You are on page 1of 34

G-III Apparel Group Inc.

Full Version

http://welch.som.yale.edu/

0
Original Version: September 14, 1997 (Last Changes: December 3, 2004). This case has been
authored and is copyrighted (1997) by Ivo Welch (professor of finance at the Yale School of Man-
agement). Please bring all mistakes in this case to the attention of the author.
The fee to use this case is $3 for each case = student. (This is less than the fee as that charged by
shorter HBS cases). Please send a check to Prof. Ivo Welch, 46 Hillhouse Avenue, Box 208200, New
Haven CT 06520-8200, indicating on the check the university, instructor, class, and time-period.
Please check the latest case version for address changes. My intent is to make collection as easy
on the instructor (and copy shop) as possible: please send the check within 3 months of copying.
When all sections of a course have less then 10 students, to avoid nuisance charges, such courses
are exempt from case fees. If the above fees or procedure presents hardship, please inform the
author at ivo.welch@yale.edu: I am flexible. Teachers who use the case in class, but do not include
it in a course package (so that most students copy the case from the WWW without paying the case
fee) forfeit my permission to use this case and are in violation of copyright.
Most of the information in this case has been obtained from public sources, first and fore-
most the IPO prospectus of G-III, the industry reports provided by the Department of Com-
merce, and the data bases of Compustat, CRSP, and SDC. More IPO information is available at
http://www.iporesources.org/. Alan Feller (CFO and COO of G-III) and Aron Goldfarb (founder
of G-III), and Richard White (Oppenheimer) graciously provided additional insights. Boris Grin-
berg added assistance, and Antonio Bernardo, Jos van Bommel, Francesca Cornelli, Jay Ritter,
and Mike Vetsuypens added helpful comments. Most of all, the author thanks his mother, Char-
lotte Welchwho owns and runs a beautiful mid-sized clothes-store, Come Prima by Charlotte
Welch, in Fulda, Germanyfor explaining the apparel business and using the store to finance his
education.

1
I Introduction

In late 1989, Clive How was managing the portfolios of high-net worth individu-
als. A number of his clients had read about unusually high IPO returns, and had
requested a substantial part of their assets to be invested in new firms. Clive agreed
with this strategy, believing that new firms were one of the few opportunities where
an intelligent portfolio manager could outperform. After all, new firms were not yet
widely followed by analysts and other investors. While scouting for good opportu-
nities, he had stumbled into a road show of the G-III Apparel Company. G-III (pro-
nounced gee-three) was a leading producer of leather apparel, and was proposing
an IPO for early December. Clive believed that, like smart portfolio managers, smart
company management would always outperform. G-III seemed to be an interesting
opportunity, so Clive decided to evaluate it as a potential investment.

II The Industry

G-IIIs business was not easy to classify. G-IIIs main input, leather, was also used
by shoe, luggage, handbag, glove and fashion accessory manufacturers, as well as
the upholstery business.
G-IIIs main output, clothes, competed in the apparel industry, which was other-
wise dominated by textile based companies. Nevertheless, G-III clearly considered
itself an apparel company, not a leather company.

A The Input: Leather (SIC Code 31 +)

Inputs: Cattlehides were considered to be a byproduct of meat production: there


were 35 million commercial slaughters in 1989 (from a stock of about 100 million
cattle), despite a continued decline in the demand for red meat. The U.S. exported
about 23 million hides, with South Korea absorbing close to half, Japan close to a
quarter, and Taiwan close to a tenth of the U.S. exports.
Unfortunately, leather production was notoriously difficult to estimate, even
years after production had taken place. Exhibit 1 describes the trends published in
the 1990 industrial outlook (U.S. Department of Commerce). It indicated that total
leather shipments and products had risen from $7.92B in 1987 to about $8.5B in
1988 to an estimated $8.6B in 1989. These figures represented about 14 million
cattlehide equivalents (with cowhides accounting for 8085 percent of the total).
After adjusting for inflation, leather shipments and products did not increase from
1987 to 1988 and declined about 1.6% from 1988 to 1989. Thus, following real
growth rates of 4% for the 19861987 period, 1989 leather shipments appeared to

2
be disappointingly low, and substantially underperforming the 4.1% that the U.S.
industrial outlook had predicted at the beginning of 1989. However, the outlook
predicted a 3% increase for 1990.
Foreign demand had put significant price pressures on cattlehides, with prices
having risen about 17% per year since 1985 to reach about 91 cents per pound in
the beginning of 1989. Although hide prices dropped about 5% in the first half
of 1989, low levels of slaughter and good foreign demand were likely to keep hide
prices constant or even increase it. Even during the hide price drop, though, finished
leather prices had remained constant.
Over the last 5 years, G-III had paid approximately $1 to $1.30 per square foot
for leather hides, which accounted for 90% of G-IIIs raw material costs.

B The Output: Apparel (SIC Code 23)

Apparel is one of the largest sectors of the U.S. economy, employing close to a
million people in 1989. Unlike leather which had underperformed its expectations
in the last 12 months, apparel enjoyed an unexpected surge. This growth came as
consumers enjoyed increased disposable income, which they had used to replenish
their wardrobes after years of diminished spending (in effect shifting consumption
from durables into apparel). Growth rates were expected to reach about 3% (real)
in 1989, following less than 1% in 1988. Producers had been partly to blame for
the 1988 showing, having misread the fashion interests of their consumers. (Again,
Exhibit 1 displays recent trends in the apparel industry.)

C Leather Apparel (SIC Code 2386)

Leather apparel represented only about 2.5% of total leather industry shipments.
(For comparison, more than 50% went to footwear, 25% to leather tanning and fin-
ishing, 10% to luggage, and 5% to handbags.) But unlike other leather businesses,
reflecting recent strong demand in the apparel business, leather apparel had en-
joyed a very good 1989 sofar. Leather continued to be a hot fashion item, and as
a result, the leather apparel industry was on the path of beating its beginning-of-
1989 growth projection of 1.4% for an expected 1989-total of 4.0%. Looking further,
19891990 growth projections were a relatively rosy 3.5%.
U.S. employment in the leather apparel business had increased 30% in 1987, 10%
in 1988, and about 5% (est) in 1989. But like most apparel and leather, the leather
apparel business was labor intensive, and U.S. wages were about $8.34 per hour. As a
result, all trends pointed towards more foreign production. The U.S. exported about
$40 million, but imported just slightly under $1B. Imports accounted for about 80%

3
of the U.S. market. South Korea was by far the principal supplier of leather apparel
to the U.S. market, supplying nearly three-quarters of the value of U.S. imports.
Still, the apparel market was multilateral: over one-quarter of U.S. outputs were
exported (primarily to Japan, France, and Italy), representing about one-quarter of
the market, and U.S. apparel exports had increased by 85% in 1988.
Leather apparel was expected to grow by about 4% (real) in 1989. In general,
the long-term outlook was for continued growth (due to the current wealth and age
trends in the U.S. population).

III The Company

A The Business

G-III produced a wide range of leather apparel, primarily moderately-priced womens


wear: coats, jackets, pants, and skirts. Although some product was produced under
private label, most product was sold under G-IIIs own brand names: G-III, Siena,
and Cayenne. The G-III womens division sold items from $40$300 (retail price),
Siena sold items between $260 and $1,800, the new Cayenne division sold items
between $100 and $500, and a recent push into mens wear under the G-III label
sold items with prices between $150 and $500. Most of G-IIIs sales were to chains,
both general stores (such as Dillards, The May Company and Sears Roebuck) and
specialty chains (The Limited [20% of sales], and Wilsons House of Suede [8% of
sales, down from 15% two years earlier]),1 and sold under G-IIIs brand names. As
is common in the high-volume apparel business, the company was not focused on
design choices, but followed the styles of the rest of the industry or the specific
sample designs provided by its customers. The company also had just begun to
export, primarily to Canada, and expected foreign sales to be a growth venue.
One third of G-IIIs production was from the companys New York City factories,
the other two-thirds from independent contractors, primarily in Korea. New York
production allowed the company to test trends, to react to changes, or to fill sudden
demand, on short notice. Korean production allowed the company to produce items
at lower cost, despite the 6% U.S. import duty on its Korean products. One buying
agent in Korea provided 4050% of all purchases (varying each year). Similarly,
40% of its U.S. leather were obtained from one vendor (Henry Sokol Leather Co).
However, the tannery and manufacturing of leather apparel was fiercely competitive,
and any business relationship could easily be replaced with another if necessary.
The company did not sell product on consignment and generally did not accept
1
Wilsons was both a producer of leather goods (and thus a competitor of G-III) and a customer.

4
returns (except when defective). Orders tended to be placed on short notice, and
sales could not be easily predicted from the firms backlog.
The company employed 235 people, of which 134 worked in design and manu-
facturing, 64 in warehouse facilities, and 11 in sales. 157 employees were covered
by union agreements, but employee relationships had historically been cordial. The
company paid about $500,000 in annual rent for its offices, warehouses, show-
rooms, and other facilities.
G-III was generally predicted to capture about 10% of 1989 industry sales, up
from only 2% in 1985, in an industry that grew at a 15% annual rate. From 1986 to
1989, the companys net sales had grown at a compound annual rate of 68%.
G-III depended heavily on the maintenance or increase of consumer demand for
leather wearing apparel, and that demand had been favorably affected in the mid-
1980s when technological changes in leather tanning techniques increased the color
and texture alternatives of leather garments. These new leather finishing technolo-
gies allowed jackets made from inexpensive skins to feel as luxurious as jackets
costing as much as three to five times a decade earlier. Bomber jackets, one of
G-IIIs main product lines, which used to cost roughly $600 could now be produced
and sold for $100$200. The attractiveness of G-III as an investment would de-
pend heavily on G-IIIs ability to continue the growth and profitability of the recent
past. But in the apparel business, in particular, the high levels of return on equity
shown did not usually persist for long even in advanced technological enterprises.
Still, G-III believed its quality, broad selection and ability to quickly adjust output to
changing styles were important to its success. Its customer orientation had served
it well in the past. In addition, G-III was one of the largest independent wholesale
manufacturers of leather apparel in the United States. Its relative size in a frag-
mented industry was important to retailers, and should be an advantage if G-III
were to seek acquisitions. Despite its size, the company had had practically no
press coverage, and was known primarily to fashion insiders. As is common in the
apparel business, most of G-IIIs sales and profits were in the first and last fiscal
quarters.

