free interest rate 3.9% 3.9% Expected dividend yield 0% 0% The weighted average volatility for the current period was developed using historical volatility for periods equal to the expected term of the options. An increase in the weighted average volatility assumption will increase stock compensation expense. 9 The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected term of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense. The dividend yield is a ratio that estimates the expected dividend payments to shareholders. The Company has not declared a cash dividend and has estimated dividend yield at 0%. The expected term of stock option grants was developed after considering vesting schedules, life of the option, and historical experience. An increase in the expected holding period will increase stock compensation expense. SFAS 123R requires the recognition of stock-based compensation for the number of awards that are ultimately expected to vest. As a result, for most awards, recognized stock compensation was reduced for estimated forfeitures prior to vesting primarily based on an historical annual forfeiture rate of 3.6% for stock options. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances. The following table summarizes stock option activity for the six months ended July 31, 2006: Weighted average exercise Shares price --------- -------- Options outstanding at beginning of year 1,429,348 $3.53 Exercised (162,955) $2.06 Granted 221,000 $9.78 Cancelled or forfeited (122,650) $9.18 --------- Options outstanding at end of period 1,364,743 $4.23 ========= Exercisable 942,993 $3.20 ========= The weighted average remaining term for stock options outstanding was 4.8 years at July 31, 2006. The aggregate intrinsic value at July 31, 2006 was $8.6 million for stock options outstanding and $6.9 million for stock options exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of our common stock as of July 31, 2006, the reporting date. In connection with an acquisition in July 2005, the Company granted 225,000 shares of common stock subject to vesting based on the future market price of the common stock through January 31, 2009. In August 2005, 37,500 shares vested and in February 2006, an additional 37,500 shares vested as a result of market price conditions being met. The cost for the restricted stock was measured and reflected as additional goodwill based on the quoted market price on the date the shares vested and the restrictions lapsed. The following table summarizes unvested restricted stock unit activity for the six months ended July 31, 2006: Unvested as of February 1, 2006 187,500 Granted -- Vested (37,500) ------- Unvested as of July 31, 2006 150,000 ======= 10 Proceeds received from the exercise of stock options were approximately $323,000 and $83,000 during the six months ended July 31, 2006 and 2005, respectively. The intrinsic value related to the exercise of stock options was $1.2 million and $71,000 for the six months ended July 31, 2006 and 2005, respectively, which is currently deductible for tax purposes. Tax benefits were attributed to the stock-based compensation expense. The Company elected to adopt the alternative method of calculating the historical pool of windfall tax benefits as permitted by FASB Staff Position (FSP) No. SFAS 123R-c, "Transition Election Related to Accounting for the Tax Effects of Share-Based Payment Awards." This is a simplified method to determine the pool of windfall tax benefits that is used in determining the tax effects of stock compensation in the results of operations and cash flow reporting for awards that were outstanding as of the adoption of SFAS 123R. As of July 31, 2006, approximately $914,000 of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) is expected to be recognized through July 31, 2010. Note 4 - New Accounting Pronouncements In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the Company's financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes." FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. FIN 48 is effective for fiscal years beginning after December 15, 2006. The Company is currently evaluating the requirements and impact of FIN 48 on the Company's consolidated financial statements, and will adopt the provisions on February 1, 2007. Note 5 - Acquisitions of Marvin Richards and Winlit Group MARVIN RICHARDS On July 11, 2005, the Company 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 in Fabio Licensing, LLC, collectively referred to as Marvin Richards. The total consideration paid by the Company in connection with the acquisition of Marvin Richards was $28.1 million, including associated fees and expenses. The purchase price was allocated to Marvin Richard's assets and liabilities, tangible and intangible (as determined by an independent appraiser), with the excess of the purchase price over the