What changed in this filing

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Item 1. Financial Statements

2021-06-08 compared with 2020-12-10 · 172 added, 270 removed, 358 unchanged (55% of the section changed)

31 unchanged sentences

Total liabilities

Redeemable noncontrolling interests

Stockholders' Equity

10 unchanged sentences

Total stockholders' equity

Total liabilities and stockholders' equity

Total liabilities, redeemable noncontrolling interests and stockholders' equity

The accompanying notes are an integral part of these statements .

1 unchanged sentence

AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

Three Months Ended October 31,

Nine Months Ended October 31,

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended April 30,

(In thousands, except per share amounts)

2 unchanged sentences

Depreciation and amortization

Asset impairments, net of loss (gain) on lease modifications

Operating profit

Loss on lease modifications

Operating profit (loss)

Other income (loss)

Interest and financing charges, net

Income before income taxes

Income tax expense

NET INCOME PER COMMON SHARE:

Net income per common share

Income (loss) before income taxes

Income tax expense (benefit)

Net income (loss)

Income attributable to noncontrolling interests

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

NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:

Net income (loss) per common share

Weighted average number of shares outstanding

Net income per common share

Net income (loss) per common share

Weighted average number of shares outstanding

Other comprehensive income:

Net income (loss)

Other comprehensive loss:

Foreign currency translation adjustments

Other comprehensive income (loss)

Comprehensive income

Other comprehensive loss

Comprehensive income (loss)

Comprehensive income attributable to noncontrolling interests:

Foreign currency translation adjustments

Comprehensive income attributable to noncontrolling interests

Comprehensive income (loss) attributable to G-III Apparel Group, Ltd.

The accompanying notes are an integral part of these statements.

4 unchanged sentences

(In thousands)

Balance as of July 31, 2020

Share-based compensation expense

Other comprehensive income, net

Balance as of October 31, 2020

Balance as of July 31, 2019

Equity awards exercised/vested, net

Share-based compensation expense

Taxes paid for net share settlements

Other comprehensive income, net

Balance as of October 31, 2019

Balance as of January 31, 2021

1 unchanged sentence

Share-based compensation expense

Taxes paid for net share settlements

Other comprehensive income, net

Balance as of October 31, 2020

Cumulative effect of change in accounting principle

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

Balance as of April 30, 2021

Balance as of January 31, 2020

2 unchanged sentences

Taxes paid for net share settlements

Other comprehensive loss, net

Repurchases of common stock

Cumulative effect of adoption of ASC 842

Balance as of October 31, 2019

Other comprehensive income, net

Balance as of April 30, 2020

The accompanying notes are an integral part of these statements.

2 unchanged sentences

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended October 31,

Three Months Ended April 30,

(In thousands)

Cash flows from operating activities

Adjustments to reconcile net income to net cash used in operating activities:

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

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

Depreciation and amortization

2 unchanged sentences

Gain on lease modifications

Asset impairments

Dividend received from unconsolidated affiliate

Equity gain in unconsolidated affiliates

Equity (gain)/loss in unconsolidated affiliates

Share-based compensation

Deferred financing charges and debt discount amortization

Extinguishment of deferred financing costs

Deferred income taxes

7 unchanged sentences

Accounts payable, accrued expenses and other liabilities

Net cash used in operating activities

Net cash provided by (used in) operating activities

Cash flows from investing activities

4 unchanged sentences

Repayment of borrowings - revolving facility

( 1,536,448 )

Proceeds from borrowings - revolving facility

Repayment of borrowings - unsecured term loan

Proceeds from borrowings - unsecured term loan

Proceeds from borrowings - senior secured notes

Payment of financing costs

Proceeds from exercise of equity awards

Purchase of treasury shares

Repayment of borrowings - foreign facilities

Proceeds from borrowings - foreign facilities

Taxes paid for net share settlements

1 unchanged sentence

Foreign currency translation adjustments

Net decrease in cash and cash equivalents

Net increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

14 unchanged sentences

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries.

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

Effective December 1, 2020, the Company increased its ownership interest in Fabco to 75 % and Fabco is treated as a consolidated majority-owned subsidiary.

KL North America B.V.

(“KLNA”) and Fabco Holding B.V.

(“Fabco”) are Dutch joint venture limited liability companies, each of which is 49% owned by the Company.

See Note 16 – Subsequent Events with respect to an increase in the ownership of Fabco by the Company.

(“KLNA”) is a Dutch joint venture limited liability company that is 49 % owned by the Company.

Karl Lagerfeld Holding B.V.

(“KLH”) is a Dutch limited liability company that is 19 % owned by the Company.

These investments are accounted for using the equity method of accounting.

The Company accounts for these two investments using the equity method of accounting.

All material intercompany balances and transactions have been eliminated.

