Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES.
As of January 31, 2022, our management, including the Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure, and thus, are effective in making known to them material information relating to G-III required to be included in this Report.
Changes in Internal Control over Financial Reporting
During our last fiscal quarter, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining an adequate system of internal control over our financial reporting. In order to evaluate the effectiveness of internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment, including testing, using the criteria on Internal Control — Integrated Framework (2013) , issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. Our system of internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness of internal control over financial reporting to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Based on its assessment, management has concluded that we maintained effective internal control over financial reporting as of January 31, 2022, based on criteria in Internal Control — Integrated Framework (2013) , issued by the COSO.
Our independent auditors, Ernst & Young LLP, a registered public accounting firm, have audited and reported on our consolidated financial statements and the effectiveness of our internal control over financial reporting. The reports of our independent auditors appear on pages F-2 and F-3 of this Form 10-K and express unqualified opinions on the consolidated financial statements and the effectiveness of our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
60
Table of Contents
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
We have adopted a code of ethics and business conduct, or Code of Ethics and Conduct, which applies to all of our employees, our principal executive officer, principal financial officer, principal accounting officer controller and persons performing similar functions. Our Code of Ethics and Conduct is located on our Internet website at www.g-iii.com under the heading “Corporate Governance.” Any amendments to, or waivers from, a provision of our Code of Ethics and Conduct that apply to our principal executive officer, principal financial officer, principal accounting officer, controller and persons performing similar functions will be disclosed on our Internet website within five business days following such amendment or waiver. The information contained on or connected to our Internet website is not incorporated by reference into this Form 10-K and should not be considered part of this or any other report we file with or furnish to the Securities and Exchange Commission.
The information required by Item 401 of Regulation S-K regarding directors is contained under the heading “Proposal No. 1 — Election of Directors” in our definitive Proxy Statement (the “Proxy Statement”) relating to our Annual Meeting of Stockholders to be held on or about June 9, 2022, to be filed pursuant to Regulation 14A of the Securities Exchange Act of 1934 with the Securities and Exchange Commission, and is incorporated herein by reference. For information concerning our executive officers, see “Business — Information About Our Executive Officers” in Item 1 in this Form 10-K.
The information required by Item 405 of Regulation S-K is contained under the heading “Delinquent Section 16(a) Reports” in our Proxy Statement and is incorporated herein by reference. The information required by Items 407(c)(3), (d)(4), and (d)(5) of Regulation S-K is contained under the heading “Corporate Governance” in our Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item 11 is contained under the headings “Executive Compensation” and “Compensation Committee Report” in our Proxy Statement and is incorporated herein by reference.
61
Table of Contents
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security ownership information of certain beneficial owners and management as called for by this Item 12 is incorporated by reference to the information set forth under the heading “Beneficial Ownership of Common Stock by Certain Stockholders and Management” in our Proxy Statement.
Equity Compensation Plan Information
The following table provides information as of January 31, 2022, the last day of fiscal 2022, regarding securities issued under G-III’s equity compensation plans that were in effect during fiscal 2022.
Number of Securities
Remaining Available for
Number of Securities to
Weighted Average
Future Issuance Under
be Issued Upon Exercise
Exercise Price of
Equity Compensation
of Outstanding Options,
Outstanding Options,
Plans (Excluding Securities
Warrants and Rights
Warrants and Rights
Reflected in Column (a))
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders
2,043,257
(1)
$
18.11
(2)
2,119,382
(3)
Equity compensation plans not approved by security holders
—
—
—
Total
2,043,257
(1)
$
18.11
(2)
2,119,382
(3)
(1) Includes outstanding awards of 2,033,257 shares of Common Stock issuable upon vesting of restricted stock units (‘‘RSUs’’) and stock options for 10,000 shares of common stock. Outstanding stock options have a weighted average exercise price of $18.11 and a weighted average remaining term of 0.97 years.
(2) RSUs are excluded when determining the weighted average exercise price of outstanding stock options.
(3) Under our 2015 Long-Term Incentive Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information required by this Item 13 is contained under the headings “Certain Relationships and Related Transactions” and “Corporate Governance” in our Proxy Statement and is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The information required by this Item 14 is contained under the heading “Principal Accounting Fees and Services” in our Proxy Statement and is incorporated herein by reference.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
1. Financial Statements.
2. Financial Statement Schedules.
The Financial Statements and Financial Statement Schedules are listed in the accompanying index to consolidated financial statements beginning on page F-1 of this report. All other schedules, for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are shown in the financial statements or are not applicable and therefore have been omitted.
62
Table of Contents
Exhibits:
The following exhibits filed as part of this report or incorporated herein by reference are management contracts or compensatory plans or arrangements: Exhibits 10.1, 10.1(a), 10.1(b), 10.1(c), 10.1(d), 10.6, 10.6(a), 10.6(b), 10.7, 10.7(a), 10.7(b), 10.7(c), 10.7(d), 10.8, 10.9, 10.9(a), 10.9(b), 10.9(c), 10.9(d), 10.12, 10.13, 10.14, and 10.15.
Incorporated by Reference
Exhibit No.
Document
Form
File No.
Date Filed
2.1
Stock Purchase Agreement, dated as of July 22, 2016, by and between G-III Apparel Group, Ltd. (“G-III”) and LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) (including the exhibits thereto).
8-K
000-18183
7/28/2016
2.1(a)
Amendment No. 1 to Stock Purchase Agreement, dated November 30, 2016, by and between G-III and LVMH.
8-K
000-18183
12/6/2016
3.1
Certificate of Incorporation.
8-K
000-18183
7/2/2008
3.1(a)
Certificate of Amendment of Certificate of Incorporation, dated June 8, 2006.
10-Q (Q2 2007)
000-18183
9/13/2006
3.1(b)
Certificate of Amendment of Certificate of Incorporation, dated June 7, 2011.
8-K
000-18183
6/9/2011
3.1(c)
Certificate of Amendment of Certificate of Incorporation, dated June 30, 2015.
8-K
000-18183
7/1/2015
3.2
By-Laws, as amended, of G-III.
8-K
000-18183
3/15/2013
4.1
Promissory Note, dated December 1, 2016, from G-III to LVMH.
8-K
000-18183
12/6/2016
4.1(a)
Indenture, dated as of August 7, 2020, among G-III Apparel Group, Ltd., the guarantors party thereto and U.S. Bank, National Association, as trustee and collateral agent, relating to the 7.875% Senior Secured Notes due 2025.
8-K
000-18183
8/7/2020
4.2
Description of Securities
10-K (2020)
000-18183
3/30/2020
10.1
Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
10-K/A (2006)
000-18183
5/8/2006
10.1(a)
Amendment, dated October 1, 1999, to the Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
10-K/A (2006)
000-18183
5/8/2006
10.1(b)
Amendment, dated January 28, 2009, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
8-K
000-18183
2/3/2009
10.1(c)
Letter Amendment, dated March 13, 2013, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
8-K
000-18183
3/15/2013
10.1(d)
Letter Amendment, dated April 28, 2014, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
8-K
000-18183
5/14/2015
10.2
Second Amended and Restated ABL Credit Agreement, dated as of August 7, 2020, among G-III Leather Fashions, Inc., Riviera Sun, Inc., CK Outerwear, LLC, AM Retail Group, Inc. and The Donna Karan Company Store LLC, as Borrowers, the other Borrowers party thereto, the Loan Guarantors party thereto, the Lenders party thereto and JPMorgan Chase Bank, N.A., as the Administrative Agent.
8-K
000-18183
8/7/2020
10.3
Lease, dated June 1, 1993, between 512 Seventh Avenue Associates (“512”) and G-III Leather Fashions, Inc. (“G-III Leather”) (34th and 35th floors).
10-K/A (2006)
000-18183
5/8/2006
10.3(a)
Lease amendment, dated July 1, 2000, between 512 and G-III Leather (34th and 35th floors).
10-K/A (2006)
000-18183
5/8/2006
10.3(b)
Second Amendment of Lease, dated March 26, 2010, between 500-512 Seventh Avenue Limited Partnership, the successor to 512 (collectively, “512”) and G-III Leather (34th and 35th floors).
10-Q (Q3 2011)
000-18183
12/10/2010
10.4
Lease, dated January 31, 1994, between 512 and G-III (33rd floor).
10-K/A (2006)
000-18183
5/8/2006
10.4(a)
Lease amendment, dated July 1, 2000, between 512 and G-III (33rd floor).
10-K/A (2006)
000-18183
5/8/2006
10.4(b)
Second Amendment of Lease, dated March 26, 2010, between 512 and G-III Leather (33rd floor).
10-Q (Q3 2011)
000-18183
12/10/2010
10.4(c)
Second Amendment of Lease, dated March 26, 2010, between 512 and G-III Leather (10th floor).
10-Q (Q3 2011)
000-18183
12/10/2010
10.4(d)
Third Amendment of Lease, dated March 26, 2010, between 512 and G-III Leather (21st, 22nd, 23rd, 24th and 36th floors).
10-Q (Q3 2011)
000-18183
12/10/2010
10.4(e)
Sixth Amendment of Lease, dated May 23, 2013, by and between G-III Leather Fashions, Inc. as Tenant and 500-512 Seventh Avenue Limited Partnership as Landlord, (2nd Floor (including mezzanine), 21st, 22nd, 23rd, 24th, 27th, 29th, 31st, 36th and 40th Floors).
10-Q (Q1 2014)
000-18183
6/10/2013
63
Table of Contents
Incorporated by Reference
Exhibit No.
Document
Form
File No.
Date Filed
10.4(f)
Seventh Amendment of Lease dated April 25, 2014, by and between G-III Leather Fashions, Inc. as Tenant and 500-512 Seventh Avenue Limited Partnership as Landlord (2nd Floor (including mezzanine), 21st, 22nd, 23rd, 24th, 27th, 29th, 31st, 36th, 39th and 40th Floors).
10-Q (Q1 2015)
000-18183
6/5/2014
10.4(g)
Eighth Amendment Of Lease, dated June 16, 2017, by and between G-III Leather Fashions, Inc. as Tenant and 500-512 Seventh Avenue Limited Partnership as Landlord* (2nd Floor (including mezzanine), 3rd, 4th, 5th, 21st, 22nd, 23rd, 24th, 27th, 28th, 29th, 30th, 31st, 36th, 39th and 40th Floors)
10-K (2018)
000-18183
4/2/2018
10.4(h)
Ninth Amendment of Lease, dated May 14, 2018, by and between G-III Leather Fashions, Inc. as Tenant and 500-512 Seventh Avenue Limited Partnership as Landlord, (2nd Floor (including mezzanine), 3rd, 4th, 5th, 21st, 22nd, 23rd, 24th, 26th, 27th, 28th, 29th, 30th, 31st, 36th, 39th and 40th Floors at 512 Seventh Avenue and 2nd and Part of 3rd at 500 Seventh Avenue).
10-Q (Q1 2019)
000-18183
6/11/2018
10.5
Lease, dated February 10, 2009, between IRET Properties and AM Retail Group, Inc.
10-Q (Q3 2011)
000-18183
12/10/2010
10.6
G-III 2005 Amended and Restated Stock Incentive Plan, (the “2005 Plan”).
8-K
000-18183
3/15/2013
10.6(a)
Form of Option Agreement for awards made pursuant to the 2005 Plan.
10-K (2009)
000-18183
4/16/2009
10.6(b)
Form of Restricted Stock Agreement for restricted stock awards made pursuant to the 2005 Plan.
8-K
000-18183
6/15/2005
10.7
G-III 2015 Long-Term Incentive Plan, as amended.
8-K
000-18183
6/11/2021
10.7(a)
Form of Performance Share Unit Agreement for April 17, 2019 performance share unit grants.
8-K
000-18183
4/23/2019
10.7(b)
Form of Restricted Stock Unit Agreement for April 27, 2020 restricted stock unit grants.
10-Q (Q1 2021)
000-18183
6/9/2020
10.7(c)
Form of Amended and Restated Restricted Stock Unit Agreement, dated June 28, 2021, with respect to revised awards under the 2015 Plan.