fair value of the net assets acquired of $15.0 million being recorded as goodwill. The former principals of Marvin Richards are entitled to receive additional purchase price based on the performance of the Company's Marvin Richards business through January 31, 2009. Goodwill will be increased for subsequent earn-out payments based upon performance. WINLIT On July 11, 2005, the Company acquired certain operating assets of Winlit Group, Ltd. The total consideration paid by the Company in connection with the acquisition of Winlit was $8.1 million, including associated fees and expenses. The purchase price was allocated to Winlit's assets and liabilities, tangible and intangible (as determined by an independent appraiser), with the excess of the purchase price over the fair value of the net assets acquired of $3.8 million being recorded as goodwill. Winlit is entitled to receive additional purchase price based on the performance of the Company's Winlit business through January 31, 2009. Goodwill will be increased for subsequent earn-out payments based upon performance. The operating results of Marvin Richards and Winlit have been included in the Company's financial statements since July 11, 2005 and are included in the six months ended July 31, 2006. The results of operations from the acquired businesses for the comparable prior year's period do not include the seasonal losses incurred by the acquired companies prior to the date of acquisition. 11 Note 6 - Inventories Inventories, which are stated at lower of cost (determined by the first-in, first out method) or market, consist of: JULY 31, July 31, January 31, 2006 2005 2006 -------- -------- ----------- (in thousands) Finished goods $74,331 $64,624 $25,557 Work-in-process 693 593 80 Raw materials 6,139 7,510 4,758 ------- ------- ------- $81,163 $72,727 $30,395 ======= ======= ======= Note 7 - Loss per Common Share Basic loss per share has been computed using the weighted average number of common shares outstanding during each period excluding unvested restricted stock awards that have not met the market condition. Diluted income per share amounts, when applicable, are computed using the weighted average number of common shares and potential dilutive common shares, consisting of stock options and restricted stock, outstanding during the period. Note 8 - Notes Payable The Company has a financing agreement with The CIT Group/Commercial Services, Inc., as Agent, for a consortium of banks. The financing agreement, which expires on July 11, 2008, is a senior collateralized credit facility providing for borrowings in the aggregate principal amount of up to $195 million. The facility consists of a revolving line of credit and a term loan. The revolving line of credit provides for a maximum line ranging from $45 million to $165 million at specific times during the year, provided that there are no borrowings outstanding for at least 45 days during the period from December 1 through April 30 each year. This condition has been met for the current year. Amounts available under the line are subject to borrowing base formulas and over advances as specified in the financing agreement. Borrowings under the line of credit bear interest at the Company's option at the prime rate or LIBOR plus 2.25%. The term loan in the original principal amount of $30 million is payable over three years with eleven quarterly installments of principal in the amount of $1,650,000 and a balloon payment of $11,850,000 due on July 11, 2008, the maturity date of the loan. Mandatory prepayments are required under the term loan commencing with the fiscal year ending January 31, 2007 to the extent of 50% of excess cash flow, as defined. The term loan bears interest, at the Company's option, at prime plus 1% or LIBOR plus 3.25%. The financing agreement requires the Company, among other covenants, to maintain certain earnings, tangible net worth and minimum fixed charge coverage ratios as defined. It also limits payments for cash dividends and stock redemption to $1.5 million plus an additional amount for stock redemptions based on the proceeds of sales of equity securities and limits annual capital expenditures. As of July 31, 2006, we were in compliance with these covenants. The financing agreement is collateralized by all of the assets of the Company. Notes payable also includes a foreign note payable ($770,000) by PT Balihides, the Company's inactive Indonesian subsidiary. Note 9 - Closing of Manufacturing Facility The unpaid portion of the non-recurring charge associated with the closing of our Indonesian manufacturing facility in December 2002 is included in "Accrued expenses" in the accompanying Consolidated Balance Sheets. The balance in the reserve at July 31, 2006 and January 31, 2006 is $398,000, and represents accrued expenses and other miscellaneous costs. Based on current estimates, management believes that existing accruals are adequate. 