G III APPAREL GROUP LTD /DE/ - Annual Report: 2007 (Form 10-K)

annually. Goodwill and intangible assets with an indefinite life are required to be written down when impaired, rather than amortized as previous accounting standards required. Goodwill and intangible assets with an indefinite life are tested for impairment by comparing the fair value of the reporting unit with its carrying value. Fair value is generally determined using discounted cash flows, market multiples and market capitalization. Significant estimates used in the fair value methodologies include estimates of future cash flows, future short-term and long-term growth rates, weighted average cost of capital and estimates of market multiples of the reportable unit. If these estimates or their related assumptions change in the future, we may be required to record impairment charges for our goodwill and intangible assets with an indefinite life.

The process of evaluating the potential impairment of goodwill is subjective and requires significant judgment at many points during the analysis. In estimating the fair value of a reporting unit for the purposes of our annual or periodic analyses, we make estimates and judgments about the future cash flows of that reporting unit. Although our cash flow forecasts are based on assumptions that are consistent with our plans and estimates we are using to manage the underlying businesses, there is significant exercise of judgment involved in determining the cash flows attributable to a reporting unit over its estimated remaining useful life. In addition, we make certain judgments about allocating shared assets to the estimated balance sheets of our reporting units. We also consider our and our competitor’s market capitalization on the date we perform the analysis. Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.

We allocated the purchase price of the companies we acquired in fiscal 2006 to the tangible and intangible assets acquired and liabilities assumed, based on their estimate fair values. These valuations require management to make significant estimations and assumptions, especially with respect to intangible assets. The amount allocated to goodwill was increased with respect to each of fiscal 2006 and fiscal 2007 as a result of additional payments made based on the performance of these companies.

Critical estimates in valuing intangible assets include future expected cash flows from license agreements, trade names and customer relations. In addition, other factors considered are the brand awareness and market position of the products sold by the acquired companies and assumptions about the period of time the brand will continue to be used in the combined company’s product portfolio. Management’s estimates of fair value are based on assumptions believed to be reasonable, but which are inherently uncertain and unpredictable.

If we did not appropriately allocate these components or we incorrectly estimate the useful lives of these components, our computation of depreciation and amortization expense may not appropriately reflect the actual impact of these costs over future periods, which will affect our net income.

Stock-based Compensation

Effective February 1, 2006, we adopted Statement of Financial Accounting Standards No. 123R, ‘‘Share Based Payment’’ (‘‘SFAS 123R’’). We 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 our results of operations if the exercise price was at least equal to the market value of our common stock on the grant date. As a result, the 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. We utilize the Black-Scholes option pricing model to estimate the fair value of stock-based compensation at the date of grant. The Black-Scholes model requires subjective assumptions regarding dividend yields, expected volatility, expected life of options and risk-free interest rates. These assumptions reflect management’s best estimates. Changes in these inputs and assumptions can materially affect the estimate of fair value and the amount of our stock-based compensation expenses. We recognized approximately $425,000 of stock-based compensation expense in fiscal 2007. As of February 1, 2007, there was approximately $1.2 million of total unrecognized stock-based compensation expense related to non-vested stock-based compensation granted by us. These expenses are expected to be recognized by us through January 31, 2013.

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Results of Operations

The following table sets forth selected operating data as a percentage of our net sales for the fiscal years indicated below:

			2005						2006						2007
Net sales					100.0	%					100.0	%					100.0	%
Cost of goods sold					75.4						73.8						72.9
Gross profit					24.6						26.2						27.1
Selling, general and administrative expenses					22.2						20.0						19.5
Depreciation and amortization					0.6						1.0						1.0
Non-recurring charge					0.4
Operating profit					1.4						5.2						6.6
Interest and financing charges, net					0.5						1.3						1.5
Income before income taxes					0.9						3.9						5.1
Income taxes					0.6						1.7						2.0
Net income					0.3	%					2.2	%					3.1	%

Results of Operations

Year ended January 31, 2007 (‘‘fiscal 2007’’) compared to year ended January 31, 2006 (‘‘fiscal 2006’’)

Net sales for fiscal 2007 increased to $427.0 million from $324.1 million in the prior year. Net sales of licensed apparel increased to $268.9 million from $197.0 million as a result of increases of $46.4 million in net sales of Calvin Klein licensed product, including outerwear and the addition of suits and dresses, $10.2 million in net sales of our sports apparel division, $10.2 million of net sales of Kenneth Cole licensed product and $5.9 million in net sales of Guess? licensed product. Net sales of non-licensed apparel increased to $158.1 million from $127.1 million, primarily due to increases in new and existing private label programs.

Gross profit increased to $115.5 million, or 27.1% of net sales, for fiscal 2007, from $84.8 million, or 26.2% of net sales, in the prior year. The gross profit percentage in our licensed apparel segment was 29.4% in fiscal 2007 compared to 27.9% in the prior year. Sales of Kenneth Cole outerwear, Calvin Klein licensed products, including outerwear, suits and dresses, and sports apparel accounted for the increase in both margin dollars and gross profit as a percentage of sales in our licensed apparel segment. The improved gross profit percentage is primarily a result of more retail sales of our product being at or close to full price resulting in lower markdown allowances being granted by us, as well as increased sales of Calvin Klein product which generally has higher average gross margins than our other licensed product. In fiscal 2007, the gross profit percentage in our non-licensed segment was 23.1% compared to a gross profit percentage of 23.5% in the prior year. The gross profit percentage in our non-licensed segment decreased as a result of a decrease in commission fee income offset, in part, by higher margin sales in our private label business due to product mix. Commission fee income in our non-licensed segment, which has no cost of goods sold component, was approximately $690,000 in the current year compared to $2.2 million in the prior year.

Selling, general and administrative expenses increased $19.8 million to $87.7 million in fiscal 2007 from $67.9 million in the prior year. Selling, general and administrative expenses increased primarily as a result of increases in personnel costs ($6.7 million), advertising and promotion ($4.8 million), facility costs ($3.3 million) and depreciation and amortization ($1.3 million). Personnel and facility costs increased primarily due to costs related to the businesses we acquired in July 2005, which were included for a full year in fiscal 2007 compared to approximately a half the year in fiscal 2006, as well as an increase in management bonuses. In addition, there were 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 use of third party warehouses to accommodate increased shipping volume and additional space leased in our Secaucus warehouse facility that was added in August 2005. Advertising and promotion increased primarily due to national and co-operative

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advertising required under the license agreements we added as a result of our acquisitions, as well as additional licenses we have entered into. The amount of advertising required is generally based on a percentage of net sales of licensed product. Depreciation and amortization expense increased as a result of the amortization of the identifiable intangibles we acquired in July 2005. A full year of amortization was included in fiscal 2007 compared to approximately a half year of amortization in fiscal 2006.

Interest and finance charges, net, for fiscal 2007 were $6.4 million compared to $4.3 million for the prior year. Interest expense increased primarily as a result of debt incurred in connection with the acquisitions and, to a lesser extent, due to an increase in interest rates.

Income tax expense for fiscal 2007 was $8.3 million compared to $5.5 million in the prior year. The effective rate for the current year was 38.6% compared to 43.8% for the prior year. The effective tax rate in the current year was lower because income tax expense in the current year includes the reversal of tax reserves of approximately $950,000 as a result of the completion of a Federal income tax audit.

Year ended January 31, 2006 (‘‘fiscal 2006’’) compared to year ended January 31, 2005 (‘‘fiscal 2005’’)

Net sales for fiscal 2006 increased by $109.8 million to $324.1 million from $214.3 million in the prior year. Net sales from our new Marvin Richards and Winlit divisions accounted for $99.5 million of this increase. Net sales of licensed apparel increased $60.7 million to $197.0 million from $136.3 million in the prior year. The increase was primarily a result of sales of $47.2 million of licensed apparel by our two new divisions. Sales under new licenses for Kenneth Cole Men’s and IZOD ($11.7 million) and an increase in our sports licensing division ($8.2 million) were partially offset by a decrease in sales in our fashion sports apparel business ($8.8 million). Net sales of non-licensed apparel increased $49.1 million to $127.1 million from $78.0 million in the prior year. This increase was the result of sales of non-licensed apparel of $52.5 million by our new Marvin Richards and Winlit divisions offset, in part by decreases in sales of non-licensed apparel under our pre-existing owned labels and private label programs.

Gross profit increased $32.1 million to $84.8 million, or 26.2% of net sales, for fiscal 2006 from $52.7 million, or 24.6% of net sales, for the prior year. Gross profit from our two new divisions accounted for $28.6 million of this increase. The gross profit percentage of our licensed apparel segment increased to 27.9% ($55.0 million) in fiscal 2006 from 25.1% ($35.1 million) in the prior year. The gross profit percentage in our licensed apparel increased primarily due to the higher gross margins in connection with sales in our new Calvin Klein division and improved gross margins in our Cole Haan and Sean John divisions. In addition, we had commission fee income of $843,000 in our licensed apparel segment. There was no commission fee income in this segment in last year’s comparable period. There is no cost of goods sold component associated with these commission transactions. The gross profit percentage in our non-licensed apparel segment increased to 23.5% ($29.8 million) during fiscal 2006 compared to 22.6% ($17.6 million) in the prior year due to higher gross margins in connection with sales of non-licensed apparel in our two new divisions offset by a decrease in commission fee income. Commission fee income in the non-licensed apparel segment decreased to $2.1 million during fiscal 2006 from $2.2 million in the comparable period of the prior year.

