What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-03-26 compared with 2020-03-30 · 272 added, 173 removed, 216 unchanged (67% of the section changed)

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DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld Paris.

We are not only licensees, but also brand owners, and we distribute our products through multiple brick and mortar and online channels.

While our products are sold at a variety of price points through a broad mix of retail partners and our own stores, a majority of our sales are concentrated with our ten largest customers.

Sales to our ten largest customers comprised 72.4% of our net sales in fiscal 2020, 69.7% of our net sales in fiscal 2019 and 63.2% of our net sales in fiscal 2018.

We are not only licensees, but also brand owners, and we distribute our products through multiple channels.

Our own proprietary brands include DKNY, Donna Karan, Vilebrequin, G.H.

Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York and Wilsons Leather.

We sell products under an extensive portfolio of well-known licensed brands, including Calvin Klein, Tommy Hilfiger, Karl Lagerfeld Paris, Levi’s, Guess?, Kenneth Cole, Cole Haan, Vince Camuto and Dockers.

Through our team sports business, we have licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League and over 150 U.S.

colleges and universities.

We also source and sell products to major retailers under their private retail labels.

Our products are sold through a cross section of leading retailers such as Macy’s, Dillard’s, Hudson’s Bay Company, including their Saks Fifth Avenue division, Nordstrom, Kohl’s, TJX Companies, Ross Stores and Burlington.

We also sell our products over the web through retail partners such as macys.com, nordstrom.com and dillards.com, each of which has a substantial online business.

In addition, we sell to pure play online retail partners such as Amazon and Fanatics.

We also distribute apparel and other products directly to consumers through our own DKNY and Karl Lagerfeld retail stores, as well as through our digital channels for the DKNY, Donna Karan, Karl Lagerfeld Paris, G.H.

Bass, Andrew Marc and Wilsons Leather businesses.

In June 2020, we commenced the restructuring of our retail operations, including the closure of the Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores.

We completed the closing of our Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores in fiscal 2021.

We believe this restructuring will enable

us to reduce our losses and re-position our retail operations with a goal of becoming a profitable contributor to our business.

See “―Recent Developments ” for further information about our retail restructuring.

We operate in fashion markets that are intensely competitive.

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It is our objective to continue to expand our product offerings and we are continually discussing new licensing opportunities with brand owners and seeking to acquire established brands.

Recent Developments

Impact of COVID-19 Pandemic

The COVID-19 pandemic has affected businesses around the world for over a year.

A national emergency was declared in the United States as a result of the COVID-19 pandemic.

Federal, state and local governments and private entities mandated various restrictions, including closing of retail stores and restaurants, travel restrictions, restrictions on public gatherings, stay at home orders and advisories, and quarantining of people who may have been exposed to the virus.

The response to the COVID-19 pandemic has negatively affected the global economy, disrupted global supply chains, and created significant disruption of the financial and retail markets, including a disruption in consumer demand for apparel and accessories.

The COVID-19 pandemic has had multiple impacts on our business, including, but not limited to, the temporary closure of our and our customers’ stores, disruption to both international and domestic tourism and disruption to consumer shopping habits.

The COVID-19 pandemic impacted our business operations and results of operations throughout fiscal 2021 resulting in lower sales and profitability.

COVID-19 could continue to have an adverse impact on our results of operations and liquidity, the operations of our suppliers, vendors and customers, and on our employees as a result of quarantines, facility closures, and travel and logistics restrictions.

Even as businesses have reopened as governmental restrictions were loosened with respect to stay at home orders and various restrictions with respect to the operation of retail businesses, the ultimate economic impact of the COVID-19 pandemic is highly uncertain.

We expect that our business operations and results of operations, including our net sales, earnings and cash flows, will continue to be adversely impacted in fiscal 2022 .

During this crisis we have been focused on protecting the health and safety of our employees, our customers and our communities.

We have taken precautionary measures intended to help minimize the risk of COVID-19 to our employees, including requiring our employees to work remotely during the first half of fiscal 2021.

During the second half of fiscal 2021, our personnel have started to work in our offices on a part-time, capacity restricted basis.

Having our employees work remotely may disrupt our operations or increase the risk of a cybersecurity incident.

As a result, we have taken steps to mitigate the increased cybersecurity risks associated with remote working and reliance on videoconferencing platforms.

Most of our retail partners, including our largest customer, Macy’s, closed their stores in North America during the initial reaction to the pandemic in the Spring of 2020.

Some of our customers, such as Costco and Sam’s Club, remained open for business.

Our retail partners have since reopened with certain limitations and restrictions.

Our retail partners that closed stores asked to cancel orders and extend their payment terms with us.

We continue to negotiate resolutions with our retail partners that are equitable and fiscally responsible for each of us.

Certain of our retail partners have publicized actual or potential bankruptcy filings or other liquidity issues that could impact our anticipated income and cash flows, as well as require us to record additional accounts receivable reserves.

In addition, we could be required to record increased excess

and obsolete inventory reserves due to decreased sales or noncash impairment charges related to our intangible assets or goodwill due to reduced market values and cash flows.

Further, a more promotional retail environment may cause us to lower our prices or sell existing inventory at larger discounts than in the past, negatively impacting our margins.

There is significant uncertainty around the breadth and duration of business disruptions related to the COVID-19 pandemic, as well as its impact on the U.S.

and global economies and on consumer willingness to visit stores as they re-open.

Consumer businesses have re-opened in most areas of the United States under governmental social distancing and other restrictions that are expected to limit the scope of operations for an unknown period of time compared to pre-COVID-19 business operations.

These restrictions are expected to adversely impact sales even as retail stores are open again.

The extent to which COVID-19 impacts our results will depend on continued developments in the public and private responses to the pandemic and the success and efficacy of efforts in the United States and around the world to vaccinate people against COVID-19.

The continued impact of COVID-19 remains highly uncertain and cannot be predicted.

New information may emerge concerning the severity of the outbreak and the spread of variants of the COVID-19 virus in locations that are important to our business.

Actions taken to contain COVID-19 or treat its impact may change or become more restrictive as additional waves of infections occur, or continue to occur, as a result of the loosening of governmental restrictions.

In response to these challenges, we have taken measures to preserve liquidity and contain costs that include, but are not limited to, employee furloughs, job eliminations, temporary salary reductions, reduced advertising and other promotional spending and deferral of capital projects.

We also reviewed our inventory needs and worked with suppliers to curtail, or cancel, production of product which we believed would not be able to be sold in season.

We have worked with our suppliers, landlords and licensors to renegotiate related agreements and extend payment terms in order to preserve capital.

During the second half of fiscal 2021, certain furloughed employees were reinstated and salaries that had been reduced were increased to their pre-pandemic levels.

We also received royalty relief from certain licensors.

Refinancing of our Term Loan and Revolving Credit Facility

On August 7, 2020, we completed a private debt offering of $400 million aggregate principal amount of our 7.875% Senior Secured Notes due 2025 (the “Notes).

The net proceeds of the Notes were used (i) to repay our prior term loan facility due 2022, (ii) to pay related fees and expenses and (iii) for general corporate purposes.

The Notes bear interest at a rate of 7.875% per year payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2021.

Also on August 7, 2020, we entered into the second amended and restated credit agreement (the “ABL Credit Agreement”) The ABL Credit Agreement is a five year senior secured credit facility and provides for borrowings in the aggregate principal amount of up to $650 million.

The ABL Credit Agreement refinances, amends and restates our prior Amended Credit Agreement which provided for borrowings of up to $650 million and was due to expire in December 2021.

For a description of the Notes, the ABL Credit Agreement and our other debt instruments, see “Liquidity and Capital Resources” under this Item 7 of this Annual Report on Form 10-K.

