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.
G-III Apparel (GIII)
Filed: 27 Sep 05, 12:00am