1 unchanged sentence

Accordingly, the results of Vilebrequin, KLH, KLNA and Fabco are, and will be, included in the financial statements for the quarter ended or ending closest to the Company’s fiscal quarter end.

For example, with respect to the Company’s results for the nine-month period ended October 31, 2020, the results of Vilebrequin, KLH, KLNA and Fabco are included for the nine-month period ended September 30, 2020.

For example, with respect to the Company’s results for the three-month period ended April 30, 2021, the results of Vilebrequin, KLH, KLNA and Fabco are included for the three-month period ended March 31, 2021.

The Company’s retail operations segment reports on a 52/53-week fiscal year.

The Company’s three and nine-month periods ended October 31, 2020 and 2019 were each 13-week and 39-week periods, respectively, for the retail operations segment.

For fiscal 2021 and 2020, the three and nine-month periods for the retail operations segment ended on October 31, 2020 and November 2, 2019, respectively.

The results for the three and nine months ended October 31, 2020 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the significant effects of the COVID-19 pandemic on the Company’s business.

The Company’s three -month periods ended April 30, 2021 and 2020 were each 13-week periods for the retail operations segment.

For fiscal 2022 and 2021, the three-month periods for the retail operations segment ended on May 1, 2021 and May 2, 2020, respectively.

The results for the three months ended April 30, 2021 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the significant effects of the COVID-19 pandemic on the Company’s business.

The accompanying financial statements included herein are unaudited.

5 unchanged sentences

The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within stockholders’ equity.

Accounting Policies

On April 10, 2020, the Financial Accounting Standards Board (“FASB”) issued a Staff Q&A to respond to frequently asked questions about accounting for lease concessions related to the effects of the COVID-19 outbreak.

Consequently, for lease concessions related to the effects of the COVID-19 outbreak, an entity will not have to analyze each lease to determine whether the enforceable rights and obligations for concessions exist in the contract and can elect to apply or not apply the lease modification guidance to those leases.

Entities may make the elections for any lessor-provided concessions related to the effects of the outbreak (e.g., deferrals of lease payments, lease payment forgiveness, cash payments made to the lessee or reduced future lease payments) as long as the concession does not result in a substantial increase in the rights of the lessor or the obligations of the lessee.

The Company has elected to not apply the lease modification guidance for contracts with COVID-19 related rent concessions.

As of October 31, 2020, the Company has $ 11.0 million of deferred lease payments recorded within accounts payable on its condensed consolidated balance sheets.

Liquidity and Impact of COVID-19

The Company relies on its cash flows generated from operations and the borrowing capacity under its credit facilities to meet the cash requirements of its business.

The primary cash requirements of its business are the seasonal buildup in inventory, compensation paid to employees, payments to suppliers 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 in the first, second and, to a lesser extent, third quarters of fiscal 2021.

It also resulted in the Company recognizing a net loss in the first and second quarters and a significant reduction in net income in the third quarter.

The Company is focused on preserving its liquidity and managing its cash flow during these unprecedented conditions.

The Company had taken preemptive actions to enhance its ability to meet its short-term liquidity needs, including, but not limited to, reducing payroll costs through employee furloughs, job eliminations, salary reductions, reductions in marketing and other discretionary spending, 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 were increased to their pre-pandemic levels.

The Company has received royalty relief from certain licensors and continues to negotiate with licensors for additional relief.

As of October 31, 2020, the Company had cash and cash equivalents of $ 149.7 million and availability under its revolving credit facility in excess of $ 600.0 million.

The Company believes it has adequate cash flows to meet the cash requirements of its business.

As of October 31, 2020, the Company was in compliance with all covenants under its senior secured notes and revolving credit facility.

On August 7, 2020, the Company refinanced its term loan and revolving credit facility.

See Note 9 – Notes Payable.

Change in Accounting Principle

Effective February 1, 2021, the Company elected to change its method of accounting for retail inventories from the lower of cost or market as determined by the retail inventory method to the lower of cost or net realizable value using the weighted average cost method.

The Company believes the new method is preferable as it provides better matching of cost of goods sold with revenue, improves the precision of inventory valuation at the balance sheet dates, and more closely aligns with the valuation methods used throughout the rest of the Company.

In addition, the change in inventory valuation better aligns with the way the Company manages its business with a focus on the actual margin realized.

The Company has determined that it is impractical to apply this change in accounting principle retrospectively due to a lack of available information.

The Company has instead applied the change prospectively as of February 1, 2021.

The cumulative adjustment as of February 1, 2021 was a decrease in both inventories and retained earnings of $ 0.3 million.

The change in accounting principle did not have a material effect on the Company’s condensed consolidated financial statements as of and for the three-month period ended April 30, 2021.

Note 2 – Retail Restructuring

In June 2020, the Company announced the restructuring of its retail operations segment including the closing of all Wilsons Leather and G.H.

Additionally, the Company is also closing its Calvin Klein Performance stores.