Selling, general and administrative expenses for fiscal 2006 were $67.9 million compared to $48.8 million for the prior year. Selling, general and administrative expenses increased primarily as a result of increases in personnel costs ($9.7 million), advertising and promotion ($3.0 million), facility costs ($2.2 million) and depreciation and amortization ($1.8 million). Personnel costs increased due to the additional personnel from the acquired businesses and an increase in management bonuses, as well as a non-cash compensation charge of $1.6 million incurred as a result of the vesting of 141,000 shares of restricted stock granted to key management. Advertising and promotion increased due to contractual advertising under the licenses that we added as a result of the acquisitions and contractual advertising under our existing license agreements. Facility costs increased primarily as a result of the additional rent under leases assumed in connection with the acquisitions. Amortization expense increased as a result of the amortization of the identifiable intangibles of Marvin Richards and Winlit that we acquired.

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Interest and finance charges, net were $4.3 million for fiscal 2006 compared to $1.1 million in the prior year. Interest expense increased primarily due to the additional debt incurred to finance the cash portion of the purchase price of our two acquisitions and the write-off of deferred costs associated with our prior credit agreement that was terminated, as well as due to an increase in average interest rates from approximately 4.25% to 7.25%, representing approximately $100,000 of the increase.

We had an income tax expense of $5.5 million for fiscal 2006 compared to $1.3 million in the prior year. Our effective tax rate was 43.8% for fiscal 2006 compared to 64.5% in the prior year. The higher effective tax rate in fiscal 2005 reflected the charge of $882,000 associated with the sale of our joint venture interest in a factory in China for which we did not record a tax benefit.

Liquidity and Capital Resources

Our primary cash requirements are to fund our seasonal build up in inventories and accounts receivable, primarily during the second and third fiscal quarters each year. Due to the seasonality or 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 operating cash requirements have been borrowings under this credit facility and cash generated from operations. We also raised cash from two offerings of our common stock during the past year as described below.

We are required to make principal payments of at least $6.6 million during fiscal 2008 under our term loan. During fiscal 2006, we used $23.9 million of cash to fund the purchase of Marvin Richards and specified assets from Winlit. We also used $3.3 million of cash in fiscal 2007 to pay additional purchase price based on the operating results of these two divisions. We expect to use additional cash during the next two years to pay additional purchase price in connection with our two acquisitions based on their operating results.

Public Offering

In March 2007, we completed a public offering of 4,500,000 shares of common stock, of which 1,621,000 shares were offered by us and 2,879,000 shares were offered by selling stockholders at a public offering price of $20.00 per share. We received net proceeds of $30.3 million from this offering after payment of the underwriting discount and expenses of the offering. In April, 2007, we received additional net proceeds of $6.0 million in connection with the sale of 313,334 shares pursuant to the exercise of the underwriters’ overallotment option. The net proceeds received by us will be used for general corporate purposes.

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 net proceeds to us of $15.0 million. The net proceeds of this placement were used to temporarily 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.

The investors will, subject to exceptions and qualifications specified in the purchase agreement, have a right of first refusal until July 13, 2008 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 1,500,000 shares purchased from us, any warrant shares issued upon exercise of the warrants and an additional 500,000 shares of our common stock sold

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to the investors at the same time by Mr. Aron Goldfarb, our founder and father of our Chief Executive Officer. We filed the registration statement within the required time period and the registration statement has been declared effective by the SEC. These investors sold an aggregate of 878,333 shares of our common stock in our recent public offering.

Financing Agreement

We have a financing agreement with The CIT Group/Commercial Services, Inc., as Agent, for a consortium of banks that was entered into in July 2005. The financing agreement is a three year, senior secured 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. This financing agreement replaced our prior financing agreement that was a revolving line of credit that provided a maximum line of credit in amounts that ranged from $35 million to $110 million at specific times during the year.

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 have 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 during fiscal 2007 bore interest, at our option, at the prime rate (8.25% at January 31, 2007) or LIBOR plus 2.25% (7.61% at January 31, 2007).

The amount borrowed under the line of credit varies based on our seasonal requirements. The maximum amount outstanding, including open letters of credit, under our line of credit was approximately $64.9 million in fiscal 2005, $129.6 million in fiscal 2006 and $138.3 million in fiscal 2007. As of January 31, 2006, there were no direct borrowings and no banker’s acceptances outstanding. At January 31, 2007, there were direct borrowings in the amount of $1.6 million and no banker’s acceptances outstanding. Our contingent liability under open letters of credit was approximately $2.8 million at January 31, 2006 and 2007.

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 due on July 11, 2008, the maturity date of the loan. Mandatory prepayments are required under the term loan commencing with fiscal 2007 to the extent of 50% of excess cash flow, as defined. The required prepayment for the year ended January 31, 2007 was $2.0 million and has been classified as current portion of notes payable on our consolidated balance sheet. As a result of this prepayment, the amount of the balloon payment is currently $9.8 million. During fiscal 2007, the term loan bore interest, at our option, at prime plus 1% (9.25% at January 31, 2007) or LIBOR plus 3.25% (8.61% at January 31, 2007).

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 payments for cash dividends and stock redemption to $1.5 million plus an additional amount based on the proceeds of sales of equity securities. The financing agreement is secured by all of our assets.

On March 5, 2007, the financing agreement was amended to set forth covenants for the year ending January 31, 2008 related to net worth, earnings before interest, taxes, depreciation and amortization, fixed charge coverage ratio and capital expenditures. The amendment also specifies the maximum amounts that may be borrowed during the year, revised permitted over-advances and lowers the applicable interest rates by 0.25%. Beginning April 1, 2007, borrowings under the line of credit will bear interest, at our option, at the prime rate less 0.25% (8.0% at April 1, 2007) or LIBOR plus 2.0% (7.36% at April 1, 2007), and borrowings under the term loan will bear interest, at our option, at prime plus 0.75% (9.0% at April 1, 2007) or LIBOR plus 3.0% (8.36% at April 1, 2007).

Subsidiary Debt

PT Balihides, our 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

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this facility represent borrowings as of January 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

SFAS 123R requires that income tax benefits related to stock option exercises be reported in the cash from financing activities section of the Statements of Cash Flows. Accordingly, $176,000 of tax benefits in fiscal 2006 and $133,000 of tax benefits in fiscal 2005 were reclassified to cash from financing activities from cash from operating activities in the Consolidated Statements of Cash Flows and this reclassification has been reflected in the following discussion.

At January 31, 2007, we had cash and cash equivalents of $12.0 million. We used $1.4 million of cash from operating activities in fiscal 2007. Cash generated from our net income of $13.2 million, an increase in accounts payable of $5.9 million and non-cash charges for depreciation and amortization of $4.4 million was more than offset by increases in our accounts receivable of $15.2 million, inventory of $7.7 million and prepaid expenses of $2.8 million. The increase in accounts receivable is due to a 43% increase in sales in our fourth fiscal quarter. The increases in inventory and in accounts payable are attributable to inventory purchases for our new sportswear, suits and dress businesses. The increase in prepaid expenses is primarily a result of contractual advance payments made to licensors in accordance with some of our license agreements.

At January 31, 2006, we had cash and cash equivalents of $7.0 million. We generated $3.6 million of cash from operating activities in fiscal 2006. Cash was generated primarily from our net income of $7.1 million, non-cash charges for depreciation and amortization ($3.1 million) and for shares of common stock issued as compensation ($1.7 million) and a net decrease in inventory of $12.0 million. The decrease in inventory resulted from the sale of $18.3 million of inventory that we acquired from Marvin Richards and Winlit that was not on our balance sheet at the beginning of the year, offset, in part, by an increase of $6.3 million in our year-end inventory. We realized cash from acquired accounts receivable of $5.5 million during the year. The cash generated from these items was offset primarily by an increase in accounts receivable of $21.0 million and an increase in prepaid expenses of $4.3 million. The increase in accounts receivable was primarily attributable to the increase in net sales in the fourth quarter fiscal 2006 sales compared to the prior year. The increase in prepaid expenses is primarily a result of contractual advance payments made to licensors in accordance with some of our license agreements.

At January 31, 2005, we had cash and cash equivalents of $16.6 million. We generated $257,000 of cash from operating activities in fiscal 2005, resulting primarily from a decrease in inventory of $4.3 million and non cash charges for depreciation and amortization expense of $1.3 million and the write-down of $882,000 in our joint venture interest, offset in part by an increase in accounts receivable of $5.5 million. The decrease in inventory in fiscal 2005 resulted primarily from reduced fashion sports apparel inventory. Accounts receivable increased primarily due to increased sales in the fourth quarter of fiscal 2005 as compared to fiscal 2004.

Cash from Investing Activities

We used $5.7 million of cash for investing activities in fiscal 2007. We paid $3.3 million in connection with contingent payments earned as a result of the operating results of the two businesses we acquired in 2005. We also used $2.5 million for capital expenditures, primarily renovating new warehouse space and renovating existing showroom space. In fiscal 2006, we used $21.8 million of cash for investing activities, primarily in connection with the acquisitions of Marvin Richards ($19.9 million) and Winlit ($596,000). We used the balance of $1.3 million in investing activities for capital expenditures, primarily to renovate existing and additional warehouse space that we leased. In fiscal 2005, capital expenditures, which were primarily for leasehold improvements for office and showroom space and computer equipment, amounted to $1.1 million, partially offset by the proceeds of $200,000 from the sale of our joint venture interest, resulting in a net use of $865,000 of cash for investing activities.

Cash from Financing Activities

Cash from financing activities provided $12.1 million in fiscal 2007 primarily as a result of net proceeds of $15.0 million from the private placement of our common stock offset by scheduled quarterly

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repayments of our term loan in the aggregate amount of $6.6 million. As of January 31, 2007, there was $21.8 million outstanding under the term loan. In fiscal 2006, cash from financing activities provided $8.9 million primarily as a result of $30.0 million of borrowing under the term loan that is part of our financing agreement, offset in part by the repayment of $12.5 million under our terminated credit facility and repayment of $8.1 million under our new credit facility. We used the proceeds of the term loan primarily to pay the cash portion of the purchase price for the acquisitions of Marvin Richards and Winlit and expenses incurred in connection with the acquisitions and the new financing agreement. As of January 31, 2006, there was $28.4 million outstanding under the term loan. Cash flows generated by financing activities in fiscal 2005 were primarily from financing obtained under a capital lease arrangement ($600,000) and the exercise of stock options ($523,000).