B The Company and Its Management

G-III was founded in 1974 by Aron Goldfarb. Aron Goldfarb was a Polish Jew who
had survived the Holocaust and moved to the U.S. in 1956.2 He had worked his
way up in the New York fashion district, eventually founding a company named
G&N (Goldfarb and Novak), in which he learned how to manufacture and market
leather apparel. After he separated from Mr. Novak, Aron Goldfarb founded his own
2
In 1994, the U.S. Holocaust Memorial Museum (Washington) published a book about Aron
Goldfarbs life, entitled Maybe you will survive.

5
company, G-III, the III denoting himself and his two sons. By 1989, the 66-year-old
Aron Goldfarb remained chairman of the board, but his son, Morris Goldfarb had
taken over the day-to-day management as president and chief executive officer. The
remaining management team were mostly in their forties, veterans of the apparel
business, but not indispensable to the operations. The management structure of
G-III is listed in Exhibit 2.
The relative importance of the Goldfarbs was reflected in their salaries. Morris
drew $443,000 per annum, Aron drew $380,000. Three other officers drew between
$100,000 and $160,000 per year from 19881989. Post-IPO, Morris and Arons
salaries were slated to increase to between $500,000 and $650,000 after the of-
fering, plus a performance bonus of 5% of pre-tax profits in excess of $1 million,
plus some options and life insurance.
Before the offering, Aron Goldfarb held 1,579,111 shares, equivalent to 34.0%
of the company; Morris held 2,378,666 shares, or 51.2%. Together, the executive
officers and directors owned 91.9% of all shares. The offering contemplated to sell
2 million shares at $13 each (the preliminary prospectus indicated a price range
of $13-$16), of which 500,000 shares were sold by Aron and the rest were newly
issued, for a total of 6,144,144 shares. Other insiders retained their holdings, and
the customary Rule 1443 lockup prevented the sale of 3,904,444 shares. Ninety
days after the offering, 466,666 shares could be sold, subject to agreements with
the underwriters. The insiders agreed to additional selling restrictions for the first
180 dates after the offering, basically excluding any inside sales. The company
had also instituted a stock option plan, in which key employees, consultants, and
directors would receive warrants with an exercise price within 10% of the firms
value.

IV The Initial Public Offering

A The IPO Prospectus

Exhibits 35 contain the first three text pages of the IPO prospectus. (Pages 1 and
2 of the IPO prospectus show fashion models wearing G-III leather fashions.) G-IIIs
prospectus format was mostly boilerplate, the first page describing the offering,
the second page the company, the third page the financials. (The full G-III IPO
prospectus is available at http://welch.som.yale.edu/.)
3
Restricted shares may not be sold under Rule 144, unless they have been fully paid for and
held for 2 years. Thereafter, the amount of shares that may be sold depends on trading volume
and market value.

6
B Other Information from the Financial Statements

Aside from Exhibit 5, the prominently displayed financial summary (on page 4 of
the IPO prospectus) and the cash flow statement deep in the prospectus, there were
considerable financial details. Among the more noteworthy tidbits were the follow-
ing: G-III had $18.8 million in short term debt, and $3.5 million in long term debt. It
anticipated that the proceeds of the offering would be used to reduce these figures
to $4.9 million and $1.5 million, respectively. G-III had recently violated some of its
covenants for its mortgage/lease (noted in footnote F13). However, it had obtained
a waiver from their creditors for these violations from July 1988 through July 1989.
(G-III was still in non-compliance at the time of the IPO, but renegotiating a new
waiver.) G-IIIs did not purchase, but leased its space. Leases were guaranteed by
principal, and so not reported as current obligations, but long-term obligations. The
company had never paid dividends and had no plans to pay dividends in the near
future. The company had some dealings with other corporations fully or partially
controlled by some its directors or the Goldfarbs, but these were disclosed in the
prospectus which stated that all such transactions were made at terms at least as
good if not better than those obtainable from outside parties. Finally, the com-
pany had recently managed to reduce its pension expense from $171,000 in (fiscal
year) 1987 to $46,000 in 1988 to $55,000 in 1989. (The 1987 drop was accom-
plished through the termination of two noncontributory plans in August 1987. The
company had contributed $125,000 to this plan in July 1987. The remaining pen-
sion plan was a multi-employer plan, covered by a collective bargaining agreement
and not administered by G-III.) Pension expense to G-IIIs pension plan was $8,600
and $17,500 in the three months period ending October 1988 and October 1989,
respectively.

C The Underwriter Syndicate

In May 1988, the Equity Securities Trading Co had performed a limited IPO, and
as a result had received a warrant for 20,000 shares at a price of $7.20, expiring
on May 5, 1993. Basically, G-III had merged into Ante Corp., a very small publicly
traded vehicle, which had not been large enough to be listed on a prominent ex-
change. In the end, this neither helped nor hurt G-IIIs real IPO, but left it with 46
other holders of record and 195 beneficial holders of common stock even before
the IPO.
The proposed general IPO was handled by Richard White on behalf of Oppen-
heimer. A private attorney in the law firm of Bell, Kalnick, Klee & Green had
introduced Richard White after finding out of Morris Goldfarbs interest to go pub-
lic. In exchange, the law firm received a finders fee. Oppenheimer ranked some-
where between 15 and 20 in terms of underwritten IPOs, competing for the G-III

7
IPOs with the likes of Bear Sterns, Ladenburg, or even Lehman, Paine-Webber,
Dean-Witter, and Prudential. In G-IIIs case, the presence of an apparel analyst
(Dennis Rosenberg) was an advantage.
The IPO process began in late August/early September and culminated in the
offering in December. G-III had changed auditors on July 31, 1989 from McMichael
to Grant Thornton, who had audited the financial statements for the three years
prior to the offering. The selection of a more well-known auditor was not unusual
in preparation of an initial public offering, and McMichael had confirmed that it
was in agreement with the new auditors assessments.
As lawyers, Oppenheimer had retained Morgan, Lewis & Bockius of New York
City, G-III had retained Fulbright Jaworski & Reavis McGrath. The company had
renamed itself (dropping its prior name Ante Corp), consolidated its subsidiaries
(G-III Leather Fashions and Siena Leather), and incorporated in Delaware prior
to the offering (previously, Minnesota). The company was slated to begin trading
on NASDAQ/NMS under the symbol GIII immediately after the IPO.
Oppenheimer conducted road shows in New York, Boston, Minneapolis, Chicago,
Los Angeles, San Francisco, Zrich, Paris, and London. Attending institutional in-
vestors appeared to be quite receptive to the offering. (The firm or the underwriters
had no intrinsic preference in favor of either institutional or individual investors.)
The formal book-building process began about 2 weeks before the offering. The
prospectus stated that Oppenheimer had agreed to underwrite 612,500 shares it-
self; 20 underwriters, including almost all the tier-1 underwriters, had agreed to
underwrite 35,000 shares each; 10 underwriters had agreed to underwrite 25,000
shares; and 25 underwriters had agreed to underwrite 17,500 shares each.

A Note on Syndication: The real IPO process is more intricate, mostly due to his-
torical (and perhaps archaic) conventions. Underwriting and selling are two different
activities. In IPOs of the size of G-III, the lead underwriter sells almost all the shares
himself. Historically, underwriters had different and unique investor networks and
thus a syndicate had more placing ability than an individual Investment bank. Today,
however, practically all investment banks share the same institutional clients, and
thus there is little need for an underwriter to ask fellow syndicate members to help
sell shares. One disadvantage of sharing distribution is that lead underwriters wish
to avoid investors flipping of shares into the aftermarket immediately after the
offering. Controlling such flipping is more difficult when shares are placed by other
brokers. Still, syndicate participants may, on occasion, receive some IPO shares to
place, say, 3,500 shares if they underwrite 35,000 shares.
The main reason underwriters give for the presence of a syndicate today is shared
liability. If investors in the offering later sue the company and its experts, under-
writer liability is distributed according to their participation in the syndicate. In ex-
change for their syndicate participation, non-lead underwriters receive 20%4 of the
4
Oppenheimer would receive 20% as a management fee, the brokers distributing the shares
would receive the remaining 60%. Because most brokers would end up being Oppenheimer bro-
kers, Oppenheimer would in turn recapture some of these commissions.

8
7% fee ($0.91 per share) paid by the issuer. However, underwriter expenses (attor-
neys, travel, entertainment, stabilization costs) are allocated to the same 20%, and, in
offerings of the size of G-III, syndicate underwriters receive close to nothing. In ef-
fect, investment banks consider selling shares (for commissions) to be the profitable
component, and underwriting to be the unprofitable liability component. Receiving
primarily liability and practically no compensation, why underwriters would agree to
participate in a syndicate? The main reason for participating in another underwriters
offering is reciprocityin exchange for their participation, Oppenheimer would par-
ticipate as a syndicate member in the future IPOs of these underwriters. Thus, syn-
dicates are de facto a complicated mechanism to share liability risk. (In larger initial
public offerings, however, syndicate participation can become profitable.)

In G-IIIs case, the underwriter discount was $0.91 per share, and underwriters
agreed to sell to other dealers at no greater a discount than $0.53, who in turn could
sell at a discount no greater than $0.10. In addition, the underwriters received a 30-
day overallotment option to purchase 300,000 shares, exercisable at $12.09. These
shares had to be bought from Morris Goldfarb, and had to be distributed among
the underwriter syndicate in the same fraction that the original shares were allo-
cated. Further, underwriters were allowed to exercise the option only to cover over-
allotments made in connection with the offering. G-III indemnified the underwriters
against liabilities, losses and expenses under the 1933 Act, but it was understood
by all participants that such indemnification would provide only limited protection
to the underwriter. G-III also agreed to sell five-year warrants to purchase 200,000
shares at a price of $15.60 for $200,000. These warrants were not transferable and
not exercisable for one year. Finally, the underwriters agreed not to have intent to
make sales to discretionary accounts in excess of 5% of the total numbers of shares
of stock offered.5

D Use of Proceeds and Risks

Of the 1.5 million primary shares sold, most were slated to facilitate the companys
operational growth (necessary additions to working capital, financing of inventory
and accounts receivable). In addition, the company planned to repay a $2 million
note to its bank. (The note was guaranteed by the Goldfarbs.)
The prospectus specifically mentioned the following risk factors:

Reliance on Foreign Manufacturers.