Restructuring of Our Retail Operations Segment

In June 2020, we commenced a restructuring of our retail operations segment, including the closing of the Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores.

All store closings included in the restructuring have been completed as of the end of fiscal 2021.

After completion of the restructuring, our retail operations segment consists of our DKNY and Karl Lagerfeld Paris stores, as well as the digital channels for DKNY, Donna Karan, Karl Lagerfeld Paris, G.H.

Bass, Andrew Marc and Wilsons Leather.

Part of our restructuring plan includes making significant changes to our DKNY and Karl Lagerfeld retail operations.

In addition to the stores operated as part of our retail operations segment, as of January 31, 2021, Vilebrequin products were distributed through 98 company-operated stores and owned digital channels in Europe and the United States, as well as through 71 franchised locations.

In connection with the restructuring of our retail operations, we incurred an aggregate charge of approximately $100 million related to store operating costs, landlord termination fees, severance costs, store liquidation and closing costs, write-offs related to right-of-use assets and legal and professional fees.

The cash portion of this charge was approximately $65 million.

Our ongoing plan focuses on the operations and growth of our DKNY and Karl Lagerfeld Paris stores, as well as operating our digital business.

Our plan is based on the assumed continued strength of the DKNY and Karl Lagerfeld brands, changes in planning and allocation and improvements in gross margin.

We expect to reduce corporate headcount and administrative costs, while expanding our store base.

We need to successfully implement this strategy in order to significantly reduce the losses in our retail operations with the goal of ultimately attaining profitability in our retail operations segment.

Fabco Holding B.V (“Fabco”) is a Dutch joint venture limited liability company that was 49% owned by us through November 30, 2020.

Effective December 1, 2020, we acquired an additional ownership interest in Fabco for nominal consideration, resulting in an increase of our ownership interest in Fabco to 75%.

Effective December 1, 2020, Fabco is a consolidated majority-owned subsidiary of ours.

Prior to December 1, 2020, we accounted for our investment in Fabco using the equity method of accounting.

Fabco operates our DKNY business in China through its subsidiary.

We report based on two segments:

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Bass and Andrew Marc.

Our retail operations segment consists primarily of direct sales to consumers through our company-operated stores, composed primarily of Wilsons Leather, G.H.

Bass and DKNY stores, substantially all of which are operated as outlet stores, as well as a smaller number of Karl Lagerfeld Paris and Calvin Klein Performance stores.

This segment also includes sales through our owned websites for the DKNY, Donna Karan, Karl Lagerfeld Paris, Andrew Marc, Wilsons Leather and G.H.

Bass businesses.

Impact of Coronavirus Outbreak

Our operations and related strategies discussed in this Form 10-K do not take into account the developing impacts of the coronavirus pandemic.

Beginning in late February 2020, this outbreak has had multiple impacts on our business, including, but not limited to, the temporary closure of our customers’ stores and closures of our own stores in North America, a mandate to require our employees who work in our headquarters to work remotely and temporary disruption of our global supply chain.

These impacts are expected to result in lower sales, lower liquidity and higher leverage than previously anticipated for fiscal 2021.

We have taken temporary precautionary measures intended to help minimize the risk of coronavirus to our employees, including temporarily requiring employees to work remotely.

Temporarily requiring employees to work remotely may disrupt our operations or increase the risk of a cybersecurity incident.

Some of our retail partners have closed their stores in North America, including our largest customer, Macy’s.

Some of our customers, such as Costco and Sam’s Club, remain open for business.

Our retail partners that have closed stores have asked to extend their payment terms with us.

We are in the process of negotiating resolutions with our retail partners that are equitable and fiscally responsible for each of us.

There is significant uncertainty around the breadth and duration of store closures and other business disruptions related to the coronavirus outbreak, as well as its impact on the U.S.

and global economies and on consumer willingness to visit stores once they re-open.

The extent to which coronavirus impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the coronavirus outbreak and the actions taken to contain it or treat its impact.

In response to these challenges, we have taken measures to contain costs that include, but are not limited to, salary reductions and deferral of capital projects.

We are also reviewing our inventory needs and working with suppliers to curtail, or cancel, production of product which we believe will not be able to be sold in season.

We have also been working with our suppliers, landlords and licensors to negotiate extended payment terms in order to preserve capital.

We believe that we have sufficient cash and available capacity under our revolving credit facilities to meet our liquidity needs.

As of March 26, 2020, we had cash of approximately $646 million and the capacity under our revolving credit facility was approximately $130 million.

Our cash balance includes draw downs in March 2020 of $500.0 million under our revolving credit facility.

Our retail operations segment consists primarily of direct sales to consumers through our company-operated stores and through digital channels.

In June 2020, we commenced the restructuring of our retail operations, including the closure of the Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores.

The closure of these stores was completed during fiscal 2021.

Bass, Andrew Marc and Wilsons Leather.

Industry Trends

Significant trends that affect the apparel industry include retail chains closing unprofitable stores, an increased focus by retail chains and others on expanding e-commerce sales and providing convenience-driven fulfillment options, the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them.

Significant trends that affect the apparel industry include retail chains closing unprofitable stores, an increased focus by retail chains and others on expanding digital sales and providing convenience-driven fulfillment options, the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them.

In addition, consumer shopping preferences have continued to shift from physical stores to online shopping and retail traffic remains under pressure.

All of these factors have led to a more promotional retail environment that includes aggressive markdowns in an attempt to offset declines caused by a reduction in physical store traffic.

We sell our products over the web through retail partners such as macys.com and nordstrom.com, each of which has a substantial online business.

As e-commerce sales of apparel continue to increase, we are developing additional digital marketing initiatives on our web sites and through social media.

The effects of the COVID-19 pandemic have accelerated these trends.

We sell our products over the web through retail partners such as macys.com, nordstrom.com and dillards.com, each of which has a substantial online business.

As digital sales of apparel continue to increase, we are developing additional digital marketing initiatives on our web sites and through social media.

We are investing in digital personnel, marketing, logistics, planning and distribution to help us expand our online opportunities going forward.

Our e-commerce business consists of our own web platforms at www.dkny.com, www.donnakaran.com, www.wilsonsleather.com, www.ghbass.com, www.vilebrequin.com and www.andrewmarc.com.

Our digital business consists of our own web platforms at www.dkny.com, www.donnakaran.com, www.ghbass.com, www.vilebrequin.com, www.andrewmarc.com and www.wilsonsleather.com.

We also sell Karl Lagerfeld Paris products on our website, www.karllagerfeldparis.com.

In addition, we sell to pure play online retail partners such as Amazon and Fanatics.

A number of retailers are experiencing financial difficulties, which in some cases have resulted in bankruptcies, liquidations and/or store closings, such as the announced store closing plans for Macy’s, the bankruptcy and announced liquidation of Century 21 and Lord & Taylor, the announced bankruptcy filings of JC Penney, Neiman Marcus, Christopher & Banks and other retailers and the potential bankruptcy of additional retailers.

The financial difficulties of a retail customer of ours could result in reduced business with that customer.

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Exclusive brands are only made available to a specific retailer, and thus customers loyal to their brands can only find them in the stores of that retailer.

We have attempted to respond to trends in our industry by continuing to focus on selling products with recognized brand equity, by attention to design, quality and value and by improving our sourcing capabilities.

Consumers have shifted their apparel purchases based on their adjusted lifestyle needs resulting from changes to the work environment and leisure activities caused by the COVID-19 pandemic.

We have revised our product offerings in response to this shift toward casual and comfortable work-from-home clothing, as well as to activewear and leisure attire.

We continue to revise our product lines to satisfy the needs of our retail customers and consumers.