Financing Needs

We believe that our cash on hand and cash generated from operations, together with funds available from our line of credit and from the net proceeds of our public offering, are sufficient to meet our expected operating and capital expenditure requirements. We may seek to acquire other businesses in order to expand our product offerings. We may need additional financing in order to complete one or more acquisitions. We cannot be certain that we will be able to obtain additional financing, if required, on acceptable terms or at all.

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 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. Management does not expect the adoption of SFAS No. 154 to have a material effect on our results of operations or our financial position.

In September 2006, the FASB issued FASB Statement No. 157, ‘‘Fair Value Measurements’’ (‘‘FAS 157’’), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FAS 157 is effective for fiscal years beginning after November 15, 2007. We are currently evaluating the requirements and impact of FAS 157 on our consolidated financial statements, and will adopt the provisions on February 1, 2008. FAS 157 is not expected to have a material impact on our consolidated financial statements.

Off Balance Sheet Arrangements

We do not have any ‘‘off-balance sheet arrangements’’ as such term is defined in Item 303 of Regulation S-K of the SEC rules.

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Tabular Disclosure of Contractual Obligations

As of January 31, 2007, our contractual obligations were as follows (in thousands):

			Payments Due By Period
Contractual Obligations			Total						Less than 1 Year						1-3 Years						3-5 Years						More than 5 Years
Long-Term Debt Obligations(1)				$	24,085					$	10,942					$	13,143
Capital Lease Obligations					303						188						115
Operating Lease Obligations					28,345						5,266						10,797					$	8,242					$	4,040
Minimum royalty payments(2)					83,554						23,908						44,522						15,124
Purchase obligations(3)					2,838						2,838
Total				$	139,125					$	43,142					$	68,577					$	23,366					$	4,040

(1)

Includes term loan due in quarterly installments of $1.65 million with a balloon payment due on July 11, 2008, the maturity date of our financing agreement, and notes payable in the amount of $770,000 by PT Balihides, our inactive Indonesian subsidiary under a previously existing line of credit. No other G-III entity has guaranteed this note.

(2)	Includes obligations to pay minimum scheduled royalty, advertising and other required payments under various license agreements.

(3)	Includes outstanding trade letters of credit, which represent inventory purchase commitments, which typically mature in less than six months.

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ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Impact of Inflation and Foreign Exchange

Our results of operations for the periods discussed have not been significantly affected by inflation or foreign currency fluctuation. We negotiate our purchase orders with foreign manufacturers in United States dollars. Thus, notwithstanding any fluctuation in foreign currencies, our cost for any purchase order is not subject to change after the time the order is placed. However, if the value of the United States dollar against local currencies were to decrease, manufacturers might increase their United States dollar prices for products.

We believe that inflation has not had a material effect on our costs and net revenues during the past three years.

Interest Rate Exposure

We are subject to market risk from exposure to changes in interest rates relating primarily to our line of credit. We borrow under the line of credit to support general corporate purposes, including capital expenditures and working capital needs. All of our debt will mature in less than two years and carries variable rates. We do not expect changes in interest rates to have a material adverse effect on income or cash flows in fiscal 2008. Based on our average borrowings during fiscal 2007, we estimate that each 100 basis point increase in our borrowing rates would result in additional interest expense to us of approximately $570,000.

ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

Financial statements and supplementary data required pursuant to this Item begin on page F-1 of this Report.

ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

ITEM 9A.	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 our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our 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.

ITEM 9B.	OTHER INFORMATION.

None.

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PART III

ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

We have adopted a code of ethics and business conduct, or Code of Ethics, which applies to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions. Our Code of Ethics is located on our Internet website at www.g-iii.com under the heading ‘‘About G-III.’’ Any amendments to, or waivers from, a provision of our Code of Ethics that apply to our principal executive officer, principal financial officer, principal accounting officer or controller and persons performing similar functions will be disclosed on our internet website within five business days following such amendment or waiver. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report we file with or furnish to the Securities and Exchange Commission.

The information required by Item 401 of Regulation S-K regarding directors is contained under the heading ‘‘Proposal No. 1 – Election of Directors’’ in our definitive Proxy Statement (the ‘‘Proxy Statement’’) relating to our Annual Meeting of Stockholders to be held on or about June 7, 2007, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, and is incorporated herein by reference. For information concerning our executive officers and other significant employees, see ‘‘Business-Executive Officers of the Registrant’’ in Item 1 above in this Report.

The information required by Item 405 of Regulation S-K is contained under the heading ‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ in our Proxy Statement and is incorporated herein by reference. The information required by Items 407(c)(3), (d)(4), and (d)(5) of Regulation S-K is contained under the heading ‘‘Corporate Governance’’ in our Proxy Statement and is incorporated herein by reference.

ITEM 11.	EXECUTIVE COMPENSATION.

The information required by this Item 11 is contained under the headings ‘‘Executive Compensation’’ and ‘‘Compensation Committee Report’’ in our Proxy Statement is incorporated herein by reference.

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ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

Security ownership information of certain beneficial owners and management as called for by this Item 12 is incorporated by reference to the information set forth under the heading ‘‘Beneficial Ownership of Common Stock by Certain Stockholders and Management’’ in our Proxy Statement.

Equity Compensation Plan Information

The following table provides information as of January 31, 2007, the last day of fiscal 2007, regarding securities issued under G-III’s equity compensation plans that were in effect during fiscal 2007.

Plan Category			Number of securities to be issued upon exercise of outstanding options, warrants and rights						Weighted average exercise price of outstanding options, warrants and rights						Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
Equity compensation plans approved by stockholders(1)					1,298,798					$	4.77	(2)					909,076
Equity compensation plans not approved by stockholders					N/A						N/A						N/A
Total					1,298,798					$	4.77	(2)					909,076

(1)

The number of shares of Common Stock available for issuance under our 2005 Stock Incentive Plan (the ‘‘Plan’’) is subject to an automatic annual increase on each January 31 during the term of the Plan equal to six percent (6%) of the total number of issued and outstanding shares of Common Stock on each such date (excluding any shares held in treasury).

(2)	Exercise price has been adjusted to give retroactive effect to a three-for-two split of our Common Stock effected on March 28, 2006.

ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

The information required by this Item 13 is contained under the headings ‘‘Certain Relationships and Related Transactions’’ and ‘‘Corporate Governance’’ in our Proxy Statement and is incorporated herein by reference.

ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES.

The information required by this Item 14 is contained under the heading ‘‘Principal Accounting Fees and Services’’ in our Proxy Statement is incorporated herein by reference.

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PART IV

ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a)	1.	Financial Statements.

	2.	Financial Statement Schedules.

The Financial Statements and Financial Statement Schedules are listed in the accompanying index to consolidated financial statements beginning on page F-1 of this report. All other schedules, for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are shown in the financial statements or are not applicable and therefore have been omitted.

3.

Exhibits:

(a)    The following exhibits filed as part of this report or incorporated herein by reference are management contracts or compensatory plans or arrangements: Exhibits 10.1, 10.1(a), 10.10, 10.12, 10.12(a), 10.13, 10.14, 10.19, 10.20 and 10.23.

3.1	Certificate of Incorporation.1

3.1(a)	Certificate of Amendment of Certificate of Incorporation, dated June 8, 2006.2

3.2	By-Laws, as amended, of G-III Apparel Group, Ltd. (‘‘G-III’’) .3

4.1	Securities Purchase Agreement, dated July 13, 2006, by and among G-III Apparel Group, Ltd., Prentice Capital Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital Offshore, Ltd., GPC XLIII, LLC, PEC I, LLC and S.A.C. Capital Associates, LLC.4

4.2	Registration Rights Agreement, dated July 13, 2006, by and among G-III Apparel Group, Ltd., Prentice Capital Partners, LP, Prentice Capital Partners QP, LP, Prentice Capital Offshore, Ltd., GPC XLIII, LLC, PEC I, LLC and S.A.C. Capital Associates, LLC.4

	4.3	Form of Warrant.4

	10.1	Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.5

	10.1(a)	Amendment, dated October 1, 1999, to the Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.5

	10.3	Financing Agreement, dated as of July 11, 2005, by and among The CIT Group/Commercial Services, Inc., as Agent, the Lenders that are parties thereto, G-III Leather Fashions, Inc., J. Percy For Marvin Richards, Ltd., and CK Outerwear, LLC.6

	10.3(a)	Amendment No. 2, dated as of February 24, 2006, to Financing Agreement, dated as of July 11, 2005, by and among The CIT Group/Commercial Services, Inc., as Agent, the Lenders that are parties thereto, G-III Leather Fashions, Inc., J. Percy For Marvin Richards, Ltd., and CK Outerwear, LLC.7

	10.3(b)	Amendment No. 3, dated as of July 26, 2006, to Financing Agreement, dated as of July 11, 2005, as amended, by and among The CIT Group/Commercial Services, Inc., as Agent, the Lenders that are parties thereto, G-III Leather Fashions, Inc., J. Percy For Marvin Richards, Ltd., and CK Outerwear, LLC.8

	10.3(c)	Amendment No. 4, dated as of February 28, 2007, to Financing Agreement, dated as of July 11, 2005, as amended, by and among The CIT Group/Commercial Services, Inc., as Agent, the Lenders that are parties thereto, G-III Leather Fashions, Inc., J. Percy For Marvin Richards, Ltd., and CK Outerwear, LLC.9

	10.6	Lease, dated September 21, 1993, between Hartz Mountain Associates and G-III.5

	10.6(a)	Lease renewal, dated May 27, 1999, between Hartz Mountain Associates and G-III.5

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	10.6(b)	Lease modification agreement, dated March 10, 2004, between Hartz Mountain Associates and G-III.10