Dependence on Key Personnel.
Dependence on Key Customers.
The Nature of the Apparel Business.
Seasonality.
5
The underwriter for a previous offering had also received a warrant for 20,000 shares, 4 years
from April 1989, at strike price of $7.20, for $100.

9
Control by the Goldfarbs.
Future share sales.
Lack of significant trading, causing NASDAQ to drop G-III.
Uncertainty about the right offering price.

V Pricing The Offering

The most important issue-at-hand was determining the appropriate pricing of the
IPO.

A Comparable Apparel IPOs

G-IIIs prime competitors were Winlet, Andrew Mark, Mirage, and US Cooper
Sportswear. Unfortunately, none of these were traded on a public exchange, and
no information as to their sales, etc., was available. (G-III believes itself to be the
largest leather outerwear producer, but with no public information from their com-
petitors, this could neither be confirmed nor dispelled.)
The first critical choice that both G-III and potential buyers would have to make is
who to choose as comparable companies (comps). There are a number of sources
for this type of information that are accessible to industry analysts, for example

Compustat Issued by Standard&Poors, Compustat contains annual and quar-


terly financial information gathered from annual and quarterly financials on a
large range of companies.

CRSP Issued by the University of Chicago, CRSP contains stock price and related
information (dividends, splits, delistings), etc.

SDC Issued by Securities Data Corp, SDC offers a data base of recent issuing
activity, gather from public registration filings with the SEC.

Searches for comparables are usually done by trying to find firms in the same
industry (SIC code, i.e., Standard Industry Classification) with similar size charac-
teristics as the firm in question. A first search on Compustat listed a number of
potential comp candidates, printed in Exhibit 6.
Securities Data Corp offered its ownand different setof potential compa-
rable companies from its IPO data base. Firms in the SDC database with same SIC
industry code as G-III are listed in 7.
With such a large set of possible comparables, an analyst was sent to look over
the comparable firms and came up with the analysis in Exhibit 8.

10
Selecting a large number of comparables would mean compromising by compar-
ing apples and oranges; i.e., it might end up benchmarking G-III against a liturgical
vesture clothes producer. A small number of comparables would mean a very un-
reliable estimate for an appropriate valuation of a company like G-III. The analysts
detailed business descriptions of these companies made it clear that the original list
had yielded more unsuitable than suitable comparables. It is ironic that in the end,
even in such an established large industry as apparel, comparables were difficult to
find. In fact, the IPO may well have transformed G-III to become the only publicly
traded outerwear manufacturer in the U.S.
Having selected six comparablesYes Clothing, Oshkosh, Benetton, Leg-
ends, Mayfair and Gitanosome new new dilemmas arose. Although there were
now 6 comparables, only Yes Clothing had done an IPO recently. Gitanos and
Legends IPOs had occurred about a year ago. (See Exhibit 9.)
Further, Mayfair had recently been taken over and Benetton was an Italian
company, clearly operating in a different environment and its financial data would
have been hard to interpret. Even though the comp firms were publicly traded,
information was still difficult to come by! The problem now was that there were too
few, not too many comparables!
The aforementioned Compustat data base, Exhibit 10 displays the publicly ac-
cessible financial information on the comparables.
Analysts typically value firms in two ways. (The two are typically seen as com-
plementary.) The first way is to project free cash flows for a net present value
analysis. The second way is to compute ratios on everything in sight in order to
benchmark the IPO to its public comparables. (It is common in the industry to
compute such ratios based on projected, next-years financials, not historical finan-
cials.) Some such ratios are computed in Exhibit 11. Typically, the combination of
multiple techniques is hoped to help analysts triangulate on the appropriate firm
value.

VI The Context

With most of G-IIIs comparables not having executed their own IPOs within the
last three months, an analysis of general IPO market conditions seemed wise. Ex-
hibit 12 displays the number of IPOs and the dollar amount raised in the market for
small firm-commitment initial public offerings (i.e., those offerings raising no more
than $50 million). The exhibit also provides the dollar amount that was raised by
entrepreneurs cashing out (secondary shares). By historical standards, 1989 had
not been a very active issuing year, although there had been even dryer periods
in the early eighties.

11
One well-known reason for these fluctuations in IPO activity was the variation
in the overall stock market. For example, right after the crash of 1987, there were
almost no offerings at all. Still, important questions remained: Would an IPO gather
a better price in a hot-issue market, than in a cold-issue market? Would an IPOs
after-market performance be better if the IPO was completed in a hot-issue or a
cold-issue market? The answers to these questions seemed to be important to G-III,
because investors in late 1989 would presumably be more eager to buy G-III shares
if recent IPOs had been good buys. Indeed, if other IPOs had displayed great
returns, G-III might even be able to increase its offering or price. Yet, if IPOs in the
days, weeks, or months before the offering had displayed poor returns, investors
might not take to the G-III offering, even if it was solid.
Exhibit 13 shows the stock market environment in which small companies oper-
ated. The exhibit describes the returns gathered by small firms (with less than $1B
at the start of the month), categorized into those firms which had conducted an IPO
within the most recent 3 years and those firms which had not. While Exhibit 13 an-
swers the question of how young firms (IPOs) had fared in recent months, it does
not answer whether IPOs that had gone public in hot-issue markets performed any
differently. Exhibit 14 displays, by issuing month, some basic information about
small IPOs (where small means less than $50 million dollar being raised). (Natu-
rally, long-run pricing information for offerings in 1988 and 1989 was incomplete
and thus truncated.) This information could potentially shed some light on the
general condition of the IPO market.

12
VII The Questions

Clive would now have to make some decisions:

1. How sound was G-IIIs business? Was it suitable for an IPO?

2. How good was G-IIIs management? How suitable was G-IIIs management?
How trustworthy was G-IIIs management?

3. Why had G-III opted for an IPO rather than searching for alternative forms of
capital?

4. Was the money raised in the offering put to good purpose?

5. How sophisticated had G-III dealt with its financial situation? What situation
was G-III in pre-IPO? Why had it chosen to list on NASDAQ/NMS?

6. Who is Oppenheimer? What was the role of Oppenheimer in the process? Was
Oppenheimers role commensurate with its fees?

7. Was $13 an appropriate price for G-III? What was the intrinsic value of a share
of G-III?

8. How would picking the wrong comparables influence estimates?

9. How hot would demand for shares be?

10. Should an investor purchase G-III in the IPO or in the after-market?

11. How long should an investor hold onto G-III?

12. Did G-III display good timing ability?

13. How would institutions react? What would institutional participation mean
for G-III and its stockholders?

14. Would G-III come back to raise more money soon? Would it matter?

15. What skeletons could potentially hide in the closet?

16. What had Clive forgotten to check into?


Exhibit 1 Aggregate Trends and Forecasts
Leather Tanning and Finishing (SIC=3111)
Industry Data
1987 1988 1989 1990
Shipments Value 2,215 2,328 2,461 -
(-"- in 1987$) 2,215 2,017 2,116 2,222
Employment (000) 14.5 14.0 14.7 -
Production Workers (000) 12.1 11.7 12.4 -
Average Wages/h 8.64 8.96 9.28 -
Product Data
1987 1988 1989 1990
Shipments Value 2,210 2,323 2,455 -
(-"- in 1987$) 2,210 2,013 2,111 2,217
Million Hides 14.9 13.3 14.0 14.7
Trade Data
1987 1988 1989 1990
Import Value 562 749 735 -
Import/New Supply 0.215 0.244 0.230 -
Export Value 391 506 642 -
Exports/Shipments 0.191 0.218 0.262 -

Womens Suits and Coats (SIC=2337)


1987 1988 1989 1990
Shipments Value 4,453 4,572 4,897 -
(-"- in 1987$) 4,453 4,470 4,590 -
Employment (000) 54.5 51.6 53.8 -
Prodn Employment (000) 43.7 40.6 41.9 -
Product Data
1987 1988 1989 1990
Shipments Value 4,044 4,160 4,433 -
(-"- in 1987$) 4,044 4,097 4,193 -
Trade Data
1987 1988 1989 1990
Import Value 2,027 1,939 2,253 -
Export Value 42.8 60.3 59.1 -

Leather/-lined clothing (SIC=2386)


1987 1988 1989 1990
Shipments Value 198 215 229 -
(-"- in 1987$) 198 200 208 215
Product Data
1987 1988 1989 1990
Shipments Value 171 186 198 -
(-"- in 1987$) 171 173 179 186
Trade Data
1987 1988 1989 1990
Import Value 565 805 982 -
Import/New Supply 0.768 0.812 0.832 -
Export Value 25.1 38.8 42.0 -
Exports/Shipments 0.147 0.208 0.212 -