8-K
000-18183
6/30/2021
10.7(d)
Form of Performance Share Unit Agreement for March 18, 2022 performance share unit grants.
8-K
000-18183
3/23/2022
10.8
Form of Executive Transition Agreement, as amended.
8-K
000-18183
2/16/2011
10.9
Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
10-Q (Q3 2011)
000-18183
12/10/2010
10.9(a)
Amendment, dated October 3, 2008, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
8-K
000-18183
10/6/2008
10.9(b)
Amendment, dated January 28, 2009, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
8-K
000-18183
2/3/2009
10.9(c)
Letter Amendment, dated March 13, 2013, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
8-K
000-18183
3/15/2013
10.9(d)
Letter Amendment, dated April 28, 2014, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
8-K
000-18183
4/30/2014
10.10 (a)
Lease agreement dated June 29, 2006 between The Realty Associates Fund VI, LP and G-III.
10-Q (Q2 2007)
000-18183
9/13/2006
10.10 (b)
First Amendment of Lease, dated July 31, 2012, by and between Centerpoint Herrod, LLC, as successor in interest to The Realty Associates Fund VI, LP, and G-III.
10-K (2019)
000-18183
3/28/2019
10.11
Lease Agreement, dated December 21, 2009 and effective December 28, 2009, by and between G-III, as Tenant, and Granite South Brunswick LLC, as Landlord.
10-Q (Q3 2011)
000-18183
12/10/2010
10.11(a)
First Amendment of Lease, dated September 16, 2020, by and between G-III Apparel Group, Ltd. as Tenant and Granite South Brunswick LLC as Landlord.
10-Q (Q3 2021)
000-18183
12/10/2020
10.12
Form of Indemnification Agreement.
10-Q (Q3 2011)
000-18183
12/10/2010
10.13
Employment Agreement, dated as of December 9, 2016, between G-III and Jeffrey D. Goldfarb.
8-K
000-18183
12/14/2016
10.14
Amendment to Executive Transition Agreement, dated as of December 9, 2016, between G-III and Jeffrey D. Goldfarb.
8-K
000-18183
12/6/2016
10.15
Severance Agreement, dated as of December 9, 2016, between G-III and Neal Nackman.
8-K
000-18183
12/14/2016
10.16
Lease, dated August 1, 2006, between 240 West 40th LLC. and G-III Leather Fashions, Inc.
10-K (2017)
000-18183
4/3/2017
64
Table of Contents
Incorporated by Reference
Exhibit No.
Document
Form
File No.
Date Filed
10.17
Lease, dated December 7, 2011, between 400 Commerce Boulevard LLC. and G-III Leather Fashions, Inc.
10-K (2017)
000-18183
4/3/2017
21*
Subsidiaries of G-III.
—
—
—
23.1*
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.
—
—
—
31.1*
Certification by Morris Goldfarb, Chief Executive Officer of G-III Apparel Group, Ltd., pursuant to Rule 13a – 14(a) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020.
—
—
—
31.2*
Certification by Neal S. Nackman, Chief Financial Officer of G-III Apparel Group, Ltd., pursuant to Rule 13a – 14(a) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020.
—
—
—
32.1**
Certification by Morris Goldfarb, Chief Executive Officer of G-III Apparel Group, Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2020.
—
—
—
32.2**
Certification by Neal S. Nackman, Chief Financial Officer of G-III Apparel Group, Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the year ended January 31, 2020.
—
—
—
101.INS*
iXBRL Instance Document.
—
—
—
101.SCH*
iXBRL Schema Document.
—
—
—
101.CAL*
iXBRL Calculation Linkbase Document.
—
—
—
101.DEF*
iXBRL Extension Definition.
—
—
—
101.LAB*
iXBRL Label Linkbase Document.
—
—
—
101.PRE*
iXBRL Presentation Linkbase Document.
—
—
—
104*
Cover Page Interactive Data File (embedded within the Inline XBRL document)
—
—
—
* Filed herewith.
** Exhibits 32.1 and 32.2 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibits shall not be deemed incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
Exhibits have been included in copies of this Report filed with the Securities and Exchange Commission. We will provide, without charge, a copy of these exhibits to each stockholder upon the written request of any such stockholder. All such requests should be directed to Investor Relations, G-III Apparel Group, Ltd., 512 Seventh Avenue, 31st floor, New York, New York 10018.
ITEM 16. FORM 10-K SUMMARY.
Not applicable.
65
Table of Contents
EXHIBIT INDEX
21
Subsidiaries of G-III.
23.1
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.
31.1
Certification by Morris Goldfarb, Chief Executive Officer of G-III Apparel Group, Ltd., pursuant to Rule 13a – 14(a) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
31.2
Certification by Neal S. Nackman, Chief Financial Officer of G-III Apparel Group, Ltd., pursuant to Rule 13a – 14(a) or Rule 15d – 14(a) of the Securities Exchange Act of 1934, as amended, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
32.1
Certification by Morris Goldfarb, Chief Executive Officer of G-III Apparel Group, Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
32.2
Certification by Neal S. Nackman, Chief Financial Officer of G-III Apparel Group, Ltd., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with G-III Apparel Group, Ltd.’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022.
101.INS
iXBRL Instance Document.
101.SCH
iXBRL Schema Document.
101.CAL
iXBRL Calculation Linkbase Document.
101.DEF
iXBRL Extension Definition.
101.LAB
iXBRL Label Linkbase Document.
101.PRE
iXBRL Presentation Linkbase Document.
104
Cover Page Interactive Data File (embedded within the Inline XBRL document)
66
Table of Contents
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
G-III APPAREL GROUP, LTD.
By:
/s/ Morris Goldfarb
Morris Goldfarb,
Chief Executive Officer
March 28, 2022
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Morris Goldfarb
Director, Chairman of the Board and Chief Executive Officer (principal executive officer)
March 28, 2022
Morris Goldfarb
/s/ Neal S. Nackman
Chief Financial Officer (principal financial and accounting officer)
March 28, 2022
Neal S. Nackman
/s/ Sammy Aaron
Director, Vice Chairman and President
March 28, 2022
Sammy Aaron
/s/ Thomas J. Brosig
Director
March 28, 2022
Thomas J. Brosig
/s/ Alan Feller
Director
March 28, 2022
Alan Feller
/s/ Jeffrey Goldfarb
Director
March 28, 2022
Jeffrey Goldfarb
/s/ Victor Herrero
Director
March 28, 2022
Victor Herrero
/s/ Robert L. Johnson
Director
March 28, 2022
Robert L. Johnson
/s/ Jeanette Nostra
Director
March 28, 2022
Jeanette Nostra
/s/ Laura Pomerantz
Director
March 28, 2022
Laura Pomerantz
/s/ Willem van Bokhorst
Director
March 28, 2022
Willem van Bokhorst
/s/ Cheryl Vitali
Director
March 28, 2022
Cheryl Vitali
/s/ Richard White
Director
March 28, 2022
Richard White
67
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(Item 15(a)) G-III Apparel Group, Ltd. and Subsidiaries
Page
Reports of Independent Registered Public Accounting Firm (PCAOB ID 42 )
F-1
Consolidated Balance Sheets
F-4
Consolidated Statements of Income and Comprehensive Income
F-5
Consolidated Statements of Stockholders’ Equity
F-6
Consolidated Statements of Cash Flows
F-7
Notes to Consolidated Financial Statements
F-8
SCHEDULE II — Valuation and Qualifying Accounts
S-1
All other schedules for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and, accordingly, are omitted.
F-0
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of G-III Apparel Group, Ltd.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of G-III Apparel Group, Ltd. and subsidiaries (the Company) as of January 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at January 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2022, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Wholesale revenue variable consideration
Description of the Matter
As described in Note 1 and Note 2 to the consolidated financial statements, revenue is adjusted by variable consideration arising from implicit or explicit obligations. The reserves for variable consideration are recorded as customer refund liabilities and totaled $86.8 million as of January 31, 2022.
Auditing the Company's measurement of variable consideration related to non-contractual markdowns and returns from wholesale customers is especially challenging because the method of calculation involves subjective management assumptions about estimates of the expected markdowns and returns. For example, in addition to historical experience, estimates of future markdown allowances and returns from wholesale customers are adjusted to reflect management’s assumptions about performance of the
F-1
Table of Contents
Company’s merchandise, specific known events and industry trends. Changes in the assumptions can have a material effect on the amount of variable consideration recognized.
How We Addressed the Matter in Our Audit
We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company's process for estimating variable consideration. For example, we tested controls over management’s review of the significant assumptions underlying the estimates of the refund liabilities for markdown allowances and returns from wholesale customers.
To test the Company’s measurement of variable consideration related to non-contractual markdowns and returns from wholesale customers, our audit procedures included, among others, evaluating the Company’s methodologies, evaluating the significant assumptions described above and testing the completeness and accuracy of the underlying data used in management's analyses. We compared the significant assumptions used by management to current market and economic trends, historical results and other relevant factors. Further, we performed sensitivity analyses to evaluate the changes in variable consideration that would result from changes in the significant assumptions. In addition, we performed a retrospective review of actual customer chargebacks for markdowns and returns to evaluate the historical accuracy of the Company’s estimates.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2000.
New York, New York
March 28, 2022
F-2
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of G-III Apparel Group, Ltd.
Opinion on Internal Control Over Financial Reporting
We have audited G-III Apparel Group, Ltd and subsidiaries’ internal control over financial reporting as of January 31, 2022, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, G-III Apparel Group, Ltd. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of January 31, 2022, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 28, 2022 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
March 28, 2022
F-3
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
January 31,
2022
2021
(In thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents
$
465,984
$
351,934
Accounts receivable, net of allowance for doubtful accounts of $ 17.4 million and $ 17.5 million, respectively
605,512
492,698
Inventories
512,155
416,503
Prepaid income taxes
14,502
26,102
Prepaid expenses and other current assets
54,704
56,803
Total current assets
1,652,857
1,344,040
Investments in unconsolidated affiliates
65,503
63,523
Property and equipment, net
48,805
57,064
Operating lease assets
169,595
186,070
Other assets, net
54,992
38,785
Other intangibles, net
31,361
35,059
Deferred income tax assets, net
3,559
5,098
Trademarks
453,329
443,612
Goodwill
262,527
263,135
Total assets
$
2,742,528
$
2,436,386
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable
$
4,237
$
4,402
Accounts payable
236,921
139,183
Accrued expenses
128,124
102,787
Customer refund liabilities
86,788
99,355
Current operating lease liabilities
42,763
43,560
Income tax payable
9,995
11,853
Other current liabilities
1,977
862
Total current liabilities
510,805
402,002
Notes payable, net of discount and unamortized issuance costs
515,344
507,950
Deferred income tax liabilities, net
40,010
20,353
Noncurrent operating lease liabilities
142,868
161,668
Other non-current liabilities
13,118
7,208
Total liabilities
1,222,145
1,099,181
Redeemable noncontrolling interests
471
964
Stockholders' Equity
Preferred stock; 1,000 shares authorized; no shares issued and outstanding
—
—
Common stock - $ 0.01 par value; 120,000 shares authorized; 49,396 and 49,396 shares issued, respectively
264
264
Additional paid-in capital
456,329
448,417
Accumulated other comprehensive loss
( 14,529 )
( 2,094 )
Retained earnings
1,117,005
916,683
Common stock held in treasury, at cost - 1,480 and 1,019 shares, respectively
( 39,157 )
( 27,029 )
Total stockholders' equity
1,519,912
1,336,241
Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
2,742,528
$
2,436,386
The accompanying notes are an integral part of these statements.