	10.6(c)	Lease modification agreement, dated February 23, 2005, between Hartz Mountain Associates and G-III.11

	10.7	Lease, dated June 1, 1993, between 512 Seventh Avenue Associates (‘‘512’’) and G-III.5

	10.7(a)	Lease amendment, dated July 1, 2000, between 512 and G-III.5

	10.8	Lease, dated January 31, 1994, between 512 and G-III.5

	10.8(a)	Lease amendment, dated July 1, 2000, between 512 and G-III.5

	10.10	G-III Apparel Group, Ltd. 1989 Stock Option Plan, as amended.5

	10.12	G-III Apparel Group, Ltd. 1997 Stock Option Plan, as amended.10

	10.12(a)	Form of Option Agreement for awards made pursuant to the G-III Apparel Group, Ltd. 1997 Stock Option Plan, as amended.11

	10.13	Letter Agreement, dated December 2, 1998, between G-III and Aron Goldfarb.5

	10.14	G-III Apparel Group, Ltd. 1999 Stock Option Plan for Non-Employee Directors, as amended.12

	10.19	G-III Apparel Group, Ltd. 2005 Stock Incentive Plan.13

	10.20	Form of Restricted Stock Agreement.14

	10.21	Stock Purchase Agreement, dated as of July 11, 2005, by and among Sammy Aaron, Andrew Reid, Lee Lipton, John Pollack, Sammy Aaron, as Sellers’ Representative, G-III Leather Fashions, Inc. and G-III.6

	10.21(a)	Amendment to Stock Purchase Agreement, dated January 30, 2007, amending the Stock Purchase Agreement, dated July 11, 2005, by and among Sammy Aaron, Andrew Reid, Lee Lipton, John Pollack, Sammy Aaron, as Sellers’ Representative, G-III Leather Fashions, Inc and G-III Apparel Group, Ltd.15

	10.22	Asset Purchase Agreement, dated as of July 11, 2005, by and among G-III Leather Fashions, Inc., G-III, Winlit Group, Ltd., David Winn and Richard Madris.6

	10.22(a)	Amendment to Asset Purchase Agreement, dated January 30, 2007, amending the Asset Purchase Agreement, dated July 11, 2005, by and among Stusam, Inc., a New York corporation formerly known as Winlit Group, Ltd., David Winn and Richard Madris, G-III Leather Fashions, Inc. and G-III Apparel Group, Ltd.15

	10.23	Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.6

	10.24	Lease agreement dated June 29, 2006 between The Realty Associates Fund VI, LP and G-III Apparel Group, Ltd.2

	21	Subsidiaries of G-III.

	23	Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.

	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 Annual Report on Form 10-K for the fiscal year ended January 31, 2007.

	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 Annual Report on Form 10-K for the fiscal year ended January 31, 2007.

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	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 Annual Report on Form 10-K for the fiscal year ended January 31, 2007.

	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 Annual Report on Form 10-K for the year ended January 31, 2007.

(1)	Previously filed as an exhibit to G-III’s Registration Statement on Form S-1 (no. 33-31906), which exhibit is incorporated herein by reference.

(2)	Previously filed as an exhibit to G-III’s Annual Report on Form 10-Q for the fiscal quarter ended July 31, 2006 filed on September 13, 2006, which exhibit is incorporated herein by reference.

(3)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on April 25, 2007, which exhibit is incorporated herein by reference.

(4)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on July 14, 2006, which exhibit is incorporated herein by reference.

(5)	Previously filed as an exhibit to G-III’s Annual Report on Form 10-K/A for the fiscal year ended January 31, 2006 filed on May 8, 2006, which exhibit is incorporated herein by reference.

(6)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on July 15, 2005, which exhibit is incorporated herein by reference.

(7)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on March 2, 2006, which exhibit is incorporated herein by reference.

(8)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on August 1, 2006, which exhibit is incorporated herein by reference.

(9)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on March 7, 2007, which exhibit is incorporated herein by reference.

(10)	Previously filed as an exhibit to G-III’s Annual Report on Form 10-K for the fiscal year ended January 31, 2004, which exhibit is incorporated here in by reference.

(11)	Previously filed as an exhibit to G-III’s Annual Report on Form 10-K for the fiscal year ended January 31, 2005, which exhibit is incorporated herein by reference.

(12)	Previously filed as an exhibit to G-III’s Annual Report on Form 10-K for the fiscal year ended January 31, 2006 filed on May 1, 2006, which exhibit is incorporated herein by reference.

(13)	Previously filed as an exhibit to G-III’s Registration Statement on Form S-8 filed on June 14, 2005, which exhibit is incorporated herein by reference.

(14)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on June 15, 2005, which exhibit is incorporated herein by reference.

(15)	Previously filed as an exhibit to G-III’s Report on Form 8-K filed on February 1, 2007, which exhibit is incorporated herein by reference.

Exhibits have been included in copies of this Report filed with the Securities and Exchange Commission. We will provide, without charge, a copy of these exhibits to each stockholder upon the written request of any such stockholder. All such requests should be directed to G-III Apparel Group, Ltd., 512 Seventh Avenue, 35th floor, New York, New York 10018, Attention: Mr. Wayne S. Miller, Secretary.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.
			By:			/s/ Morris Goldfarb
						Morris Goldfarb,      Chief Executive Officer

April 27, 2007

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature		Title		Date
/s/ Morris Goldfarb		Director, Chairman of the Board and Chief Executive Officer (principal executive officer)		April 27, 2007
Morris Goldfarb
/s/ Neal S. Nackman		Chief Financial Officer (principal financial and accounting officer)		April 27, 2007
Neal S. Nackman
/s/ Sammy Aaron		Director and Vice Chairman		April 27, 2007
Sammy Aaron
/s/ Thomas J. Brosig		Director		April 27, 2007
Thomas J. Brosig
/s/ Pieter Deiters		Director		April 27, 2007
Pieter Deiters
/s/ Alan Feller		Director		April 27, 2007
Alan Feller
/s/ Carl Katz		Director		April 27, 2007
Carl Katz
/s/ Laura Pomerantz		Director		April 27, 2007
Laura Pomerantz
/s/ Willem van Bokhorst		Director		April 27, 2007
Willem van Bokhorst
/s/ Richard White		Director		April 27, 2007
Richard White

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G-III Apparel Group, Ltd. and Subsidiaries

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
(Item 15(a))

			Page
Report of Independent Registered Public Accounting Firm					F-2
Financial Statements
Consolidated Balance Sheets — January 31, 2007 and 2006					F-3
Consolidated Statements of Income — Years Ended January 31, 2007, 2006 and 2005					F-4
Consolidated Statements of Stockholders’ Equity — Years Ended January 31, 2007, 2006 and 2005					F-5
Consolidated Statements of Cash Flows — Years Ended January 31, 2007, 2006 and 2005					F-6
Notes to Consolidated Financial Statements					F-8
Financial Statement Schedule
II — Valuation and Qualifying Accounts					S-1

All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, accordingly, are omitted.

F-1

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

of G-III Apparel Group, Ltd.

We have audited the accompanying consolidated balance sheets of G-III Apparel Group, Ltd. and subsidiaries as of January 31, 2007 and 2006, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended January 31, 2007. Our audits also included the financial statement schedule listed in the index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of G-III Apparel Group, Ltd. and subsidiaries at January 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 31, 2007, in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

/s/ ERNST & YOUNG LLP

New York, New York
March 22, 2007

F-2

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G-III Apparel Group, Ltd. and Subsidiaries

CONSOLIDATED BALANCE SHEETS
January 31,
(in thousands, except share and per share amounts)

ASSETS			2007						2006
CURRENT ASSETS
Cash and cash equivalents				$	12,026					$	7,031
Accounts receivable, net of allowance for doubtful accounts and sales discounts of $15,475 and $9,443, respectively					60,960						45,751
Inventories, net					38,111						30,395
Deferred income taxes					5,279						4,101
Prepaid expenses and other current assets					9,753						7,844
Total current assets					126,129						95,122
PROPERTY, PLANT AND EQUIPMENT, NET					5,641						4,296
DEFERRED INCOME TAXES					2,800						2,415
GOODWILL					25,006						18,501
OTHER INTANGIBLES, NET					11,971						15,287
OTHER ASSETS					1,983						2,696
				$	173,530					$	138,317
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Notes payable				$	10,942					$	7,370
Current maturities of obligations under capital leases					188						208
Income taxes payable					2,613						2,269
Accounts payable					12,430						9,749
Contingent purchase price payable					3,989						3,380
Accrued expenses					14,109						10,949
Total current liabilities					44,271						33,925
NOTES PAYABLE					13,143						21,750
OTHER NON-CURRENT LIABILITIES					474						631
TOTAL LIABILITIES					57,888						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; authorized, 40,000,000 shares; 14,530,070 and 12,701,222 shares issued at January 31, 2007 and 2006, respectively					145						127
Additional paid-in capital					56,686						36,262
Retained earnings					59,781						46,592
					116,612						82,981
Common stock held in treasury – 367,225 shares at cost					(970	)					(970	)
					115,642						82,011
				$	173,530					$	138,317

The accompanying notes are an integral part of these statements.

F-3

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G-III Apparel Group, Ltd. and Subsidiaries

CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

			Year ended January 31,
			2007						2006						2005
Net sales				$	427,017					$	324,072					$	214,278
Cost of goods sold					311,470						239,226						161,534
Gross profit					115,547						84,846						52,744
Selling, general and administrative expenses					83,258						64,763						47,452
Depreciation and amortization					4,431						3,125						1,344
Write-down of equity investment																	882
Operating profit					27,858						16,958						3,066
Interest and financing charges, net					6,362						4,349						1,086
Income before income taxes					21,496						12,609						1,980
Income tax expense					8,307						5,517						1,277
NET INCOME				$	13,189					$	7,092					$	703
INCOME PER COMMON SHARE:
Basic:
Net income per common share				$	1.00					$	0.62					$	0.07
Weighted average number of shares outstanding					13,199						11,509						10,773
Diluted:
Net income per common share				$	0.94					$	0.58					$	0.06
Weighted average number of shares outstanding					13,982						12,236						11,292

The accompanying notes are an integral part of these statements.