In connection with the restructuring of the retail operations segment, the Company expects to incur 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 Company expects the net cash outflow from the retail restructuring to be approximately $ 65 million.

As a result of the restructuring of the Company’s retail operations, the Company recorded an aggregate charge of $ 2.2 million during the nine months ended October 31, 2020.

The charge consisted primarily of severance payments, benefit continuation costs and store closing costs.

Restructuring charges are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of income and comprehensive income.

The following is a reconciliation of the accrual for the quarter ended October 31, 2020:

In fiscal 2021, the Company restructured its retail operations segment, including the closing of the Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores.

Restructuring charges are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive income.

The following is a reconciliation of the accrual for the quarter ended April 30, 2021:

Severance and Benefit Costs

1 unchanged sentence

(In thousands)

Balance at April 30, 2020

Amounts charged to expense

Cash payments

Balance at July 31, 2020

Balance at January 31, 2021

Amounts charged to expense

Cash payments

Balance at October 31, 2020

The Company has accounted for the remaining rent and termination payments under Accounting Standards Codification (“ASC”) 842 – Leases.

As of October 31, 2020, the total operating lease liability related to Wilsons Leather, G.H Bass, and Calvin Klein Performance stores is $ 28.0 million and will be paid during the fiscal quarter ending January 31, 2021.

Balance at April 30, 2021

The remaining severance and benefit costs and store closing costs are expected to be paid during the second quarter of fiscal 2022.

Note 3 – Allowance for Doubtful Accounts

On February 1, 2020, the Company 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 the Company’s financial statements.

The Company’s financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business.

3 unchanged sentences

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.

The Company’s accounts receivable and allowance for doubtful accounts as of October 31, 2020 were:

October 31, 2020

The Company’s accounts receivable and allowance for doubtful accounts as of April 30, 2021, April 30, 2020 and January 31, 2021 were:

April 30, 2021

(In thousands)

2 unchanged sentences

Accounts receivable, net

April 30, 2020

(In thousands)

Accounts receivable, gross

Allowance for doubtful accounts

Accounts receivable, net

January 31, 2021

(In thousands)

Accounts receivable, gross

Allowance for doubtful accounts

Accounts receivable, net

The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors.

4 unchanged sentences

In addition, the Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

During the three and nine months ended October 31, 2020, the Company recorded a $ 4.3 million and $ 14.9 million increase in its allowance for doubtful accounts primarily due to allowances recorded against the outstanding receivables of certain department store customers that have publicly announced bankruptcy filings or possible bankruptcy filings.

The Company had the following activity in its allowance for credit losses for the nine months ended October 31, 2020:

October 31, 2020

The Company had the following activity in its allowance for credit losses:

(In thousands)

2 unchanged sentences

Accounts written off as uncollectible

Balance as of October 31, 2020

Balance as of April 30, 2021

Balance as of January 31, 2020

Provision for credit losses

Balance as of April 30, 2020

Balance as of January 31, 2020

Provision for credit losses

Accounts written off as uncollectible

Balance as of January 31, 2021

Note 4 – Inventories

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

Retail inventories are valued at the lower of cost or market as determined by the retail inventory method.

Prior to February 1, 2021, retail inventories were valued at the lower of cost or market as determined by the retail inventory method.

Effective February 1, 2021, the Company elected to change its method of accounting for retail inventories to the lower of cost (determined by the weighted average method) or net realizable value.

See Note 1 – Basis of Presentation for more details on the preferability and application of this change in accounting principle.

Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value.

Substantially all of the Company’s inventories consist of finished goods.

The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, represented $ 20.6 million, $ 41.9 million and $ 31.0 million as of October 31, 2020, October 31, 2019 and January 31, 2020, respectively.

The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, represented $ 16.9 million, $ 21.3 million and $ 22.5 million as of April 30, 2021, April 30, 2020 and January 31, 2021, respectively.

The inventory return asset is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Inventory held on consignment by the Company’s customers totaled $ 4.8 million, $ 11.0 million and $ 9.1 million at October 31, 2020, October 31, 2019 and January 31, 2020, respectively.

Inventory held on consignment by the Company’s customers totaled $ 4.6 million, $ 6.6 million and $ 3.5 million at April 30, 2021, April 30, 2020 and January 31, 2021, respectively.

Consignment inventory is stored at the facilities of the Company’s customers.

22 unchanged sentences

Furthermore, the carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash, accounts receivable and accounts payable) also approximates fair value due to the short-term nature of these accounts.

On August 7, 2020, the Company refinanced its term loan and revolving credit facility.

See Note 9 – Notes Payable.

The 2 % note in the principal amount of $ 125 million (the “LVMH Note”) issued to LVMH Moet Hennessy Louis Vuitton Inc.

8 unchanged sentences

These fair value measurements are considered level 3 measurements in the fair value hierarchy.