F-4
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Year Ended January 31,
2022
2021
2020
(In thousands, except per share amounts)
Net sales
$
2,766,538
$
2,055,146
$
3,160,464
Cost of goods sold
1,778,349
1,310,704
2,042,524
Gross profit
988,189
744,442
1,117,940
Selling, general and administrative expenses
648,015
605,102
832,180
Depreciation and amortization
27,626
38,625
38,735
Asset impairments, net of gain on lease terminations
1,455
17,873
19,371
Operating profit
311,093
82,842
227,654
Other income (loss)
9,549
3,238
( 1,149 )
Interest and financing charges, net
( 49,666 )
( 50,354 )
( 44,407 )
Income before income taxes
270,976
35,726
182,098
Income tax expense
70,875
12,203
38,261
Net income
200,101
23,523
143,837
Less: Loss attributable to noncontrolling interests
( 492 )
( 22 )
—
Net income attributable to G-III Apparel Group, Ltd.
$
200,593
$
23,545
$
143,837
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:
Basic:
Net income per common share
$
4.14
$
0.49
$
2.98
Weighted average number of shares outstanding
48,426
48,242
48,209
Diluted:
Net income per common share
$
4.05
$
0.48
$
2.94
Weighted average number of shares outstanding
49,516
48,781
48,895
Net income
$
200,101
$
23,523
$
143,837
Other comprehensive loss:
Foreign currency translation adjustments
( 12,456 )
( 15,885 )
( 2,814 )
Other comprehensive loss
( 12,456 )
( 15,885 )
( 2,814 )
Comprehensive income
187,645
7,638
141,023
Comprehensive income attributable to noncontrolling interests:
Net loss
( 492 )
( 22 )
—
Foreign currency translation adjustments
21
( 29 )
—
Comprehensive income attributable to noncontrolling interests
( 471 )
( 51 )
—
Comprehensive income attributable to G-III Apparel Group, Ltd.
$
187,174
$
7,587
$
141,023
The accompanying notes are an integral part of these statements.
F-5
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated
Common
Additional
Other
Stock
Common
Paid-In
Comprehensive
Retained
Held In
Stock
Capital
Loss
Earnings
Treasury
Total
(In thousands)
Balance as of January 31, 2019
$
264
$
464,112
$
( 15,194 )
$
758,881
$
( 19,054 )
$
1,189,009
Equity awards exercised/vested, net
—
( 17,290 )
—
—
17,406
116
Share-based compensation expense
—
17,559
—
—
—
17,559
Taxes paid for net share settlements
—
( 12,239 )
—
—
—
( 12,239 )
Other comprehensive loss, net
—
—
( 2,814 )
—
—
( 2,814 )
Repurchases of common stock
—
—
—
—
( 35,216 )
( 35,216 )
Cumulative effect of adoption of ASC 842
—
—
—
( 9,580 )
—
( 9,580 )
Net income attributable to G-III Apparel Group, Ltd.
—
—
—
143,837
—
143,837
Balance as of January 31, 2020
264
452,142
( 18,008 )
893,138
( 36,864 )
1,290,672
Equity awards exercised/vested, net
—
( 9,538 )
—
—
9,835
297
Share-based compensation expense
—
6,137
—
—
—
6,137
Taxes paid for net share settlements
—
( 324 )
—
—
—
( 324 )
Other comprehensive gain, net
—
—
15,914
—
—
15,914
Net income attributable to G-III Apparel Group, Ltd.
—
—
—
23,545
—
23,545
Balance as of January 31, 2021
264
448,417
( 2,094 )
916,683
( 27,029 )
1,336,241
Equity awards exercised/vested, net
—
( 5,172 )
—
—
5,172
—
Share-based compensation expense
—
17,424
—
—
—
17,424
Taxes paid for net share settlements
—
( 4,340 )
—
—
—
( 4,340 )
Other comprehensive loss, net
—
—
( 12,435 )
—
—
( 12,435 )
Repurchases of common stock
—
—
—
—
( 17,300 )
( 17,300 )
Cumulative effect of change in accounting principle
—
—
—
( 271 )
—
( 271 )
Net income attributable to G-III Apparel Group, Ltd.
—
—
—
200,593
—
200,593
Balance as of January 31, 2022
$
264
$
456,329
$
( 14,529 )
$
1,117,005
$
( 39,157 )
$
1,519,912
The accompanying notes are an integral part of these statements.
F-6
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 31,
2022
2021
2020
(In thousands)
Cash flows from operating activities
Net income attributable to G-III Apparel Group, Ltd.
$
200,593
$
23,545
$
143,837
Adjustments to reconcile net income to net cash provided by operating activities, net of assets and liabilities acquired:
Depreciation and amortization
27,626
38,625
38,735
Loss on disposal of fixed assets
136
1,079
2,500
Non-cash operating lease costs
43,351
71,368
73,273
Gain on lease terminations
( 55 )
( 2,541 )
( 2,415 )
Asset impairments
1,510
20,414
21,787
Dividend received from unconsolidated affiliate
( 1,352 )
2,695
3,675
Equity (gain)/loss in unconsolidated affiliates
( 8,118 )
( 601 )
( 3,200 )
Change in fair value of equity investment
( 1,636 )
—
—
Share-based compensation
17,424
6,137
17,559
Deferred financing charges and debt discount amortization
9,677
10,014
10,491
Extinguishment of deferred financing costs
—
6,503
—
Deferred income taxes
21,117
24,844
319
Non-cash gains recorded in conjunction with Fabco acquisition
—
( 2,693 )
—
Changes in operating assets and liabilities:
Accounts receivable, net
( 112,814 )
38,900
( 28,003 )
Inventories
( 95,652 )
143,525
24,465
Income taxes, net
9,742
( 13,795 )
( 621 )
Prepaid expenses and other current assets
8,373
24,514
15,929
Other assets, net
752
( 663 )
( 731 )
Customer refund liabilities
( 12,567 )
( 136,436 )
( 10,172 )
Operating lease liabilities
( 46,922 )
( 86,448 )
( 79,843 )
Accounts payable, accrued expenses and other liabilities
124,613
( 94,228 )
( 18,564 )
Net cash provided by operating activities
185,798
74,758
209,021
Cash flows from investing activities
Operating lease assets initial direct costs
—
( 4,093 )
( 2,104 )
Minority investment in e-commerce retailer
( 25,000 )
—
—
Sale of portion of investment in e-commerce retailer
5,000
—
—
Capital expenditures
( 18,261 )
( 16,035 )
( 37,990 )
Investment in brand acquisition
( 13,244 )
—
—
Net cash used in investing activities
( 51,505 )
( 20,128 )
( 40,094 )
Cash flows from financing activities
Repayment of borrowings - revolving credit facility
—
( 1,291,424 )
( 2,388,766 )
Proceeds from borrowings - revolving credit facility
—
1,291,424
2,388,766
Repayment of borrowings - unsecured term loan
( 549 )
( 300,530 )
( 504 )
Proceeds from borrowings - unsecured term loan
230
8,883
3,362
Proceeds from borrowings - senior secured notes
—
400,000
—
Payment of financing costs
—
( 13,551 )
—
Repayment of loan from acquired brand
( 1,483 )
—
—
Proceeds from exercise of equity awards
—
297
115
Purchase of treasury shares
( 17,300 )
—
( 35,216 )
Taxes paid for net share settlements
( 4,340 )
( 324 )
( 12,239 )
Net cash provided by (used in) financing activities
( 23,442 )
94,775
( 44,482 )
Foreign currency translation adjustments
3,199
5,157
2,789
Net increase in cash and cash equivalents
114,050
154,562
127,234
Cash and cash equivalents at beginning of year
351,934
197,372
70,138
Cash and cash equivalents at end of year
$
465,984
$
351,934
$
197,372
Supplemental disclosures of cash flow information
Cash payments:
Interest, net
$
54,393
$
16,418
$
34,311
Income tax payments, net
$
39,821
$
1,971
$
39,020
Stock received from licensing agreement
$
4,831
$
—
$
—
The accompanying notes are an integral part of these statements.
F-7
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2022, 2021 and 2020
NOTE 1 — SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting policies consistently applied in the preparation of the accompanying consolidated financial statements follows:
1. Business Activity and Principles of Consolidation
As used in these financial statements, the term “Company” or “G-III” refers to G-III Apparel Group, Ltd. and its subsidiaries. The Company designs, sources and markets an extensive range of apparel, including outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories and luggage. The Company also operates retail stores and licenses its proprietary brands under several product categories.
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 and was accounted for using the equity method of accounting. Effective December 1, 2020, the Company increased its ownership interest in Fabco to 75 % and, as a result, Fabco is treated as a consolidated majority-owned subsidiary. KL North America B.V. (“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. The Company accounts for these two investments using the equity method of accounting. All material intercompany balances and transactions have been eliminated.
In October 2021, the Company purchased Sonia Rykiel, a wholly-owned operating subsidiary. The results of Sonia Rykiel are included in our consolidated financial statements beginning in the fourth quarter of fiscal 2022 (See Note 15 – Sonia Rykiel). Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, KLNA, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by the Company. Accordingly, the results of Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel are, and will be, included in the financial statements for the year ended or ending closest to the Company’s fiscal year. For example, with respect to the Company’s results for the fiscal year ended January 31, 2022, the results of Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel are included for the year ended December 31, 2021. The Company’s retail operations segment reports results on a 52/53-week fiscal year. For fiscal 2022, 2021 and 2020, the fiscal years for the retail operations segment were each 52-week periods, ended on January 29, 2022, January 30, 2021 and February 1, 2020, respectively.
2. Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
3. Revenue Recognition
Wholesale revenue is recognized when control transfers to the customer. The Company considers control to have been transferred when the Company has transferred physical possession of the product, the Company has a right to payment for the product, the customer has legal title to the product and the customer has the significant risks and rewards of the product. Wholesale revenues are adjusted by variable considerations arising from implicit or explicit obligations. Variable consideration includes trade discounts, end of season markdowns, sales allowances, cooperative advertising, return liabilities and other customer allowances. The Company estimates the anticipated variable consideration and records this estimate as a reduction of revenue in the period the related product revenue is recognized.
F-8
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Variable consideration is estimated based on historical experience, current contractual and statutory requirements, specific known events and industry trends. The reserves for variable consideration are recorded as customer refund liabilities. Historical return rates are calculated on a product line basis. The remainder of the historical rates for variable consideration are calculated by customer by product lines.
The Company recognizes retail sales when the customer takes possession of the goods and tenders payment, generally at the point of sale. Digital revenues from customers through the Company’s digital platforms are recognized when the customer takes possession of the goods. The Company’s sales are recorded net of applicable sales taxes.
Both wholesale revenues and retail store revenues are shown net of returns, discounts and other allowances.
Licensing revenue is recognized at the higher of royalty earned or guaranteed minimum royalty.
4. Accounts Receivable
In the normal course of business, the Company extends credit to its wholesale customers based on pre-defined credit criteria. Accounts receivable are net of an allowance for doubtful accounts. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligation (such as in the case of bankruptcy filings, extensive delay in payment or substantial downgrading by credit sources), a specific reserve for bad debts is recorded against amounts due to reduce the net recognized receivable to the amount reasonably expected to be collected. 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.
The Company’s financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business. The Company considers its trade receivables to consist of two portfolio segments: wholesale and retail trade receivables. Wholesale trade receivables result from credit the Company has extended to its 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. See Note 3 – Allowance For Doubtful Accounts.
5. Inventories
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 the Company’s inventory.
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 determined that it was impractical to apply this change in accounting principle retrospectively due to a lack of available information. As a result, the Company applied the change prospectively as of February 1, 2021. The cumulative adjustment as of February 1, 2021 was a decrease of $ 0.3 million in both inventories and retained earnings. The change in accounting principle did not have a material effect on the Company’s consolidated financial statements as of and for the year ended January 31, 2022.
F-9
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value.
6. Goodwill and Other Intangibles
Goodwill represents the excess of purchase price over the fair value of net assets acquired in business combinations accounted for under the purchase method of accounting. Goodwill is subject to annual impairment tests using a qualitative evaluation or a quantitative test 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. Intangible assets deemed to have indefinite lives are not amortized, but are subject to annual impairment tests 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. Other intangibles with finite lives, including license agreements, trademarks and customer lists are amortized on a straight-line basis over the estimated useful lives of the assets (currently ranging from 5 to 17 years ). Impairment charges, if any, on intangible assets with finite lives are recorded when indicators of impairment are present and the discounted cash flows estimated to be derived from those assets are less than the carrying amounts of the assets.