F-4

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G-III Apparel Group, Ltd. and Subsidiaries

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Years ended January 31, 2007, 2006 and 2005
(in thousands)

			Common stock						Additional paid-in capital						Accumulated other comprehensive income						Retained earnings						Common stock held in Treasury						Total
Balance as of January 31, 2004				$	110					$	27,288					$	47					$	38,797					$	(970	)				$	65,272
Employee stock options exercised					2						521																								523
Tax benefit from exercise of options											133																								133
Foreign currency translation adjustment																	3																		3
Issuance of restricted common stock					1						295																								296
Net income																							703												703
Balance as of January 31, 2005					113						28,237						50						39,500						(970	)					66,930
Employee stock options exercised					2						430																								432
Tax benefit from exercise of options											176																								176
Foreign currency translation adjustment																	(50	)																	(50	)
Shares issued in connection with acquisitions					10						5,234																								5,244
Shares issued under stock incentive plan					2						2,185																								2,187
Net income																							7,092												7,092
Balance as of January 31, 2006					127						36,262						0						46,592						(970	)					82,011
Employee stock options exercised					3						980																								983
Tax benefit from exercise of options											1,325																								1,325
Fair value of shares vested in connection with acquisitions											2,696																								2,696
Amortization share-based compensation											425																								425
Shares issued in connection with private placement, net					15						14,998																								15,013
Net income																							13,189												13,189
Balance as of January 31, 2007				$	145					$	56,686					$	0					$	59,781					$	(970	)				$	115,642

The accompanying notes are an integral part of this statement.

F-5

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G-III Apparel Group, Ltd. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)

			Year ended January 31,
			2007						2006						2005
Cash flows from operating activities
Net income				$	13,189					$	7,092					$	703
Adjustments to reconcile net income to net cash (used in) provided by operating activities, net of assets and liabilities acquired:
Depreciation and amortization					4,431						3,131						1,344
Non-cash compensation					425						1,738
Deferred financing charges					843						428
Write-down of equity investment																	882
Deferred income taxes					(1,563	)					(1,109	)					2,428
Changes in operating assets and liabilities:
Accounts receivable, net					(15,209	)					(15,506	)					(5,479	)
Inventories, net					(7,716	)					12,043						4,253
Income taxes, net					344						2,320						(1,555	)
Prepaid expenses and other current assets					(2,752	)					(4,330	)					(663	)
Other assets					713						(793	)					(827	)
Accounts payable, accrued expenses and other liabilities					5,873						(1,631	)					(829	)
Net cash (used in) provided by operating activities					(1,422	)					3,383						257
Cash flows from investing activities
Capital expenditures					(2,461	)					(1,300	)					(1,065	)
Proceeds from sale of joint venture interest																	200
Acquisition of Marvin Richards, net of cash acquired					143						(19,907	)
Acquisition of Winlit					(73	)					(596	)
Contingent purchase price paid					(3,269	)
Net cash used in investing activities				$	(5,660	)				$	(21,803	)				$	(865	)

F-6

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G-III Apparel Group, Ltd. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
(in thousands)

			Year ended January 31,
			2007						2006						2005
Cash flows from financing activities
Proceeds from terminated credit facility										$	12,457
Repayment of terminated credit facility											(12,457	)
Repayment of new credit facility											(20,506	)
Proceeds from new credit facility				$	1,565
Proceeds from term loan											30,000
Repayment of term loan					(6,600	)					(1,650	)
Proceeds from capital lease obligations																$	600
Payments for capital lease obligations					(209	)					(200	)					(149	)
Proceeds from sale of common stock, net					15,013						675
Tax benefit from exercise of options					1,325						176						133
Proceeds from exercise of stock options					983						432						523
Net cash provided by financing activities					12,077						8,927						1,107
Effect of exchange rate changes on cash and cash equivalents											(50	)					3
Net increase (decrease) in cash and cash equivalents					4,995						(9,543	)					502
Cash and cash equivalents at beginning of year					7,031						16,574						16,072
Cash and cash equivalents at end of year				$	12,026					$	7,031					$	16,574
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest				$	5,761					$	3,669					$	1,385
Income taxes					8,435						4,461						253
Supplemental schedule of non-cash investing and financing activities:
Acquisition of fixed assets under capital lease																$	174
Issuance of restricted stock																	296
Fair value of vested shares issued in connection with acquisitions of Marvin Richards and Winlit				$	2,696					$	5,019
Debt assumed in connection with the Winlit asset acquisition											6,697
Detail of the Marvin Richards and Winlit acquisitions:
Acquired intangibles										$	34,146
Fair value of other assets acquired											26,241
Fair value of total assets acquired											60,387
Liabilities assumed											(24,769	)
Debt assumed in connection with the Winlit asset acquisition											(6,697	)
Common stock issued											(5,019	)
Contingent purchase price payable				$	(3,989	)					(3,380	)
Cash paid for acquisitions											20,522
Cash acquired											19
Net cash paid for acquisitions										$	20,503

The accompanying notes are an integral part of these statements.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:

	1.	Business Activity and Principles of Consolidation

As used in these financial statements, the term ‘‘Company’’ or ‘‘G-III’’ refers to G-III Apparel Group, Ltd. and its wholly-owned subsidiaries. The Company designs, manufactures, imports, and markets an extensive range of outerwear and sportswear apparel which is sold to retailers primarily throughout the United States.

The Company consolidates the accounts of all its wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated.

References to fiscal years refer to the year ended or ending on January 31 of that year.

	2.	Cash Equivalents

The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.

	3.	Revenue Recognition

Goods are 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. In addition, the Company acts as an agent in brokering sales between its customers and overseas factories. On these transactions, the Company recognizes commission fee income on sales that are financed by 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.

	4.	Returns and Allowances

We reserve against known chargebacks, as well as for an estimate of potential future deductions and returns by customers. The Company establishes these reserves for returns and allowances based on current and historical information and trends. Allowances are established for trade discounts, markdowns, customer advertising agreements and operational chargebacks, which include shipping violations and freight charges. Estimated costs associated with allowable deductions for customer advertising expenses are reflected as selling, general and administrative expenses. Estimated costs associated with trade discounts and markdowns, net of historical recoveries, operational chargebacks and reserves for returns are reflected as a reduction of net sales. All of these reserves are part of the allowances netted against accounts receivable.

The Company estimates an allowance for doubtful accounts based on the creditworthiness of its customers as well as general economic conditions. Consequently, an adverse change in those factors could affect the Company’s estimate. The Company writes off uncollectible trade receivables once collection efforts have been exhausted and third parties confirm the balance is not recoverable.

	5.	Inventories

Inventories are stated at the lower of cost (determined by the first-in, first-out method) or market.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)

	6.	Goodwill and Other Intangibles

Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. Goodwill and intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests, using a discounted cash flow approach. Other intangibles with determinable lives, including license agreements, are amortized on a straight-line basis over the estimated useful lives of the assets (currently ranging from 3.5 to 15 years). Impairment losses, if any, on intangible assets with finite lives are recorded when indicators of impairment are present and the discounted cash flows estimated to be derived from those assets are less than the assets’ carrying amounts.

	7.	Depreciation and Amortization

Depreciation and amortization are provided for by straight-line methods in amounts sufficient to relate the cost of depreciable assets to operations over their estimated useful lives.

The following are the estimated lives of the Company’s fixed assets:

Machinery and equipment			5 to 7 years
Furniture and fixtures			5 years
Computer equipment and software			2 to 5 years
Building			20 years

Leasehold improvements are amortized over the lease term of the respective leases or the useful lives of the improvements; whichever is shorter.

	8.	Impairment of Long-Lived Assets

In accordance with Statements of Financial Accounting Standards (‘‘SFAS’’) No. 144, the Company annually evaluates the carrying value of its long-lived assets to determine whether changes have occurred that would suggest that the carrying amount of such assets may not be recoverable based on the estimated future undiscounted cash flows of the businesses to which the assets relate. Any impairment loss would be equal to the amount by which the carrying value of the assets exceeded its fair value.

	9.	Income Taxes

Deferred income tax assets reflect the tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

	10.	Net Income Per Common Share

Basic net income per share has been computed using the weighted average number of common shares outstanding during each period. Diluted net income per share amounts have been computed using the weighted average number of common shares and potential dilutive common shares, consisting of stock options, stock purchase warrants and unvested restricted stock awards, outstanding during the period. There were no anti-dilutive securities for the year ended January 31, 2007. Options to acquire an aggregate of approximately 78,000 and 36,000 shares of common stock were not included in the computation of diluted income per common share for the years ended January 31, 2006 and 2005, respectively, as including them would have been anti-dilutive.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)

All share and per share data have been adjusted to give retroactive effect to a three-for-two split of our Common Stock effected on March 28, 2006.

A reconciliation between basic and diluted income per share is as follows:

			Year ended January 31,
			2007						2006						2005
			(in thousands, except per share amounts)
Net income				$	13,189					$	7,092					$	703
Basic EPS:
Basic common shares					13,199						11,509						10,773
Basic EPS				$	1.00					$	0.62					$	0.07
Diluted EPS:
Basic common shares					13,199						11,509						10,773
Stock options and warrants					669						555						519
Unvested restricted stock awards*					114						172
Diluted common shares					13,982						12,236						11,292
Diluted EPS				$	0.94					$	0.58					$	0.06

*

Represents contingently issuable shares that would have met the market condition if the performance period concluded at the end of the reporting period.