12 Note 10 - 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, ----------------------------------------- 2006 2005 ------------------- ------------------- NON- Non- LICENSED LICENSED Licensed Licensed -------- -------- -------- -------- Net sales $42,891 $26,191 $25,146 $29,407 Cost of goods sold 31,897 20,352 19,046 22,758 ------- ------- ------- ------- Gross profit 10,994 5,839 6,100 6,649 Selling, general and administrative 13,493 5,097 8,062 4,538 ------- ------- ------- ------- Operating income (loss) $(2,499) $ 742 $(1,962) $ 2,111 ======= ======= ======= ======= SIX MONTHS ENDED JULY 31, ----------------------------------------- 2006 2005 ------------------- ------------------- NON- Non- LICENSED LICENSED Licensed Licensed -------- -------- -------- -------- Net sales $ 56,012 $27,459 $36,241 $32,079 Cost of goods sold 43,134 22,825 29,047 25,609 -------- ------- ------- ------- Gross profit 12,878 4,634 7,194 6,470 Selling, general and administrative 23,510 10,504 14,355 7,348 -------- ------- ------- ------- Operating loss $(10,632) $(5,870) $(7,161) $ (878) ======== ======= ======= ======= Included in finished goods inventory at July 31, 2006 are approximately $51.2 million and $23.1 million of inventories for licensed and non-licensed apparel, respectively. Included in finished goods at July 31, 2005 are approximately $37.2 million and $30.3 million of inventories for licensed and non-licensed apparel, respectively. All other assets are commingled. Note 11 - Proposed Public Offering On May 8, 2006, the Company filed a registration statement with the Securities and Exchange Commission for a proposed offering of 4,000,000 shares of its common stock pursuant to which the Company would offer 3,000,000 shares and selling stockholders would offer 1,000,000 shares. The Registration Statement was withdrawn on July 12, 2006. 13 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, dependence on licensed product, reliance on foreign manufacturers, risks of doing business abroad, the nature of the apparel industry, including changing consumer demand and tastes, seasonality, customer acceptance of new products, the impact of competitive products and pricing, dependence on existing management, possible business disruption from acquisitions, 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. OVERVIEW G-III designs, manufactures and markets an extensive range of outerwear and sportswear, including coats, jackets, pants, suits, dresses and other sportswear items under licensed brands, our own proprietary brands and private retail labels. Our products are distributed through a broad mix of retail partners at a variety of price points. The concentration of sales to our largest customers has increased and we expect that our ten largest customers will continue to represent a majority of our sales. We operate in fashion markets that are highly competitive. Our ability to continuously evaluate and respond to changing consumer demands and tastes, across multiple market segments, distribution channels and geographies, is critical to our success. Although our portfolio of brands is aimed at diversifying our risks in this regard, misjudging shifts in consumer preferences could have a negative effect on our business. Our success in the future will depend on our ability to design products that are accepted in the markets we serve, source the manufacture of our products on a competitive basis, deliver products in a timely manner and continue to diversify our product portfolio and the markets we serve. We operate our business in two segments, licensed apparel and non-licensed apparel. The licensed apparel segment includes sales of apparel brands licensed by us from third parties. The non-licensed apparel segment includes sales of apparel under private label brands and our own proprietary brands. The sale of licensed product has been a key element of our business strategy for many years. As part of this strategy, we added new apparel licenses in the past year. We believe that consumers prefer to buy brands they know, and we have continually sought licenses that would increase the portfolio of name brands we can offer through different tiers of retail distribution, for a wider array of products and at a variety of price points. The operating results of Marvin Richards and Winlit, which we acquired on July 11, 2005, have been included in our financial statements since the date of acquisition. Marvin Richards and Winlit are in the wholesale outerwear business and are subject to the same seasonality that we are. Our results for the first two quarters of fiscal 2006 and for the full 2006 fiscal year exclude the seasonal losses that were incurred by the acquired companies in the first half of fiscal 2006. Results for fiscal 2007 include the full year of operations of the acquired companies, as well as a full year of interest expense and amortization expense relating to the acquisitions. Accordingly, our net losses in the second quarter and first six months of fiscal 2007 were greater than our net losses in the second quarter and first six months of fiscal 2006. These acquisitions are consistent with our strategy to increase the portfolio of brands that we offer through different tiers of retail distribution. Both transactions are expected to complement our existing group of licensed brands, G-III owned labels and private label programs. 