During the second quarter of fiscal 2021, the Company recorded a $ 20 million impairment charge primarily related to operating lease assets, leasehold improvements and furniture and fixtures at certain Wilsons Leather, G.H.

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

During the first quarter of fiscal 2020, the Company recorded an impairment of $ 9.6 million, net of tax, in connection with the adoption of ASC 842 – Leases (“ASC 842”) that was recognized through retained earnings.

Note 6 – Leases

9 unchanged sentences

The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

The Company’s lease assets and liabilities as of October 31, 2020, October 31, 2019 and January 31, 2020 consist of the following:

The Company’s lease assets and liabilities as of April 30, 2021, April 30, 2020 and January 31, 2021 consist of the following:

Classification

October 31, 2020

October 31, 2019

April 30, 2021

April 30, 2020

January 31, 2021

8 unchanged sentences

The Company’s operating lease assets and operating lease liabilities significantly declined during fiscal 2021 due to the restructuring of the retail operations segment, partially offset by other leasing activity.

As a result of this restructuring, the Company expects to close all of its Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores by the end of fiscal 2021.

In addition, primarily due to the restructuring, in the second quarter of fiscal 2021 the Company recorded a $ 19.4 million impairment charge related to the operating lease assets at certain Wilsons Leather, G.H.

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

The Company recorded lease costs of $ 18.7 million and $ 77.1 million during the three and nine months ended October 31, 2020, respectively.

The Company recorded lease costs of $ 24.4 million and $ 74.3 million during the three and nine months ended October 31, 2019, respectively.

Lease costs are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of income and comprehensive income.

The Company recorded variable

lease costs and short-term lease costs of $ 6.2 million and $ 5.3 million for the three and nine months ended October 31, 2020, respectively.

The Company recorded variable leases costs and short-term lease costs of $ 4.4 million and $ 11.9 million for the three and nine months ended October 31, 2019, respectively.

As a result of this restructuring, the Company closed its Wilsons Leather, G.H.

Bass and Calvin Klein Performance stores during fiscal 2021.

The Company recorded lease costs of $ 13.6 million and $ 22.4 million during the three months ended April 30, 2021 and 2020, respectively.

Lease costs are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive income.

The Company recorded variable lease costs and short-term lease costs of $ 1.5 million and $ 3.4 million for the three months ended April 30, 2021 and 2020, respectively.

Short-term lease costs are immaterial.

As of October 31, 2020, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2025 and thereafter are as follows:

As of April 30, 2021, the Company has $ 2.3 million of deferred lease payments recorded within accounts payable on its condensed consolidated balance sheets.

As of April 30, 2021, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2026 and thereafter are as follows:

Year Ending January 31,

2 unchanged sentences

Present value of lease liabilities

As of October 31, 2020, there are no material leases that are legally binding but have not yet commenced.

As of October 31, 2020, the weighted average remaining lease term related to operating leases is 4.9 years.

As of April 30, 2021, there are no material leases that are legally binding but have not yet commenced.

As of April 30, 2021, the weighted average remaining lease term related to operating leases is 5.6 years.

The weighted average discount rate related to operating leases is 8.3 %.

Cash paid for amounts included in the measurement of operating lease liabilities is $ 79.7 million and $ 75.9 million during the nine months ended October 31, 2020 and October 31, 2019, respectively.

Right-of-use assets obtained in exchange for lease obligations were $ 41.3 million and $ 21.3 million as of October 31, 2020 and October 31, 2019, respectively.

Note 7 – Goodwill and Intangible Assets

As of October 31, 2020, there is $ 261.7 million of goodwill and $ 441.1 million of indefinite-lived trademarks recorded on the Company’s condensed consolidated balance sheet.

The Company reviews and tests its goodwill and intangible assets with indefinite lives for impairment annually, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may be impaired.

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.

The Company also performed quantitative tests of each of its indefinite-lived intangible assets 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.

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

While no impairment was identified as of April 30, 2020, $ 370.0 million of the Company’s indefinite-lived trademarks could be deemed to have a risk of future impairment as there is limited excess fair value over the carrying value of these assets at October 31, 2020.

During the third quarter of 2020, the Company conducted a review to assess whether indicators of impairment existed.

As a result of this review, the Company concluded that no indicators existed that would make management believe it is more likely than not that the fair value of its goodwill or indefinite-lived trademarks is less than its carrying value.

The continued impact of the COVID-19 pandemic could give rise to global and regional macroeconomic factors that could impact the Company’s assumptions relating to future net sales, discount rates, tax rates or royalty rates and may result in future impairment charges for indefinite-lived intangible assets.

The fair value of the Company’s goodwill and indefinite-lived intangible assets are considered a Level 3 valuation in the fair value hierarchy.

Note 8 – Net Income per Common Share

Basic net income per common share has been computed using the weighted average number of common shares outstanding during each period.