	11.	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 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 be accounted for in accordance with SFAS 123R and recognized in the results of operations over the remaining vesting periods. The impact of forfeitures that may occur prior to vesting is estimated and considered in the amount recognized. 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.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)

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 years ended January 31:

			2006						2005
			(in thousands, except per share amounts)
Net income – as reported				$	7,092					$	703
Deduct: Stock-based employee compensation expense determined under fair value method, net of related tax effects					308						336
Pro forma net income				$	6,784					$	367
Basic income per share – as reported				$	0.62					$	0.07
Pro forma basic income per share				$	0.59					$	0.03
Diluted income per share – as reported				$	0.58					$	0.06
Pro forma diluted income per share				$	0.55					$	0.03

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 weighted average assumptions used in the Black-Scholes option pricing model for grants in fiscal 2007, 2006 and 2005, respectively:

			2007			2006			2005
Expected stock price volatility			48.4%			48.7%			67.5%
Expected lives of options
Directors and officers			7 years			7 years			7 years
Employees			6 years			6 years			6 years
Risk-free interest rate			5.0%			3.9%			3.9%
Expected dividend yield			0%			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.

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. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)

The weighted average remaining term for stock options outstanding was 4.7 years at January 31, 2007. The aggregate intrinsic value at January 31, 2007 was $26.0 million for stock options outstanding and $20.0 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 January 31, 2007, the reporting date.

In June 2005, the Company granted 211,500 restricted shares of the Company’s common stock to key employees. These shares vested in October 2005 based on the market price of the Company’s common stock exceeding a certain target for at least ten days. Compensation expense of $1.6 million was recorded as an expense on the date the restriction lapsed.

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 the market price conditions being met. In November 2006, the remaining 150,000 unvested shares vested as a result of the market price conditions being met. The cost for the restricted stock was measured and reflected as additional purchase consideration based on the quoted market price on the date the shares vested and the restrictions lapsed.

The following table summarizes unvested restricted stock activity for the years ended January 31, 2007 and 2006:

			2007						2006
Unvested at beginning of year					187,500						0
Granted					—						436,500
Vested					187,500						249,000
Unvested at end of year					0						187,500

Proceeds received from the exercise of stock options were approximately $983,000 and $432,000 during the years ended January 31, 2007 and 2006, respectively. The intrinsic value of stock options exercised was $3.8 million and $679,000 for the years ended January 31, 2007 and 2006, respectively. A portion of this amount is currently deductible for tax purposes.

As of January 31, 2007, approximately $1.2 million of unrecognized stock compensation related to unvested awards (net of estimated forfeitures) is expected to be recognized through the year ended January 31, 2013.

The weighted average fair value at date of grant for options granted during fiscal 2007, 2006 and 2005 was $5.43, $3.40 and $3.28 per option, respectively. The fair value of each option at date of grant was estimated using the Black-Scholes option pricing model.

	12.	Costs of goods sold

Cost of goods sold includes the expenses incurred to acquire, produce and prepare inventory for sale, including product costs, warehouse staff wages, freight in, import costs, packaging materials, the cost of operating our overseas offices and royalty expense. Our gross margins may not be directly comparable to those of our competitors, as income statement classifications of certain expenses may vary by company.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)

	13.	Shipping and Handling Costs

Shipping and handling costs consist of warehouse facility costs, third party warehousing, freight out costs, and warehouse supervisory wages and are included in selling, general and administrative expense. Shipping and handling costs included in selling, general and administrative expenses were $13.2 million, $9.1 million and $7.8 million for the years ended January 31, 2007, 2006 and 2005, respectively.

	14.	Advertising Costs

The Company expenses advertising costs as incurred and includes these costs in selling, general and administrative expense. Advertising expense was $13.5 million, $8.9 million and $5.9 million for the years ended January 31, 2007, 2006 and 2005, respectively. Prepaid advertising, which represents advance payments to licensors for contractual advertising, was $3.1 million and $2.2 million at January 31, 2007 and 2006, respectively.

	15.	Reclassifications

Certain amounts in the Consolidated Statements of Cash Flows for the years ended January 31, 2006 and 2005 have been reclassified to conform to the current year presentation. See Note A[11].

	16.	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. Actual results could differ from those estimates.

	17.	Fair Value of Financial Instruments

Based on borrowing rates currently available to the Company for bank loans with similar terms and maturities, the fair value of the Company’s debt approximates the carrying value. Furthermore, the carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash, accounts receivable and accounts payable) also approximates fair value due to the short-term nature of their maturity.

	18.	Foreign Currency Translation

The financial statements of subsidiaries outside the United States, other than Indonesia, are measured using local currency as the functional currency. Assets and liabilities are translated at the rates of exchange at the balance sheet date. Income and expense items are translated at average monthly rates of exchange. Gains and losses from foreign currency transactions of these subsidiaries are included in net earnings.

	19.	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 uncertain income tax positions 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 of uncertain positions, financial statement classification, accounting for interest

F-13

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE A — SIGNIFICANT ACCOUNTING POLICIES (continued)

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. Management believes the adoption of FIN 48 will not have a material effect on the results of operations or financial position.

In September 2006, the FASB issued FASB Statement No. 157, ‘‘Fair Value Measurements’’ (‘‘FAS 157’’), which addresses how companies should measure fair value when they are required to use a fair value measure for recognition or disclosure purposes under generally accepted accounting principles. The FASB believes that the new standard will make the measurement of fair value more consistent and comparable and improve disclosures about those measures. FAS 157 is effective for fiscal years beginning after November 15, 2007. The Company is currently evaluating the requirements and impact of FAS 157 on the Company’s consolidated financial statements, and will adopt the provisions on February 1, 2008. FAS 157 is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE B — INVENTORIES

Inventories consist of:

			January 31,
			2007						2006
			(000’s)
Finished goods				$	36,098					$	25,557
Work-in-process					16						80
Raw materials					1,997						4,758
				$	38,111					$	30,395

Raw materials of $1.6 million and $3.5 million were maintained in China at January 31, 2007 and 2006, respectively.

NOTE C — PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment at cost consist of:

			January 31,
			2007						2006
			(000’s)
Machinery and equipment				$	1,788					$	1,669
Leasehold improvements					9,142						7,268
Furniture and fixtures					2,203						2,034
Computer equipment					6,907						6,580
Land and building					969						969
Property under capital leases (Note H)
Computer equipment					184						184
Leasehold improvements					650						650
Furniture and fixtures					150						150
					21,993						19,504
Less accumulated depreciation and amortization (including $490,000 and $366,000 on property under capital leases at January 31, 2007 and 2006, respectively)					16,352						15,208
				$	5,641					$	4,296

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE D — ACQUISITIONS AND INTANGIBLES

In July 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, for aggregate consideration consisting of $19.2 million in cash and 699,999 shares of the Company’s common stock valued at $4.7 million based on the quoted market price on the date of acquisition. The purchase agreement also provided for the grant of 225,000 restricted shares of the Company’s common stock that vested based on the future market price of the Common Stock. During the year ended January 31, 2006, 37,500 of these restricted shares vested and were valued at $257,000. During the year ended January 31, 2007, the remaining 187,500 restricted shares vested and were valued at $2.7 million. The restricted shares were valued based on the market value of the shares on the date the shares vested.

The former principals of Marvin Richards are also entitled to receive additional purchase price based on the performance of the Company’s Marvin Richards division through January 31, 2009. For each of the years ending January 31, 2007 and 2006, contingent payments of $2.6 million were earned and recorded as additional purchase consideration. Goodwill will be increased for subsequent earn-out payments based upon performance. The total consideration paid and accrued by the Company in connection with the acquisition of Marvin Richards through January 31, 2007 is $33.1 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 $20.0 million, which includes the contingent payments, being recorded as goodwill.

Marvin Richards has been an outerwear manufacturer and supplier for over 20 years under the Marvin Richards brand name. In addition, it has licenses for men’s and women’s outerwear under the Calvin Klein and ck Calvin Klein brand name. Marvin Richards also conducts a variety of private label programs.

Amounts assigned to intangible assets resulting from the Marvin Richards acquisition and the related useful lives are as follows:

			Fair value (in thousands)						Useful life (in years)
License agreements				$	7,235				3.5 – 5.5
Trademarks					3,650				12
Customer relationships					1,306				15
Non-compete agreements					373				3.5

In July 2005, the Company acquired certain operating assets of Winlit Group, Ltd. for aggregate consideration consisting of (i) $580,000 in cash, (ii) 45,000 shares of the Company’s common stock valued at $76,000 which represents the market price on the date of acquisition, less consideration paid ($5.00 per share) and (iii) the assumption of $6.7 million of Winlit’s bank debt. Winlit is entitled to receive additional purchase price based on the performance of the Company’s Winlit division through January 31, 2009. For the years ended January 31, 2007 and 2006, contingent payments of $1.2 million and $780,000 were earned and recorded as additional purchase consideration. Goodwill will be increased for subsequent earn-out payments based upon performance.

The total consideration paid and accrued by the Company in connection with the acquisition of Winlit through January 31, 2007 is $9.3 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 $5.0 million, which includes the contingent payments, being recorded as goodwill.

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE D — ACQUISITIONS AND INTANGIBLES (continued)

Winlit has been a supplier of outerwear for over 35 years. As a result of acquiring Winlit’s assets, the Company has licenses for men’s and women’s outerwear under the Guess? Brand, leather outerwear under the Tommy Hilfiger brand and women’s outerwear under the Ellen Tracy brand. Winlit also sells apparel under the Winlit, LNR, and NY 10018 owned names and through private label programs.

Amounts assigned to intangible assets resulting from the Winlit acquisition and the related useful lives are as follows:

			Fair value (in thousands)						Useful life (in years)
License agreements				$	1,751						4
Trademarks					580						10
Customer relationships					526						15
Non-compete agreements					224						3.5

The Company has allocated the purchase price of Marvin Richards and Winlit according to its estimate of fair value of assets and liabilities as of the acquisition date, as follows:

			As of July 11, 2005
			(in thousands)
Cash				$	19
Receivables					5,462
Inventories					18,330
Property and equipment					1,535
Other assets					895
Intangible assets					15,645
Goodwill					15,121
Total assets				$	57,007
Due to factor				$	13,809
Accounts payable					5,527
Accrued expenses and other liabilities					5,433
				$	24,769

The operating results of Marvin Richards and Winlit have been included in the Company’s financial statements since July 11, 2005.