We have attempted to respond to general trends in our industry by continuing to focus on selling products with recognized brand equity, by attention to design, quality and value and by improving our sourcing capabilities.

We have also responded with the strategic acquisitions made by us and new license agreements entered into by us that added to our portfolio of licensed and proprietary brands and helped diversify our business by adding new product lines and expanding distribution channels.

We believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners.

The apparel and accessories industry has been impacted by tariffs implemented by the United States government on goods imported from China.

Tariffs on handbags and leather outerwear imported from China were effective beginning in September 2018, and were initially in the amount of 10% of the merchandise cost to us.

The level of tariffs on these product categories was increased to 25% beginning May 10, 2019.

The apparel and accessories industry has been impacted by Section 301 tariffs imposed by the United States government on goods imported from China.

Tariffs on handbags and leather outerwear imported from China were effective beginning in September 2018.

These tariffs initially increased existing duties by 10% of the merchandise cost to us.

The level of tariffs on these product categories was later increased to 25% beginning May 10, 2019.

On August 1, 2019, the United States government announced new 10% tariffs that cover the remaining estimated $300 billion of inbound trade from China, including most of our apparel products.

On August 23, 2019, the United States government announced that the new tariffs to go into effect would increase from 10% to 15%.

The new 15% tariffs went into effect on September 1, 2019, although the additional tariffs on certain categories of products were delayed until December 15, 2019.

The announcement follows an earlier proposal by the United States government that would have imposed 25% tariffs on the balance of inbound trade from China, but that were suspended pending trade negotiations with China.

In January 2020, the U.S.

and China signed their Phase One Deal that rolled back certain tariffs and postponed certain tariffs that had been scheduled to go into effect on December 15, 2020.

On August 23, 2019, the United States government announced that the new tariffs would increase from 10% to 15%.

A portion of the new 15% tariffs went into effect on September 1, 2019.

Some of the additional tariffs on certain categories of products were delayed until December 15, 2019, but have not yet gone into effect as the United States and China signed their Phase One Deal trade agreement in January 2020.

It is difficult to accurately estimate the impact on our business from these tariff actions or similar actions or when additional tariffs may become effective.

For fiscal 2020, approximately 50% of the products that we sold were manufactured in China.

For fiscal 2020, we estimate that approximately 50% of the products that we sold were manufactured in China.

Notwithstanding the Phase One Deal, the United States government continues to negotiate with China with respect to a trade deal, which could lead to the removal or postponement of additional tariffs.

For fiscal 2021, approximately 33% of the products that we sold were manufactured in China.

Notwithstanding the Phase One Deal, the United States government continues to negotiate with China with respect to a trade deal, which could lead to the removal, lowering or postponement of additional tariffs.

and China are not able to resolve their differences, additional tariffs may be put in place and additional products may become subject to tariffs.

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If we are unable to increase prices to offset an increase in tariffs, this would result in our realizing lower gross margins on the products sold by us and will negatively impact our operating results.

We have engaged in a number of efforts to mitigate the effect on our results of operations of increases in tariffs on products imported by us from China, including accelerating the receipt of inventory, diversifying our sourcing network by arranging to move production out of China, negotiating with our vendors in China to receive vendor support to lessen the impact of increased tariffs on our cost of goods sold, and discussing with our customers the implementation of price increases that we believe our products can absorb because of the strength of our portfolio of brands.

We have reduced our reliance on China by moving product to other countries, including Vietnam and Indonesia.

We will continue to explore alternative production partners to further diversify our

sourcing network and to reduce our reliance on any one particular country.

These efforts may not enable us to offset the adverse effects of any increase in tariffs.

Use of Estimates and Critical Accounting Policies

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We recognize retail sales when the customer takes possession of the goods and tenders payment, generally at the point of sale.

E-commerce revenues from customers through our e-commerce platforms are recognized when the customer takes possession of the goods.

Digital revenues from customers through our digital platforms are recognized when the customer takes possession of the goods.

Our sales are recorded net of applicable sales taxes.

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Previously, cooperative advertising was recorded in selling, general and administrative expenses.

Royalty revenue is recognized at the higher of royalty earned or guaranteed minimum royalty.

Licensing revenue is recognized at the higher of royalty earned or guaranteed minimum royalty.

Accounts Receivable

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For all other wholesale customers, an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the date of the financial statements, assessments of collectability based on historical trends and an evaluation of the impact of economic conditions.

Estimated costs associated with trade discounts, advertising allowances, markdowns, and reserves for returns are reflected as a reduction of net sales.

We reserve against known chargebacks, as well as for an estimate of potential future deductions by customers.

These provisions result from seasonal negotiations with our customers as well as historical deduction trends, net of historical recoveries and the evaluation of current market conditions.

On February 1, 2020, we adopted Accounting Standards Update (“ASU”) 2016-13, “Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments” which had no material impact on our financial statements.

Our financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business.

We consider our trade receivables to consist of two portfolio segments:

wholesale and retail trade receivables.

Wholesale trade receivables result from credit we extend to our wholesale customers based on pre-defined criteria and are generally due within 30 to 60 days.

Retail trade receivables primarily relate to amounts due from third-party credit card processors for the settlement of debit and credit card transactions and are typically collected within 3 to 5 days.

Wholesale inventories are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value, which comprises a significant portion of our inventory.

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Changes in judgment on these assumptions and estimates could result in a goodwill impairment charge.

In both fiscal 2020 and 2019, we performed a qualitative evaluation and, in fiscal 2018, we performed a quantitative evaluation.

We have allocated the purchase price of the companies we acquired to the tangible and intangible assets acquired and liabilities we assumed, based on their estimated fair values.

These valuations require management to make significant estimations and assumptions, especially with respect to intangible assets.

The fair values assigned to the identifiable intangible assets acquired were based on assumptions and estimates made by management using unobservable inputs reflecting our own assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available.

In accordance with ASC 350, in the first step of our goodwill impairment review, we compare the fair value of the wholesale operations reporting unit to our carrying value.

If the fair value of the reporting unit exceeds our carrying value, goodwill is not impaired and no further testing is required.

In fiscal 2018, we wrote off $0.7 million of the goodwill associated with the retail operations segment as a result of the performance of the retail operations segment.

In fiscal 2020 and fiscal 2019, we performed a qualitative evaluation where we considered the measurable performance of the wholesale operations reporting unit, our stock price and market capitalization and the current macroeconomics regarding the retail industry where our products are sold.

In fiscal 2018, we performed a quantitative evaluation where we estimated the fair value of the reporting units using a weighting of fair values derived most significantly from the market approach and, to a lesser extent, from the income approach.

Similar to many companies in our industry, our market capitalization was negatively impacted during certain periods during fiscal 2021 as stock prices dropped dramatically during the first quarter of fiscal 2021.

The uncertainty caused by the COVID-19 outbreak made it impracticable to forecast our business with any certainty during fiscal 2021.

Due to the impact of the COVID-19 pandemic on the Company’s operations, the Company performed a quantitative test of its goodwill as of April 30, 2020 using an income approach through a discounted cash flow analysis methodology.

The discounted cash flow approach requires that certain assumptions and estimates be made regarding industry economic factors and future profitability.

Under the income approach, we calculated the fair value of the reporting units based on the present value of estimated future cash flows.

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If the reporting units were to experience sales declines or be exposed to enhanced and sustained pricing and volume pressures there would be an increased risk of impairment of goodwill for the reporting units.

At January 31, 2021, 2020 and 2019, we performed a qualitative evaluation where we considered the measurable performance of the wholesale operations reporting unit, our stock price and market capitalization and the current macroeconomics regarding the retail industry where our products are sold.

We also performed quantitative tests of each of our indefinite-lived intangible assets using a relief from royalty method, another form of the income approach as of April 30, 2020.