7. Leases
On February 1, 2019, the Company adopted ASC Topic 842 – Leases (“ASC 842”) using the optional transition method to apply the standard as of the effective date. The Company determines if an arrangement is, or contains, a lease at contract inception. Leases with an initial term of 12 months or less are not recorded on the balance sheet. For leases with an initial term greater than 12 months, a lease liability is recorded on the balance sheet at the present value of future payments discounted at the incremental borrowing rate (discount rate) corresponding with the lease term. An operating lease asset is recorded based on the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received. The difference between the minimum rents paid and the straight-line rent (deferred rent) is reflected within the associated operating lease asset. The Company has elected to account for lease and non-lease components as a single component.
The lease classification evaluation begins at the commencement date. The lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain or the failure to exercise such option would result in an economic penalty. All of the Company’s leases are classified as operating leases.
8. Depreciation and Amortization
Property and equipment are recorded at cost. Depreciation and amortization are computed by the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized using the straight-line method over the life of the lease or the useful life of the improvement, whichever is shorter.
9. Impairment of Long-Lived Assets
All property and equipment and other long-lived assets are reviewed for potential impairment when events or changes in circumstances indicate that the asset’s carrying value may not be recoverable. If such indicators are present, it is determined whether the sum of the estimated undiscounted future cash flows attributable to such assets is less than the carrying value of the assets. A potential impairment has occurred if projected future undiscounted cash flows are less than the carrying value of the assets.
F-10
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In fiscal 2022, the Company recorded a $ 1.5 million impairment charge related to the leasehold improvements, furniture and fixtures and operating lease assets at certain DKNY, Karl Lagerfeld Paris and Vilebrequin stores as a result of the performance at these stores.
In fiscal 2021, the Company recorded a $ 20.1 million impairment charge related to the 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, the Company recorded a $ 21.8 million impairment charge primarily related to leasehold improvements, furniture and fixtures and operating lease assets at certain of its Wilsons Leather, G.H. Bass and DKNY stores as a result of the performance at these stores.
10. Income Taxes
The Company accounts for income taxes and uncertain tax positions in accordance with ASC Topic 740 — Income Taxes (“ASC 740”). Income taxes are accounted for under the liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined on the basis of differences between the tax bases of assets and liabilities and their financial reporting amounts using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a return, as well as guidance on de-recognition, classification, interest and penalties and financial statement reporting disclosures. It is also the Company's policy to provide for uncertain tax positions and the related interest and penalties based upon management's assessment of whether a tax benefit is more likely than not to be sustained upon examination by tax authorities. To the extent the Company prevails in matters for which a liability for an unrecognized tax benefit is established, or is required to pay amounts in excess of the liability, or when other facts and circumstances change, the Company's effective tax rate in a given financial statement period may be materially affected.
The United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, which includes various income tax provisions aimed at providing economic relief. One of those provisions allows any loss generated in fiscal 2021 to be carried back to each of the 5 taxable years preceding the taxable year of such a loss. The Company has elected to use this relief and carried back the fiscal 2021 tax loss to a tax year with a 35% federal rate. Additionally, the CARES Act permits Qualified Improvement Property to qualify for 15-year depreciation and therefore be also eligible for 100 percent first-year bonus depreciation. The Company has elected to take 100% bonus depreciation for all qualified improvement property.
11. 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, 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 11,000 , 182,000 and 692,000 shares of common stock have been excluded from the diluted net income per share calculation for the years ended January 31, 2022, 2021 and 2020, respectively. 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 Company issued 0 , 0 and 8,851 shares of common stock in connection with the exercise or vesting of equity awards during the years ended January 31, 2022, 2021 and 2020, respectively. In addition, the Company re-issued 194,965 , 367,290 and 619,651 treasury shares in connection with the vesting of equity awards in fiscal 2022, 2021 and 2020, respectively.
F-11
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income per share:
Year Ended January 31,
2022
2021
2020
(In thousands, except share and per share amounts)
Net income attributable to G-III Apparel Group, Ltd.
$
200,593
$
23,545
$
143,837
Basic net income per share:
Basic common shares
48,426
48,242
48,209
Basic net income per share
$
4.14
$
0.49
$
2.98
Diluted net income per share:
Basic common shares
48,426
48,242
48,209
Dilutive restricted stock unit awards and stock options
1,090
539
686
Diluted common shares
49,516
48,781
48,895
Diluted net income per share
$
4.05
$
0.48
$
2.94
12. Equity Award Compensation
ASC Topic 718, Compensation — Stock Compensation , requires all share-based payments to employees, including grants of restricted stock unit awards and employee stock options, to be recognized as compensation expense over the service period (generally the vesting period) based on their grant date fair values.
The Company accounts for forfeited awards as they occur as permitted by ASC 718. Ultimately, the actual expense recognized over the vesting period will be for those shares that vested. Restricted stock units (“RSU’s”) are time based awards that do not have market or performance conditions and generally (i) cliff vest after three years or (ii) vest over a three year period. Performance based restricted stock units (“PRSU’s”) granted to executives prior to fiscal 2020 include (i) market price performance conditions that provide for the award to vest only after the average closing price of the Company’s stock trades above a predetermined market level and (ii) another performance condition that requires the achievement of an operating performance target. PRSU’s generally vest over a two to five year period. Performance stock units (“PSU’s”) were granted to executives in fiscal 2022 and 2020 and vest after a three year performance period during which certain earnings before interest and taxes and return on invested capital performance conditions must be satisfied for vesting to occur. The PSU’s granted in fiscal 2020 are also subject to a lock up period that prevents the sale, contract to sell or transfer of shares for two years subsequent to the date of vesting. RSU’s and employee stock options are expensed on a straight-line basis. PRSU’s are expensed under the accelerated attribution method. PSU’s are expensed under the accelerated attribution method and based on an estimated percentage of achievement of certain pre-established goals.
It is the Company’s policy to grant stock options at prices not less than the fair market value on the date of the grant. Option terms, vesting and exercise periods vary, except that the term of an option may not exceed ten year s.
Also, excess tax benefits arising from the lapse or exercise of an equity award are recognized in income tax expense. The assumed proceeds from applying the treasury stock method when computing net income per share is amended to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital.
13. Cost of Goods Sold
Cost of goods sold includes the expenses incurred to acquire, produce and prepare inventory for sale, including product costs, warehouse staff wages, freight in, import costs, packaging materials, the cost of operating the overseas offices and royalty expense. Gross margins may not be directly comparable to those of the Company’s competitors, as income
F-12
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
statement classifications of certain expenses may vary by company. Additionally, costs expected to be incurred when products are returned should be accrued for upon the sale of the product as a component of cost of goods sold.
14. Shipping and Handling Costs
Shipping and handling costs consist of warehouse facility costs, third party warehousing, freight out costs, and warehouse supervisory wages and are included in selling, general and administrative expenses. Shipping and handling costs included in selling, general and administrative expenses were $ 130.2 million, $ 111.8 million and $ 138.8 million for the years ended January 31, 2022, 2021 and 2020, respectively.
15. Advertising Costs
The Company expenses advertising costs as incurred and includes these costs in selling, general and administrative expenses. Advertising paid as a percentage of sales under license agreements are expensed in the period in which the sales occur or are accrued to meet guaranteed minimum requirements under license agreements. Advertising expense was $ 93.1 million, $ 55.3 million and $ 94.7 million for the years ended January 31, 2022, 2021 and 2020, respectively. Prepaid advertising, which represents advance payments to licensors for minimum guaranteed payments for advertising under the Company’s licensing agreements, was $ 6.7 million and $ 8.0 million at January 31, 2022 and 2021, respectively.
16. Use of Estimates
In preparing financial statements in conformity with accounting principles generally accepted in the United States (“GAAP”), management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. In determining these estimates, management must use amounts that are based upon its informed judgments and best estimates. The Company continually evaluates its estimates, including those related to customer allowances and discounts, product returns, bad debts, inventories, equity awards, income taxes, carrying values of intangible assets and long-lived assets including right of use assets. Estimates are based on historical experience and on various other assumptions that the Company believes are reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions and conditions.
17. Fair Value of Financial Instruments
GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.
F-13
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Level 3 — inputs to the valuation methodology based on unobservable prices or valuation techniques that are significant to the fair value measurement.
The following table summarizes the carrying values and the estimated fair values of the Company’s debt instruments:
Carrying Value
Fair Value
January 31,
January 31,
January 31,
January 31,
Financial Instrument
Level
2022
2021
2022
2021
(In thousands)
Secured Notes
1
$
400,000
$
400,000
$
422,020
$
400,000
Revolving credit facility
2
—
—
—
—
Note issued to LVMH
3
114,255
107,869
110,123
101,810
Unsecured loans
2
8,367
9,119
8,367
9,119
Overdraft facilities
2
2,903
3,007
2,903
3,007
The Company’s debt instruments are recorded at their carrying values in its consolidated balance sheets, which may differ from their respective fair values. The fair value of the Company’s secured notes is based on their current market price as of January 31, 2022. The carrying amount of the Company’s variable rate debt approximates the fair value, as interest rates change with the market rates. 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.
The 2 % note in the principal amount of $ 125 million (the “LVMH Note”) issued to LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) in connection with the acquisition of DKNY and Donna Karan was recorded on the balance sheet at a discount of $ 40.0 million in accordance with ASC 820 — Fair Value Measurements . For purposes of this fair value disclosure, the Company based its fair value estimate for the LVMH Note on the initial fair value as determined at the date of the acquisition of DKNY and Donna Karan and records the amortization using the effective interest method over the term of the LVMH Note.
The fair value of the LVMH Note was considered a Level 3 valuation in the fair value hierarchy.
Non-Financial Assets and Liabilities
The Company’s non-financial assets that are measured at fair value on a nonrecurring basis include long-lived assets, which consist primarily of property and equipment and operating lease assets. The Company reviews these assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable. For assets that are not recoverable, an impairment loss is recognized equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. For operating lease assets, the Company determines the fair value of the assets by discounting the estimated market rental rates over the remaining term of the lease. These fair value measurements are considered level 3 measurements in the fair value hierarchy. During fiscal 2022, the Company recorded a $ 1.5 million impairment charge primarily related to leasehold improvements, furniture and fixtures and operating lease assets at certain DKNY, Karl Lagerfeld Paris and Vilebrequin stores as a result of the performance at these stores. During fiscal 2021, the Company 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. During fiscal 2020, the Company recorded a $ 21.8 million impairment charge primarily related to leasehold improvements, furniture and fixtures and operating lease assets at certain Wilsons Leather, G.H. Bass and DKNY stores as a result of the performance at these stores. In addition, during 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.
F-14
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Foreign Currency Translation
Certain of the Company’s international subsidiaries use different functional currencies, which are, for the most part, the local currency. In accordance with the authoritative guidance, assets and liabilities of the Company’s foreign operations are translated from foreign currency into U.S. dollars at period-end rates, while income and expenses are translated at the weighted average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within stockholders’ equity.
19. Effects of Recently Adopted and Issued Accounting Pronouncements
Recently Adopted Accounting Guidance
There was no new accounting guidance adopted during the year ended January 31, 2022.
Accounting Guidance Issued 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 consolidated financial statements.
NOTE 2 — REVENUE RECOGNITION
Wholesale revenue is recognized upon the transfer of goods to customers in an amount that reflects the expected consideration to be received in exchange for these goods. The difference between the amount initially billed and the amount collected represents variable consideration. Variable consideration includes trade discounts, end of season markdowns, sales allowances, cooperative advertising, return liabilities and other customer allowances. The Company estimates the anticipated variable consideration and records this estimate as a reduction of revenue in the period the related product revenue is recognized.
The liability recorded in connection with variable consideration, except for cooperative advertising, has been classified as a current liability under “Customer refund liabilities” in the Consolidated Balance Sheet. The Company classifies cooperative advertising as a reduction of net sales in the Consolidated Statements of Income and Comprehensive Income. Costs expected to be incurred when products are returned should be accrued for upon the sale of the product as a component of cost of goods sold.