F-16

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE D — ACQUISITIONS AND INTANGIBLES (continued)

The Company purchased the operations and certain assets of Gloria Gay Coats, LLC in January 2001. The purchase price was $3.4 million, which includes contingent payments subsequently paid in an aggregate amount of $2.2 million. The purchase price was allocated to a license agreement acquired in connection with this transaction. The license agreement is being amortized using the straight-line method through 2009, the expected life of this license. The net intangible asset remaining as of January 31, 2007 and 2006 was $912,000 and $1.4 million, respectively.

A summary of all intangible assets as of January 31, 2007 is as follows:

			Estimated Life			Amount (in thousands)
Gross carrying amounts
Licenses			3.5 – 8 years				$	12,373
Trademarks			10 – 12 years					4,230
Customer relationships			15 years					1,832
Non-compete agreements			3.5 years					597
Subtotal							$	19,032
Accumulated amortization
Licenses							$	6,044
Trademarks								560
Customer relationships								198
Non-compete agreements								259
Subtotal							$	7,061
Net:
Licenses							$	6,329
Trademarks								3,670
Customer relationships								1,634
Non-compete agreements								338
Subtotal							$	11,971
Unamortized intangible asset
Goodwill							$	25,006
Total intangible assets, net							$	36,977

Intangible amortization expense amounted to $3.3 million, $2.2 million and $498,000 for the years ended January 31, 2007, 2006 and 2005, respectively.

Goodwill has been allocated to the reporting segments based upon the relative fair values of the licenses (Licensed segment) and trademarks (Non-Licensed segment) acquired in July 2005. Activity is summarized by segment as follows:

			Licensed						Non-Licensed
Balance at January 31, 2006				$	12,581					$	5,920
Contingent purchase price					2,713						1,276
Restricted shares vested					1,833						863
Purchase price adjustments					(122	)					(58	)
Balance at January 31, 2007				$	17,005					$	8,001

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Table of Contents

G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE D — ACQUISITIONS AND INTANGIBLES (continued)

The estimated intangible amortization expense for the next five years is as follows:

Fiscal year			Amortization expense (in thousands)
2008				$	3,314
2009					3,253
2010					1,104
2011					875
2012				$	470

NOTE E — 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 bore interest during the year ended January 31, 2007 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 due on July 11, 2008, the maturity date of the loan. Mandatory prepayments are required under the term loan commencing with the fiscal year ended January 31, 2007 to the extent of 50% of excess cash flow, as defined. The prepayment amount for the year ended January 31, 2007 was $2.0 million and has been classified as current portion of notes payable on the accompanying consolidated balance sheet.

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 based on the proceeds of sales of equity securities and limits annual capital expenditures. As of January 31, 2007, 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.

On March 5, 2007, the credit facility was amended to set forth covenants for the year ended January 31, 2008 related to net worth, earnings before interest, taxes, depreciation and amortization, fixed charge coverage ratio and capital expenditures. The amendment also specifies the maximum amounts that may be borrowed during the year, revised permitted over-advances and lowers the applicable interest rates. Beginning April 1, 2007, borrowings under the line of credit will bear interest at the Company’s option at the prime rate less 0.25% or LIBOR plus 2.0% and borrowings under the term loan will bear interest, at the Company’s option, at prime plus 0.75% or LIBOR plus 3.0%.

The weighted average interest rate for amounts borrowed under the credit facility was 8.5% and 6.5% for the years ended January 31, 2007 and 2006, respectively.

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE E — NOTES PAYABLE (continued)

At each of January 31, 2007 and 2006, the Company was contingently liable under letters of credit in the amount of approximately $2.8 million.

NOTE F — NON-RECURRING CHARGE

In December 2002, the Company announced its decision to close its manufacturing facility in Indonesia due to rapidly rising costs and losses associated with this facility, as well as the political and economic instability in Indonesia. The unpaid portion of the non-recurring charge associated with the close is included in ‘‘Accrued expenses’’ on the Consolidated Balance Sheet. The balance in the reserve at January 31, 2007 and 2006 is $398,000 and represents accrued expenses, severance and other miscellaneous costs. Based on current estimates, management believes that existing accruals are adequate.

NOTE G — INCOME TAXES

The Internal Revenue Service has completed its examination of the Company’s 2004 and 2005 Federal income tax returns. As a result, in the quarter ended October 31, 2006, the Company reversed approximately $950,000 in tax reserves.

The income tax provision is comprised of the following:

			Year ended January 31,
			2007						2006						2005
			(000’s)
Current
Federal				$	7,105					$	4,760					$	(1,120	)
State and city					2,793						1,837						(53	)
Foreign					(28	)					29						22
					9,870						6,626						(1,151	)
Deferred tax (benefit) expense					(1,563	)					(1,109	)					2,428
				$	8,307					$	5,517					$	1,277
Income before income taxes
United States				$	21,453					$	11,956					$	1,865
Non-United States					43						653						115

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE G — INCOME TAXES (continued)

The significant components of the Company’s net deferred tax asset at January 31, 2007 and 2006 are summarized as follows:

			2007						2006
			(000’s)
Supplemental employee retirement plan				$	141					$	131
Officer bonus					493						463
Provision for bad debts and sales allowances					3,342						1,972
Depreciation and amortization					2,047						1,850
Inventory write-downs					678						339
Advertising allowance					714						530
Sales return accrual					1,365						843
Straight-line lease					546						378
Prepaid expenses					(1,611	)					(320	)
Other					364						330
				$	8,079					$	6,516

The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements for the years ended January 31:

			2007						2006						2005
Provision for Federal income taxes at the statutory rate					35.0	%					34.0	%					34.0	%
State and city income taxes, net of Federal income tax benefit					7.3						8.3						16.6
Effect of foreign taxable operations					(0.2	)					(1.8	)					(0.8	)
Effect of permanent differences resulting in Federal taxable income					0.7						2.3						21.3
Reversal of tax contingencies					(4.4	)
Other, net					0.2						1.0						(6.6	)
Actual provision for income taxes					38.6	%					43.8	%					64.5	%

Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $1.1 million at January 31, 2007. Those earnings are considered indefinitely reinvested and, accordingly, no provision for U.S. income taxes has been provided thereon. Upon distribution of those earnings in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries, as applicable.

NOTE H — COMMITMENTS AND CONTINGENCIES

The Company leases warehousing, executive and sales facilities, and transportation equipment 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.

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE H — COMMITMENTS AND CONTINGENCIES (continued)

In addition, certain leases have been treated as capital leases. The present values of minimum future obligations are calculated based on interest rates at the inception of the leases. The following schedule sets forth the future minimum rental payments for operating leases having non-cancelable lease periods in excess of one year and future minimum lease payments under capital leases at January 31, 2007:

			Operating Leases						Capital Leases
			(in thousands)
Year ending January 31,
2008				$	5,266					$	205
2009					5,419						112
2010					5,378						—
2011					5,309						—
2012					2,933						—
Thereafter					4,040						—
Net minimum lease payments				$	28,345						317
Less amount representing interest											14
Present values of minimum lease payments										$	303
Current portion										$	188
Noncurrent portion											115
Present values of minimum lease payments										$	303

Rent expense on the above operating leases (including the lease with 345 West – see Note K) for the years ended January 31, 2007, 2006 and 2005 was approximately $4.8 million, $3.9 million and $2.7 million, respectively.

The Company has entered into license agreements that provide for royalty payments from 3.5% to 12% of net sales of licensed products as set forth in the agreements. The Company incurred royalty expense (included in cost of goods sold) of approximately $25.8 million, $19.3 million and $12.3 million, for the years ended January 31, 2007, 2006 and 2005, respectively. Contractual advertising expense associated with certain license agreements (included in selling, general and administrative expense) was $7.2 million, $4.6 million and $2.7 million for the years ended January 31, 2007, 2006 and 2005, respectively. Based on minimum sales requirements, future minimum royalty and advertising payments required under these agreements are:

Year ending January 31,			Amount
			(in thousands)
2008				$	23,908
2009					25,648
2010					18,874
2011					9,629
2012					5,495
				$	83,554

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE H — COMMITMENTS AND CONTINGENCIES (continued)

The Company has an employment agreement with its chief executive officer, which expires on January 31, 2010. The agreement provides for a base salary as well as bonus payments that vary between 3% and 6% of pretax income in excess of $2 million.

The Company entered into employment agreements with four principals from the businesses acquired during 2005. Each agreement has a non-compete provision and an initial term through January 31, 2009. The aggregate minimum annual base compensation for these employment agreements is $2,120,000 through January 31, 2009. One of the former principals also received options to purchase 75,000 shares at the fair market value of the common stock upon executing the agreement.

NOTE I — STOCKHOLDERS’ EQUITY

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 net proceeds to the Company of $15,013,000. 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 temporarily repay a portion of the outstanding balance under the Company’s revolving credit line.

The investors will, subject to exceptions and qualifications specified in the purchase agreement, have a right of first refusal until July 13, 2008 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 1,500,000 shares purchased from the Company, any warrant shares issued upon exercise of the warrants and an additional 500,000 shares of Common Stock sold to the investors at the same time by the father of the Company’s Chief Executive Officer. The Company filed the registration statement within the required time period and the registration statement has been declared effective. In connection with our public offering in March 2007 and the exercise of the underwriter’s overallotment option in April 2007, these investors sold an aggregate of 878,333 shares of common stock.

Stock Options and Warrants

As of January 31, 2007, the Company had 909,076 shares available for grant under its stock plans. 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 Company 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.