The relief from royalty method requires assumptions regarding industry economic factors and future profitability.

There were no impairments identified as of April 30, 2020 as a result of these tests.

We performed our annual test for intangible assets with indefinite lives as of January 31 of each year using a qualitative evaluation or a quantitative test using a relief from royalty method, another form of the income approach.

The relief from royalty method requires assumptions regarding industry economic factors and future profitability.

Critical estimates in valuing intangible assets include future expected cash flows from license agreements, trade names and customer relationships.

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Trademarks having finite lives are amortized over their estimated useful lives and measured for impairment when events or circumstances indicate that the carrying value may be impaired.

We have allocated the purchase price of the companies we acquired to the tangible and intangible assets acquired and liabilities we assumed, based on their estimated fair values.

These valuations require management to make significant estimations and assumptions, especially with respect to intangible assets.

Impairment of Long-Lived Assets

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A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets.

In fiscal 2021, we recorded a $20.1 million impairment charge primarily related to operating lease assets, leasehold improvements and furniture and fixtures at certain Wilsons Leather and G.H.

Bass stores, primarily due to the retail restructuring, as well as at certain DKNY and Vilebrequin stores as a result of the performance at these stores.

In fiscal 2020, we recorded a $21.8 million impairment charge primarily related to leasehold improvements, furniture and fixtures and operating lease assets at certain of our Wilsons Leather, G.H.

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Bass and DKNY stores as a result of the performance at these stores.

In fiscal 2018, we recorded a $6.5 million impairment charge related to leasehold improvements and furniture and fixtures at certain of our Wilsons Leather, G.H.

Bass and Vilebrequin stores as a result of the performance at these stores.

In addition, we recorded a $0.7 million impairment charge with respect to furniture and fixtures located in certain customers’ stores.

Equity Awards

Restricted Stock Units

Restricted stock units (“RSU’s”) are time based awards that do not have market or performance conditions and vest over a three year period.

Restricted stock units (“RSU’s”) are time based awards that do not have market or performance conditions and either (i) cliff vest after three years or (ii) vest over a three year period.

The grant date fair value for RSU’s are based on the quoted market price on the date of grant.

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PSU’s were granted to executives in fiscal 2020 and vest after a three year performance period during which certain earnings before interest and taxes and return on invested capital performance standards must be satisfied for vesting to occur.

PSU’s are also subject to a lock up period that prevents the sale, contract to sell or transfer shares for two years subsequent to the date of vesting.

PSU’s are also subject to a lock up period that prevents the sale, contract to sell or transfer shares for two years

subsequent to the date of vesting.

PSU’s are expensed over the service period under the requisite acceleration method and based on an estimated percentage of achievement of certain pre-established goals.

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Operating profit

Other income (loss)

Interest and financing charges, net

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Income tax expense

Loss attributable to noncontrolling interests

Net income attributable to G-III Apparel Group, Ltd.

Year ended January 31, 2021 (“fiscal 2021”) compared to year ended January 31, 2020 (“fiscal 2020”)

Net sales for fiscal 2020 increased to $3.16 billion from $3.08 billion in the prior year.

Net sales for fiscal 2021 decreased to $2.06 billion from $3.16 billion in the prior year.

Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $2.86 billion from $2.72 billion in the comparable period last year.

This increase is primarily the result of a $105.0 million increase in net sales of Tommy Hilfiger licensed products, an $85.7 million increase in net sales of our DKNY and Donna Karan products and a $48.5 million increase in net sales of Calvin Klein licensed products.

The increase in sales of Tommy Hilfiger products was primarily related to sportswear, dress, performancewear and outerwear, the increase in sales of DKNY/Donna Karan products was primarily related to handbags, performancewear, sportswear and footwear and the increase in sales of Calvin Klein products was primarily related to performancewear and outerwear, as well as the introduction of jeanswear.

These increases were offset, in part, by a $34.0 million decrease in sales of Ivanka Trump product in connection with the expiration of that license, a $31.9 million decrease in sales of Andrew Marc products and a $15.1 million decrease in sales of private label products.

Net sales of our wholesale operations segment decreased to $1.92 billion from $2.86 billion in the comparable period last year.

We experienced a significant decrease in net sales across substantially all of our brands primarily due to the effects of restrictions that began in March 2020 on business and personal activities imposed by governments in connection with the COVID-19 pandemic.

As a result, most of our retail partners closed their stores in North America beginning in mid-March, 2020, including our largest customer, Macy’s.

Most of our retail partners began to reopen a majority of their stores in North America beginning in June 2020.

However, a majority of these stores continue to operate under governmental mandated social distancing restrictions as the COVID-19 pandemic continues to affect large portions of North America.

The governmental restrictions imposed in connection with the COVID-19 pandemic have resulted in significant increases in unemployment, a reduction in business activity and a reduction in consumer spending on apparel and accessories, all of which contributed to the reduction of our net sales which occurred during the majority of fiscal 2021.

Net sales of our retail operations segment decreased to $170.4 million from $385.9 million in the same period last year.

Net sales from our G.H.

Bass store chain decreased by $44.3 million and net sales from our Wilsons Leather store chain decreased by $40.4 million.

Net sales from our DKNY retail stores decreased by $5.9 million.

Same store sales decreased by 14.4% at G.H.

Bass, 14.3% at Wilsons Leather and 0.4% at DKNY retail stores.

Net sales of our retail operations segment were negatively affected by the decrease in the number of stores operated by us from 308 at January 31, 2019 to 282 at January 31, 2020.

Gross profit was $1.12 billion, or 35.4% of net sales, for fiscal 2020 and $1.11 billion, or 36.0% of net sales, last year.

Retail sales generally have a higher gross profit percentage than wholesale sales.

Accordingly, there is a negative impact on the gross profit percentage of our business as a whole as retail sales constitute a reduced percentage of our total sales.

This decrease primarily reflected reduced demand as a result of disruptions related to COVID-19 and the liquidation of our Wilsons and G.H.

Same store sales decreased across all store brands due to the COVID-19 related store closures and reduced store traffic.

In addition, the decrease in domestic and international tourism resulting from COVID-19 travel restrictions also had a negative impact on net sales of our retail operations segment.

As we proceeded to liquidate

inventory and close stores in connection with the restructuring of our retail operations segment beginning during the second quarter of fiscal 2021, net sales were also negatively impacted by the significant promotional activity involved in liquidation sales of inventory in the stores we were closing.

Net sales of our retail operations segment also declined due to the decrease in the number of stores operated by us from 282 at January 31, 2020 to 50 at January 31, 2021.

Gross profit was $744.4 million, or 36.2% of net sales, for fiscal 2021 and compared to $1.12 billion, or 35.4% of net sales, last year.

The gross profit percentage in our wholesale operations segment was 35.9% for the year ended January 31, 2021 as compared to 32.7% for the year ended January 31, 2020.

The gross profit percentage for our wholesale segment was positively impacted by the reversal of previously anticipated markdown accruals that are no longer necessary due to the reduction in sales to our retail customers.

The gross profit percentage in our retail operations segment was 33.6% for the year ended January 31, 2021 compared to 46.7% for the same period last year.

The gross profit percentage for our retail segment was negatively impacted by the reduction of our net sales caused by COVID-19 related closures of our retail stores, increased promotional activity due to the COVID-19 pandemic and liquidation sales in connection with the restructuring of our retail operations segment.

Selling, general and administrative expenses decreased to $605.1 million in fiscal 2021 from $832.2 million in fiscal 2020.

The decrease in expenses was due to decreased facility expenses of $12.4 million, primarily as a result of store closures.

Personnel expenses decreased primarily as a result of a decrease in salary expenses of $4.1 million resulting from store closures, as well as an aggregate $6.1 million decrease in bonus and stock compensation expense.