Diluted net income per share is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and stock options outstanding during the period.

Approximately 262,100 and 215,600 shares of common stock have been excluded from the diluted net income per share calculation for the three and nine months ended October 31, 2020, respectively.

Approximately 846,200 and 680,700 shares of common stock were excluded from the diluted net income per share calculation for the three and nine months ended October 31, 2019, respectively.

All share-based payments outstanding that vest based on the achievement of performance and/or market price conditions, and for which the respective performance and/or market price conditions have not been achieved, have been excluded from the diluted per share calculation.

The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income per share:

Three Months Ended October 31,

Nine Months Ended October 31,

Cash paid for amounts included in the measurement of operating lease liabilities is $ 14.8 million and $ 23.4 million during the three months ended April 30, 2021 and April 30, 2020, respectively.

Right-of-use assets obtained in exchange for lease obligations were $ 6.5 million and $ 4.6 million as of April 30, 2021 and April 30, 2020, respectively.

Note 7 – Net Income (Loss) per Common Share

Basic net income (loss) per common share has been computed using the weighted average number of common shares outstanding during each period.

Diluted net income per share, when applicable, is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and stock options outstanding during the period.

Approximately 238,500 shares of common stock have been excluded from the diluted net income per share calculation for the three months ended April 30, 2021.

All share-based payments outstanding that vest based on the achievement of performance conditions, and for which the respective performance conditions have not been achieved, have been excluded from the diluted per share calculation.

The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income (loss) per share:

Three Months Ended April 30,

(In thousands, except per share amounts)

Basic net income per share:

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

Basic net income (loss) per share:

Basic common shares

Basic net income per share

Diluted net income per share:

Basic net income (loss) per share

Diluted net income (loss) per share:

Basic common shares

1 unchanged sentence

Diluted common shares

Diluted net income per share

Diluted net income (loss) per share

Note 8 – Notes Payable

Long-term debt consists of the following:

October 31, 2020

October 31, 2019

April 30, 2021

April 30, 2020

January 31, 2021

7 unchanged sentences

Current portion of long-term debt

(1) Does not include debt issuance costs, net of amortization, totaling $ 7.3 million, $ 5.2 million and $ 4.6 million as of October 31, 2020, October 31, 2019 and January 31, 2020, respectively, related to the revolving credit facility.

These debt issuance costs have been deferred and are classified in prepaid expenses and other current assets in the accompanying condensed consolidated balance sheets in accordance with ASU 2015-15.

(1) Does not include debt issuance costs, net of amortization, totaling $ 6.8 million, $ 3.9 million and $ 7.2 million as of April 30, 2021, April 30, 2020 and January 31, 2021, respectively, related to the revolving credit facility.

These debt issuance costs have been deferred and are classified in assets in the accompanying condensed consolidated balance sheets in accordance with ASC 835.

Senior Secured Notes

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

In August 2020, the Company completed a private debt offering of $ 400 million aggregate principal amount of its 7.875 % Senior Secured Notes due 2025 (the “Notes”).

The terms of the Notes are governed by an indenture (the “Indenture”), among the Company, 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 the Company’s prior term loan facility due 2022, (ii) to pay related fees and expenses and (iii) for general corporate purposes.

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

The net proceeds of the Notes have been used (i) to repay the $ 300 million that was outstanding under the Company’s prior term loan facility due 2022 (the “Term Loan”), (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 .

11 unchanged sentences

The Indenture contains covenants that, among other things, limit the Company’s ability and the ability of its restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other restricted payments, make certain investments, incur restrictions on the ability of the Company’s 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 the Company’s 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.

failure to perfect certain collateral securing the Notes failure to pay certain final judgments, and certain events of bankruptcy or insolvency.

The Company 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 using the effective interest method over the remaining life of the Notes.

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

The Company 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, the Company 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 facility.

At the date of repayment, the Company 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 the Company’s results of operations.

In accordance with ASC 835, 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.

In addition, the Company had unamortized debt issuance costs of $ 6.1 million associated with the Term Loan.

Upon repayment of the Term Loan, these debt issuance costs were fully extinguished and charged to interest expense in the Company’s results of operations.

Second Amended and Restated ABL Credit Agreement

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

In August 2020, the Company’s 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, certain material indebtedness 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 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.

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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, certain material indebtedness 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 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.

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In certain circumstances, the revolving credit facility also requires the Company 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 October 31, 2020, the Company was in compliance with these covenants.

As of October 31, 2020, the Company had no borrowings outstanding under the ABL Credit Agreement.

As of October 31, 2020, interest under the ABL Credit Agreement was being paid at an average rate of 2.05 % per annum.

As of April 30, 2021, the Company was in compliance with these covenants.

As of April 30, 2021, the Company had no borrowings outstanding under the ABL Credit Agreement.

There were no borrowings under the ABL Credit Agreement during the three months ended April 30, 2021.