Disaggregation of Revenue
In accordance with ASC 606, the Company elected to disclose its revenues by segment. Each segment presents its own characteristics with respect to the timing of revenue recognition and the type of customer. In addition, disaggregating revenues using a segment basis is consistent with how the Company’s Chief Operating Decision Maker manages the Company. The Company identified the wholesale operations segment and the retail operations segment as distinct sources of revenue.
Wholesale Operations Segment. Wholesale revenues include sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues from sales of products are recognized when control transfers to the customer. The Company considers control to have been transferred when the Company has transferred physical possession of the product, the Company has a right to payment for the product, the customer has legal title to the product and the customer has the significant risks and rewards of the product. Wholesale revenues are adjusted by variable considerations arising from implicit or explicit obligations. Wholesale revenues also include revenues from license agreements related to the DKNY, Donna Karan, G.H. Bass, Andrew Marc and Vilebrequin
F-15
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
trademarks owned by the Company. As of January 31, 2022, 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 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 retail restructuring. Retail operations segment revenues are recognized at the point of sale when the customer takes possession of the goods and tenders payment. 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.
Variable Consideration . The difference between the amount initially billed and the amount collected represents variable consideration. The Company may provide customers with discounts, rebates, credit returns and price reductions. The Company may also contribute to customers’ promotional activities or incur charges for compliance violations. These adjustments to the initial selling price often occur after the sales process is completed.
The Company identified the following elements of variable consideration:
Markdowns . Markdown allowances consist of accommodations in the form of price reductions to wholesale customers for purchased merchandise. In general, markdowns are granted to full price customers, such as department stores. Markdowns may vary year-over-year and are granted based on the performance of Company merchandise at a customer’s retail stores.
Term Discounts. Term discounts represent a discount from the initial wholesale sales price to certain wholesale customers consistent with customary industry practice.
Sales Allowances . Sales allowances are reductions of the selling price agreed upon with wholesale customers. Sales allowances may be contractual or may be granted on a case-by-case basis. Non-contractual sales allowances may be granted in connection with billing adjustments and, in some cases, for product related issues.
Advertising Allowances . Advertising allowances consist of the Company’s financial participation in the promotional efforts of its wholesale customers. Wholesale customers may charge back a portion of the advertising expense incurred against open invoices. Advertising programs are generally agreed upon at the beginning of a season.
Other Allowances . General allowances consist of price reductions granted to a wholesale customer and may relate to the Company’s participation in costs incurred by the customer during the sales process, as well as price differences, shortages and charges for operational non-compliance.
Return of Merchandise . For wholesale customers, the Company may make accommodations for returns of merchandise that is underperforming at a customer’s retail stores. For retail customers, as a matter of Company policy, whether merchandise is purchased at the Company’s stores or on its digital platforms, the consumer generally has up to 90 days to return merchandise from the date of purchase.
Variable consideration is estimated based on historical experience, current contractual and statutory requirements, specific known events and industry trends. The reserves for variable consideration are recorded under customer refund liabilities. As of January 31, 2022 and 2021, customer refund liabilities amounted to $ 86.8 million and $ 99.4 million, respectively. Historical return rates are calculated on a product line basis. The remainder of the historical rates for variable consideration are calculated by customer by product lines.
F-16
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Contract Liabilities
The Company’s contract liabilities, which are recorded within accrued expenses in the accompanying consolidated balance sheets, primarily consist of gift card liabilities and advance payments from licensees. 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 $ 5.1 million and $ 5.9 million at January 31, 2022 and 2021, respectively. The Company recognized $ 4.9 million in revenue for the year ended January 31, 2022 which related to contract liabilities that existed at January 31, 2021. There were no contract assets recorded as of January 31, 2022 and January 31, 2021. Substantially all of the advance payments from licenses as of January 31, 2022 are expected to be recognized as revenue within the next twelve months.
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. The Company considers its trade receivables to consist of two portfolio segments: wholesale and retail trade receivables. Wholesale trade receivables result from credit the Company has extended to its 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.
The Company’s accounts receivable and allowance for doubtful accounts as of January 31, 2022 and 2021 were:
January 31, 2022
Wholesale
Retail
Total
(In thousands)
Accounts receivable, gross
$
620,737
$
2,166
$
622,903
Allowance for doubtful accounts
( 17,307 )
( 84 )
( 17,391 )
Accounts receivable, net
$
603,430
$
2,082
$
605,512
January 31, 2021
Wholesale
Retail
Total
(In thousands)
Accounts receivable, gross
$
509,010
$
1,147
$
510,157
Allowance for doubtful accounts
( 17,429 )
( 30 )
( 17,459 )
Accounts receivable, net
$
491,581
$
1,117
$
492,698
The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (such as in the case of bankruptcy filings (including potential bankruptcy filings), extensive delay in payment or substantial downgrading by credit rating agencies), a specific reserve for bad debts is recorded against amounts due from that customer to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other wholesale customers, an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the end of the reporting period for financial statements, assessments of collectability based on historical trends and an evaluation of the impact of economic conditions. The Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.
F-17
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The allowance for doubtful accounts for retail trade receivables is estimated at the credit card chargeback rate applied to the previous 90 days of credit card sales. In addition, the Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.
During the year ended January 31, 2021, the Company recorded a $16.7 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:
January 31, 2022
Wholesale
Retail
Total
(In thousands)
Balance as of January 31, 2021
$
( 17,429 )
$
( 30 )
$
( 17,459 )
Provision for credit losses
( 103 )
( 54 )
( 157 )
Accounts written off as uncollectible
225
—
225
Balance as of January 31, 2022
$
( 17,307 )
$
( 84 )
$
( 17,391 )
January 31, 2021
Wholesale
Retail
Total
(In thousands)
Balance as of January 31, 2020
$
( 628 )
$
( 82 )
$
( 710 )
Provision for credit losses
( 16,934 )
52
( 16,882 )
Accounts written off as uncollectible
133
—
133
Balance as of January 31, 2021
$
( 17,429 )
$
( 30 )
$
( 17,459 )
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. 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 – Significant Accounting Policies 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, was $ 18.9 million and $ 22.5 million at January 31, 2022 and 2021, respectively. The inventory return asset is recorded within prepaid expenses and other current assets on the consolidated balance sheets as of January 31, 2022 and 2021.
Inventory held on consignment by the Company’s customers totaled $ 4.5 million and $ 3.5 million at January 31, 2022 and 2021, respectively. Consignment inventory is stored at the facilities of the Company’s customers. The Company reflects this inventory on its consolidated balance sheets.
F-18
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 5 — PROPERTY AND EQUIPMENT
Property and equipment consist of:
January 31,
Estimated life
2022
2021
(In thousands)
Machinery and equipment
5 years
$
1,882
$
1,724
Leasehold improvements
3 - 13 years
77,491
74,598
Furniture and fixtures
3 - 10 years
102,813
100,572
Computer equipment and software
2 - 5 years
43,484
40,255
225,670
217,149
Less: accumulated depreciation
( 176,865 )
( 160,085 )
$
48,805
$
57,064
The Company wrote off fixed assets of $ 0.2 million and $ 0.4 million, net of accumulated depreciation, for the years ended January 31, 2022 and 2021. Depreciation expense was $ 23.6 million, $ 34.0 million and $ 33.8 million for the years ended January 31, 2022, 2021 and 2020, respectively. For the year ended January 31, 2022, the Company recorded a $ 1.3 million impairment charge related to leasehold improvements and furniture and fixtures of certain DKNY and Karl Lagerfeld Paris stores as a result of the performance of these stores. For the year ended January 31, 2021, the Company recorded an $ 0.8 million impairment charge related to leasehold improvements and furniture and fixtures of certain Wilsons Leather and G.H. Bass stores, primarily due to the retail restructuring, as well as at certain DKNY stores as a result of the performance of these stores. For the year ended January 31, 2020, the Company recorded an $ 11.5 million impairment charge related to leasehold improvements and furniture and fixtures of certain Wilsons Leather, G.H. Bass and DKNY stores as a result of the performance of these stores.
The Company evaluates long-lived assets, which consist primarily of property and equipment and operating lease assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the evaluation process, the Company first compares the carrying value of the asset to the estimated future cash flows (undiscounted and without interest charges plus proceeds expected from disposition, if any). If the estimated undiscounted cash flows are less than the carrying value of the asset, the Company needs to determine the fair value of the assets. The Company compares the carrying value of the asset or asset group to its estimated fair value. If the fair value is less than the carrying value, the Company recognizes an impairment charge. The carrying amount of the asset or asset group is reduced to the estimated fair value based on a discounted cash flow valuation. Assets to be disposed of are reported at the lower of the carrying amount of the asset or fair value less costs to sell. The Company reviews retail store assets for potential impairment based on historical cash flows, lease termination provisions and forecasted future retail store operating results. If the Company recognizes an impairment charge for a depreciable long-lived asset, the adjusted carrying amount of the asset becomes its new cost basis and will be depreciated (amortized) over the remaining useful life of that asset.
NOTE 6 — LEASES
On February 1, 2019, the Company adopted ASC 842 using the optional transition method to apply the standard as of the effective date and, therefore, the standard has not been applied retroactively to the comparative periods presented in its financial statements. The Company has elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification and initial direct costs. Further, the Company elected the short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component.
F-19
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company determines whether an arrangement is, or contains, a lease at contract inception. The Company leases certain retail stores, warehouses, distribution centers, office space and equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.
Total rent payable is recorded during the lease term, including rent escalations in which the amount of future rent is certain or fixed on the straight-line basis over the term of the lease (including any rent holiday periods beginning upon control of the premises and any fixed payments stated in the lease). For leases with an initial term greater than 12 months, a lease liability is recorded on the balance sheet at the present value of future payments discounted at the incremental borrowing rate (discount rate) corresponding with the lease term. An operating lease asset is recorded based on the initial amount of the lease liability, plus any lease payments made to the lessor before or at the lease commencement date and any initial direct costs incurred, less any tenant improvement allowance incentives received or payable at commencement. The difference between the minimum rents paid and the straight-line rent (deferred rent) is reflected within the associated operating lease asset.
The lease classification evaluation begins at the commencement date. The lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain or the failure to exercise such option would result in an economic penalty. All retail store, warehouse, distribution center and office leases are classified as operating leases. The Company does not have any finance leases. Operating lease expense is generally recognized on a straight-line basis over the lease term.
Most leases are for a term of one to ten years . Some leases include one or more options to renew , with renewal terms that can extend the lease term from one to ten years . Several of the Company’s retail store leases include an option to terminate the lease based on failure to achieve a specified sales volume. The exercise of lease renewal options is generally at the Company’s sole discretion. The exercise of lease termination options is generally by mutual agreement between the Company and the lessor.
Certain of the Company’s lease agreements include contingent rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. Contingent rent is accrued each period as the liabilities are incurred. 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 January 31, 2022 and 2021 consist of the following:
Leases
Classification
January 31, 2022
January 31, 2021
(In thousands)
Assets
Operating
Operating lease assets
$
169,595
$
186,070
Total lease assets
$
169,595
$
186,070
Liabilities
Current operating
Current operating lease liabilities
$
42,763
$
43,560
Noncurrent operating
Noncurrent operating lease liabilities
142,868
161,668
Total lease liabilities
$
185,631
$
205,228
During fiscal 2022, the Company recorded a $ 0.2 million impairment charge related to the operating lease assets at certain Vilebrequin and DKNY stores as a result of the performance at these stores. During fiscal 2021, the Company recorded a $ 19.4 million impairment charge related to the operating lease assets 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
F-20
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
at these stores. During fiscal 2020, the Company recorded a $9.9 million impairment charge related to the operating lease assets at certain of our Wilsons Leather, G.H. Bass and DKNY stores as a result of the performance of these stores. The Company determines the fair value of operating lease assets by discounting the estimated market rental rates over the remaining term of the lease.