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE I — STOCKHOLDERS’ EQUITY (continued)

Information regarding all options and warrants for fiscal 2007, 2006 and 2005 is as follows:

			2007												2006												2005
			Shares						Weighted average exercise price						Shares						Weighted average exercise price						Shares						Weighted average exercise price
Options and warrants outstanding at beginning of year					1,429,348					$	3.53						1,472,923					$	3.25						1,586,623					$	3.11
Exercised					(328,900	)				$	2.99						(146,850	)				$	2.94						(186,150	)				$	2.81
Granted					696,000					$	10.57						108,000					$	6.49						76,500					$	5.01
Cancelled or forfeited					(122,650	)				$	8.99						(4,725	)				$	2.53						(4,050	)				$	3.57
Options and warrants outstanding at end of year					1,673,798					$	6.16						1,429,348					$	3.53						1,472,923					$	3.25
Exercisable					1,242,798					$	5.60						1,083,898					$	2.98						1,092,673					$	2.72

The following table summarizes information about stock options and warrants outstanding:

Range of exercise prices			Number out- standing as of January 31, 2007						Weighted average remaining contractual life			Weighted average exercise price						Number exercisable as of January 31, 2007						Weighted average exercise price
$1.16 – $2.00					262,798				2.3 years				$	1.48						262,798					$	1.48
$2.01 – $4.00					280,500				0.6 years				$	3.07						277,500					$	3.06
$4.01 – $6.00					413,000				5.9 years				$	4.53						267,500					$	4.43
$6.01 – $8.00					121,500				8.0 years				$	6.86						60,000					$	6.84
$8.01 – $11.00					596,000				6.3 years				$	10.67						375,000					$	11.00
					1,673,798															1,242,798

Restricted Stock

In fiscal 2006, the Company granted 211,500 restricted shares of the Company’s common stock to key employees. These shares vested during fiscal 2006 based on the market price of the Company’s common stock exceeding a certain target for at least ten days. Compensation expense of $1.6 million was recorded as an expense on the date the restriction lapsed.

In July 2005, the Company granted 225,000 restricted shares in connection with the acquisition of Marvin Richards. During the years ended January 31, 2007 and 2006, 187,500 and 37,500 restricted shares, respectively, vested as a result of the market price of the Company’s stock attaining certain specified thresholds. As a result, additional goodwill in the amounts of $2.7 million and $257,000 has been recorded during the years ended January 31, 2007 and 2006, respectively, based upon the market price on the day the stock vested.

NOTE J — MAJOR CUSTOMERS

Two customers accounted for 18.5% and 11.9% of the Company’s net sales for the year ended January 31, 2007. Two customers accounted for 19.0% and 13.2% of the Company’s net sales for the year ended January 31, 2006. For the year ended January 31, 2005, one customer accounted for 15.0% of the Company’s net sales.

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE K — RELATED PARTY TRANSACTIONS

During the years ended January 31, 2007, 2006 and 2005, the Company leased space from 345 West 37^th Corp. (‘‘345 West’’), a property owned by two principal stockholders, one of whom is an executive officer. Rent and other operating expenses paid by the Company to 345 West during the years ended January 31, 2007, 2006 and 2005, amounted to approximately $240,000, $227,000, and $200,000, respectively.

On March 6, 2007, the Company entered into a Surrender Agreement, Lease Modification and Termination Agreement (the ‘‘Agreement’’) with 345 West to terminate the lease agreement. Pursuant to the Agreement, the Company agreed to move out of the leased premises by May 31, 2007. 345 West paid the Company $833,500 as a reimbursement for unamortized leasehold improvements at 345 West 37th Street, moving costs, the cost to improve the Company’s existing space and other related costs.

NOTE L — EMPLOYEE BENEFIT PLANS

The Company maintains a 401(k) plan and trust for nonunion employees. At the discretion of the Company, the Company currently matches 50% of employee contributions up to 3% of the participant’s compensation. The Company’s matching contributions amounted to approximately $372,000, $260,000, and $245,000, for the years ended January 31, 2007, 2006 and 2005, respectively.

NOTE M — SEGMENTS

The Company operates in two segments, licensed and non-licensed apparel. The Company’s reportable segments are business units that are managed separately and offer its products that differ based upon whether the products are sold subject to licensing arrangements or under a proprietary or private label brand. The following information is presented for the fiscal years indicated below:

			2007												2006												2005
			Licensed						Non- Licensed						Licensed						Non- Licensed						Licensed						Non- Licensed
Net sales				$	268,892					$	158,125					$	196,954					$	127,118					$	136,323					$	77,955
Cost of goods sold					189,936						121,534						141,969						97,257						101,198						60,336
Gross profit					78,956						36,591						54,985						29,861						35,125						17,619
Selling, general and administrative					59,596						28,093						44,554						23,334						35,138						13,658
Non-recurring charge																																			882
Operating profit (loss)					19,360						8,498						10,431						6,527						(13	)					3,079
Interest and financing charges, net					4,515						1,847						2,065						2,284						973						113
Income (loss) before income taxes				$	14,845					$	6,651					$	8,366					$	4,243					$	(986	)				$	2,966
Depreciation and amortization				$	3,163					$	1,268					$	2,327					$	804					$	1,028					$	316

Commission fee income was $687,000, $3.0 million, and $2.2 million for fiscal 2007, 2006 and 2005, respectively. In fiscal 2007, commission fee income was in the non-licensed segment. In fiscal 2006, approximately $843,000 and $2.2 million of commission fee income was included in the licensed and non-licensed segments, respectively. Commission fee income in fiscal 2005 was primarily in the

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE M — SEGMENTS (continued)

non-licensed segment. The Company allocates all expenses to its two reportable segments. The Company allocates overhead to its business segments on various bases, which include units shipped, space utilization, inventory levels, and relative sales levels, among other factors. The method of allocation is consistent on a year-to-year basis.

			2007												2006												2005
			Revenues						Long-Lived Assets						Revenues						Long-Lived Assets						Revenues						Long-Lived Assets
Geographic region
United States				$	422,960					$	46,442					$	319,451					$	42,319					$	213,278					$	6,853
Non-United States					4,057						959						4,621						877						1,000						1,033
				$	427,017					$	47,401					$	324,072					$	43,196					$	214,278					$	7,886

Capital expenditures for locations outside of the United States were not significant in each of the fiscal years ended January 31, 2007, 2006 and 2005.

Included in finished goods inventory at January 31, 2007, 2006 and 2005 are $24.3 million and $11.8 million, $16.7 million and $8.5 million, and $14.0 million and $6.5 million, respectively, of inventories for licensed and non-licensed apparel, respectively. All other assets are commingled.

NOTE N — QUARTERLY FINANCIAL DATA (UNAUDITED)

Summarized quarterly financial data in thousands, except per share numbers, for the fiscal years ended January 31, 2007 and 2006 are as follows:

			Quarter ended
			April 30, 2006						July 31, 2006						October 31, 2006						January 31, 2007
January 31, 2007
Net sales				$	14,389					$	69,082					$	244,704					$	98,842
Gross profit					679						16,833						72,344						25,691
Net income (loss)					(8,850	)					(1,737	)					23,258	(a)					518
Net income (loss) per common share
Basic				$	(0.72	)				$	(0.14	)				$	1.68	(a)				$	0.04
Diluted					(0.72	)					(0.14	)					1.59	(a)					0.03

			Quarter ended
			April 30, 2005						July 31, 2005						October 31, 2005						January 31, 2006
January 31, 2006
Net sales				$	13,767					$	54,553					$	186,621					$	69,131
Gross profit					915						12,749						55,118						16,064
Net income (loss)					(4,669	)					(301	)					14,813						(2,751	)
Net income (loss) per common share
Basic				$	(0.43	)				$	(0.03	)				$	1.25					$	(0.23	)
Diluted					(0.43	)					(0.03	)					1.15						(0.23	)

(a)	Includes the reversal of tax contingencies in the amount of $950,000

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G-III Apparel Group, Ltd. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  (continued)

January 31, 2007, 2006 and 2005

NOTE O — Subsequent Event 

On March 9, 2007, the Company completed a public offering of 4,500,000 shares of common stock, of which 1,621,000 shares were sold by the Company, and 2,879,000 shares were sold by certain selling stockholders at a public offering price of $20.00 per share. The Company received net proceeds of $30.8 million from this offering after payment of the underwriting discount. On April 12, 2007, the Company received additional net proceeds of $6.0 million in connection with the sale of 313,334 shares pursuant to the exercise of the underwriters’ overallotment option. The net proceeds received by the Company will be used for general corporate purposes.

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G-III Apparel Group, Ltd. and Subsidiaries

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

Column A			Column B						Column C									Column D						Column E
									Additions
Description			Balance at beginning of period						(1) Charged to costs and expenses						(2) Charged to other accounts			Deductions (a)						Balance at end of period
Year ended January 31, 2007
Deducted from asset accounts
Allowance for doubtful accounts				$	1,636					$	249								$	458					$	1,427
Reserve for sales allowances (b)					7,807						22,393									16,152						14,048
				$	9,443					$	22,642								$	16,610					$	15,475
Year ended January 31, 2006
Deducted from asset accounts
Allowance for doubtful accounts				$	1,732					$	(182	)							$	(86	)				$	1,636
Reserve for sales allowances (b)					4,958						13,003									10,154						7,807
				$	6,690					$	12,821								$	10,068					$	9,443
Year ended January 31, 2005
Deducted from asset accounts
Allowance for doubtful accounts				$	1,462					$	304								$	34					$	1,732
Reserve for sales allowances (b)					7,460						4,393									6,895						4,958
				$	8,922					$	4,697								$	6,929					$	6,690

(a)	Accounts written off as uncollectible, net of recoveries.

(b)	See Note A in the accompanying Notes to Consolidated Financial Statements for a description of sales allowances.

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