Note: New Supply is imports plus corresponding product shipments. All number in million dol-
lars. Source: 1990 Industrial Outlook. U.S. Department of Commerce, Bureau of the Census;
International Trade Administration (ITA). 1989 data is estimated. 1990 data is forecast.
Exhibit 2 The Background of the Management Team.
Morris Goldfarb, 39 years old, is a director of the Company and serves as its President and Chief
Executive Officer. He has served as either President or Vice President of G-III since 1974 and
as President of Siena since their respective formations. Mr. Goldfarb is responsible for the
domestic and foreign production of Sienas line of apparel and for the foreign manufacture,
marketing, merchandising and financing of the G-III line of apparel. He also has overall
responsibility for developing selling programs, customer relations and administration of
the Company.
In 1988-1989, Morris Goldfarb drew a salary and bonus of $442,900. He owns 51.2% of the
firm before the offering, and is likely to hold 33.8% after the offering (selling 300,000 shares
of his 2,378,666 shares through the overallotment option).
Aron Goldfarb, 66 years old, is Chairman of the Board and a director of the Company, and has
served as either President or Vice President of G-III since its formation in 1974 and as a
Vice President of Siena since its formation in 1981. Mr. Goldfarb is responsible for the
domestic manufacture of G-IIIs apparel, including obtaining the raw materials necessary
for production and supervising the manufacturing process and employee relations. From
1956 to 1974, Aron Goldfarb was a principal in a number of businesses which manufactured
and marketed Leather garments.
In 1988-1989, Aron Goldfarb drew a salary and bonus of $380,300. He owns 34.0% of the
firm before the offering, and will hold 17.6% after the offering (selling 500,000 shares).
Carl Katz, 48 years old, is a director of the Company and has been employed as an Executive Vice
President of Siena since 1989 and, prior thereto, as a Vice President of Siena since 1981.
Mr. Katz supervises the merchandising and design, as well as production and pattern and
sample making, for the Siena division. In 1988-1989, Carl Katz drew a salary of $105,600.
Thomas J. Brosig, 40 years old, is the Companys Executive Vice President of Administration and
Finance and has been employed by the Company in such capacity since August 1989. For
the three years prior thereto, Mr. Brosig was President of TJ Associates Business Consulting
Services From 1982 through 1986, he was Controller and Director of Strategic Planning for
Bermans Specialty Stores, Inc. (Bermans).
Christine Magnatta, 45 years old, is the Chief Financial Officer, Treasurer and Secretary of the
Company and has been employed by the Company since September 1988. Prior to that time,
Ms. Magnatta was Vice President, Finance and Administration of Precision Screen Machines,
Inc. (a screen printing equipment manufacturer) from 1985 to 1988, and Controller of STC
Systems, Inc. (a mini-computer business system manufacturer) from 1973 to 1985.
Lyle Berman, 47 years old, a director of the Company, is a founder of Ante Corp. and served as its
President, Treasurer and a director from July 1987 to August 1989. Mr. Berman is presently
the President of Bermans Consulting Corp., and serves as a consultant to the Company (at
$15,000 per month). From March 1987 until its acquisition by Wilsons in November 1988,
Mr. Berman was Chairman of the Board of Directors, President and Chief Executive Officer
of Bermans. From 1979 until March 1987, Mr. Berman was President and Chief Executive
Officer of a predecessor corporation to Bermans. Between 1964 and 1979, Mr. Berman
held various positions, including vice president of store operations, with such predecessor
corporation. See Certain Transactions.

(contd)
Exhibit 2 The Background of the Management Team (contd).
Jeanne Nostra Katz is currently an Executive Vice President of Siena and has been employed by
the Company in various capacities since 1981. Her present responsibilities include all per-
sonnel related matters, sales activities, assembling merchandise collections and allocation
of finished garments for the Siena division. In addition, Ms. Katz provides domestic de-
sign input and has full responsibility for the Companys product line marketed under the
Cayenne label.
Deborah Cummings is the Vice President-Imports of G-III and has been employed by the Company
in such capacity since August 1989. Her present responsibilities include coordinating the
production, sales and merchandising of Gllls non-domestic manufactured apparel. For the
seven years prior to joining the Company, Ms. Cummings was the Vice President of Sales
and Marketing of Selvy & Co.-Furrina division, a manufacturer of outer-wear apparel.
Barry Dratel is currently the Vice President-Menswear of G-III and has been employ-ed by the
Company in various capacities since 1986. His present responsibilities include styling, mer-
chandising and sales activities for the Companys mens line of products. From 1983 to
1986, Mr. Dratel was the President of Clout Menswear Inc., an importer of mens leather
outerwear.
Keith Sutton Jones is currently the Vice President-Foreign Manufacturing of G-III and has been
employed by the Company in such capacity since January 1989. His responsibilities in-
clude coordinating and controlling all aspects of the Companys Far Eastern sourcing and
production. From June 1985 until joining the Company, Mr. Jones was the Senior Quality
Production Control Manager of Pacific Buying & Marketing Services, Ltd. From 1983 to May
i985, Mr. Jones was employed by Greyhound Casual Wear Ltd. and was responsible for its
imports division.
Shirley Jones Daniels is currently the Sales Manager of G-III and has been employed by the Com-
pany in such capacity since 1983. Her present responsibilities include supervision of the
showroom sales staff, developing new accounts, maintaining existing accounts and provid-
ing sales training and product knowledge seminars for many customers. From 1981 to 1983,
Ms. Jones was a sales manager, stylist and production manager for Comint Leather Goods.
Sigmund Weiss, a director of the Company, has been a certified public accountant since 1948,
and has operated a general accounting practice for the past 35 years. Mr. Weiss has served
as an accountant for the Company since inception.
Willem van Bokhorst who will become a director of the Company, has been a partner in the
Netherlands Antilles law firm of Smeets, Thesseling and van Bolthorst for more than the
past five years,

Aron Goldfarb is the father of Morris Goldfarb. Carl Katz and Jeanette Nostra Katz are married to each other.
Together, all 12 Executives held 91.9% of the pre-IPO stock, 61.3% of the post-IPO shares. Compensation figures
do not include detailed bonus schemes.
Each director holds office until the next annual meeting of stockholders or until his successor shall have been
elected and qualified. Subject to the terms of applicable employment agreements, officers serve at the pleasure
of the Board of Directors.
The Board of Directors has an Executive Committee, Audit Committee and Option Committee. The Executive
Committee, composed of Morris Goldfarb, Aron Goldfarb and Carl Katz is vested with the powers of the Board of
Directors between meetings of the Board. The Audit Committee, composed of Lyle Berman, Sigmund Weiss and,
upon his becoming a director, Willem van Bokhorst, is charged with reviewing the Companys annual audit and
meeting with the Companys independent accountants to review the Companys internal controls and financial
management practices. The Option Committee, composed of Morris Goldfarb and Aron Goldfarb, will function
as the Committee under the 1989 Stock Option Plan. Of the first 92,000 shares slated to be distributed, Barry
Dratel (VP of Menswear), Carl Katz, and Jeanette Nostra Katz (Exec VP of Sienna) were to be granted 7,500, 10,000
and 10,000 shares respectively.
Exhibit 3 IPO Prospectus: Coverpage.

2,000,000 Shares

G-III
APPAREL GROUP, LTD.
Common Stock

Of the 2,000,000 shares of Common Stock offered hereby, 1,500,000 shares we being sold by G-III
Apparel Group, Ltd. and 500,000 shares are being sold by a Selling Stockholder. See Principal and
Selling Stockholders. The Company will not receive any proceeds from the sale of shares by the
Selling Stockholder. See Underwriting for factors considered in determining the public offering
price.
Prior to this offering, there has been a limited market for the Common Stock of the Company. The
Common Stock has been approved for quotation on the NASDAQ National Market System under
the trading symbol GIII. See Common Stock Market Information.
See Investment Considerations for a discussion of certain factors that should be considered
by prospective purchasers of the Common Stock.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE


SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

Proceeds to
Price to Underwritting Proceeds to Selling
Public Discount(1) Company(2)(3) Stockholders(3)
Per Share... ... ... ... ... ... $13.00 $.91 $12.09 $12.09
Total (3)... ... ... ... ... ... $26,000,000 $1,820,OOO $18,135,000 $6,045,000
(1)See Underwriting for information concerning indemnification of the Underwriters and other information.
(2) Before deduction expenses of the offering estimated at $452,000 payable by the Company.
(3) The Underwriters have been granted an option, exercisable within 30 days of the date hereof,
from either a second Selling Stockholder or the Company, to purchase up to 300,000 additional
shares of Common Stock at the Price to Public per share, less the Underwriting Discount, for
the purpose of covering over-allotments, if any. If the Underwriters exercise such option in full,
the total Price to Public, Underwriting Discount and Proceeds to Selling Stockholders would be
$29,900,000, $2,093,000 and $9,672,000, respectively, if such shares are sold by the Selling Stock-
holder. If such shares are sold by the Company, Proceeds to Selling Stockholders would not change
and total Proceeds to Company would be $21,762,000. See Underwriting.

The shares of Common Stock are offered by the Underwriters when, as if delivered to and accepted
by them, subject to their right to withdraw, cancel or reject orders in whole or in part and subject
to certain other conditions. It is expected that delivery of certificates representing the shares will
be made against payment on or about December 21, 1989, at the office of Oppenheimer & Co., Inc.,
Oppenheimer Tower, World Financial Center, New York, New York 10281.

Oppenheimer & Co., Inc.


The date of this Prospectus is December 14, 1989
Exhibit 4 IPO Prospectus: Page 3.
PROSPECTUS SUMMARY

The following summary is qualified in its entirely by the more detailed information and consolidated
and combined financial statements (including the notes thereto) appearing elsewhere in this Prospectus.
Unless otherwise noted, all financial information, share and per share data in this Prospectus (a) have been
adjusted to reflect (i) a reorganization of the Company effective July 31, 1989, (ii) the one-for-two reverse
stock split of the Common Stock effected as of July 31, 1989, and (iii) the one-for-three reverse stock split
of the Common Stock effected as of November 1, 1989 and (b) assume no exercise of (i) warrants for an
aggregate of 220,000 shares of Common Stock or (ii) the over-allotment option.

THE COMPANY

G-III Apparel Group, Ltd. (the Company) designs, manufactures and markets an extensive range of
leather apparel. The Companys primary market is moderately priced womens leather apparel and, to a
lesser extent, upscale, more fashion oriented womens leather apparel and mens leather outerwear. The
Companys products include leather coats, jackets, pants, skirts and other sportswear.
The Company sells its products under its brand labels G-III, Siena and Cayenne and, to a lesser
extent, under private retail labels, to approximately 1,000 customers ranging from nationwide chains of
retail and department stores to specialty boutiques. A majority of the Companys net sales are made to
national and regional retail chains such as the Lerner, Limited, and Lane Bryant divisions of The Limited,
Inc., Wilsons House of Suede, Maurices Inc., Petrie Stores Corp., Burlington Coat Factory Warchouse
Corp., Sears, Roebuck & Co., Dillards Department Stores, Inc., May Company and Casual Corner.
In its fiscal year ended July 31, 1989, the Company manufactured approximately 31% of its products
at its factories in New York City with the remainder manufactured for the Company by independent
contractors, principally in South Korea, and also in New York, Hong Kong and South America.
Over the past three fiscal years, the Companys net sales have grown at a compound annual rate of 68%,
and pro forma net income has increased from approximately $700,000 to $5,900,000. The Company
believes that as a result of this growth it is one of the largest independent wholesale manufacturers of
leather apparel in the United States. The Companys success has been due in part to its ability to offer
a broad selection of styles, colors, sizes and skin varieties, and to anticipate retailers near term buying
requirements by adjusting its production and delivery schedules towards well received and in demand
styles. The Company believes that its reputation for servicing retailers with quality merchandise, on-time
delivery and competitive prices has positioned the Company for continued growth.
The Companys strategy is to increase sales to existing customers and attract new customers by ex-
panding its product lines. The Company plans to further develop its Siena line of higher priced, more
fashion oriented leather apparel, its Cayenne line of mid-priced leather apparel, its line of mens apparel
and various private label programs for national retail chains and catalog merchants. The Company also
expects to introduce a leather outerwear line for children within the next 12 months.

THE OFFERING

Common Stock Offered by:


The Company 1,500,000 shares
The Selling Stockholder 500,000 shares

Common Stock to be Outstanding


immediately after this Offering 6,144,444 shares

Use of Proceeds To finance the growth of the Companys operations, primarily


by additions to working capital, to permit the financing of
additional inventory and accounts receivable relating to
increased sales and to repay a $2,000,000 note.

NASDAQ Symbol GIII


Exhibit 5 IPO Prospectus: Page 4.
CONSOLIDATED AND COMBINED SUMMARY FINANCIAL INFORMATION
(Dollars in thousands except per share data)

Three Months
Year Ended July 31, (1) Ended October 31,
1985 1986 1987 1988 1989 1988 1989
INCOME STATEMENT DATA:
Net sales $11,100 $21,375 $30,260 $50,002 $98,786 $30,734 $53,778
Gross profit 2,089 2,922 4,673 7,882 17,129 5,023 9,930
Selling, general and administrative
expenses 2,018 2,350 2,635 3,951 5,416 1,558 2,460
Operating profit 71 572 2,038 3,931 11,713 3,465 7,470
Income before income taxes 48 301 1,533 3,086 10,347 3,191 6,652
Net income 40 154 727 2,719 9,526 2,921 3,780

Pro forma net income (2) 40 154 727 1,724 5,940 1,813 3,780

Pro forma net income per


common share based upon
4,644,444 shares outstanding in
each period $.01 $.03 $.16 $.37 $1.28 $.39 $.81

July 31, 1989 October 31, 1989 (1)


BALANCE SHEET DATA: Actual As Adjusted (3)
Working capital $ 6,199 $ 9,827 $25,510
Total assets 38,089 41,181 41,181
Short-term debt 20,547 18,778 4,938
Long-term debt 3,547 3,480 1,480
Total stockholders equity 5,317 9,096 26,779

(1) See Note 1 to Selected Consolidated and Combined Financial Data.
(2) Pro forma net income represents net income less a pro forma provision for income taxes. A subsidiary of
the Company elected to be treated as a Subchapter S corporation for the years ended July 31, 1988 and 1989
and, as a result, was not subject to Federal and New York State income taxes for such years.
(3) Adjusted to reflect the sale of 1,500,000 shares of Common Stock by the Company hereby and the anticipated
use of the net proceeds therefrom.
Exhibit 6 Compustat: Potential Publicly Traded Comparable Firms. Financial State-
ment Figures (in million dollars).

Income Income Net


SIC CUSIP Company Name Symbol Fisc Sales Before DA Taxes Income Debt
2386 36237H G-III GIII 88-07 50.002 3.931 0.367 2.719 NA
2386 36237H G-III GIII 89-07 98.786 11.713 0.821 9.526 3.547
2320 524657 Legends Co Chicago (A) LGNDA 88-12 0.144 -0.876 0.000 -0.897 0.003
6794 648290 New Retail Concepts NRCX 89-03 2.784 0.160 0.120 0.105 0.035
3572 136476 Canadian Piper Air SSII 88-12 3.820 -0.645 0.000 -0.781 0.000
5110 693716 Pacad BAGS 88-11 5.373 -0.511 0.000 -0.583 0.010
7200 021099 Als Formal Wear Tuxx 88-09 6.168 1.297 0.185 0.360 0.474
3842 441069 Hosposable Products HOSP 88-12 14.275 -0.267 -0.421 -0.464 1.761
2330 985832 Yes Clothing Co YSCO 89-03 28.475 2.825 0.924 1.331 0.000
2330 107177 Brenner International DOMH 88-10 31.706 1.661 0.388 0.723 3.079
2320 630183 Nantucket Industries NANI 89-02 34.531 2.064 0.489 0.564 4.950
3842 276162 Eastco Industrial Safety Esto 88-06 37.452 1.167 0.052 0.623 0.111
2330 091353 Biscayne Apparel SEEBA 88-12 38.546 3.461 0.971 1.354 3.625
2253 116662 Bruce (Robert) Ind (A) BRUCA 88-12 40.433 0.391 0.000 -6.156 0.000
2250 774654 Rocky Mount Undergarment RMUC 88-12 41.893 2.827 -0.024 -0.657 0.674
2320 74838c Quiksilver QUIK 88-10 48.308 7.380 2.613 3.761 0.000
2330 578074 Mayfair Industries MAYF 88-12 58.140 5.719 2.003 3.008 0.171
2300 034385 Andover Togs ATOG 88-11 71.376 3.234 0.271 0.213 10.179
3420 025236 Amer Consumer Products ACPI 88-12 78.605 5.960 0.843 1.848 19.308
2253 698500 Pannill Knitting Co PKC 88-12 247.886 41.229 2.204 4.667 139.589
2330 076590 Beebas Creations BEBA 89-08 128.558 6.864 2.759 4.072 0.000
2300 688222 Oshkosh Bgosh (A) GOSHA 88-12 252.994 34.132 11.690 18.772 5.662
5961 515086 Lands End LEYS 89-01 455.806 54.565 19.860 32.282 6.806
2330 376365 Gitano Group GITN 88-12 464.526 51.999 9.250 22.977 60.333
2330 527010 Leslie Fay Companies LES 88-12 682.690 63.630 16.458 22.251 116.354
2340 930004 Wacoal -Adr WACLY 89-03 948.629 112.242 64.833 45.356 100.621
2250 359416 Fruit Of The Loom (A) FTL 88-12 1,004.700 260.800 21.600 73.000 904.500
2330 081795 Benetton Group Spa -Adr BNG 88-12 1,127.891 205.692 67.617 89.580 288.074
2330 539320 Liz Claiborne Liz 88-12 1,184.229 183.032 72.000 110.341 14.107
Exhibit 7 Securities Data Corp: Potentially Comparable Initial Public Offerings
(since 1985 in SIC Code 23).

Ticker Company Industry IPO


Symbol CUSIP Name SIC Code Date
GIII 36237h10 G III Apparel Group 2380 89-12-14
GOSHA 68822220 Oshkosh b Gosh 2360 85-05-02
GOSHB 68822230
BEBA 07659000 Beebas Creations 2330 85-09-18
PKC 69850010 Pannill Knitting 2329 86-06-10
ATOG 03438510 Andover Togs 2360 86-06-11
ARTL 04044820 Aristotle 2340 86-06-20
LES 52701010 Leslie Fay 2335 86-08-01
LE 51508610 Lands End 2329 86-10-03
ACPI 02523610 American Consumer Products 2380 86-10-07
MAYF 57807410 Mayfair Industries 2330 86-12-09
QUIK 74838c10 Quiksilver 2320 86-12-16
DLW 24790410 Delta Woodside Inds 2322 87-02-03
FTL 35941610 Fruit Of The Loom 2322 87-03-03
BAGS 69371610 Pacad 2390 87-03-16
TUXX 02109910 Als Formal Wear 2310 88-08-09
DWSI 97240610 Wilson Doug Studios 2330 88-09-01
GIT 37636510 Gitano Group 2325 88-09-30
LGNDA 52465710 Legends Company Chicago 2320 89-01-25
BNG 08179540 Benetton Group Spa 2394 89-06-09
NRCX 64829030 New Retail Concepts 2330 89-08-22
YSCO 98583210 Yes Clothing Co 2330 89-11-21
SSPW 86687510 Sun Sportswear 2320 89-12-06
Exhibit 8 Memorandum from Associate.
From: Boris Grinberg
To: Clive How
Date: December 1989
Subject: Comparables

I evaluated 26 companies. I believe that the key success in the apparel industry is the successful
combination of operation and marketing strategy. I even think that operation is more important
in this low to medium price segment than marketing. G-III manufactures part of their garments
in the U.S., which helps them to produce quickly on short-term demand. The majority of their
production, though, is done by leather manufacturers in Korea. By subcontracting the majority
of garments, G-III handled the major problem all aparel industry manufacturers face: seasonality
and high labor cost. We want to benchmark G-III with the same profile companies that design and
manufacture products that are trendy and not reusable on the day to day life. I mean that if the
trend in favor of leather wanes, the demand can significantly decrease.

Disposable Clothes Manufacturers (e.g., for hospitals and laboratories)


Hosposable Products Inc.
Eastco Industrial Safety Corp.
Underwear Inc.
Fruit of the Loom.
Aristotle Corp.
Nantucket Industries Inc.
Rocky Mount Undergarment Inc.
We cannot benchmark G-III with companies who specialize in reusable product because they
are not subject of the trend in fashion and part of the day to day life.
Underwear and Outwear
Biscayne Apparel Inc.
Wacoal Corp Inc.
These companies specialize in manufacturing of both underwear and outwear. Still not the
profile we are looking for.
Recreational, Bags
Lands End Inc.
Catalog selling company. Only direct distribution.
Sportswear

Sun Sportswear Inc. Manufactures T-shirts, sweatshirts, sweatpants (imprinted)


Quicksilver Inc. Manufactures beachwear, skiwear
Andover Togs Inc. Manufactures sportswear and outwear for children. Knit fabrics
Delta Woodside Inc. Manufactures unfinished fabrics for the other apparel compa-
nies. Formal wear
Als Formal Wear Inc. Design and manufacture of the mens formal wear. Franchising
New Retail Concepts.

continued on next page.