14 We continue to believe that brand owners will look to consolidate the number of licensees they engage to develop product and they will continue to look for licensees with a successful track record of developing brands. We are continually having discussions with licensors regarding new opportunities. It is our objective to continue to expand our product offerings. As a result of our acquisition of Marvin Richards, we have licenses for men's and women's outerwear with Calvin Klein. In September 2005, we entered into a license agreement to manufacture and distribute women's better suits under the Calvin Klein label and in April 2006, we entered into a license agreement to manufacture and distribute women's dresses under the Calvin Klein label. We began shipping the women's suit line in January 2006 and expect to begin shipping women's dresses for holiday 2006. We have had a license agreement with Sean John for men's outerwear for over five years. In March 2006, we added license agreements to manufacture women's sportswear and outerwear under Sean John labels. We expect to launch the Sean John sportswear line in 2007. We also design and produce a line of urban sportswear for Wal-Mart under their Exsto label, which began shipping during the second quarter of fiscal 2007. Significant trends that are affecting the apparel industry include the continuing consolidation of retail chains, the desire on the part of retailers to consolidate vendors supplying them, the increased focus by department stores on their own private label brands and a shift in consumer shopping preferences away from traditional department stores to other mid-tier and specialty store venues. There has also been continued downward pressure on average retail prices for many categories of apparel. We have responded to these trends by continuing to focus on selling products with recognized brand equity, by attention to design, quality and value and by improving our sourcing capabilities. We believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels. We also believe that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners. In June 2006, we entered into a seven-year lease for a distribution center in South Brunswick, New Jersey. This facility contains approximately 305,000 square feet of space which will be used by us for product distribution. Annual rent for this facility is approximately $1.2 million. As a result of adding this new facility, we will not renew our lease for our distribution center in Edison, NJ which expires in January 2007. The Edison facility contains approximately 89,000 square feet. The additional space is expected to allow us to meet some of our anticipated increased shipping volume. We estimate that the renovation of this new facility will cost us between $1 million and $1.5 million and that the facility will be fully operational by May 2007. In July 2006, we completed the private placement of 1,500,000 shares of our common stock at a price of $10.11 per share, resulting in net proceeds to us, after expenses related to the placement, of $15,035,000. We also issued warrants to the investors to purchase up to 375,000 shares of our common stock at an exercise price of $11.00 per share, subject to adjustment. We used the net proceeds of this placement to repay a portion of our outstanding credit facility. RESULTS OF OPERATIONS THREE MONTHS ENDED JULY 31, 2006 COMPARED TO THREE MONTHS ENDED JULY 31, 2005 Net sales for the three months ended July 31, 2006 increased to $69.1 million from $54.6 million in the same period last year. Net sales of licensed apparel increased to $42.9 million from $25.1 million, primarily as a result of sales of Calvin Klein suits and outerwear ($9.0 million). Last year, only a small amount of sales of Calvin Klein outerwear were included in our results for the quarter. Net sales of non-licensed apparel in the three months decreased to $26.2 million from $29.4 million, primarily due to a decrease in private label men's outerwear sales ($6.1 million) offset, in part, by the initial shipments of Exsto private label product ($1.8 million) which were primarily shipped in July 2006. Gross profit increased to $16.8 million, or 24.4% of net sales, for the three month period ended July 31, 2006, from $12.7 million, or 