The decrease was offset, in part, by increases of $13.1 million for third-party warehouse expenses and $7.4 million of advertising expenses.

Depreciation and amortization increased to $38.7 million in fiscal 2020 from $38.8 million in the prior year.

The increase in expense is due to capital expenditures during the current year.

The decrease in expenses was primarily due to a decrease of $138.6 million in personnel costs including salaries, bonuses, share-based compensation and other incentives and benefits as a result of employee furloughs, job eliminations and decreased profitability.

In addition, there were decreases of $40.5 million in advertising, $22.8 million in rent and facility costs and $19.3 million in third-party warehouse expenses.

These decreases were related to reduced sales driven by the COVID-19 pandemic and the restructuring of our retail operations segment.

These decreases were offset, in part, by a $14.0 million increase in bad debt expense primarily related to allowances recorded against the outstanding receivables of certain department store customers that have publicly announced bankruptcy filings or potential bankruptcy filings and $4.8 million of professional fees incurred in connection with the restructuring of our retail operations segment.

Depreciation and amortization expense was $38.6 million in fiscal 2021 and $38.7 million in fiscal 2020.

In fiscal 2021, we recorded a $17.9 million impairment charge, net of gain on lease terminations, related to operating lease assets, leasehold improvements and furniture and fixtures at certain Wilsons Leather and G.H.

Bass stores, primarily due to the retail restructuring, as well as at certain DKNY and Vilebrequin stores as a result of the performance at these stores.

In fiscal 2020, we recorded a $19.4 million impairment charge, net of gain on lease terminations, related to leasehold improvements, furniture and fixtures and operating lease assets at certain of our Wilsons Leather, G.H.

Bass and DKNY stores as a result of the performance at these stores.

In fiscal 2019, we recorded a $2.8 million impairment charge related to leasehold improvements and furniture and fixtures at certain of our Wilsons Leather, G.H.

Bass and DKNY stores.

Other loss was $1.2 million in fiscal 2020 compared to $3.0 million in fiscal 2019.

The decrease is primarily the result of recording $0.3 million of income from unconsolidated affiliates during fiscal 2020 compared to $1.5 million of losses in fiscal 2019.

Interest and financing charges, net for fiscal 2020, were $44.4 million compared to $43.9 million for the prior year.

Interest rates and borrowings were similar in both periods.

Other income was $3.2 million in fiscal 2021 compared to other loss of $1.2 million in fiscal 2020.

This increase is primarily the result of recording $2.7 million of income related to the increased equity interest we acquired in Fabco.

In addition, we recorded $0.1 million of foreign currency losses during fiscal 2021 compared to $1.5 million of foreign currency losses during fiscal 2020.

Interest and financing charges, net for fiscal 2021, were $50.4 million compared to $44.4 million for fiscal 2020.

The increase is primarily due to a $6.5 million charge to interest expense to extinguish debt issuance costs upon the repayment of our term loan facility and amendment of our revolving credit facility.

Income tax expense for fiscal 2021 was $12.2 million compared to $38.3 million for the prior year.

Our effective tax rate was 34.2% in fiscal 2021 compared to 21.0% in the prior year.

This decrease in our effective tax rate is primarily the result of the enactment of the Switzerland tax reform.

The change in Switzerland tax laws resulted in a decrease in the deferred tax liabilities related to our foreign owned intangible assets.

Our effective tax rate in fiscal 2020 includes a provisional benefit of $6.1 million.

This increase in our effective tax rate is primarily the result of the significant reduction in pretax book income in relation to tax expense mainly because foreign taxable losses had lower rates of tax benefit.

Liquidity and Capital Resources

ABL Credit Agreement

We are party to an amended and restated credit agreement (the “ABL Credit Agreement”) with the Lenders named therein and with JPMorgan Chase Bank, N.A., as Administrative Agent.

The ABL Credit Agreement is a five-year senior secured credit facility providing for borrowings in the aggregate principal amount of up to $650 million.

We and certain of our subsidiaries are Loan Guarantors under the ABL Credit Agreement.

Amounts available under the ABL Credit Agreement are subject to borrowing base formulas and over advances as specified in the ABL Credit Agreement.

Borrowings bear interest, at our option, at LIBOR plus a margin of 1.25% to 1.75% or an alternate base rate (defined as the greatest of (i) the “prime rate” of JPMorgan Chase Bank, N.A.

from time to time, (ii) the federal funds rate plus 0.5% and (iii) the LIBOR rate for a borrowing with an interest period of one month) plus a margin of 0.25% to 0.75%, with the applicable margin determined based on Borrowers’ availability under the ABL Credit Agreement.

As of January 31, 2020, interest under the ABL Credit Agreement was being paid at the average rate of 3.26% per annum.

The ABL Credit Agreement is secured by specified assets of us and certain of our subsidiaries.

In addition to paying interest on any outstanding borrowings under the ABL Credit Agreement, we are required to pay a commitment fee to the lenders under the ABL Credit Agreement with respect to the unutilized commitments.

The commitment fee shall accrue at a rate equal to 0.25% per annum on the average daily amount of the available commitment.

The ABL Credit Agreement contains covenants that, among other things, restrict our ability, subject to specified exceptions, to incur additional debt;

Cash Requirements and Trends and Uncertainties Affecting Liquidity

We rely on our cash flows generated from operations and the borrowing capacity under our revolving credit facility to meet the cash requirements of our business.

The primary cash requirements of our business usually are the seasonal buildup in inventories, compensation paid to employees, payments to vendors in the normal course of business, capital expenditures, maturities of debt and related interest payments and income tax payments.

The rapid expansion of the COVID-19 pandemic resulted in a sharp decline in net sales and net income during fiscal 2021, which had a corresponding impact on our liquidity.

We were focused on preserving our liquidity and managing our cash flow during these unprecedented conditions.

We had taken preemptive actions to enhance our ability to meet our short-term liquidity needs including, but not limited to, reducing payroll costs through employee furloughs, job eliminations, salary reductions, reductions in discretionary expenses, deferring certain lease payments and deferral of capital projects.

During the quarter ended October 31, 2020, certain furloughed employees were reinstated and salaries that had been reduced where increased to their pre-pandemic levels.

We have received royalty relief from certain licensors.

As of January 31, 2021, we had cash and cash equivalents of $351.9 million and availability under our revolving credit facility in excess of $450.0 million.

As of January 31, 2021, we were in compliance with all covenants under our senior secured notes and revolving credit facility.

We cannot be sure that our assumptions used to estimate our liquidity requirements will remain accurate due to the unprecedented nature of the disruption to our operations and the unpredictability of the COVID-19 outbreak.

As a result, the impact of COVID-19 on our future earnings and cash flows could continue to have a material impact on our results of operations and financial condition depending on the duration and scope of the COVID-19 pandemic.

We believe we have sufficient cash and available borrowings for our foreseeable liquidity needs.

Senior Secured Notes

On August 7, 2020, we completed a private debt offering of $400 million aggregate principal amount of our 7.875% Senior Secured Notes due 2025 (the “Notes).

The terms of the Notes are governed by an indenture, dated as of August 7, 2020 (the “Indenture”), among us, the guarantors party thereto and U.S.

Bank, National Association, as trustee and collateral agent (the “Collateral Agent”).

The net proceeds of the Notes have been used (i) to repay our prior term loan facility due 2022, (ii) to pay related fees and expenses and (iii) for general corporate purposes.

The Notes bear interest at a rate of 7.875% per year payable semi-annually in arrears on February 15 and August 15 of each year, commencing on February 15, 2021.