Exhibit 8 Memorandum from Associate Continued.

Dresses and Suits


Leslie Fay - Manufactures Dresses and Suits for women.
J. Designer Products
Liz Claiborne
High price exclusive products. G-III manufactures moderate price garments and we would
like to benchmark it with companies that are in the same price range.
Liturgical Vesture
Martinez and Murphy-Design and manufacture of high quality Liturgical Vesture for
clergy and churches.
Non-apparel industries
American Consumer Products Inc. - Manufacture of knives, building hardware, pet
products, letters , numbers and signs; gloves and rainwear
Brenner Company-Engaged in business of fabricating and selling steel, waste removal
equipment.

Best Choices
Here are my top choices for comparables:

Yes Clothing Company designs and manufactures stylish women youth clothing. A part
of their manufacturing is done in Far East. Price range is moderate.
Oshkosh B Gosh designs and manufactures mens and womens clothing, but at a moderate
price. They sell part of their garment as a private label.
Benetton Group designs and manufactures fashionable and stylish, bright colors casual
wear. The majority of their production is done by subcontractors. (Unfortunately, as
an Italian company, comparables are harder to come by.)

Alternate Choices
The following is the alternate group of three companies that have some similarities with
G-III, but not as strong as previous ones.

Legends of Chicago Manufactures sportswear, blazer jackets and shirt tops.


Mayfair Industries Manufactures long and short sleeve casual garments, including T-shirt,
sweatshirt and maternity oversized tops.
Gitano Group Manufacture mens and womens jeanswear and sportswear, women under-
wear and other apparel.
Exhibit 9 Initial Public Offerings of Five Chosen Comparables and Post-IPO Value.

Firm G-III Oshkosh Mayfair Gitano Group Legends Co Yes Clothing


CUSIP 36237H00 68822200 57807400 37636500 52465700 98583200
Symbol GIII GOSH MAYF GITN,GIT LGNDA YSCO
SIC-code 2300 2300 2330 2330 2320 2330
Offering Characteristics
IPO date 89-12-14 85-05-02 86-12-09 88-09-30 89-01-25 89-11-21
Filing date 89-12-12 85-03-22 86-10-30 88-08-31 89-01-12 89-11-14
Offerprice $13.00 $25.00 $8.50 $20.50 $1.00 $8.50
Units? No No No No Yes No
Shares Before 4,644,444 7,235,760 2,750,000 12,235,655 3,000,000 3,176,470
Shares Issued 2,000,000 788,000 1,200,000 2,000,000 3,000,000 776,470
Primary 1,500,000 25,640 900,000 1,600,000 3,000,000 600,000
Secondary 500,000 762,360 300,000 400,000 176,470
Overallotment 300,000 63,000 180,000 300,000 450,000 105,882
" Sold 63,000 112,500 ?
Hanifen- Seidler-
Underwriter Oppenheimer WM Blair Imhoff GS/Bear DH Blair Amdec
Gross Spread $0.91 $1.70 $0.65 $1.36 $0.10 $0.77
Firm Characteristics
Common Before $9.1 $37.5 $2.9 $58.7 $-0.4 $4.0
Assets $41.2 $69.7 $9.5 $261.5 $0.6 $6.5
Revenues $121.8 $144.1 $23.5 $442.2 $37
Book Value Bef/Shr $1.96 $5.19 $1.05 $4.8 $-0.14 $1.27
Epsyr todt $1.28 $1.76 $0.46 $1.44 $0.42
Eps0 $1.70 $1.74 $0.65 $1.85 $0.65
Eps1 $0.37 $1.13 $0.04 $0.35
Eps2 $0.16 $0.73 $0.05 -$0.01
Eps3 $0.03 $0.50 $0.01 $0.02
Post-IPO Prices Per Share
Post-IPO Price Per Share ? $30.125 $8.625 $20.375 $1.12500 $8.500
89-12-01 Price Per Share ? $42.000 ($11.125) $31.750 $1.28125 $7.875
#Shares 6,144,444 14,586,000 (3,600,000) 13,921,000 4,150,000 3,821,000

Common Equity Before, Assets, and Revenues are expressed in million dollars.

Sales and EPSyr todt are sales in full year plus recent quarter minus previous years equivalent quarter. EPSt is
earnings per share t years ago.

Benetton is an Italian company. Therefore, its IPO information was inaccessible.

Neither Gitano nor Legends nor Yes Clothing had paid a dividend. Mayfair was acquired on 89-05-12 for
$11.35 per share (last price was $11.23) by Apparel America, Inc.. Oshkosh paid a quarterly dividend of about
8 and 10 cent per share and quarter beginning in August of 1985.

Units for the Legends Company of Chicago consisted of 4 common shares (Class A) plus 4 warrants for shares
of Class A.
Comparables: Most Recent Quarterlies from Compustat
G-III Gitano Legends Mayfair Oshkosh Yes Clothing
Oct 88 Oct 89 Sep88 Sep89 Sep88 Sep89 Sep88 Sep89 Sep88 Sep89 Sep88 Sep89
Net Sales 30.734 53.778 119.011 178.615 NA 1.223 15.875 NA 84.964 107.884 NA 10.634
Gross Profit 5.023 9.930 32.534 49.179 0.331 4.599 23.600 35.460 3.211
SG&A 1.558 2.460 22.597 30.986 0.658 2.761 9.556 11.721 2.059
OpInc Bef DA 3.499 NR NR NR -0.327 NR NR NR NR
OpInc Aft DA 3.465 7.470 9.937 18.193 -0.333 1.838 14.044 23.739 1.152
Inc before Tax 3.191 6.652 6.067 12.118 -0.329 1.746 13.777 22.796 0.941
Net Income 2.921 3.780 4.055 8.603 -0.329 1.101 8.506 13.986 0.576
Current Assets 38.431 238.829 320.688 1.987 25.164 84.563 104.705 NR
Current Liabilities 28.604 129.839 143.662 1.128 10.721 22.115 41.196
Total Assets 41.181 282.264 389.857 2.136 28.529 111.026 147.200
ST Debt 18.778 95.030 86.841 0.200 3.720 1.117 13.775
LT Debt 3.480 0.522 124.917 0.000 0.163 7.516 6.189
Stock Equity 9.096 94.949 121.070 1.001 17.65 80.290 97.535
Traded Since Not Yet 880930 890131 861209 850502 891121

Comparables: Most Recent Annuals

G-III Gitano Legends Mayfair Oshkosh Yes Clothing


1989 1988 1989 1988 1989 1987 1988 1987 1988 1989 1988 1989
Net Sales 98.786 464.53 625.89 0.144 1.985 32.600 58.140 226.298 252.994 315.076 28.475 40.302
Gross Profit 17.129 133.79 183.70 -0.142 0.010 10.341 16.031 74.469 68.290 110.323 8.275 13.275
SG&A 5.416 81.79 116.629 0.734 2.215 5.383 10.312 29.924 34.158 43.435 5.450 7.734
OpInc Bef DA 11.867 52.00 67.066 -0.876 -2.205 4.958 5.719 44.545 34.132 66.888 2.825 5.541
OpInc Aft DA 11.713 47.80 60.013 -0.878 -2.270 4.803 5.292 41.755 30.705 62.635 2.785 5.463
Inc before IncTax 10.347 37.44 -0.897 -2.681 4.920 5.011 42.237 30.462 61.378 2.255 4.954
Net Income 9.526? 22.98 30.70 -0.897 -2.681 4.770 3.840 23.899 18.772 37.598 1.331 2.939
Current Assets 35.424 229.54 357.65 0.225 1.119 15.327 20.689 83.479 94.346 115.852 6.055 12.440
Current Liabilities 20.384 136.19 314.37 1.146 0.665 5.024 5.528 21.212 34.062 27.175 3.324 2.598
Total Assets 38.089 5.893 3.61 0.428 1.292 20.195 24.006 113.271 139.065 163.266 6.209 12.770
ST Debt 20.547 85.35 101.67 0.802 0.251 0.374 1.086 1.124 12.963 7.661 0 0
LT Debt 3.547 60.33 136.38 0.003 0.000 0.283 0.171 6.790 5.662 4.530 0 0
Exhibit 10 Compustat: Financial Statements of Five Comparables.

Stock Equity 5.317 95.83 126.54 -0.721 0.627 14.888 18.307 83.428 97.186 128.652 2.885 10.172

Notes: Annual 1987 Information for Legends, Gitano, and Mayfair was unavailable. Annual 1989 Information for Oshkosh was unavailable. All figures are quoted
in million dollars. Figures for 1989 are estimated. ? indicates that G-III had to incur additional Subchapter S income taxes, bringing net income to 5.940.
Gross Profit are Net Revenues (sales minus costs of good sold).
t
u als
cr

et
t

OY
e ts l Ac

t
s a
a

st com
t
C

t
As pit

ts lueE

t
g

t
se In
e
st t

ti

ts s
ts st
s a
in

e
t

st

st
et ees

As ng
k

st
ra

se able
se orie
ts

s
p

e
rk
As t V
et gt

et
s
ce
s

et t
ve
or

s
se lest

s
A iv
A nt

S
n
As loy
s

Op
Ba
Em
W

Re
I

Ma
As cklo

As
A Sa

As ales
Company CUSIP Date
? ? ? ? ? ? ? ? ? ?
G-III 36237H 7-89 38.1 259.4 55.0 26.9 31.2 158.5 NM 0.6 30.7 127.8
Gitano 376365 12-88 292.5 158.8 21.9 51.9 17.8 99.9 63.0 1.4 . .
Leslie Fay 527010 12-88 363.0 188.0 30.3 29.5 17.5 48.6 54.0 1.1 3.8 27.7
Liz Claiborne 539320 12-88 629.1 188.2 10.9 26.7 29.1 240.7 46.1 0.8 -5.8 20.8
Mayfair 578074 12-88 24.0 242.2 38.6 44.0 23.8 125.6 43.5 1.4 26.6 106.4
Beebas 65476M 8-88 51.1 200.4 39.9 38.2 1.2 68.6 72.4 0.8 2.3 -10.2
Oshkosh BGosh 688222 12-88 139.1 181.9 14.6 53.1 24.5 233.4 66.9 4.2 4.9 19.2
Yes Clothing 985832 3-88 6.2 458.6 25.0 63.8 45.5 . . . . .
Gitano 376365 12-89 440.9 142.0 26.4 51.5 15.2 93.9 77.5 1.0 19.6 36.6
Leslie Fay 527010 12-89 387.3 203.0 30.3 31.3 18.7 49.3 50.9 1.1 9.7 26.7
Liz Claiborne 539320 12-89 848.5 166.3 15.5 23.4 31.0 249.4 37.8 0.6 4.8 26.7
Beebas 65476M 8-89 51.8 248.0 50.3 41.8 14.0 84.1 95.1 1.1 13.8 50.5
Oshkosh BGosh 688222 12-89 163.3 193.0 14.1 54.7 41.0 366.3 48.4 3.8 15.4 38.0

Individual Comparables
Yes Clothing 985832 3-89 12.8 315.6 69.3 21.7 43.4 224.4 62.6 0.8 55.3 92.6
Mean 88 232.8 198.3 24.8 34.6 3.6 183.6 52.3 2.3 1.2 10.0
Median ms 88 32.9 181.9 25.0 38.2 14.5 99.9 52.6 1.6 4.1 18.1
Fir
Stddev 27 88 452.9 120.3 14.4 18.1 48.6 223.6 27.7 2.1 19.4 99.6
Mean 89 296.5 192.3 26.0 36.0 10.9 191.1 55.2 2.0 14.8 45.6
Exhibit 11 Accounting Ratios in Percent: Panel A (Current Assets)

Median ms 89 41.3 187.8 25.3 40.1 16.4 133.0 48.4 1.4 12.4 31.7
Fir
Stddev 24 89 531.9 98.9 16.1 17.2 42.4 174.1 49.2 1.4 22.1 92.8
Mean 88+89 262.2 195.5 25.3 35.3 7.0 187.4 53.8 2.1 8.0 28.6
Median ms 88+89 38.2 182.7 25.2 38.8 15.2 103.0 48.4 1.4 5.9 20.0

Wide Comparables
1 Fir
Stddev 5 88+89 487.0 109.7 15.1 17.5 45.5 197.7 39.3 1.8 21.7 96.7

Notes: Table Description Follows at End.


t
u als
r
cc

et
1

Y
t
ts al A

t
e

t om
s t
C

1 EO

1
ts c
st lue

1 t
As api

1
1
1

o
t

1
ng

t t

se In

st les
a

t
t
t

t
ts ries

st
se a
t s ees
ki

ts
ts gt
ts st

As ting
er
rk

et
se a b
c
s
e
e

s y

v
or 1

As et V

s
m

se lest
s lo
s le

s
s
Op
E
W

Re
In

As eiv
Ma

As ent
As plo

A
A Sa
As ack
Company CUSIP Date As Sa
? ? ? ? ? ? ? ? ? ?
G-III 36237H 7-89 17.8 553.6 117.4 57.4 66.5 338.3 . 1.3 . .
Gitano 376365 12-88 . . . . . . . . . .
Leslie Fay 527010 12-88 305.4 223.5 36.0 35.0 20.8 57.8 64.2 1.3 4.5 33.0
Liz Claiborne 539320 12-88 482.4 245.5 14.2 34.8 37.9 313.9 60.1 1.0 -7.6 27.1
Mayfair 578074 12-88 20.2 287.9 45.9 52.3 28.3 149.3 51.7 1.6 31.6 126.5
Beebas 65476M 8-88 57.9 176.8 35.2 33.7 1.1 60.5 63.9 0.7 2.0 -9.0
Oshkosh BGosh 688222 12-88 113.3 223.4 17.9 65.1 30.1 286.5 82.1 5.2 6.0 23.6
Yes Clothing 985832 3-88 . . . . . . . . . .
Gitano 376365 12-89 292.5 214.0 39.8 77.7 22.9 141.6 116.8 1.5 29.5 55.2
Leslie Fay 527010 12-89 363.0 216.6 32.3 33.4 19.9 52.6 54.3 1.2 10.3 28.5
Liz Claiborne 539320 12-89 629.1 224.2 20.9 31.5 41.8 336.4 51.0 0.9 6.4 36.0
Beebas 65476M 8-89 51.1 251.6 51.0 42.4 14.2 85.3 96.5 1.1 14.0 51.2
Oshkosh BGosh 688222 12-89 139.1 226.6 16.6 64.2 48.1 430.0 56.8 4.5 18.1 44.6

Individual Comparables
Yes Clothing 985832 3-89 6.2 649.1 142.6 44.5 89.2 461.5 128.8 1.7 113.7 190.5
Mean 88 192.5 206.1 24.5 35.7 13.3 169.1 57.1 2.5 2.1 28.4
Median ms 88 34.0 223.4 18.2 34.8 15.5 141.8 63.9 1.6 4.4 15.7
Fir
Stddev 23 88 392.1 109.8 19.0 23.0 20.3 149.7 35.2 2.2 17.3 76.9
Exhibit 11 Accounting Ratios in Percent: Panel B (Lagged Assets)

Mean 89 260.9 307.9 41.1 48.7 6.1 370.2 71.7 2.7 20.5 112.4
Median ms 89 42.0 225.4 28.2 45.8 19.0 138.7 54.3 1.9 10.3 44.6
Fir
Stddev 24 89 483.1 313.2 40.1 31.7 114.6 544.7 62.9 2.4 82.2 297.5
Mean 88+89 227.5 258.1 33.0 42.3 9.6 276.3 64.9 2.6 11.3 71.3
Median ms 88+89 38.3 223.5 26.4 42.4 16.8 141.6 56.8 1.7 7.8 25.0

Wide Comparables
7 Fir
Stddev 4 88+89 437.5 239.7 32.3 28.2 82.3 419.0 51.6 2.3 59.5 221.1

Notes: Table Description Follows at End.


t
u als
cr

et
l

m
Y

o
EO
st Ac

e
e

t
l

u
t

st
t
Ca

s
Sa pita

t
s
g

le c
i

t
e

t
y
t

tn
n

l l
e

Sa g In
t

n
ki
t

ra

t
les le
les ies

t
les ees

Sa Va
s

e
rk

ce
a

c
les ogt

ve
or

Sa ivab
S

Sa tor
le t

les tst
S lo
m

les
a

a
Op
Ba
E
W

As
Re
In

M
S kl
Sa ales

S se

Sa
Company CUSIP Date
? ? ? ? ? ? ? ? ? ?
G-III 36237H 7-89 98.8 38.6 21.2 10.4 12.0 61.1 NM 0.2 11.8 49.3
Gitano 376365 12-88 464.5 63.0 13.8 32.7 11.2 62.9 39.7 0.9 . .
Leslie Fay 527010 12-88 682.7 53.2 16.1 15.7 9.3 25.9 28.7 0.6 2.0 14.7
Liz Claiborne 539320 12-88 1,184.2 53.1 5.8 14.2 15.5 127.8 24.5 0.4 -3.1 11.1
Mayfair 578074 12-88 58.1 41.3 15.9 18.2 9.8 51.9 18.0 0.6 11.0 43.9
Beebas 65476M 8-88 102.4 49.9 19.9 19.0 0.6 34.2 36.1 0.4 1.1 -5.1
Oshkosh BGosh 688222 12-88 253.0 55.0 8.0 29.2 13.5 128.3 36.8 2.3 2.7 10.6
Yes Clothing 985832 3-88 28.5 21.8 5.4 13.9 9.9 . . . . .
Gitano 376365 12-89 625.9 70.4 18.6 36.3 10.7 66.2 54.6 0.7 13.8 25.8
Leslie Fay 527010 12-89 786.3 49.3 14.9 15.4 9.2 24.3 25.1 0.5 4.8 13.2
Liz Claiborne 539320 12-89 1,410.7 60.2 9.3 14.0 18.6 150.0 22.8 0.4 2.9 16.1
Beebas 65476M 8-89 128.6 40.3 20.3 16.8 5.7 33.9 38.3 0.4 5.6 20.3
Oshkosh BGosh 688222 12-89 315.1 51.8 7.3 28.4 21.2 189.8 25.1 2.0 8.0 19.7

Individual Comparables
Yes Clothing 985832 3-89 40.3 31.7 22.0 6.9 13.7 71.1 19.9 0.3 17.5 29.3
Mean 88 259.1 76.8 16.2 21.5 -14.9 88.4 28.6 1.8 1.0 4.3
Median ms 88 53.2 54.3 14.5 17.0 9.1 63.5 28.7 1.0 2.0 10.8
Fir
Stddev 28 88 376.2 70.3 12.4 18.5 116.9 68.1 16.0 2.6 14.7 36.9
Exhibit 11 Accounting Ratios in Percent: Panel C (Current Sales)

Mean 89 338.8 70.8 15.2 22.4 2.9 128.7 28.1 1.2 6.4 18.9
Median ms 89 79.3 53.3 14.6 16.9 9.2 72.5 25.1 1.0 5.3 17.9
Fir
Stddev 24 89 464.6 45.6 8.6 21.3 30.5 128.3 20.0 0.8 15.7 28.8
Mean 88+89 295.9 74.0 15.8 22.0 -6.7 109.0 28.4 1.5 3.6 11.8
Median ms 88+89 64.4 54.1 14.6 16.9 9.2 71.1 25.1 1.0 3.3 13.8

Wide Comparables
2 Fir
Stddev 5 88+89 417.0 59.7 10.8 19.6 88.0 104.2 17.8 1.9 15.3 33.5

Notes: Table Description Follows at End.


t
EO
Y
u als
e cr
l

OY

OY
alu Ac

OY
OY
O
OY
OY

eE et
EO
V

eE
u
t

eE
eE t
eE t
eE
eE
eE

u
u
u
u
u

l
a om

l
l
l
lu t
lu

et ta

a
al
a s
a s
a
a
a

l
-V Inc
rk api

n
t
n

-V le
-V ie
-V t
a

t-V
e

t-V est
t-V og
t-V les

ki

e
M gC Y

e
et ivab
et tor
et sets
et ye
e

rk ing Y

k
k
k
ke ckl
or alue st

rk
rk S a
r e
r e
r s
r
rk plo OY
rk S a

Op
W -V e

Ma erat

Ma
Ma
Ma Rec
Ma Inv
Ma A
Ma Ba
M Em
Company CUSIP Date Ma
? ? ? ? ? ? ? ? ? ?
G-III Pre-Offering 36237H 7-89 60.4 141.0 29.9 14.7 17.0 54.4 NM 0.4 13.6 56.6
G-III Post-Offering 36237H 7-89 80.0 123.7 26.2 12.9 14.9 47.7 NM 0.3 11.9 49.6
Gitano 376365 12-88 292.3 158.9 21.9 51.9 17.8 100.1 63.0 1.4 . .
Leslie Fay 527010 12-88 176.5 386.8 62.3 60.6 36.0 205.7 111.0 2.3 7.8 57.0
Liz Claiborne 539320 12-88 1,514.0 78.2 4.5 11.1 12.1 41.6 19.2 0.3 -2.4 8.6
Mayfair 578074 12-88 30.1 192.8 30.7 35.1 19.0 79.6 34.7 1.1 21.2 84.7
Beebas 65476M 8-88 35.1 292.0 58.2 55.6 1.8 145.7 105.5 1.1 3.3 -14.8
Oshkosh BGosh 688222 12-88 324.5 78.0 6.2 22.7 10.5 42.9 28.7 1.8 2.1 8.2
Yes Clothing 985832 3-88 . . . . . . . . . .
Gitano 376365 12.89 438.5 142.7 26.5 51.8 15.3 100.5 77.9 1.0 19.7 36.8
Leslie Fay 527010 12.89 195.7 401.8 59.9 61.9 36.9 197.9 100.7 2.2 19.1 52.9
Liz Claiborne 539320 12.89 2,204.6 64.0 6.0 9.0 11.9 38.5 14.6 0.2 1.8 10.3
Beebas 65476M 8.89 49.2 261.5 53.1 44.1 14.8 105.4 100.3 1.1 14.6 53.2
Oshkosh BGosh 688222 12.89 601.7 52.4 3.8 14.8 11.1 27.1 13.1 1.0 4.2 10.3

Individual Comparables
Yes Clothing 985832 3.89 30.6 131.8 29.0 9.0 18.1 41.8 26.2 0.3 23.1 38.7
Mean 88 241.7 201.4 27.3 43.6 14.2 129.1 80.2 3.3 1.8 17.8
Median s 88 30.1 157.4 23.0 28.1 11.7 100.1 44.7 1.8 2.2 18.4
Firm
Stddev 23 88 436.1 166.2 25.1 39.5 19.8 113.3 103.7 4.5 18.9 71.0
Mean 89 355.7 222.4 31.4 43.9 15.4 115.1 61.6 2.6 10.5 23.1
Median s 89 31.9 138.0 19.8 20.9 13.3 79.2 37.7 1.1 11.4 20.8
Exhibit 11 Accounting Ratios in Percent: Panel D (Market-Value Based)

Firm
Stddev 24 89 588.7 227.6 32.3 46.6 16.8 97.3 88.7 3.9 12.2 107.9
Mean 88+89 299.9 212.1 29.4 43.7 14.8 121.9 70.6 2.9 6.2 20.6
Median s
m 88+89 30.1 140.6 21.9 22.7 12.4 97.0 37.7 1.3 4.9 19.4

Wide Comparables
7 Fir
Stddev 4 88+89 517.3 198.0 28.8 42.8 18.1 104.5 94.9 4.2 16.2 91.6

Notes: Table Description Follows at End.


Exhibit 11 Accounting Ratios in Percent: Explanations To Panels

Data Sources: The primary data source for comparable firms is the Compustat data base. The
primary data source for G-III is its IPO prospectus. November 1989 prices are obtained from the
CRSP data base.
Notation: All ratios are quoted in percent. A period denotes a missing value. The subscript t
denotes the fiscal year, EOY denotes end of year (the last trading day in December for 1988, the
last trading day in November for 1989).
Data Items: Assets, sales, and market-values in the fifth column are quoted in million dollars. G-
IIIs pre-offering (post-offering) market-value was computed as 4.644 (6.144) million shares times
$13 per share, or $80 ($60.4) million dollars, i.e., based on the number of shares outstanding
pre-offering (post-offering). Sales are Net Sales. Operating Income is before depreciation and
amortization. Working Capital Accruals are defined as

[current assets (4) cash (1)] [current liabilities (5) current maturity of long-term debt (44)]

Working capital accruals (WKA) for G-III are computed from data in the IPO prospectus, page F3:

July July Oct.


1988 1989 1989
Current Assets $16.0 $35.4 $38.4
Current Liabilities $12.3 $29.2 $28.6
Cash $0.4 $3.5 $1.1
Current Maturities of LT Debt $8.2 $20.5 $18.8

Therefore, W KA = ($31.9$15.6)($8.7$4.1) = $11.7. In Oct. 1989, W KA = ($37.3$31.9)


($9.8 $8.7) = $4.3. G-III sales were $98.8 million in 1989 (a change of $48.7 million from 1988),
$53.8 million in the first quarter of fiscal year 1990. Assets were $38.1 million as of 1989, $41.2
million as of the first quarter of fiscal year 1990. G-IIIs IPO prospectus (p.19) describes its backlog
as not meaningful.
Comparables: The set of wide comparable firms consisted of the following firms, listed earlier
in Table 6: Als Formal Wear (except in lagged-assets panel B due to a non-sensical figure) American Consumer Products
Andover Togs Benetton Biscayne Brenner Bruce Canadian Piper Eastco Fruit of the Loom Gitano Lands
End Legends Co Leslie Fay Liz Claiborne Martinez Mayfair Nantucket New Retail Beebas Oshkosh Pacad
Pannill Quicksilver Rocky Mountain Undergarment Wacoal Yes. The number of firms (angled box for
wide comparables) are based on firms for which sales/{denominator} could be computed, but
most other ratios have a similar number of firms. The exception is Backlog which is typically
available for only half of these firms.
IPO Issuing Activity


1980 11/1989
4000

Number of Offerings

Dollar Volume Total


Dollar Volume Secondary
3000


100
2000
90

80

Number of Offerings
70
Dollar Issuing Volume

60

50 1000
40

30

20
Exhibit 12 Issuing Activity for IPOs with Less Than $50 million raised

10

0 0
Jan1980 Jan1982 Jan1984 Jan1986 Jan1988
Month
Exhibit 13 Returns of Firms with Less than $1B in Market Value Plus S&P500, By
Month

0.80 Proportion of Recent IPOs in Market




0.70

0.60

0.50

0.40

0.30

0.20

0.10
Performance of Recent IPOs vs. NonRecent IPOs
Strategy is Long in Firms w/ IPO<3y, Short W/o IPO<3y

Jan1988
Jan1986
Month


Jan1984
Net Return

Jan1982
Jan1980
10%

5%

0%

5%

10%

Net Return

Note: At the beginning of each month, all firms are classified into those that did an IPO within
the most recent three years (young firms) and those that did not (old firms). The lower graph
presents the percentage of young firms (with such recent IPOs). For example, in January 1986,
about one-third of all publicly listed firms with a market value less than $1 billion had conducted
their IPO within the previous three years (sometime between January 1983 and December 1985).
The upper graph presents the return to a zero-investment strategy of buying an equal-weighted
portfolio of young firms and shorting an equal-weighted portfolio of old firms.
Exhibit 14 IPO Spread, Underpricing, and Long-Run Performance
IPO Underpricing, Underwriter Compensation, and 3Year Net Performance

3Year PostIPO Return S&P500

Jan1988
Underwriter Spread
IPO Underpricing

Jan1986
Month
Jan1984
Jan1982
Jan1980
1.0

0.8

0.6

0.4

0.2

0.0

0.2

0.4

0.6

0.8

1.0

Percent

Note: For each issuing month, all IPOs raising no more than $50 million are grouped to compute
monthly averages for the following three series: the IPO underwriter spread, the initial first-day
return, and the subsequent 3-year post-IPO return performance (net of the S&P 500 performance).
For initial public offerings after November 1986, the long-run return is truncated, because returns
after November 1989 are not yet available.
VIII To Potential Instructors

From: Ivo Welch, http://welch.som.yale.edu/


To: Potential Instructors
Date: May 1997
Subject: G-III Case

Please notify the author (me) by email if you are planning to use this case, or
if you are actually using this case. I have written a 15-page teaching note that de-
scribes how one can teach this case in all detail (with references to relevant academic
publications). The note also includes a 4-page postscript with additional exhibits.
However, I want to keep this note out of the hands of students, so I am controlling
access to this teaching note quite tightly.
If you are interested to obtain this teaching note, I can either send you a hard-
copy, or I can email this document in Acrobat .pdf format to a valid instructor email
address at your request. Please provide details, such as your background and the
institutions and course in which you plan to use the case.
I am planning to improve the substance of the G-III case in the next 12 months.
This explains the limited time period (until December 1998) during which I permit
free copying of this version for teaching purposes. (Eventually, the case will be
published and command [no more than] the customary case fees.) In general, I will
announce any new versions or updates of this case on http://welch.som.yale.edu,
where I will also make full printable and searchable versions of the case publicly
accessible in Adobe Acrobat .pdf format.
I hope you will find this case to be useful. Any feedback would of course be
appreciated.