The Company’s leases do not provide the rate of interest implicit in the lease. Therefore, the Company uses its incremental borrowing rate based on the information available at commencement date of each lease in determining the present value of lease payments. For transition purposes, the incremental borrowing rate on February 1, 2019 was used for operating leases that commenced prior to that date.
The Company recorded lease costs of $ 55.7 million, $ 92.4 million and $ 98.4 million during the years ended January 31, 2022, 2021 and 2020, respectively. Lease costs are recorded within selling, general and administrative expenses in the Company’s consolidated statements of income and comprehensive income. The Company recorded variable lease costs and short-term lease costs of $ 10.5 million, $ 6.7 million and $ 16.8 million for the years ended January 31, 2022, 2021 and 2020, respectively. Short-term lease costs are immaterial.
As of January 31, 2022, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2027 and thereafter are as follows:
Year Ending January 31,
Amount
(In thousands)
2023
$
55,830
2024
44,473
2025
37,382
2026
29,726
2027
23,606
After 2027
40,440
Total lease payments
$
231,457
Less: Interest
45,826
Present value of lease liabilities
$
185,631
As of January 31, 2022, there are no material leases that are legally binding but have not yet commenced.
As of January 31, 2022, the weighted average remaining lease term related to operating leases is 5.3 years. The weighted average discount rate related to operating leases is 8.4 %.
Cash paid for amounts included in the measurement of operating lease liabilities is $ 60.1 million and $ 108.9 million as of January 31, 2022 and 2021, respectively. Right-of-use assets obtained in exchange for lease obligations were $ 30.8 million and $ 56.6 million during the years ended January 31, 2022 and 2021, respectively.
F-21
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 7 — INTANGIBLE ASSETS
Intangible assets consist of:
January 31, 2022
Estimated Life
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
(In thousands)
Finite-lived intangible assets
Licenses
14 years
$
19,334
$
( 17,113 )
$
2,221
Trademarks
8 - 12 years
2,194
( 2,194 )
—
Customer relationships
15 - 17 years
48,240
( 20,224 )
28,016
Other
5 - 10 years
8,534
( 7,410 )
1,124
Total finite-lived intangible assets
$
78,302
$
( 46,941 )
$
31,361
Indefinite-lived intangible assets
Goodwill
262,527
Trademarks
453,329
Total indefinite-lived intangible assets
715,856
Total intangible assets, net
$
747,217
January 31, 2021
Estimated Life
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
(In thousands)
Finite-lived intangible assets
Licenses
14 years
$
19,884
$
( 16,959 )
$
2,925
Trademarks
8 - 12 years
2,194
( 2,194 )
—
Customer relationships
15 - 17 years
48,430
( 17,843 )
30,587
Other
5 - 10 years
8,624
( 7,077 )
1,547
Total finite-lived intangible assets
$
79,132
$
( 44,073 )
$
35,059
Indefinite-lived intangible assets
Goodwill
263,135
Trademarks
443,612
Total indefinite-lived intangible assets
706,747
Total intangible assets, net
$
741,806
Amortization expense
Amortization expense with respect to finite-lived intangibles amounted to $ 3.7 million, $ 4.3 million and $ 4.5 million for the years ended January 31, 2022, 2021 and 2020, respectively.
The estimated amortization expense with respect to intangibles for the next five years is as follows:
Year Ending January 31,
Amortization Expense
(In thousands)
2023
$
3,318
2024
3,097
2025
3,027
2026
2,965
2027
2,706
F-22
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Intangible assets with 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.
Change in Goodwill
Changes in the amounts of goodwill for each of the years ended January 31, 2022 and 2021 are summarized by reportable segment as follows (in thousands):
Wholesale
Retail
Total
January 31, 2020
$
260,622
—
$
260,622
Currency translation
2,513
—
2,513
January 31, 2021
263,135
—
263,135
Acquisition of Sonia Rykiel
1,518
1,518
Currency translation
( 2,126 )
—
( 2,126 )
January 31, 2022
$
262,527
$
—
$
262,527
Impairment
Goodwill represents the excess of the purchase price and related costs over the value assigned to net tangible and identifiable intangible assets of businesses acquired and accounted for under the purchase method. The Company reviews and tests its goodwill and intangible assets with indefinite lives for impairment at least annually, or more frequently if events or changes in circumstances indicate that the carrying amount of such assets may be impaired. The Company performs its goodwill test as of January 31 of each year using a qualitative evaluation or a quantitative test 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 performs its 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.
The Company performed its annual tests of its wholesale reporting unit and its indefinite-lived trademarks as of January 31, 2022, 2021 and 2020 and determined that no impairment existed at those dates. The results of the Company’s annual tests determined that the estimated fair values of its wholesale reporting unit and its indefinite-lived trademarks were substantially in excess of their carrying values.
The Company’s indefinite-lived trademark balance is primarily composed of the Donna Karan/DKNY trademark that was acquired in fiscal 2017.
The fair value of the Company’s goodwill and indefinite-lived intangible assets are considered a Level 3 valuation in the fair value hierarchy.
F-23
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 8 — NOTES PAYABLE AND OTHER LIABILITIES
Long-term debt
Long-term debt consists of the following:
January 31, 2022
January 31, 2021
(in thousands)
Secured Notes
$
400,000
$
400,000
Revolving credit facility
—
—
Note issued to LVMH
125,000
125,000
Unsecured loans
8,367
9,119
Overdraft facilities
2,903
3,007
Subtotal
536,270
537,126
Less: Net debt issuance costs (1)
( 5,944 )
( 7,643 )
Debt discount
( 10,745 )
( 17,131 )
Current portion of long-term debt
( 4,237 )
( 4,402 )
Total
$
515,344
$
507,950
(1) Does not include the debt issuance costs, net of amortization, totaling $ 5.6 million and $ 7.2 million as of January 31, 2022 and 2021, respectively, related to the revolving credit facility. The debt issuance costs have been deferred and are classified in assets in the accompanying Consolidated Balance Sheets in accordance with ASC 835.
Senior Secured 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 $ 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 .
The Notes are unconditionally guaranteed on a senior-priority secured basis by the Company’s current and future wholly-owned domestic subsidiaries that guarantee any of the Company’s credit facilities, including the Company’s ABL facility (the “ABL Facility”) pursuant to the ABL Credit Agreement, or certain future capital markets indebtedness of the Company or guarantors.
The Notes and the related guarantees are secured by (i) first priority liens on the Company’s Cash Flow Priority Collateral (as defined in the Indenture), and (ii) a second-priority lien on the Company’s 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, the Company and the Guarantors entered into a pledge and security agreement (the “Pledge and Security Agreement”), among the Company, 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.
F-24
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Notes are also subject to the terms of the LVMH Note subordination agreement which governs the relative rights of the secured parties in respect of the LVMH Note, the ABL Facility and the Notes.
At any time prior to August 15, 2022, the Company 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, the Company 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, the Company 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, the Company 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 the Company experiences a Change of Control (as defined in the Indenture), the Company is 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 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.
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 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
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, 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. The Company and its 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.
F-25
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The ABL Credit Agreement refinanced, amended and restated 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 extended 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, the Company is 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 the Company’s ability, subject to specified exceptions, to incur additional debt; incur liens; sell or dispose of certain assets; merge with other companies; liquidate or dissolve the Company; acquire other companies; make loans, advances, or guarantees; and make certain investments. 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 January 31, 2022, the Company was in compliance with these covenants .
As of January 31, 2022, the Company had no borrowings outstanding under the ABL Credit Agreement. The ABL credit agreement also includes amounts available for letters of credit. As of January 31, 2022, there were outstanding trade and standby letters of credit amounting to $ 10.0 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. The Company 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. The Company has a total of $ 8.0 million debt issuance costs related to its ABL Credit Agreement. As permitted under ASC 835, the debt issuance costs have been deferred and are presented as an asset which is amortized ratably over the term of the ABL Credit Agreement.
LVMH Note
As a portion of the consideration for the acquisition of DKNY and Donna Karan, the Company issued to LVMH a junior lien secured promissory note in the principal amount of $ 125.0 million that bears interest at the rate of 2 % per year. $ 75.0 million of the principal amount of the LVMH Note is due and payable on June 1, 2023 and $ 50.0 million of such principal amount is due and payable on December 1, 2023 .
In connection with the issuance of the LVMH Note, LVMH entered into (i) a subordination agreement providing that the Company’s obligations under the LVMH Note are subordinate and junior to the Company’s obligations under the revolving credit facility and the Term Loan, and (ii) a pledge and security agreement with the Company and its subsidiary,
F-26
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
G-III Leather Fashions, Inc., pursuant to which the Company and G-III Leather Fashions, Inc. granted to LVMH a security interest in specified collateral to secure the Company’s payment and performance of the Company’s obligations under the LVMH Note that are subordinate and junior to the security interest granted by the Company with respect to the Company’s obligations under the revolving credit facility agreement and Term Loan.
ASC 820 requires the note to be recorded at fair value at issuance. As a result, the Company recorded a $ 40.0 million debt discount. This discount is being amortized as interest expense using the effective interest method over the term of the LVMH Note.
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. Additionally, Sonia Rykiel borrowed funds pursuant to European state backed loans that were part of COVID-19 relief programs. In the aggregate, the Company is currently required to make quarterly installment payments of € 0.2 million under these loans. 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. As of January 31, 2022, the Company had an aggregate outstanding balance of € 7.4 million ($ 8.4 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 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, 2022, TRB had an aggregate of € 2.6 million ($ 2.9 million) drawn under these various facilities.
Future Debt Maturities
As of January 31, 2022, the Company’s mandatory debt repayments mature in the years ending up to January 31, 2026 or thereafter.
Year Ending January 31,
Amount
(In thousands)
2023
$
4,237
2024
126,790
2025
2,261
2026
401,764
2027 and thereafter
1,218
F-27
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accrued expenses
Accrued expenses consist of the following:
January 31, 2022
January 31, 2021
(in thousands)
Accrued bonuses
$
50,119
$
23,851
Other accrued expenses
78,005
78,936
Total
$
128,124
$
102,787
NOTE 9 — INCOME TAXES
The income tax provision is comprised of the following:
Year Ended January 31,
2022
2021
2020
(In thousands)
Current
Federal
$
39,283
$
( 15,828 )
$
22,471
State and city
4,484
( 491 )
4,856
Foreign
5,991
3,803
10,615
49,758
( 12,516 )
37,942
Deferred
Federal
17,090
22,770
8,250
State and city
2,116
3,364
315
Foreign
1,911
( 1,415 )
( 8,246 )
21,117
24,719
319
Income tax expense
$
70,875
$
12,203
$
38,261
Income before income taxes
United States
$
234,034
$
37,727
$
138,292
Non-United States
36,942
( 2,001 )
43,806
$
270,976
$
35,726
$
182,098
The United States government enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) on March 27, 2020, which includes various income tax provisions aimed at providing economic relief. One of those provisions allows any loss generated in fiscal 2021 to be carried back to each of the 5 taxable years preceding the taxable year of such a loss. The Company has elected to use this relief and carried back the fiscal 2021 tax loss to a tax year with a 35% federal rate. Additionally, the CARES Act permits Qualified Improvement Property to qualify for 15-year depreciation and therefore be also eligible for 100 percent first-year bonus depreciation. The Company has elected to take 100 % bonus depreciation for all qualified improvement property.
Effective January 1, 2018, TCJA subjects a U.S. parent company to current tax on its global intangible low-taxed income (“GILTI”). For fiscal 2022, the Company has elected to treat the tax effect of GILTI as a current period expense.
F-28
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant components of the Company’s net deferred tax asset at January 31, 2022 and 2021 are summarized as follows:
2022
2021
(In thousands)
Deferred income tax assets:
Compensation
$
1,807
$
2,673
Inventory
7,918
6,780
Provision for bad debts and sales allowances
15,972
18,531
Supplemental employee retirement plan
710
584
Net operating loss
10,949
12,703
Operating lease liability
32,721
35,658
Foreign tax credit carryforward
2,805
4,962
Other
782
3,792
Gross deferred income tax assets
73,664
85,683
Less: valuation allowance
( 14,481 )
( 13,272 )
Net deferred income tax assets
59,183
72,411
Deferred income tax liabilities:
Depreciation and amortization
( 56,901 )
( 41,185 )
Intangibles
( 9,576 )
( 14,271 )
Operating lease asset
( 27,272 )
( 30,182 )
Accrued expenses
( 59 )
—
Prepaid expenses and other
( 1,826 )
( 2,028 )
Total deferred income tax liabilities
( 95,634 )
( 87,666 )
Net deferred tax liabilities
$
( 36,451 )
$
( 15,255 )
The total undistributed earnings of the Company’s foreign subsidiaries are approximately $ 131.0 million for the fiscal year ended January 31, 2022. Upon distribution of those earnings in the form of dividends, the Company does not anticipate any material tax costs. As such, no deferred taxes have been provided for withholding taxes or other taxes that would result upon repatriation of undistributed foreign earnings. Those earnings are considered indefinitely reinvested. Even though the undistributed earnings could have been distributed back generally without U.S. federal income tax as a result of the one-time transition tax under the TCJA regime, the Company does not expect to change its indefinite reinvestment categorization with respect to those earnings.
The following is a reconciliation of the statutory federal income tax rate to the effective rate reported in the financial statements for the years ended January 31:
2022
2021
2020
Provision for Federal income taxes at the statutory rate
21.0
%
21.0
%
21.0
%
State and local income taxes, net of Federal tax benefit
2.0
( 0.6 )
1.9
Permanent differences resulting in Federal taxable income
4.3
12.8
5.9
Foreign tax rate differential
—
( 0.3 )
( 3.8 )
Share-based payments
—
12.5
( 0.8 )
Foreign tax credit
( 3.4 )
( 7.3 )
( 3.5 )
Valuation allowance
0.8
13.7
0.9
Net operating loss carryback
—
( 18.6 )
—
Other, net
1.5
1.0
( 0.6 )
Actual provision for income taxes
26.2
%
34.2
%
21.0
%
The Company’s effective tax rate decreased 8.0 % percent in fiscal 2022 compared to fiscal 2021. This decrease in the Company’s effective tax rate is primarily the result of the Company’s significant increase in pretax book income in relation
F-29
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to its tax expense. The Company’s effective tax rate increased 13.2 % percent in fiscal 2021 as compared to fiscal 2020. The increase in the Company’s fiscal 2021 effective tax rate compared to the fiscal 2020 effective tax rate is primarily the result of the Company’s significant reduction in pretax book income in relation to its tax expense.
Valuation allowances represent deferred tax benefits where management is uncertain if the Company will have the ability to recognize those benefits in the future. During the year ended January 31, 2022, the Company recorded an additional valuation allowance of $ 1.2 million against its deferred tax assets for its standalone state tax losses and foreign retail losses.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:
2022
2021
2020
(In thousands)
Balance at February 1,
$
2,293
$
2,111
$
—
Additions for tax positions of prior years
595
182
2,111
Lapses of statues of limitations
( 446 )
—
—
Balance at January 31,
$
2,442
$
2,293
$
2,111
The Company accounts for uncertain income tax positions in accordance with ASC 740 — Income Taxes . The Company files income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. As of January 31, 2022, there was an increase in the unrecognized tax position reserve of $ 0.2 million related to recent state and local tax return filings.
The Company’s policy on classification is to include interest in interest and financing charges, net and penalties in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income. The Company and certain of its subsidiaries are subject to U.S. Federal income tax as well as the income tax of multiple state, local, and foreign jurisdictions.
Of the major jurisdictions, the Company and its subsidiaries are subject to examination in the United States and various foreign jurisdictions for fiscal year 2014 and forward. The Company is currently under audit examination by New York, New Jersey and Canada for fiscal years 2016 through 2019. The Company believes that it is reasonably possible there will be no change to its unrecognized income tax position reserves during the next twelve months due to the applicable statues of limitations.
NOTE 10 — COMMITMENTS AND CONTINGENCIES
License Agreements
The Company has entered into license agreements that provide for royalty payments based on net sales of licensed products. The Company incurred royalty expense (included in cost of goods sold) of $ 145.1 million, $ 116.8 million and $ 178.8 million for the years ended January 31, 2022, 2021 and 2020, respectively. Contractual advertising expense, which is included in selling, general and administrative expenses and is normally based on a percentage of net sales associated with certain license agreements, was $ 41.2 million, $ 29.5 million and $ 48.3 million for the years ended January 31, 2022,
F-30
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2021 and 2020, respectively. Based on minimum net sales requirements, future minimum royalty and advertising payments required under these agreements are:
Year Ending January 31,
Amount
(In thousands)
2023
118,000
2024
91,167
2025
33,345
2026
26,888
2027
—
Thereafter
—
$
269,400
Legal Proceedings
In the ordinary course of business, the Company is subject to periodic claims, investigations and lawsuits. Although the Company cannot predict with certainty the ultimate resolution of claims, investigations and lawsuits, asserted against the Company, it does not believe that any currently pending legal proceeding or proceedings to which it is a party could have a material adverse effect on its business, financial condition or results of operations.
Canadian Customs Duty Examination
In October 2017, the Canada Border Service Agency (“CBSA”) issued a final audit report to G-III Apparel Canada ULC (“G-III Canada”), a wholly-owned subsidiary of the Company. The report challenged the valuation used by G-III Canada for certain goods imported into Canada. The period covered by the examination is February 1, 2014 through October 27, 2017, the date of the final report. The CBSA has requested G-III Canada to reassess its customs entries for that period using the price paid or payable by the Canadian retail customers for certain imported goods rather than the price paid by G-III Canada to the vendor. The CBSA has also requested that G-III Canada change the valuation method used to pay duties with respect to goods imported in the future.
In March 2018, G-III Canada provided a bond to guarantee payment to the CBSA for additional duties payable as a result of the reassessment required by the final audit report. The Company secured a bond in the amount of CAD$ 26.9 million ($ 20.9 million) representing customs duty and interest through December 31, 2017 that is claimed to be owed to the CBSA. In March 2018, the Company amended the duties filed for the month of January 2018 under the new valuation method. This amount was paid to the CBSA. Beginning February 1, 2018, the Company began paying duties based on the new valuation method. There were no amounts paid and deferred during the year ended January 31, 2022 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 January 31, 2022, related to the higher dutiable values, were CAD$ 14.7 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 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. A hearing on the appeal was held on December 7, 2021.
F-31
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
NOTE 11 — STOCKHOLDERS’ EQUITY
Share Repurchase Program
The Company’s Board of Directors had authorized a share repurchase program of 5,000,000 shares. 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 the loan agreement. Share repurchases may take place on the open market, in privately negotiated transactions or by other means, and would be made in accordance with applicable securities laws.
During fiscal 2022, pursuant to this program, the Company acquired 656,213 shares of its common stock for an aggregate purchase price of $ 17.3 million. No shares of common stock were acquired pursuant to this program during fiscal 2021. During fiscal 2020, pursuant to this program, the Company acquired 1,327,566 shares of its common stock for an aggregate purchase price of $ 35.2 million. As of January 31, 2022, we had 2,293,149 authorized shares remaining under this program. In March 2022, the Board increased the number of authorized shares under this program to 10,000,000 .
Long-Term Incentive Plan
As of January 31, 2022, the Company had 2,119,382 shares available for grant under its long-term incentive plan. The plan provides for the grant of equity and cash awards, including restricted stock awards, stock options and other stock unit awards to directors, officers and employees. RSU’s generally (i) cliff vest after three years or (ii) vest over a three year period. PRSU’s granted to executives prior to fiscal 2020 include (i) market price performance conditions that provide for the award to vest only after the average closing price of the Company’s stock trades above a predetermined market level and (ii) another performance condition that requires the achievement of an operating performance target. PSU’s granted to executives in fiscal 2020 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 of shares for two years subsequent to the date of vesting. It is the Company’s policy to grant stock options at prices not less than the fair market value on the date of the grant. Option terms, vesting and exercise periods vary, except that the term of an option may not exceed ten year s.
F-32
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock Units and Performance Based Restricted Stock Units
Restricted Stock Units
Performance Based Restricted Stock Units
Weighted Average
Weighted Average
Awards
Grant Date
Awards
Grant Date
Outstanding
Fair Value
Outstanding
Fair Value
Unvested as of January 31, 2019
281,825
$
34.56
1,539,794
$
30.15
Granted
142,594
$
37.74
332,651
$
35.77
Vested
( 168,781 )
$
32.32
( 810,655 )
$
24.58
Cancelled
( 12,695 )
$
35.09
( 3,080 )
$
42.41
Unvested as of January 31, 2020
242,943
$
37.95
1,058,710
$
36.15
Granted
1,280,664
$
10.25
—
$
—
Vested
( 107,917 )
$
37.96
( 279,053 )
$
32.43
Cancelled
( 22,422 )
$
39.41
( 312,827 )
$
42.41
Unvested as of January 31, 2021
1,393,268
$
12.47
466,830
$
34.17
Granted
326,791
$
31.52
176,212
$
31.43
Vested
( 201,260 )
$
20.43
( 125,934 )
$
30.23
Cancelled
( 2,650 )
$
33.46
—
$
—
Unvested as of January 31, 2022
1,516,149
$
15.48
517,108
$
34.20
Restricted Stock Units
Restricted stock units (“RSU’s”) are time based awards that do not have market or performance conditions and (i) cliff vest after three year s 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. Compensation expense for RSU’s is recognized in the consolidated financial statements on a straight-line basis over the service period based on their grant date fair value.
Performance Based Restricted Stock Units
Performance based restricted stock units consist of both performance based restricted stock units (“PRSU’s”) and performance stock units (“PSU’s”).
PRSU’s were granted to executives prior to fiscal 2020 and included (i) market price performance conditions that provide for the award to vest only after the average closing price of the Company’s stock trades above a predetermined market level and (ii) another performance condition that requires the achievement of an operating performance target. PRSU’s generally vest over a two to five year period. For restricted stock units with market conditions, the Company estimates the grant date fair value using a Monte Carlo simulation model. This valuation methodology utilizes the closing price of the Company’s common stock on grant date and several key assumptions, including expected volatility of the Company’s stock price, and risk-free rates of return. This valuation is performed with the assistance of a third party valuation specialist. PRSU’s are expensed over the service period under the accelerated attribution method.
PSU’s were granted in fiscal 2020 and fiscal 2022 to executives that vest after a three year performance period during which certain earnings before interest and taxes and return on invested capital performance conditions must be satisfied for vesting to occur. The PSU’s granted to executives in fiscal 2020 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 accelerated attribution method and based on an estimated percentage of achievement of certain pre-established goals.
The Company accounts for forfeited awards as they occur as permitted by ASC 718. Ultimately, the actual expense recognized over the vesting period will be for those shares that vest.
F-33
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recognized $ 17.4 million, $ 6.1 million and $ 17.6 million in share-based compensation expense for the years ended January 31, 2022, 2021 and 2020 respectively, related to restricted stock unit grants. At January 31, 2022, 2021 and 2020, unrecognized costs related to the restricted stock units totaled $ 21.2 million, $ 12.9 million and $ 18.7 million, respectively. The total fair value of awards for which restrictions lapsed was $ 10.8 million, $ 5.0 million and $ 31.0 million as of January 31, 2022, 2021 and 2020, respectively.
Stock Options
2022
2021
2020
Weighted
Weighted
Weighted
Average
Average
Average
Shares
Exercise
Shares
Exercise
Shares
Exercise
Stock options outstanding at beginning of year
18,245
$
23.63
39,311
$
18.51
55,311
$
15.70
Exercised
—
$
—
( 21,066 )
$
14.07
( 13,200 )
$
8.71
Granted
—
$
—
—
$
—
—
$
—
Cancelled or forfeited
( 8,245 )
$
30.32
—
$
—
( 2,800 )
$
9.20
Stock options outstanding at end of year
10,000
$
18.11
18,245
$
23.63
39,311
$
18.51
Exercisable
10,000
$
18.11
18,245
$
23.63
35,188
$
17.12
The following table summarizes information about stock options outstanding:
Number
Weighted
Weighted
Number
Weighted
Outstanding as of
Average
Average
Exercisable as of
Average
January 31,
Remaining
Exercise
January 31,
Exercise
Range of Exercise Prices
2022
Contractual Life
Price
2022
Price
$ 18.11
10,000
0.97
$
18.11
10,000
$
18.11
10,000
10,000
Stock Options
Compensation expense for employee stock options is recognized in the consolidated financial statements over the service period (generally the vesting period) based on their fair value. Stock options are valued using the Black-Scholes option pricing model. The Black-Scholes model requires subjective assumptions regarding dividend yields, expected volatility, expected life of options and risk-free interest rates. These assumptions reflect management’s best estimates. Changes in these inputs and assumptions can materially affect the estimate of fair value and the amount of our compensation expenses for stock options. No stock options were granted during the years ended January 31, 2022, January 31, 2021 and January 31, 2020.
The Company accounts for forfeited awards as they occur as permitted by ASC 718. Ultimately, the actual expense recognized over the vesting period will be for those shares that vest.
The weighted average remaining term for stock options outstanding was 1.0 years at January 31, 2022. The aggregate intrinsic value at January 31, 2022 was $ 0.1 million for stock options outstanding and $ 0.1 million for stock options exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company’s common stock as of January 31, 2022, the reporting date.
There were no stock options exercised during the year ended January 31, 2022. Proceeds received from the exercise of stock options were $ 0.3 million during the year ended January 31, 2021. The intrinsic value of stock options exercised was $ 0.1 million for the year ended January 31, 2021. A portion of this amount is currently deductible for tax purposes.
F-34
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company did no t recognize compensation expense for year ended January 31, 2022 related to stock options. The Company recognized $ 0.1 million in compensation expense for both the years ended January 31, 2021 and 2020 related to stock options.
NOTE 12 — CONCENTRATION
Three customers in the wholesale operations segment accounted for approximately 23.9 %, 14.8 % and 12.7 %, respectively, of the Company’s net sales for the year ended January 31, 2022. Two customers in the wholesale operations segment accounted for approximately 20.9 % and 12.9 % , respectively, of the Company’s net sales for the year ended January 31, 2021. Two customers in the wholesale operations segment accounted for 26.3 % and 13.2 % of the Company’s net sales for the year ended January 31, 2020. Three customers in the wholesale operations segment accounted for approximately 26.4 %, 15.5 % and 11.3 %, respectively, of the Company’s net accounts receivable as of January 31, 2022. Four customers in the wholesale operations segment accounted for approximately 19.8 %, 19.5 %, 15.1 % and 10.1 %, respectively, of the Company’s net accounts receivable as of January 31, 2021.
NOTE 13 — EMPLOYEE BENEFIT PLANS
The Company maintains a 401(k) plan (the “GIII Plan”) and trust for non-union employees. The Plan provides for a Safe Harbor (non-discretionary) matching contribution of 100 % of the first 3 % of the participant’s contributed pay plus 50 % of the next 2 % of the participant’s contributed pay. The Company made matching contributions of $ 0.3 million, $ 1.5 million and $ 4.7 million for the years ended January 31, 2022, 2021 and 2020, respectively. Effective May 2020, the Company temporarily suspended 401(k) matching contributions due to the COVID-19 pandemic. The Company reinstated 401(k) matching contributions effective January 1, 2022.
NOTE 14 — SEGMENTS
The Company’s reportable segments are business units that offer products through different channels of distribution. The Company has two reportable segments: wholesale operations and retail operations. The wholesale operations segment includes sales of products under the Company’s owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues also include revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Vilebrequin, G.H. Bass and Andrew Marc. 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 are operated as outlet stores. Sales through Company-owned digital 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 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.
F-35
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following segment information, in thousands, is presented for the fiscal years ended:
January 31, 2022
Wholesale
Retail
Elimination (1)
Total
Net sales
$
2,710,787
$
117,656
$
( 61,905 )
$
2,766,538
Cost of goods sold
1,782,533
57,721
( 61,905 )
1,778,349
Gross profit
928,254
59,935
—
988,189
Selling, general and administrative expenses
567,949
80,066
—
648,015
Depreciation and amortization
24,023
3,603
—
27,626
Asset impairments, net of gain on lease terminations
368
1,087
—
1,455
Operating profit (loss)
$
335,914
$
( 24,821 )
$
—
$
311,093
January 31, 2021
Wholesale
Retail
Elimination (1)
Total
Net sales
$
1,916,763
$
170,421
$
( 32,038 )
$
2,055,146
Cost of goods sold
1,229,548
113,194
( 32,038 )
1,310,704
Gross profit
687,215
57,227
—
744,442
Selling, general and administrative expenses
444,549
160,553
—
605,102
Depreciation and amortization
31,998
6,627
—
38,625
Asset impairments
1,010
16,863
—
17,873
Operating profit (loss)
$
209,658
$
( 126,816 )
$
—
$
82,842
January 31, 2020
Wholesale
Retail
Elimination (1)
Total
Net sales
$
2,862,889
$
385,910
$
( 88,335 )
$
3,160,464
Cost of goods sold
1,925,062
205,797
( 88,335 )
2,042,524
Gross profit
937,827
180,113
—
1,117,940
Selling, general and administrative expenses
604,377
227,803
—
832,180
Depreciation and amortization
30,806
7,929
—
38,735
Asset impairments
412
18,959
—
19,371
Operating profit (loss)
$
302,232
$
( 74,578 )
$
—
$
227,654
(1) Represents intersegment sales to the Company’s retail operations segment .
The total net sales by licensed and proprietary product sales for each of the Company’s reportable segments are as follows:
January 31,
2022
2021
2020
(In thousands)
Licensed brands
$
1,820,491
$
1,390,112
$
2,045,480
Proprietary brands
890,296
526,651
817,409
Wholesale net sales
$
2,710,787
$
1,916,763
$
2,862,889
Licensed brands
$
39,604
$
17,488
$
27,338
Proprietary brands
78,052
152,933
358,572
Retail net sales
$
117,656
$
170,421
$
385,910
The Company allocates overhead to its business segments on various bases, which include units shipped, space utilization, inventory levels, and relative sales levels, among other factors. The method of allocation has been applied consistently on a year-to-year basis.
F-36
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The total assets for each of the Company’s reportable segments, as well as assets not allocated to a segment, are as follows:
January 31,
January 31,
2022
2021
(In thousands)
Wholesale
$
2,073,834
$
1,844,682
Retail
111,517
85,625
Corporate
557,177
506,079
Total Assets
$
2,742,528
$
2,436,386
The total net sales and long-lived assets by geographic region are as follows:
2022
2021
2020
Long-Lived
Long-Lived
Long-Lived
Geographic Region
Net Sales
Assets
Net Sales
Assets
Net Sales
Assets
United States
$
2,365,919
$
938,947
$
1,755,791
$
834,181
$
2,774,492
$
964,476
Non-United States
400,619
150,724
299,355
258,165
385,972
231,973
$
2,766,538
$
1,089,671
$
2,055,146
$
1,092,346
$
3,160,464
$
1,196,449
Capital expenditures for locations outside of the United States totaled $ 4.3 million, $ 3.0 million and $ 4.6 million for the years ended January 31, 2022, 2021 and 2020, respectively.
NOTE 15 — SONIA RYKIEL
In October 2021, the Company purchased all of the issued and outstanding shares of European luxury fashion brand Sonia Rykiel. Sonia Rykiel, who created this iconic brand, was one of the leading figures of Parisian fashion. The Company plans to accelerate the relaunch of the brand in France in the fall of 2022, and then expand into Europe and other areas. The Company believes this purchase further enables it to expand into the luxury space and that there is untapped potential for this brand.
The Sonia Rykiel acquisition, which was immaterial, was accounted for under the acquisition method of accounting. Accordingly, the purchase price was allocated to the acquired assets based on their estimated fair values. The operating results for Sonia Rykiel are included in the Company’s consolidated financial statements beginning in the fourth quarter of fiscal 2022 from the effective date of the Sonia Rykiel acquisition.
NOTE 16 — EQUITY INVESTMENTS
Investment in Karl Lagerfeld Holding B.V.
In February 2016, the Company acquired a 19 % minority interest in KLH, the parent company of the group that holds the worldwide rights to the Karl Lagerfeld brand. The Company paid € 32.5 million (equal to $ 35.4 million at the date of the transaction) for this interest. This investment was intended to expand the partnership between the Company and the owners of Karl Lagerfeld brand and extend their business development opportunities on a global scale. The investment in KLH, which is being accounted for under the equity method of accounting, is reflected in Investment in Unconsolidated Affiliates on the Consolidated Balance Sheets at January 31, 2022 and 2021.
Investment in KL North America
In June 2015, the Company entered into a joint venture agreement with Karl Lagerfeld Group BV (“KLBV”). The Company paid KLBV $ 25.0 million for a 49 % ownership interest in KLNA. KLNA holds brand rights to all Karl Lagerfeld trademarks, including the Karl Lagerfeld Paris brand the Company currently uses, for all consumer products (except
F-37
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
eyewear, fragrance, cosmetics, watches, jewelry, and hospitality services) and apparel in the United States, Canada and Mexico. The investment in KLNA, which is being accounted for under the equity method of accounting, is reflected in Investment in Unconsolidated Affiliates on the Consolidated Balance Sheets at January 31, 2022 and 2021.
NOTE 17 — RELATED PARTY TRANSACTIONS
Transactions with Fabco
Prior to December 1, 2020, G-III owned a 49 % ownership interest in Fabco and was considered a related party of Fabco. The Company sells inventory to Fabco and granted Fabco’s subsidiary the right to use certain Donna Karan and DKNY trademarks. In fiscal 2021 and 2020, the Company sold $ 2.7 million and $ 4.4 million in inventory to Fabco, respectively. The Company recorded $ 0.9 million of licensing revenue from Fabco during the period of fiscal 2021 prior to Fabco becoming a consolidated majority-owned subsidiary of the Company. The Company recorded $ 3.1 million of licensing revenue from Fabco during the year ended January 31, 2020.
Transactions with KL North America
G-III owns a 49 % ownership interest in KLNA and is considered a related party of KLNA (see Note 16). The Company entered into a licensing agreement to use the brand rights to certain Karl Lagerfeld trademarks held by KLNA. The Company incurred royalty and advertising expense of $ 8.1 million, $ 3.5 million and $ 6.8 million for the years ended January 31, 2022, 2021 and 2020, respectively.
F-38
Table of Contents
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended January 31, 2022, 2021 and 2020
Balance at
Charges to
Balance at
Beginning
Cost and
End of
Description
of Period
Expenses
Deductions (1)
Period
(In thousands)
Year ended January 31, 2022
Deducted from asset accounts
Allowance for doubtful accounts
$
17,459
$
157
$
225
$
17,391
Reserve for returns
40,704
19,475
29,358
30,821
Reserve for sales allowances (2)
58,651
117,605
120,289
55,967
$
116,814
$
137,237
$
149,872
$
104,179
Year ended January 31, 2021
Deducted from asset accounts
Allowance for doubtful accounts
$
710
$
16,882
$
133
$
17,459
Reserve for returns
46,489
41,348
47,133
40,704
Reserve for sales allowances (2)
186,929
101,337
229,615
58,651
$
234,128
$
159,567
$
276,881
$
116,814
Year ended January 31, 2020
Allowance for doubtful accounts
$
924
$
( 72 )
$
142
$
710
Reserve for returns
62,278
56,440
72,229
46,489
Reserve for sales allowances (2)
181,312
422,628
417,011
186,929
$
244,514
$
478,996
$
489,382
$
234,128
(1)
Accounts written off as uncollectible, net of recoveries.
(2)
See Note 1 in the accompanying Notes to Consolidated Financial Statements for a description of sales allowances .
S-1
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.