The Notes are unconditionally guaranteed on a senior-priority secured basis by our current and future wholly-owned domestic subsidiaries that guarantee any of our credit facilities, including our ABL facility (the “ABL Facility”) pursuant to the ABL Credit Agreement, or certain future capital markets indebtedness of ours or the guarantors.

The Notes and the related guarantees are secured by (i) first priority liens on our Cash Flow Priority Collateral (as defined in the Indenture), and (ii) a second-priority lien on our ABL Priority Collateral (as defined in the Indenture), in each case subject to permitted liens described in the Indenture.

In connection with the issuance of the Notes and execution of the Indenture, we and the Guarantors entered into a pledge and security agreement (the “Pledge and Security Agreement”), among us, the Guarantors and the Collateral Agent.

The Notes are subject to the terms of the intercreditor agreement which governs the relative rights of the secured parties in respect of the ABL Facility and the Notes (the “Intercreditor Agreement”).

The Intercreditor Agreement restricts the actions permitted to be taken by the Collateral Agent with respect to the Collateral on behalf of the holders of the Notes.

The Notes are also subject to the terms of the seller note subordination agreement which governs the relative rights of the secured parties in respect of the Seller Note (as defined therein), the ABL Facility and the Notes.

At any time prior to August 15, 2022, we may redeem some or all of the Notes at a price equal to 100% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date plus a “make-whole” premium, as described in the Indenture.

On or after August 15, 2022, we may redeem some or all of the Notes at any time and from time to time at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

In addition, at any time prior to August 15, 2022, we may redeem up to 40% of the aggregate principal amount of the Notes with the proceeds of certain equity offerings at the redemption price set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

In addition, at any time prior to August 15, 2022, during any twelve month period, we may redeem up to 10% of the aggregate principal amount of the Notes at a redemption price equal to 103% of the principal amount of the Notes redeemed plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If we experience a Change of Control (as defined in the Indenture), we are required to offer to repurchase the Notes at 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other restricted payments, make certain investments, incur restrictions on the ability of our restricted subsidiaries that are not guarantors to pay dividends or make certain other payments, create or incur certain liens, sell assets and subsidiary stock, impair the security interests, transfer all or substantially all of our assets or enter into merger or consolidation transactions, and enter into transactions with affiliates.

The Indenture provides for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, nonpayment of principal or interest, breach of other agreements in the Indenture, failure to pay certain other indebtedness, failure of certain guarantees to be enforceable, failure to perfect certain collateral securing the Notes failure to pay certain final judgments, and certain events of bankruptcy or insolvency.

We incurred debt issuance costs totaling $8.5 million related to the Notes that will be amortized over the term of the Notes.

In accordance with ASU 2015-15, the debt issuance costs have been deferred and are presented as a contra-liability, offsetting the outstanding balance of the Notes, and are amortized over the remaining life of the Notes.

Second Amended and Restated ABL Credit Agreement

On August 7, 2020, our subsidiaries, G-III Leather Fashions, Inc., Riviera Sun, Inc., CK Outerwear, LLC, AM Retail Group, Inc.

and The Donna Karan Company Store LLC (collectively, the “Borrowers”), entered into the second amended and restated credit agreement (the “ABL Credit Agreement”) with the Lenders named therein and with JPMorgan Chase Bank, N.A., as Administrative Agent.

The ABL Credit Agreement is a five year senior secured credit facility subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder.

The ABL Credit Agreement provides for borrowings in the aggregate principal amount of up to $650 million.

We and our subsidiaries, G-III Apparel Canada ULC, Gabrielle Studio, Inc., Donna Karan International Inc.

and Donna Karan Studio LLC (the “Guarantors”), are Loan Guarantors under the ABL Credit Agreement.

The ABL Credit Agreement refinances, amends and restates the Amended Credit Agreement, dated as of December 1, 2016 (as amended, supplemented or otherwise modified from time to time prior to August 7, 2020, the “Prior Credit Agreement”), by and among the Borrowers and the Loan Guarantors (each as defined therein) party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., in its capacity as the administrative agent thereunder.

The Prior Credit Agreement provided for borrowings of up to $650 million and was due to expire in December 2021.

The ABL Credit Agreement extends the maturity date to August 2025, subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder.

Amounts available under the ABL Credit Agreement are subject to borrowing base formulas and overadvances as specified in the ABL Credit Agreement.

Borrowings bear interest, at the Borrowers’ option, at LIBOR plus a margin of 1.75% to 2.25% or an alternate base rate margin of 0.75% to 1.25% (defined as the greatest of (i) the “prime rate” of JPMorgan Chase Bank, N.A.

from time to time, (ii) the federal funds rate plus 0.5% and (iii) the LIBOR rate for a borrowing with an

interest period of one month) plus 1.00%, with the applicable margin determined based on Borrowers’ availability under the ABL Credit Agreement.

The ABL Credit Agreement is secured by specified assets of the Borrowers and the Guarantors.

In addition to paying interest on any outstanding borrowings under the ABL Credit Agreement, we are required to pay a commitment fee to the lenders under the credit agreement with respect to the unutilized commitments.

The commitment fee accrues at a tiered rate equal to 0.50% per annum on the average daily amount of the available commitments when the average usage is less than 50% of the total available commitments and decreases to 0.35% per annum on the average daily amount of the available commitments when the average usage is greater than or equal to 50% of the total available commitments.

The revolving credit facility contains covenants that, among other things, restrict our ability, subject to specified exceptions, to incur additional debt;

sell or dispose of certain assets;

merge with other companies;

liquidate or dissolve G-III;

liquidate or dissolve the Company;

acquire other companies;

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and make certain investments.

In certain circumstances, the revolving credit facility also requires us to maintain a fixed charge coverage ratio, as defined in the agreement, that may not be less than 1.00 to 1.00 for each period of twelve consecutive fiscal months.

In certain circumstances, the revolving credit facility also requires us to maintain a fixed charge coverage ratio, as defined in the agreement, not less than 1.00 to 1.00 for each period of twelve consecutive fiscal months of the Company.

As of January 31, 2021, the Company was in compliance with these covenants.

As of January 31, 2021, we had no borrowings outstanding under the ABL credit agreement.

As of January 31, 2021, interest under the ABL credit agreement was being paid at an average rate of 2.04% per annum.

The ABL credit agreement also includes amounts available for letters of credit.

At the date of the refinancing of the Prior Credit Agreement, we had $3.3 million of unamortized debt issuance costs remaining from the Prior Credit Agreement.

We extinguished and charged to interest expense $0.4 million of the prior debt issuance costs and incurred new debt issuance costs totaling $5.1 million related to the ABL Credit Agreement.

We have a total of $8.0 million debt issuance costs related to our ABL Credit Agreement.

As permitted under ASC 2015-15, the debt issuance costs have been deferred and are presented as an asset which is to be subsequently amortized ratably over the term of the ABL Credit Agreement.

Term Loan Credit Agreement

We are also party to a Credit Agreement with the lenders party thereto and Barclays Bank PLC, as administrative agent and collateral agent (the “Term Loan Credit Agreement”).

The Term Loan Credit Agreement provides for term loans in an original aggregate principal amount of $350.0 million (the “Term Loans”).

We used the proceeds to fund a portion of the purchase price with respect to the acquisition of DKI, with the remainder being used for general corporate purposes.

On December 1, 2016, we prepaid $50 million in principal amount of the Term Loans, reducing the principal balance of the Term Loans to $300 million.

The Term Loans and other obligations under the Term Loan Credit Agreement are guaranteed by certain of the Company’s restricted subsidiaries (the “Guarantors”).

The Term Loan Credit Agreement permits the Company to incur, from time to time, additional incremental term loans under the Term Loan Credit Agreement (subject to obtaining commitments for such term loans) and other pari passu lien indebtedness, subject to an overall limit of (x) $125.0 million plus (y) such additional amount that would cause the Company’s first lien leverage ratio not to exceed 2.25 to 1.00 on a pro forma basis.