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

As of October 31, 2020, there were outstanding trade and standby letters of credit amounting to $ 5.8 million and $ 3.9 million, respectively.

As of April 30, 2021, there were outstanding trade and standby letters of credit amounting to $ 10.9 million and $ 4.0 million, respectively.

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

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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.

The unsecured loans have maturity dates ranging from September 15, 2024 through August 30, 2025.

As of October 31, 2020, TRB had an aggregate outstanding balance of € 6.2 million under these various unsecured loans.

As of April 30, 2021, TRB had an aggregate outstanding balance of € 7.5 million under these various unsecured loans.

Overdraft Facilities

During the second quarter of 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.

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.

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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 October 31, 2020, TRB had an aggregate of € 2.5 million drawn under these various facilities.

As of April 30, 2021, TRB had an aggregate of € 3.3 million drawn under these various facilities.

Note 9 – Revenue Recognition

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trademarks owned by the Company.

As of October 31, 2020, revenues from license agreements represented an insignificant portion of wholesale revenues.

As of April 30, 2021, revenues from license agreements represented an insignificant portion of wholesale revenues.

Retail Operations Segment.

Retail store revenues are generated by direct sales to consumers through company-operated stores and product sales through the Company’s owned websites for the DKNY, Donna Karan, Wilsons, G.H.

Bass, Andrew Marc and Karl Lagerfeld Paris businesses.

Retail stores primarily consist of Wilsons Leather, G.H.

Bass and DKNY retail stores, substantially all of which are operated as outlet stores.

Retail store revenues are generated by direct sales to consumers through company-operated stores and product sales through the Company’s digital channels for the DKNY, Donna Karan, G.H.

Bass, Karl Lagerfeld Paris, Andrew Marc and Wilsons Leather businesses.

Prior to completion of the restructuring in fiscal 2021, retail stores primarily consisted of Wilsons Leather, G.H.

Bass, DKNY and Karl Lagerfeld Paris retail stores, substantially all of which are operated as outlet stores.

The Company’s Wilsons Leather and G.H.

Bass stores were closed in fiscal 2021 as a result of the restructuring.

Retail operations segment revenues are recognized at the point of sale when the customer takes possession of the goods and tenders payment.

Digital-based revenues primarily consist of sales to consumers through the Company’s digital platforms.

Digital-based revenue is recognized when a customer takes possession of the goods.

Digital revenues primarily consist of sales to consumers through the Company’s digital platforms.

Digital revenue is recognized when a customer takes possession of the goods.

Retail sales are recorded net of applicable sales tax.

As a result of the restructuring of the Company’s retail operations, the Company is in the process of closing all of its Wilsons Leather and G.H.

Bass retail stores which is expected to be completed by the end of fiscal 2021.

After completion of the restructuring, the Company’s retail operations segment will consist of DKNY and Karl Lagerfeld Paris stores, as well as the digital channels for DKNY, Donna Karan, Karl Lagerfeld Paris, Andrew Marc, Wilsons Leather and G.H.

Contract Liabilities

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In some of its retail concepts, the Company also offers a limited loyalty program where customers accumulate points redeemable for cash discount certificates that expire 90 days after issuance.

Total contract liabilities were $ 4.1 million, $ 5.4 million and $ 5.9 million at October 31, 2020, October 31, 2019 and January 31, 2020, respectively.

The Company recognized $ 2.1 million in revenue for the three months ended October 31, 2020 related to contract liabilities that existed at July 31, 2020.

The Company recognized $ 4.3 million in revenue for the nine months ended October 31, 2020 related to contract liabilities that existed at January 31, 2020.

There were no contract assets recorded as of October 31, 2020, October 31, 2019 and January 31, 2020.

Substantially all of the advance payments from licensees as of October 31, 2020 are expected to be recognized as revenue within the next twelve months.

Total contract liabilities were $ 4.1 million, $ 4.1 million and $ 5.9 million at April 30, 2021, April 30, 2020 and January 31, 2021, respectively.

The Company recognized $ 3.2 million in revenue for the three months ended April 30, 2021 related to contract liabilities that existed at January 31, 2021.

The Company recognized $ 3.5 million in revenue for the three months ended April 30, 2020 related to contract liabilities that existed at January 31, 2020.

There were no contract assets recorded as of April 30, 2021, April 30, 2020 and January 31, 2021.

Substantially all of the advance payments from licensees as of April 30, 2021 are expected to be recognized as revenue within the next twelve months.

Note 10 – Segments

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Bass and Andrew Marc.

The retail operations segment consists primarily of direct sales to consumers through Company-operated stores, consisting primarily of Wilsons Leather, G.H.

Bass and DKNY stores, substantially all of which are operated as outlet stores.

The retail operations segment consists primarily of direct sales to consumers through Company-operated stores, which, prior to the completion of the retail restructuring in fiscal 2021, consisted primarily of Wilsons Leather, G.H.