23.4% of net sales, in the same period last year. The gross profit percentage in our licensed apparel segment was 25.6% in the three month period ended July 31, 2006 compared to 24.3% in the same period last year. Sales of Calvin Klein suits and outerwear resulted in an increase in both margin dollars and our gross profit as a percentage of sales. The gross profit percentage in our non-licensed segment was 22.3% in the three month period ended July 31, 2006 compared to 22.6% in the same period last year. Selling, general and administrative expenses increased $6.0 million to $18.6 million in the three month period ended July 31, 2006 from $12.6 million in the same period last year. Selling, general and administrative expenses increased primarily as a result of increases in personnel costs ($3.0 million), facility costs ($673,000), depreciation and amortization ($632,000) and advertising and promotion ($627,000). Personnel and facility 15 costs increased primarily due to costs related to the businesses we acquired in July 2005, as well as due to increases in personnel costs with respect to the staffing of our new initiatives, including Calvin Klein women's suits and dresses, Sean John women's sportswear and Exsto. Facility costs also increased as a result of the additional space leased in our Secaucus warehouse facility that was added in August 2005. Depreciation and amortization expense increased primarily as a result of the amortization of the identifiable intangibles we acquired. Advertising and promotion increased due to contractual advertising under the licenses that we added as a result of the acquisitions and the new Calvin Klein women's suit license. Interest and finance charges, net for the three month period ended July 31, 2006 were $1.3 million compared to $527,000 for the comparable period last year. Interest expense increased due to the term loan entered into in connection with financing our two acquisitions and less interest income on lower average cash balances than in the comparable period in the prior year. Income tax benefit for the three months ended July 31, 2006 was $1.3 million compared to $77,000 in the comparable period last year. The effective rate for the current period was 42.5% compared to 20.4% for the comparable prior period. We compute our tax expense based on an estimated annual tax rate. At the end of our first fiscal quarter of the prior year, we estimated the annual tax rate to be 43.0%. This estimated rate was decreased in the second quarter to an estimated annual tax rate of 42.0%. As a result, our effective rate for the three months ended July 31, 2005 was 20.4%. The lower effective rate for the three months ended July 31, 2005 reflects the full year's effect of the change in our estimated annual rate. SIX MONTHS ENDED JULY 31, 2006 COMPARED TO SIX MONTHS ENDED JULY 31, 2005 Net sales for the six months ended July 31, 2006 increased to $83.5 million from $68.3 million in the same period last year. Net sales of licensed apparel increased to $56.0 million from $36.2 million, primarily as a result of sales of Calvin Klein suits and outerwear ($12.1 million). Net sales of non-licensed apparel decreased to $27.5 million from $32.1 million, primarily due to a decrease in private label men's outerwear sales ($6.1 million) offset, in part, by the initial shipments of Exsto private label product ($1.8 million) which were primarily shipped in July 2006. Gross profit increased to $17.5 million, or 21.0% of net sales, for the six month period ended July 31, 2006, from $13.7 million, or 20.0% of net sales, in the same period last year. The gross profit percentage in our licensed apparel segment was 23.0% in the six month period ended July 31, 2006 compared to 19.9% in the same period last year. Sales of Calvin Klein suits and outerwear resulted in an increase in both margin dollars and our gross profit as a percentage of sales. The gross profit percentage in our non-licensed segment was 16.9% in the six month period ended July 31, 2006 compared to 20.2% in the same period last year. The decrease in the gross profit percentage is primarily attributable to lower margin on the sales of products under the Marvin Richards label than under our other owned labels. Selling, general and administrative expenses increased $12.3 million to $34.0 million in the six month period ended July 31, 2006 from $21.7 million in the same period last year. Selling, general and administrative expenses increased primarily as a result of increases in personnel costs ($5.5 million), facility costs ($1.6 million), depreciation and amortization ($1.4 million) and advertising and promotion ($1.3 million). Personnel and facility costs increased primarily due to costs related to the businesses we acquired in July 2005, as well as due to increases in personnel costs with respect to the staffing of our new initiatives, including Calvin Klein women's suits and dresses, Sean John women's sportswear and Exsto. Facility costs also increased as a result of the additional space leased in our Secaucus warehouse facility that was added in August 2005. Depreciation and amortization expense increased as a result of the amortization of the identifiable intangibles we acquired. Advertising and promotion increased primarily due to contractual advertising under the licenses that we added as a result of the acquisitions and the new Calvin Klein women's suit license. Interest and finance charges, net for the six month period ended July 31, 2006 were $1.9 million compared to $530,000 for the comparable period last year. Interest expense increased due to the new term loan entered into in connection with the acquisitions and less interest income on lower average cash balances than in the comparable period in the prior year. Income tax benefit for the six months ended July 31, 2006 was $7.8 million compared to $3.6 million in the comparable period last year. The effective rate for the current period was 42.5% compared to 42.0% for the comparable prior period. 16 LIQUIDITY AND CAPITAL RESOURCES Our primary cash requirements are to fund our seasonal build up in inventories and accounts receivable, primarily during our second and third fiscal quarters each year. Due to the seasonality of our business, we generally reach our maximum borrowing under our asset-based credit facility during our third fiscal quarter. The primary sources to meet our cash requirements are borrowings under this credit facility and cash generated from operations. At July 31, 2006, we had cash and cash equivalents of $728,000 and outstanding borrowings of $67.1 compared to cash and cash equivalents of $1.2 million and outstanding borrowings of $77.3 million at July 31, 2005. Our borrowings were lower as of July 31, 2006 as a result of the application of the net proceeds of our private placement to the outstanding balance under our revolving credit line. Private Placement On July 13, 2006, we completed a private placement of our common stock and five-year warrants to purchase our common stock pursuant to a securities purchase agreement between us and a group of investors resulting in aggregate proceeds to the Company of $15,165,000. The net proceeds of this placement were used to repay a portion of our outstanding balance under our revolving credit line. We issued 1,500,000 shares of our common stock to the investors at a price of $10.11 per share. We also issued to the investors warrants to purchase an aggregate of up to 375,000 shares of our common stock, exercisable beginning six months after the closing date of the private placement, at an exercise price of $11.00 per share, subject to adjustment upon the occurrence of specified events, including customary weighted average price anti-dilution adjustments. For two years after the closing date of the private placement, the investors will, subject to exceptions and qualifications specified in the purchase agreement, have a right of first refusal with respect to the proposed sale by us of our equity or equity equivalent securities at an effective price per share of $10.00 or less. We also entered into a registration rights agreement with the investors, in which we agreed to file a registration statement with the Securities and Exchange Commission to register under the Securities Act of 1933, as amended, resales from time to time of the shares, any warrant shares issued upon exercise of the warrants and an additional 500,000 shares of our common stock sold to the investors by Mr. Aron Goldfarb, the Company's founder and father of our Chief Executive Officer, on July 13, 2006. We filed the registration statement within the required time period and the registration statement has been declared effective by the SEC. Financing Agreement We have a financing agreement with The CIT Group/Commercial Services, Inc., as Agent, for a consortium of banks. The financing agreement, which expires on July 11, 2008, is a senior secured credit facility providing for borrowings in the aggregate principal amount of up to $195.0 million. The facility consists of a revolving line of credit and a term loan. The revolving line of credit provides for a maximum line ranging from $45 million to $165 million at specific times during the year, provided that there are no borrowings outstanding for at least 45 days during the period from December 1 through April 30 each year. We satisfied this requirement for the most recent period. Amounts available under the line are subject to borrowing base formulas and over advances as specified in the financing agreement. Borrowings under the line of credit bear interest at our option at the prime rate or LIBOR plus 2.25%. The amount borrowed under the line of credit varies based on our seasonal requirements. As of July 31, 2006, direct borrowings were $41.2 million and our contingent liability under open letters of credit was approximately $20.8 million compared to direct borrowings of $46.5 million and contingent liability under open letters of credit of $26.5 million as of July 31, 2005. The term loan in the original principal amount of $30 million is payable over three years with eleven quarterly installments of principal in the amount of $1,650,000. Payment of quarterly installments began on December 31, 2005, with the remaining balance of $11,850,000 due on maturity of the loan. Mandatory prepayments are required under the term loan commencing with the fiscal year ending January 31, 2007 to the extent of 50% of excess cash flow, as defined. The term loan bears interest, at our option, at prime plus 1% or LIBOR plus 17 3.25%. As of August 1, 2006, the term loan bore interest at prime plus 1%, or 9.25% per year. The balance due on the term loan at July 31, 2006 was $25,050,000. The financing agreement requires us, among other things, to maintain tangible net worth at specified levels, achieve specified earnings before interest, taxes, depreciation and amortization and maintain minimum fixed charge coverage ratios as defined. It also limits capital expenditures and payments for cash dividends and stock redemption to $1.5 million plus an additional amount for stock redemptions based on the proceeds of sales of equity securities. As of July 31, 2006, we were in compliance with these covenants. The financing agreement is collateralized by all of our assets. Subsidiary Loan PT Balihides, our inactive Indonesian subsidiary, had a separate credit facility with an Indonesian bank. In December 2002, we closed the manufacturing facility operated by this subsidiary. The notes payable under this facility represent borrowings as of July 31, 2006 of approximately $770,000. The loan is collateralized by the property, plant, and equipment of this subsidiary. No other G-III entity has guaranteed this loan. We continue to be in discussions with the bank regarding settlement of this debt. Cash from Operating Activities We used $55.7 million of cash from operating activities in the six months ended July 31, 2006, primarily as a result of our net loss of $10.6 million and increases of $50.8 million in inventory, $12.6 million in accounts receivable, $9.7 million in prepaid and refundable income taxes and $6.0 million in prepaid expenses, offset, in part, by an increase in accounts payable and accrued expenses of $31.4 million. The increases in these operating cash flow items are consistent with our seasonal pattern. We typically have a net loss through our first two fiscal quarters. During the second quarter, we build inventory for the fall shipping season accounting for the increase in inventory. The fall shipping season begins in the latter part of our second quarter. The increase in our accounts receivable reflects the beginning of the sales shipped for fall. The decrease in income taxes payable is attributable to income taxes paid subsequent to year end as a result of our fiscal 2006 income and the increase in our prepaid and refundable income taxes is a result of the tax benefit recognized on our loss through the six months. The increase in prepaid expenses is primarily a result of prepaid royalties and advertising under our license agreements. The increase in accounts payable and accrued expenses is attributable to the purchasing activity for the fall season. Cash from Investing Activities We used $3.8 million of cash in investing activities in the six months ended July 31, 2006. We paid $3.3 million to the sellers of the acquired companies as contingent purchase price based on attaining performance goals as defined in the respective purchase agreements. The sellers are entitled to earn-out payments through the year ended January 31, 2009. We had capital expenditures of $499,000 in the six months ended July 31, 2006. Cash from Financing Activities Cash from financing activities provided $53.2 million in the six months ended July 31, 2006 primarily from net proceeds to the Company of $15.0 million from our private placement and net amounts borrowed under our credit facility of $41.2 million. Borrowings under the credit line were used to finance our inventory purchases for the upcoming fall season and for other working capital purposes. During the six months ended July 31, 2006, we repaid $3.3 million of our term loan which represents two quarterly installment payments. Proposed Public Offering On May 8, 2006, we filed a registration statement with the Securities and Exchange Commission for a proposed offering of 4,000,000 shares of our common stock pursuant to which we would have offered 3,000,000 shares and selling stockholders would have offered 1,000,000 shares. The registration statement was withdrawn on July 12, 2006. 18 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 estimates described in our Annual Report on Form 10-K for the year ended January 31, 2006 are those that depend most heavily on these judgments and estimates. As of July 31, 2006, there have been no material changes to our critical accounting policies. EFFECTS OF RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In June 2006, the Financial Accounting Standards Board issued FASB Interpretation No. 48, "Accounting for Uncertainty in Income Taxes" ("FIN 48"). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in our financial statements in accordance with FASB Statement No. 109 "Accounting for Income Taxes." FIN 48 also prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return, as well as guidance on derecognition, classification, interest and penalties and financial statement reporting disclosures. FIN 48 is effective for fiscal years beginning after December 15, 2006. We are currently evaluating the requirements and impact of FIN 48 on our consolidated financial statements, and will adopt the provisions on February 1, 2007. We adopted SFAS 123R on February 1, 2006 using the modified prospective method. Under this method, we are required to recognize compensation cost, on a prospective basis, for the portion of outstanding awards for which the requisite service has not yet been rendered as of February 1, 2006, based upon the grant-date fair value of those awards calculated under SFAS 123 for pro forma disclosure purposes. Under SFAS 123R, we are required to measure the cost of services received in exchange for stock options and similar awards based on the grant-date fair value of the award and recognize this cost in the income statement over the period during which an award recipient is required to provide service in exchange for the award. The pro forma disclosures previously permitted under SFAS 123 no longer will be an alternative to financial statement recognition. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There are no material changes to the disclosure made with respect to these matters in our Annual Report on Form 10-K for the year ended January 31, 2006. ITEM 4. CONTROLS AND PROCEDURES As of the end of the period covered by this report, our 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 such term is defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, the Company's Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. During our last fiscal quarter, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. 19 PART II ITEM 1A. RISK FACTORS In addition to the other information set forth in this report, you should carefully consider the factors discussed in "Item 1A. Risk Factors" in our Annual Report on Form 10-K for the year ended January 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF STOCKHOLDERS (a) Our Annual Meeting of Stockholders was held on June 8, 2006. (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 10,930,857 8,707 Sammy Aaron 10,867,437 72,127 Thomas J. Brosig 10,213,449 726,115 Pieter Deiters 10,931,157 8,407 Alan Feller 10,890,992 48,572 Carl Katz 10,930,357 9,207 Laura H. Pomerantz 10,866,937 72,627 Willem van Bokhorst 10,930,857 8,707 Richard White 10,930,857 8,707 (ii) The approval of an amendment to our certificate of incorporation that increased our number of authorized shares of common stock from 20,000,000 to 40,000,000: FOR: 10,565,482 AGAINST: 84,152 ABSTENTIONS: 289,930 (iii) The ratification of the appointment of Ernst & Young LLP as our independent certified public accountants for the fiscal year ending January 31, 2007. Our stockholders voted as follows: FOR: 10,936,454 AGAINST: 2,295 ABSTENTIONS: 815 20 ITEM 6. EXHIBITS 3.1 Certificate of Amendment of Certificate of Incorporation, dated June 8, 2006 10.1 Lease agreement dated June 29, 2006 between The Realty Associates Fund VI, LP and G-III Apparel Group, Ltd. 31.1 Certification by Morris Goldfarb, Chief Executive Officer of G-III Apparel Group, Ltd., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2006. 31.2 Certification by Neal S. Nackman, Chief Financial Officer of G-III Apparel Group, Ltd., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2006. 32.1 Certification by Morris Goldfarb, Chief Executive Officer of G-III Apparel Group, Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2006. 32.2 Certification by Neal S. Nackman, Chief Financial Officer of G-III Apparel Group, Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.'s Quarterly Report on Form 10-Q for the fiscal quarter ended July 31, 2006. 21 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 13, 2006 By: /s/ Morris Goldfarb ------------------------------------ Morris Goldfarb Chief Executive Officer Date: September 13, 2006 By: /s/ Neal S. Nackman ------------------------------------ Neal S. Nackman Chief Financial Officer 22