Any such incremental term loans and other pari passu lien indebtedness are permitted to share in the Collateral described below on a pari passu basis with the Term Loans.

Maturity and Interest Rate

The Term Loan will mature in December 2022.

Interest on the outstanding principal amount of the Term Loan accrues at a rate equal to LIBOR, subject to 1% floor, plus an applicable margin of 5.25% or an alternate base rate (defined as the greatest of (i) the “prime rate” as published by the Wall Street Journal from time to time, (ii) the federal funds rate plus 0.5% and (iii) the LIBOR rate for a borrowing with an interest period of one month) plus 4.25%, per annum, payable in cash.

As of January 31, 2020, interest under the Term Loan was being paid at the average rate of 7.58% per annum.

Subject to certain permitted liens and other exclusions and exceptions, the Term Loans are secured (i) on a first-priority basis by a lien on, among other things, our real estate assets, equipment and fixtures, equity interests and intellectual property and certain related rights owned by us and the Guarantors (the “Term Priority Collateral”) and (ii) by a second-priority security interest in our and the Guarantors’ other assets (together with the Term Priority Collateral, the “Collateral”), which will secure on a first-priority basis our asset-based loan facility described above under the caption “ABL Credit Agreement”.

Optional Prepayment

The Term Loans may be prepaid, at the option of the Company, in whole or in part, at any time at par plus accrued interest.

On December 1, 2016, we prepaid $50.0 million of the outstanding balance of the loan.

We paid a fee of $0.5 million to the lenders in connection with this prepayment.

Mandatory Prepayment

The Term Loans are required to be prepaid with the proceeds of certain asset sales if such proceeds are not applied as required by the Term Loan Credit Agreement within certain specified deadlines.

The Term Loans are also required to be prepaid in an amount equal to 75% of our Excess Cash Flow (as defined in the Term Loan Credit Agreement) with respect to each fiscal year ending on or after January 31, 2018.

The percentage of Excess Cash Flow that must be so applied is reduced to 50% if our senior secured leverage ratio is less than 3.00 to 1.00, to 25% if our senior secured leverage ratio is less than 2.75 to 1.00 and to 0% if our senior secured leverage ratio is less than 2.25 to 1.00.

As of January 31, 2020, we were not required to make a prepayment based on excess cash flow.

Change of Control

The occurrence of specified change of control events constitute an event of default under the Term Loan Credit Agreement.

Certain Covenants

The Term Loan contains covenants that, among other things, restrict our ability, subject to certain exceptions, to incur additional debt;

sell or dispose of certain assets;

merge with other companies;

liquidate or dissolve G-III;

acquire other companies;

make loans, advances, or guarantees;

and make certain investments.

As described above, the Term Loan also includes a mandatory prepayment provision with respect to Excess Cash Flow.

A first lien leverage covenant requires us to maintain a level of debt to EBITDA at a ratio as defined in the term loan agreement.

As of January 31, 2020, the Company was in compliance with these covenants.

The Term Loan Credit Agreement limits our and our restricted subsidiaries’ ability to:

● incur additional indebtedness;

● make dividend payments or other restricted payments;

● create liens;

● sell assets (including securities of our restricted subsidiaries);

● permit certain restrictions on dividends and transfers of assets by our restricted subsidiaries;

● enter into certain types of transactions with shareholders and affiliates;

● enter into mergers, consolidations or sales of all or substantially all of our assets.

These covenants are subject to exceptions and qualifications.

The Term Loan Credit Agreement also contains affirmative covenants and events of default that are customary for credit agreements governing term loans.

We had previously borrowed $350.0 million under a senior secured term loan facility (the “Term Loan”) that was scheduled to mature in December 2022.

We prepaid $50.0 million in principal amount of the Term Loan, reducing the principal balance of the Term Loan to $300.0 million.

On August 7, 2020, we used a portion of the proceeds from the issuance of the Notes to repay the outstanding principal balance of $300.0 million under the Term Loan.

At the date of repayment, we had unamortized debt issuance costs of $6.1 million associated with the Term Loan.

These debt issuance costs were fully extinguished and charged to interest expense in our results of operations.

We issued to LVMH, as a portion of the consideration for the acquisition of DKI, a junior lien secured promissory note in favor of LVMH in the principal amount of $125 million (the “LVMH Note”) that bears interest at the rate of 2% per year.

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This discount is being amortized as interest expense using the effective interest method over the term of the LVMH Note.

In connection with the issuance of the LVMH Note, LVMH entered into (i) a subordination agreement with Barclays Bank PLC, as administrative agent for the lenders party to the Term Loan Credit Agreement and collateral agent for the Senior Secured Parties thereunder and JPMorgan Chase Bank, N.A., as administrative agent for the lenders and other Senior Secured Parties under the ABL Credit Agreement, providing that our obligations under the LVMH Note are subordinate and junior to our obligations under the ABL Credit Agreement and Term Loan Credit Agreement, and (ii) a pledge and security agreement with us and G-III Leather, pursuant to which we and G-III Leather granted to LVMH a security interest in specified collateral to secure our payment and performance of our obligations under the LVMH Note that is subordinate and junior to the security interest granted by us with respect to our obligations under the ABL Credit Agreement and Term Loan Credit Agreement.

Unsecured Loan

On April 15, 2019, T.R.B.

International SA (“TRB”), a subsidiary of Vilebrequin, borrowed €3.0 million under an unsecured loan with Banque du Leman S.A (the “Unsecured Loan”).

The Unsecured Loan matures on April 15, 2024.

During the term of the Unsecured Loan, TRB is required to make quarterly installment payments of €0.2 million.

Interest on the outstanding principal amount of the Unsecured Loan accrues at a fixed rate equal to 1.50% per annum, payable quarterly in cash.

In connection with the issuance of the LVMH Note, LVMH entered into (i) a subordination agreement providing that our obligations under the LVMH Note are subordinate and junior to our obligations under the revolving credit facility and Term Loan and (ii) a pledge and security agreement with us and our subsidiary, G-III Leather, pursuant to which we and G-III Leather granted to LVMH a security interest in specified collateral to secure our payment and performance of our

obligations under the LVMH Note that is subordinate and junior to the security interest granted by us with respect to our obligations under the revolving credit facility and Term Loan.

Unsecured Loans

During fiscal 2020 and fiscal 2021, T.R.B International SA (“TRB”), a subsidiary of Vilebrequin, borrowed funds under several unsecured loans.

A portion of the unsecured loans were to provide funding for operations in the normal course of business, while other unsecured loans were various European state backed loans as part of COVID-19 relief programs.

In the aggregate, TRB is currently required to make quarterly installment payments of €0.2 million.

Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 2.0% per annum, payable on either a quarterly or monthly basis.

Certain unsecured loans will require monthly installment payments beginning in fiscal 2022 and fiscal 2024.

The unsecured loans have maturity dates ranging from September 15, 2024 through October 22, 2026.

As of January 31, 2021, TRB had an aggregate outstanding balance of €7.4 million under these various unsecured loans.

Overdraft Facilities

During fiscal 2021, TRB entered into several overdraft facilities that allow for applicable bank accounts to be in a negative position up to a certain maximum overdraft.

TRB entered into an uncommitted overdraft facility with HSBC Bank allowing for a maximum overdraft of €5 million.

Interest on drawn balances accrues at a fixed rate equal to the Euro Interbank Offered Rate plus a margin of 1.75% per annum, payable quarterly.

The facility may be cancelled at any time by TRB or HSBC Bank.