Bass, DKNY and Karl Lagerfeld Paris stores, substantially all of which were operated as outlet stores.

Sales through Company-owned channels, with the exception of Vilebrequin, are also included in the retail operations segment.

As a result of the restructuring of the Company’s retail operations, the Company is in the process of closing all of its Wilsons Leather and G.H.

Bass retail stores which is expected to be completed by the end of fiscal 2021.

The following segment information is presented for the three and nine-month periods indicated below:

Three Months Ended October 31, 2020

Elimination (1)

(In thousands)

Cost of goods sold

Selling, general and administrative expenses

Depreciation and amortization

Asset impairments, net of gain on lease modifications

Operating profit (loss)

Three Months Ended October 31, 2019

Elimination (1)

(In thousands)

Cost of goods sold

Selling, general and administrative expenses

Depreciation and amortization

Gain on lease modifications

Operating profit (loss)

Nine Months Ended October 31, 2020

As a result of the restructuring of the Company’s retail operations, the Company closed its Wilsons Leather, G.H.

Bass and Calvin Klein Performance retail stores during fiscal 2021.

After completion of the restructuring, the Company’s retail operations segment consists of 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.

The following segment information is presented for the three-month periods indicated below:

Three Months Ended April 30, 2021

Elimination (1)

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Depreciation and amortization

Asset impairments, net of gain on lease modifications

Operating profit (loss)

Nine Months Ended October 31, 2019

Three Months Ended April 30, 2020

Elimination (1)

3 unchanged sentences

Depreciation and amortization

Gain on lease modifications

Operating profit (loss)

(Gain) loss on lease modifications

Operating loss

(1) Represents intersegment sales to the Company’s retail operations segment.

The total assets for each of the Company’s reportable segments, as well as assets not allocated to a segment, are as follows:

October 31, 2020

October 31, 2019

January 31, 2020

(In thousands)

Note 11 – Stockholders’ Equity

For the three months ended October 31, 2020, the Company issued no shares of common stock and utilized no shares of treasury stock in connection with the vesting of equity awards.

For the three months ended October 31, 2019, the Company issued no shares of common stock and utilized 80,353 shares of treasury stock in connection with the vesting of equity awards.

For the nine months ended October 31, 2020, the Company issued no shares of common stock and utilized 349,342 shares of treasury stock in connection with the vesting of equity awards.

For the nine months ended October 31, 2019, the Company issued 8,851 shares of common stock and utilized 435,703 shares of treasury stock in connection with the vesting of equity awards.

For the three months ended April 30, 2021, the Company issued no shares of common stock and utilized 158 shares of treasury stock in connection with the vesting of equity awards.

For the three months ended April 30, 2020, the Company issued no shares of common stock and utilized 42,195 shares of treasury stock in connection with the vesting of equity awards.

Note 12 – Income Taxes

The Company recorded income tax expense of $ 28.4 million and $ 8.4 million for the three and nine months ended October 31, 2020, respectively.

The Company recorded income tax expense of $ 35.6 million and $ 42.5 million for the three and nine months ended October 31, 2019, respectively.

The Company’s effective tax rate increased this quarter compared to the prior year’s comparable quarter primarily due to a substantial decrease in the Company’s worldwide income and an increase in the valuation allowance related to the stand-alone net operating losses of the Company’s retail operations.

In addition, the effective tax rate increased due to a discrete income tax charge in connection with the vesting of equity awards.

Historically, the Company calculated the provision for income taxes during interim reporting periods by applying an estimate of the annual effective tax rate for income for the entire year, excluding unusual or discrete items, to the reporting period.

Due to the uncertainty related to the impact of the COVID-19 pandemic on the Company’s operations, the Company used a discrete effective tax rate method to calculate income taxes for the first and second quarters of fiscal 2021.

However, due to the change in pre-tax income in the third quarter of fiscal 2021, the Company has an equitable projection of the full year income and returned to the historical practice of using an annual effective tax rate based on full year fiscal year income.

For the three months ended April 30, 2021 and April 30, 2020, the Company recorded a $ 10.3 million income tax expense and a $ 16.4 million income tax benefit, respectively.

Historically, the Company has calculated its provision for income taxes during interim reporting periods by applying the estimated annual effective tax rate for the full fiscal year to pre-tax income or loss, excluding discrete items, for the reporting period.

Due to the uncertainty related to the impact of the COVID-19 pandemic on our operations, the Company used a discrete effective tax rate method to calculate taxes for the three month period ended April 30, 2020.

Due to the change in pre-tax income for the current fiscal year, the Company has an equitable projection for the current fiscal year, and has returned to the historical practice of using an annual effective tax rate based on full fiscal year pre-tax income.

Note 13 – Canadian Customs Duty Examination

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Beginning February 1, 2018, the Company began paying duties based on the new valuation method.

There were no amounts paid and deferred for the three and nine months ended October 31, 2020, related to the higher dutiable values.

Cumulative amounts paid and deferred through October 31, 2020, related to the higher dutiable values, were CAD$ 12.9 million ($ 9.7 million).

There were no amounts paid and deferred for the three months ended April 30, 2021, related to the higher dutiable values, however, the Company paid interest in the amount of CAD$1.0 million ($0.8 million) on the additional duties for the period January 15, 2018 through November 25, 2020, the date of the CBSA’s final decision as discussed below.

Cumulative amounts paid and deferred through April 30, 2021, related to the higher dutiable values, were CAD$ 14.4 million ($ 11.6 million).

Effective June 1, 2019, G-III commenced paying based on the dutiable value of G-III Canada’s imports based on the pre-audit levels.

G-III continued to defer the additional duty paid through the month of May 2019 pending the final outcome of the appeal.

The CBSA has issued its preliminary decision expressing its intention to deny the appeal filed by G-III Canada.

G-III Canada has responded to the CBSA’s preliminary decision letter to correct facts in the letter that G-III Canada believes to be inaccurate.

G-III Canada is awaiting the final decision of the CBSA and is evaluating prospects for a further appeal should the final decision remain unfavorable.

The CBSA has issued its final decision denying the appeal filed by G-III Canada with the President’s Office of the CBSA.

G-III Canada has filed a Notice of Appeal with the Canadian International Trade Tribunal (the “Tribunal”) further appealing the CBSA decision.

The Tribunal has confirmed receipt of the Notice of Appeal.

G-III Canada filed its case brief and evidence on April 13, 2021.

The CBSA has until June 14, 2021 to file their brief.

The hearing date, originally scheduled for August 10, 2021, has been set for September 1, 2021.

G-III Canada, based on the advice of counsel, believes it has positions that support its valuations for duty as declared and therefore its ability to receive a refund of amounts claimed to be owed to the CBSA on appeal and intends to vigorously contest the findings of the CBSA.

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Recently Adopted Accounting Guidance

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments-Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments.” This pronouncement changed how entities account for credit impairment for trade and other receivables, as well as for certain financial assets and other instruments.

ASU 2016-13 replaced the “incurred loss” model with an “expected loss” model.

Under the “incurred loss” model, a loss (or allowance) was recognized only when

an event had occurred (such as a payment delinquency) that caused the entity to believe that a loss was probable (i.e., that it had been “incurred”).

Under the “expected loss” model, an entity recognizes a loss (or allowance) upon initial recognition of the asset that reflects all future events that may lead to a loss being realized, regardless of whether it is probable that the future event will occur.

The “incurred loss” model considered past events and current conditions, while the “expected loss” model includes expectations for the future which have yet to occur.

The Company adopted ASU 2016-16 as of February 1, 2020.

The adoption of this standard did not result in a material change to the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which made a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement among or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements.

The amendments in ASU 2018-13 modified the disclosure requirements with respect to fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8:

Notes to Financial Statements, including the consideration of costs and benefits.

The amendments to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty have been applied prospectively in the initial fiscal year of adoption.

All other amendments have been applied retrospectively to all periods presented in the initial year of adoption.

The Company adopted the standard effective February 1, 2020.

The adoption of this standard did not result in a material change to the Company’s condensed consolidated financial statements.

In August 2018, the FASB issued ASU 2018-15, Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is A Service Contract, which addresses the accounting for implementation costs incurred in a cloud computing arrangement (“CCA”) that is a service contract.

ASU 2018-15 aligned the accounting for costs incurred to implement a CCA that is a service arrangement with the guidance on capitalizing costs associated with developing or obtaining internal-use software.

Specifically, ASU 2018-15 amended ASC 350 to include in its scope implementation costs of a CCA that is a service contract and clarifies that a customer should apply ASC 350-40 to determine which implementation costs should be capitalized in a CCA that is considered a service contract.

The Company adopted the standard effective February 1, 2020.

The adoption of this standard did not result in a material change to the Company’s condensed consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (“ASC 848”):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting.

The standard is intended to provide optional expedients and exceptions for applying GAAP to contract modifications and hedging relationships, subject to meeting certain criteria that reference LIBOR or another rate that is expected to be discontinued.

The guidance was effective upon issuance, and may be applied prospectively through December 31, 2022.

The adoption of this standard did not result in a material change to the Company’s condensed consolidated financial statements.

There was no accounting guidance adopted during the three months ended April 30, 2021.

Issued Accounting Guidance Being Evaluated for Adoption

The Company has reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to the condensed consolidated financial statements.

Note 16 – Subsequent Events

Fabco was 49 % owned by the Company through November 30, 2020.

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

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

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

Fabco operates the Company’s DKNY business in China.

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-Q

Item 1. Financial Statements