As part of a COVID-19 relief program, TRB and its subsidiaries have also entered into several state backed overdraft facilities with UBS Bank in Switzerland for an aggregate of CHF 4.7 million at varying interest rates of 0% to 0.5%.

As of January 31, 2021, TRB had an aggregate €2.5 million drawn under these various facilities.

Outstanding Borrowings

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The primary sources to meet our operating cash requirements have been borrowings under this credit facility and cash generated from operations.

We incurred significant additional debt in connection with our acquisition of DKI.

We had no borrowings outstanding under the ABL Credit Agreement at January 31, 2020 and had no borrowings outstanding under the ABL Credit Agreement at January 31, 2019.

In addition, we had $300.0 million in borrowings outstanding under the Term Loan Credit Agreement at both January 31, 2020 and 2019.

The reduction in net sales in the current year resulted in reductions in our seasonal inventory needs in the current year, and as a result, there were no borrowings outstanding under the ABL Credit Agreement as of January 31, 2021.

We had no borrowings outstanding under our ABL Credit Agreement at January 31, 2021 and January 31, 2020.

We had $400 million in borrowings outstanding under the Notes at January 31, 2021.

We had $300.0 million in borrowings outstanding under the Term Loan Credit Agreement at January 31, 2020.

Our contingent liability under open letters of credit was approximately $10.5 million at January 31, 2021 and $11.8 million at January 31, 2020.

In addition to the amounts outstanding under these two loan agreements, at January 31, 2021 and 2020, we had $125.0 million of face value principal amount outstanding under the LVMH Note.

As of January 31, 2020, we also had €2.6 million ($2.9 million) outstanding under the Unsecured Loan.

As of March 26, 2020, we had cash of approximately $646.0 million and borrowing capacity under our revolving credit facility of approximately $130.0 million.

Our cash balance as of March 26, 2020 includes draw downs in March 2020 of $500.0 million under our ABL Credit Agreement.

We had an aggregate of €7.4 million ($9.1 million) and €2.6 million ($2.9 million) outstanding under Vilebrequin’s various Unsecured Loans as of January 31, 2021 and January 31, 2020, respectively.

We also had €2.5 million ($3.0 million) outstanding under Vilebrequin’s Overdraft Facilities as of January 31, 2021.

Share Repurchase Program

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Pursuant to this program, during fiscal 2020 we acquired 1,327,566 of our shares of common stock for an aggregate purchase price of $35.2 million and during fiscal 2019 we acquired 723,072 of our shares of common stock for an aggregate purchase price of $20.3 million.

No shares of common stock were acquired pursuant to this program during fiscal 2021.

The timing and actual number of shares repurchased, if any, will depend on a number of factors, including market conditions and prevailing stock prices, and are subject to compliance with certain covenants contained in our loan agreement.

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We generated $74.8 million of cash from operating activities in fiscal 2021, primarily as a result of our net income of $23.5 million, and non-cash charges in the aggregate amount of $136.5 million relating primarily to operating lease costs ($71.4 million), depreciation and amortization ($38.6 million), asset impairment charges ($20.4 million) and share-based compensation ($6.1 million).

We also generated cash from operating activities from decreases of $143.5 million in inventories, $38.9 million in accounts receivable and $24.5 million in prepaid expenses and other current assets.

These items were offset, in part, by decreases of $136.4 million in customer refund liabilities, $94.2 million in accounts payable and accrued expenses and $86.4 million in operating lease liabilities.

At January 31, 2020, we had cash and cash equivalents of $197.4 million.

We generated $209.0 million of cash from operating activities in fiscal 2020, primarily as a result of our net income of $143.8 million, and non-cash charges in the aggregate amount of $151.4 million relating primarily to operating lease costs ($73.3 million), depreciation and amortization ($38.7 million), asset impairment charges ($21.8 million) and share-based compensation ($17.6 million).

We also generated cash from operating activities from decreases of $24.5 million in inventories and $15.9 million in prepaid expenses and other current assets.

These items were offset, in part, by a decrease of $79.8 million in operating lease liabilities, an increase of $28.0 million in accounts receivable, a decrease of $18.6 million in accounts payable and accrued expenses, and a decrease of $10.2 million in customer refund liabilities.

At January 31, 2019, we had cash and cash equivalents of $70.1 million.

We generated $103.8 million of cash from operating activities in fiscal 2019, primarily as a result of our net income of $138.1 million, a $177.1 million increase in customer refund liabilities, non-cash depreciation and amortization of $38.8 million and non-cash share-based compensation of $19.7 million.

These increases were offset, in part, by a $207.9 million increase in accounts receivable, a $48.0 million increase in prepaid expenses and other current assets, and a $23.6 million increase in inventories.

The changes in accounts receivable and customer refund liabilities are mainly the result of the adoption of ASC 606.

The adoption of ASC 606 resulted in recognizing the cumulative effect adjustment to the opening balance of retained earnings and classifying, on a prospective basis, the reserves for variable consideration from accounts receivable to customer refund liabilities.

The adoption of ASC 606 also resulted in the classification, on a prospective basis, of the carrying value of the inventory return asset from inventories to prepaid expenses and other current assets.

Excluding the impact of ASC 606, accounts receivable would have increased approximately 10%, which is consistent with our sales growth, and inventory would have increased approximately 12%.

Inventory levels at DKNY have grown consistent with the launch and development of new product lines and we received inventory earlier in fiscal 2019 in anticipation of the Chinese New Year shutdown of certain of the factories of certain of our suppliers.

Cash from Investing Activities

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Operating lease assets initial direct costs in the period primarily related to payments of key money and broker fees.

In fiscal 2019, we used $37.3 million of cash in investing activities.

The cash used in investing activities consisted of $29.2 million in capital expenditures primarily related to additional fixturing costs at department stores, as well as improvements and remodels of our retail stores, and $9.9 million for funding the remaining obligation of our investment in Fabco Holding B.V.

In fiscal 2020, we used $40.1 million of cash in investing activities for capital expenditures and initial direct costs of operating lease assets.

Capital expenditures in the period primarily related to information technology expenditures and additional fixturing costs at department stores.

Operating lease assets initial direct costs in the period primarily related to payments of key money and broker fees.

Cash from Financing Activities

In fiscal 2021, we generated $94.8 million of cash from financing activities primarily as a result of the proceeds of $400 million from the issuance of our Notes partially offset by the $300 million repayment of our term loan facility from the proceeds of the Notes.

We also made payments of $13.6 million in financing costs related to the issuance of our Notes and entering into the ABL Credit Agreement.

In fiscal 2020, we used $44.5 million of cash in financing activities.

We used $35.2 million of cash to repurchase 1,327,566 shares of our common stock under our share repurchase program and $12.2 million for taxes paid with respect to net share settlements.

In fiscal 2019, we used $38.0 million of cash in financing activities.

We used $20.3 million of cash to repurchase 723,072 shares of our common stock under our share repurchase program, $12.0 million to reduce net borrowings under our revolving credit facility and $5.7 million for taxes paid with respect to net share settlements.

Financing Needs

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

(2) Includes $300.0 million related to our Term Loan that will mature in 2022 and $125.0 million in face principal amount of the note issued to LVMH payable in 2023.

Long-term debt obligations also includes our Unsecured Loan which matures in 2024 and requires us to make quarterly installment payments of €0.2 million.

(2) Includes:

(a) $400.0 million related to our Notes that will mature in 2026, (b) $125.0 million in face principal amount of the note issued to LVMH payable in 2023, (c) $9.1 million in our various unsecured loans which have maturity dates ranging from 2025 through 2027 and requires us to make quarterly installment payments ranging from €0.1 million to €0.5 million and (d) $3.0 million in our various overdraft facilities.

We had no borrowings outstanding under our revolving credit facility as of January 31, 2021.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis