Item 9A. Controls and Procedures
ITEM 9A. CONTROLS AND PROCEDURES.
As of January 31, 2023, 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-15I 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, 2023, based on criteria in Internal Control — Integrated Framework (2013) , issued by the COSO.
On May 31, 2022, we completed our acquisition of KLH. See Note 15 – Karl Lagerfeld Acquisition in the accompanying notes to our consolidated financial statements in this Annual Report for further information on our acquisition of KLH. We have excluded the internal control over financial reporting of KLH for fiscal 2023 from our assessment of, and
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Table of Contents
conclusion on the effectiveness of, our internal control over financial reporting. KLH’s assets, consisting primarily of trademark value, constituted approximately 13.7% of our consolidated assets at January 31, 2023 and net sales of KLH constituted approximately 4.0% of our net sales for the fiscal year ended January 31, 2023.
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-1 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.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
We have adopted a code of ethics and business conduct, or Code of Ethics 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 8, 2023, 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.
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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, 2023, the last day of fiscal 2023, regarding securities issued under G-III’s equity compensation plans that were in effect during fiscal 2023.
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
2,402,774
(1)
$
—
2,214,053
(2)
Equity compensation plans not approved by security holders
—
—
—
Total
2,402,774
(1)
$
—
2,214,053
(2)
(1) Includes outstanding awards of 2,402,774 shares of Common Stock issuable upon vesting of restricted stock units.
(2) 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.
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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), 10.1(e), 10.5, 10.5(a), 10.5(b), 10.6, 10.6(a), 10.6(b), 10.6(c), 10.6(d), 10.7, 10.8, 10.8(a), 10.8(b), 10.8(c), 10.8(d), 10.8(e), 10.11, 10.12, 10.13 and 10.14.
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
10.1(e)
Letter Amendment, dated March 29, 2022, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
8-K
000-18183
3/31/2022
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
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Table of Contents
Incorporated by Reference
Exhibit No.
Document
Form
File No.
Date Filed
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
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, 2016, 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
G-III 2005 Amended and Restated Stock Incentive Plan, (the “2005 Plan”).
8-K
000-18183
3/15/2013
10.5(a)
Form of Option Agreement for awards made pursuant to the 2005 Plan.
10-K (2009)
000-18183
4/16/2009
10.5(b)
Form of Restricted Stock Agreement for restricted stock awards made pursuant to the 2005 Plan.
8-K
000-18183
6/15/2005
10.6
G-III 2015 Long-Term Incentive Plan, as amended.
8-K
000-18183
6/11/2021
10.6(a)
Form of Performance Share Unit Agreement for April 17, 2019 performance share unit grants.
8-K
000-18183
4/23/2019
10.6(b)
Form of Restricted Stock Unit Agreement for April 27, 2020 restricted stock unit grants.
10-Q (Q1 2021)
000-18183
6/9/2020
10.6(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
10.6(d)
Form of Performance Share Unit Agreement for March 18, 2022 performance share unit awards.
8-K
000-18183
3/24/2022
10.7
Form of Executive Transition Agreement, as amended.
8-K
000-18183
2/16/2011
10.8
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
10.8(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
10.8(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
10.8(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
10.8(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
10.8(e)
Letter Amendment, dated March 29, 2022, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
8-K
000-18183
3/31/2022
10.9 (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
10.9 (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
10.10
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
10.10(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
10.11
Form of Indemnification Agreement.
10-Q (Q3 2011)
000-18183
12/10/2010
10.12
Employment Agreement, dated as of December 9, 2016, between G-III and Jeffrey D. Goldfarb.
8-K
000-18183
12/14/2016
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Table of Contents
Incorporated by Reference
Exhibit No.
Document
Form
File No.
Date Filed
10.13
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
10.14
Severance Agreement, dated as of December 9, 2016, between G-III and Neal Nackman.
8-K
000-18183
12/14/2016
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, 2023.
—
—
—
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, 2023.
—
—
—
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, 2023.
—
—
—
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, 2023.
—
—
—
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.
67
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, 2023.
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, 2023.
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, 2023.
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, 2023.
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)
68
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 27, 2023
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 27, 2023
Morris Goldfarb
/s/ Neal S. Nackman
Chief Financial Officer (principal financial and accounting officer)
March 27, 2023
Neal S. Nackman
/s/ Sammy Aaron
Director, Vice Chairman and President
March 27, 2023
Sammy Aaron
/s/ Thomas J. Brosig
Director
March 27, 2023
Thomas J. Brosig
/s/ Alan Feller
Director
March 27, 2023
Alan Feller
/s/ Jeffrey Goldfarb
Director
March 27, 2023
Jeffrey Goldfarb
/s/ Victor Herrero
Director
March 27, 2023
Victor Herrero
/s/ Robert L. Johnson
Director
March 27, 2023
Robert L. Johnson
/s/ Patti H. Ongman
Director
March 27, 2023
Patti H. Ongman
/s/ Laura Pomerantz
Director
March 27, 2023
Laura Pomerantz
/s/ Cheryl Vitali
Director
March 27, 2023
Cheryl Vitali
/s/ Lisa Warner Wardell
Director
March 27, 2023
Lisa Warner Wardell
/s/ Richard White
Director
March 27, 2023
Richard White
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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-5
Consolidated Statements of Operations and Comprehensive Income (Loss)
F-6
Consolidated Statements of Stockholders’ Equity
F-7
Consolidated Statements of Cash Flows
F-8
Notes to Consolidated Financial Statements
F-9
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, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended January 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2023, 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, 2023, 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 27, 2023 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 Matter
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, wholesale 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 $89.8 million as of January 31, 2023.
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
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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 27, 2023
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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, 2023, 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, 2023, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of KLH, which is included in the 2023 consolidated financial statements of the Company and constituted 13.7% of total assets, as of January 31, 2023 and 4.0% of revenues, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of KLH.
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, 2023 and 2022, the related consolidated statements of operations and comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended January 31, 2023, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 27, 2023 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.
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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 27, 2023
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G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
January 31,
January 31,
2023
2022
(In thousands, except per share amounts)
ASSETS
Current assets
Cash and cash equivalents
$
191,652
$
465,984
Accounts receivable, net of allowance for doubtful accounts of $ 18.3 million and $ 17.4 million, respectively
674,963
605,512
Inventories
709,345
512,155
Prepaid income taxes
5,886
14,502
Prepaid expenses and other current assets
70,654
54,704
Total current assets
1,652,500
1,652,857
Investments in unconsolidated affiliates
24,467
65,503
Property and equipment, net
53,742
48,805
Operating lease assets
239,665
169,595
Other assets, net
52,644
54,992
Other intangibles, net
34,842
31,361
Deferred income tax assets, net
26,389
3,559
Trademarks
628,156
453,329
Goodwill
—
262,527
Total assets
$
2,712,405
$
2,742,528
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of notes payable
$
135,518
$
4,237
Accounts payable
169,508
236,921
Accrued expenses
115,586
128,124
Customer refund liabilities
89,760
86,788
Current operating lease liabilities
52,917
42,763
Income tax payable
14,875
9,995
Other current liabilities
905
1,977
Total current liabilities
579,069
510,805
Notes payable, net of discount and unamortized issuance costs
483,840
515,344
Deferred income tax liabilities, net
44,783
40,010
Noncurrent operating lease liabilities
204,974
142,868
Other non-current liabilities
15,141
13,118
Total liabilities
1,327,807
1,222,145
Redeemable noncontrolling interests
( 850 )
471
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
468,712
456,329
Accumulated other comprehensive loss
( 11,653 )
( 14,529 )
Retained earnings
983,944
1,117,005
Common stock held in treasury, at cost - 2,680 and 1,480 shares, respectively
( 55,819 )
( 39,157 )
Total stockholders' equity
1,385,448
1,519,912
Total liabilities, redeemable noncontrolling interests and stockholders' equity
$
2,712,405
$
2,742,528
The accompanying notes are an integral part of these statements.
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G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Year Ended January 31,
2023
2022
2021
(In thousands, except per share amounts)
Net sales
$
3,226,728
$
2,766,538
$
2,055,146
Cost of goods sold
2,125,591
1,778,349
1,310,704
Gross profit
1,101,137
988,189
744,442
Selling, general and administrative expenses
833,151
648,015
605,102
Depreciation and amortization
27,762
27,626
38,625
Asset impairments and gain on lease terminations
349,686
1,455
17,873
Operating profit (loss)
( 109,462 )
311,093
82,842
Other income
27,894
9,549
3,238
Interest and financing charges, net
( 56,602 )
( 49,666 )
( 50,354 )
Income (loss) before income taxes
( 138,170 )
270,976
35,726
Income tax expense (benefit)
( 3,788 )
70,875
12,203
Net income (loss)
( 134,382 )
200,101
23,523
Less: Loss attributable to noncontrolling interests
( 1,321 )
( 492 )
( 22 )
Net income (loss) attributable to G-III Apparel Group, Ltd.
$
( 133,061 )
$
200,593
$
23,545
NET INCOME (LOSS) PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:
Basic:
Net income (loss) per common share
$
( 2.79 )
$
4.14
$
0.49
Weighted average number of shares outstanding
47,653
48,426
48,242
Diluted:
Net income (loss) per common share
$
( 2.79 )
$
4.05
$
0.48
Weighted average number of shares outstanding
47,653
49,516
48,781
Net income (loss)
$
( 134,382 )
$
200,101
$
23,523
Other comprehensive income (loss):
Foreign currency translation adjustments
2,965
( 12,456 )
( 15,885 )
Other comprehensive income (loss):
2,965
( 12,456 )
( 15,885 )
Comprehensive income (loss)
( 131,417 )
187,645
7,638
Comprehensive loss attributable to noncontrolling interests:
Net loss
( 1,321 )
( 492 )
( 22 )
Foreign currency translation adjustments
( 89 )
21
( 29 )
Comprehensive loss attributable to noncontrolling interests
( 1,410 )
( 471 )
( 51 )
Comprehensive income (loss) attributable to G-III Apparel Group, Ltd.
$
( 132,827 )
$
187,174
$
7,587
The accompanying notes are an integral part of these statements.
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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, 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
Equity awards exercised/vested, net
—
( 10,287 )
—
—
10,287
—
Share-based compensation expense
—
32,475
—
—
—
32,475
Taxes paid for net share settlements
—
( 9,805 )
—
—
—
( 9,805 )
Other comprehensive loss, net
—
—
2,876
—
—
2,876
Repurchases of common stock
—
—
—
—
( 26,949 )
( 26,949 )
Net loss attributable to G-III Apparel Group, Ltd.
—
—
—
( 133,061 )
—
( 133,061 )
Balance as of January 31, 2023
$
264
$
468,712
$
( 11,653 )
$
983,944
$
( 55,819 )
$
1,385,448
The accompanying notes are an integral part of these statements.
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G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended January 31,
2023
2022
2021
(In thousands)
Cash flows from operating activities
Net income (loss) attributable to G-III Apparel Group, Ltd.
$
( 133,061 )
$
200,593
$
23,545
Adjustments to reconcile net income (loss) to net cash provided by operating activities, net of assets and liabilities acquired:
Depreciation and amortization
27,762
27,626
38,625
Loss on disposal of fixed assets
210
136
1,079
Non-cash operating lease costs
54,492
43,351
71,368
Asset impairments and gain on lease terminations
349,686
1,455
17,873
Dividend received from unconsolidated affiliate
—
( 1,352 )
2,695
Equity (gain)/loss in unconsolidated affiliates
( 674 )
( 8,118 )
( 601 )
Change in fair value of equity investment
( 1,258 )
( 1,636 )
—
Share-based compensation
32,475
17,424
6,137
Deferred financing charges and debt discount amortization
10,239
9,677
10,014
Extinguishment of deferred financing costs
—
—
6,503
Deferred income taxes
( 55,147 )
21,117
24,844
Non-cash gain on fair value of prior minority ownership of Karl Lagerfeld
( 27,071 )
—
—
Non-cash gain on fair value of prior minority ownership of Fabco
—
—
( 2,693 )
Changes in operating assets and liabilities:
Accounts receivable, net
( 40,990 )
( 112,814 )
38,900
Inventories
( 163,671 )
( 95,652 )
143,525
Income taxes, net
12,588
9,742
( 13,795 )
Prepaid expenses and other current assets
( 11,398 )
8,373
24,514
Other assets, net
1,520
752
( 663 )
Customer refund liabilities
2,972
( 12,567 )
( 136,436 )
Operating lease liabilities
( 56,092 )
( 46,922 )
( 86,448 )
Accounts payable, accrued expenses and other liabilities
( 107,181 )
124,613
( 94,228 )
Net cash provided by (used in) operating activities
( 104,599 )
185,798
74,758
Cash flows from investing activities
Operating lease assets initial direct costs
( 84 )
—
( 4,093 )
Investment in e-commerce retailer
( 25,000 )
( 25,000 )
—
Investment in equity securities
( 22,378 )
—
—
Sale of equity securities
22,434
—
—
Sale of portion of investment in e-commerce retailer
—
5,000
—
Capital expenditures
( 21,528 )
( 18,261 )
( 16,035 )
Acquisition of KLH, net of cash acquired
( 168,592 )
—
—
Acquisition of other foreign business, net of cash acquired
( 2,810 )
—
—
Investment in brand acquisition
—
( 13,244 )
—
Net cash used in investing activities
( 217,958 )
( 51,505 )
( 20,128 )
Cash flows from financing activities
Repayment of borrowings - revolving credit facility
( 507,166 )
—
( 1,291,424 )
Proceeds from borrowings - revolving credit facility
587,254
—
1,291,424
Repayment of borrowings - foreign facilities
( 75,496 )
( 1,483 )
—
Proceeds from borrowings - foreign facilities
83,794
—
—
Repayment of borrowings - unsecured term loan
—
( 549 )
( 300,530 )
Proceeds from borrowings - unsecured term loan
—
230
8,883
Proceeds from borrowings - senior secured notes
—
—
400,000
Payment of financing costs
—
—
( 13,551 )
Proceeds from exercise of equity awards
—
—
297
Purchase of treasury shares
( 26,949 )
( 17,300 )
—
Taxes paid for net share settlements
( 9,805 )
( 4,340 )
( 324 )
Net cash provided by (used in) financing activities
51,632
( 23,442 )
94,775
Foreign currency translation adjustments
( 3,407 )
3,199
5,157
Net increase (decrease) in cash and cash equivalents
( 274,332 )
114,050
154,562
Cash and cash equivalents at beginning of year
465,984
351,934
197,372
Cash and cash equivalents at end of year
$
191,652
$
465,984
$
351,934
Supplemental disclosures of cash flow information
Cash payments:
Interest, net
$
44,108
$
54,393
$
16,418
Income tax payments, net
$
38,071
$
39,821
$
1,971
Stock received from licensing agreement
$
—
$
4,831
$
—
The accompanying notes are an integral part of these statements.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2023, 2022 and 2021
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 is 75 % owned by the Company and is treated as a consolidated majority-owned subsidiary. 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. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that was 19 % owned by the Company through May 30, 2022 and was accounted for during that time using the equity method of accounting. Effective May 31, 2022, the Company acquired the remaining 81 % interest in KLH that it did not previously own and, as a result, KLH began being treated as a consolidated wholly-owned subsidiary. KL North America B.V. (“KLNA”) is a Dutch joint venture limited liability company that was 49 % owned by the Company and 51 % indirectly owned by KLH through May 30, 2022 and was accounted for during that time using the equity method of accounting. Effective May 31, 2022, KLNA became an indirect wholly-owned subsidiary of the Company as a result of the Company’s acquisition of the remaining 81 % interest in KLH it did not previously own. All material intercompany balances and transactions have been eliminated. The results of KLH are included in the Company’s consolidated financial statements beginning May 31, 2022.
Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, Fabco and Sonia Rykiel, which the Company purchased in October 2021, 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, Fabco and Sonia Rykiel are included in the financial statements for the year ended or ending closest to the Company’s fiscal year end. For example, with respect to the Company’s results for the year ended January 31, 2023, the results of Vilebrequin, Fabco and Sonia Rykiel are included for the year ended December 31, 2022. For the year ended December 31, 2022, the results of KLH, which includes KLNA, are included for the period from July 1, 2022 through December 31, 2022. The results of the Company’s previous 49 % ownership interest in KLNA and 19 % ownership interest in KLH are included for the period from February 1, 2022 through May 30, 2022. The Company’s retail operations segment reports on a 52/53-week fiscal year. For fiscal 2023 and 2022, the retail operations segment reported based on a 52-week fiscal year.
2. Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
3. Revenue Recognition
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.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Variable consideration is estimated based on historical experience, current contractual 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.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2023.
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. During fiscal 2023, the Company recorded a $ 347.2 million non-cash impairment charge to fully impair the carrying value of its goodwill. See Note 7 – Intangible Assets.
7. Leases
The Company accounts for its leases in accordance with ASC Topic 842 – Leases (“ASC 842”). 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
In fiscal 2023, the Company recorded a $ 2.7 million impairment charge 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.
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.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Net Income (Loss) Per Common Share
Basic net income (loss) per common share has been computed using the weighted average number of common shares outstanding during each period. Diluted net income per share, when applicable, is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and stock options outstanding during the period. Approximately 11,000 and 182,000 shares of common stock have been excluded from the diluted net income per share calculation for the years ended January 31, 2022 and 2021, 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 no shares of common stock in connection with the exercise or vesting of equity awards during the years ended January 31, 2023, 2022 and 2021, respectively. Instead, the Company re-issued 387,792 , 194,965 and 367,290 treasury shares in connection with the vesting of equity awards in fiscal 2023, 2022 and 2021, respectively.
The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income (loss) per share:
Year Ended January 31,
2023
2022
2021
(In thousands, except share and per share amounts)
Net income (loss) attributable to G-III Apparel Group, Ltd.
$
( 133,061 )
$
200,593
$
23,545
Basic net income (loss) per share:
Basic common shares
47,653
48,426
48,242
Basic net income (loss) per share
$
( 2.79 )
$
4.14
$
0.49
Diluted net income (loss) per share:
Basic common shares
47,653
48,426
48,242
Dilutive restricted stock unit awards and stock options
—
1,090
539
Diluted common shares
47,653
49,516
48,781
Diluted net income (loss) per share
$
( 2.79 )
$
4.05
$
0.48
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 beginning in fiscal 2020 and vest after a three year performance period during which certain earnings before interest and taxes and return on invested capital performance 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 (loss) 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 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 $ 187.6 million, $ 130.2 million and $ 111.8 million for the years ended January 31, 2023, 2022 and 2021, 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 $ 131.6 million, $ 93.1 million and $ 55.3 million for the years ended January 31, 2023, 2022 and 2021, respectively. Prepaid advertising, which represents advance payments to licensors for minimum guaranteed payments for advertising under the Company’s licensing agreements, was $ 8.3 million and $ 6.7 million at January 31, 2023 and 2022, 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(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.
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
2023
2022
2023
2022
(In thousands)
Secured Notes
1
$
400,000
$
400,000
$
380,000
$
422,020
Revolving credit facility
2
80,087
—
80,087
—
Note issued to LVMH
3
121,202
114,255
119,426
110,123
Unsecured loans
2
10,866
8,367
10,866
8,367
Overdraft facilities
2
3,657
2,903
3,657
2,903
Foreign credit facility
2
7,792
—
7,792
—
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, 2023. 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 2023, the Company recorded a $ 2.7 million impairment charge 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 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 Company’s retail restructuring, as well as at certain DKNY and Vilebrequin stores as a result of the performance at these stores.
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, 2023.
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” on the consolidated balance sheets. The Company classifies cooperative advertising as a reduction of net sales in the consolidated statements of operations and comprehensive income (loss). 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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 and Karl Lagerfeld businesses, other than sales of product under the Karl Lagerfeld Paris brand from our retail stores and digital outlets. 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, Karl Lagerfeld, G.H. Bass, Andrew Marc and Vilebrequin trademarks owned by the Company. As of January 31, 2023, 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 retail 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2023 and 2022, customer refund liabilities amounted to $ 89.8 million and $ 86.8 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.
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 at both January 31, 2023 and 2022. The Company recognized $ 4.0 million in revenue for the year ended January 31, 2023 which related to contract liabilities that existed at January 31, 2022. There were no contract assets recorded as of January 31, 2023 and January 31, 2022. Substantially all of the advance payments from licenses as of January 31, 2023 are expected to be recognized as revenue within the next twelve months.
NOTE 3 — ALLOWANCE FOR DOUBTFUL ACCOUNTS
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, 2023 and 2022 were:
January 31, 2023
Wholesale
Retail
Total
(In thousands)
Accounts receivable, gross
$
692,033
$
1,227
$
693,260
Allowance for doubtful accounts
( 18,237 )
( 60 )
( 18,297 )
Accounts receivable, net
$
673,796
$
1,167
$
674,963
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
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
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.
The Company had the following activity in its allowance for credit losses:
January 31, 2023
Wholesale
Retail
Total
(In thousands)
Balance as of January 31, 2022
$
( 17,307 )
( 84 )
( 17,391 )
Provision for credit losses
( 1,002 )
24
( 978 )
Accounts written off as uncollectible
72
—
72
Balance as of January 31, 2023
$
( 18,237 )
$
( 60 )
$
( 18,297 )
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 )
NOTE 4 — INVENTORIES
Wholesale inventories, which comprise a significant portion of the Company’s inventory, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Retail and 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 $ 19.2 million and $ 18.9 million at January 31, 2023 and 2022, respectively. The inventory return asset is recorded within prepaid expenses and other current assets on the consolidated balance sheets as of January 31, 2023 and 2022.
Inventory held on consignment by the Company’s customers totaled $ 6.6 million and $ 4.5 million at January 31, 2023 and 2022, respectively. Consignment inventory is stored at the facilities of the Company’s customers. The Company reflects this inventory on its consolidated balance sheets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 5 — PROPERTY AND EQUIPMENT
Property and equipment consist of:
January 31,
Estimated life
2023
2022
(In thousands)
Machinery and equipment
5 years
$
2,437
$
1,882
Leasehold improvements
3- 13 years
83,768
77,491
Furniture and fixtures
3- 10 years
130,340
102,813
Computer equipment and software
2- 5 years
52,293
43,484
268,838
225,670
Less: accumulated depreciation
( 215,096 )
( 176,865 )
$
53,742
$
48,805
Depreciation expense was $ 23.5 million, $ 23.6 million and $ 34.0 million for the years ended January 31, 2023, 2022 and 2021, respectively. For the year ended January 31, 2023, the Company recorded a $ 1.8 million impairment charge related to leasehold improvements and furniture and fixtures at certain DKNY and Karl Lagerfeld Paris stores as a result of the performance of these stores. 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.
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
The Company accounts for its leases in accordance with ASC 842. 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.
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2023 and 2022 consist of the following:
Leases
Classification
January 31, 2023
January 31, 2022
(In thousands)
Assets
Operating
Operating lease assets
$
239,665
$
169,595
Total lease assets
$
239,665
$
169,595
Liabilities
Current operating
Current operating lease liabilities
$
52,917
$
42,763
Noncurrent operating
Noncurrent operating lease liabilities
204,974
142,868
Total lease liabilities
$
257,891
$
185,631
During fiscal 2023, the Company recorded a $ 0.7 million impairment charge related to the operating lease assets at certain DKNY stores as a result of the performance at these stores. 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 at 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.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recorded lease costs of $ 64.9 million, $ 55.7 million and $ 92.4 million during the years ended January 31, 2023, 2022 and 2021, respectively. Lease costs are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income (loss). The Company recorded variable lease costs and short-term lease costs of $ 17.1 million, $ 10.5 million and $ 6.7 million for the years ended January 31, 2023, 2022 and 2021, respectively. Short-term lease costs are immaterial.
As of January 31, 2023, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2028 and thereafter are as follows:
Year Ending January 31,
Amount
(In thousands)
2024
$
70,448
2025
63,918
2026
52,971
2027
42,257
2028
35,158
After 2028
53,389
Total lease payments
$
318,141
Less: Interest
60,250
Present value of lease liabilities
$
257,891
As of January 31, 2023, there are no material leases that are legally binding but have not yet commenced .
As of January 31, 2023, the weighted average remaining lease term related to operating leases is 5.5 years. The weighted average discount rate related to operating leases is 7.8 %.
Cash paid for amounts included in the measurement of operating lease liabilities is $ 69.8 million and $ 60.1 million as of January 31, 2023 and 2022, respectively. Right-of-use assets obtained in exchange for lease obligations were $ 126.8 million and $ 30.8 million during the years ended January 31, 2023 and 2022, respectively.
NOTE 7 — INTANGIBLE ASSETS
Intangible assets consist of:
January 31, 2023
Estimated Life
Gross Carrying Amount
Accumulated Amortization
Net Carrying Amount
(In thousands)
Finite-lived intangible assets
Licenses
14 years
$
18,955
$
( 17,314 )
$
1,641
Customer relationships
15 - 17 years
52,392
( 22,931 )
29,461
Other
5 - 10 years
8,583
( 4,843 )
3,740
Total finite-lived intangible assets
$
79,930
$
( 45,088 )
$
34,842
Indefinite-lived intangible assets
Trademarks
628,156
Total indefinite-lived intangible assets
628,156
Total intangible assets, net
$
662,998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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
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
$
76,108
$
( 44,747 )
$
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
Amortization expense
Amortization expense with respect to finite-lived intangibles amounted to $ 3.9 million, $ 3.7 million and $ 4.3 million for the years ended January 31, 2023, 2022 and 2021, 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)
2024
$
4,267
2025
4,115
2026
4,050
2027
3,776
2028
3,206
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, 2023 and 2022 are summarized by reportable segment as follows (in thousands):
Wholesale
Retail
Total
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
Acquisition of Karl Lagerfeld
84,336
—
84,336
Acquisition of other foreign business
3,523
—
3,523
Impairment
( 347,172 )
—
( 347,172 )
Currency translation
( 3,214 )
—
( 3,214 )
January 31, 2023
$
—
$
—
$
—
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Im pairment
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.
Fiscal 2023 Annual Goodwill Impairment Test
The Company performed its annual test of its wholesale reporting unit as of January 31, 2023 by electing to bypass the qualitative assessment and proceed directly to the quantitative impairment test using a discounted cash flows method to estimate the fair value of its wholesale reporting unit. The Company made this election due to its decline in market capitalization.
The fair value of the wholesale reporting unit for goodwill impairment testing was determined using an income approach and validated using a market approach. The income approach was based on discounted projected future (debt-free) cash flows for the reporting unit. The discount rate applied to these cash flows was based on the weighted average cost of capital for the wholesale reporting unit, which takes market participant assumptions into consideration, inclusive of a Company-specific 7.5 % risk premium to account for the additional risk of uncertainly perceived by market participants related to the Company’s overall cash flows. Estimated future operating cash flows were discounted at a rate of 17.5 % to account for the relative risks of the estimated future cash flows. For the market approach, used to validate the results of the income approach method, the Company used the guideline company method, which analyzes market multiples of adjusted earnings before interest, taxes, depreciation and amortization for a group of comparable public companies.
As a result of the Company’s fiscal 2023 annual impairment test, the Company recorded a $ 347.2 million non-cash impairment charge during its fourth quarter of fiscal 2023 to fully impair the carrying value of its goodwill, which was included in assets impairments and gain on lease terminations in the Company’s consolidated statements of operations and comprehensive income (loss). This impairment charge was recorded to the Company’s wholesale operations segment.
Fiscal 2022 and Fiscal 2021 Annual Goodwill Impairment Test
The Company performed its annual tests of its wholesale reporting unit using a qualitative review as of January 31, 2022 and 2021 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 were substantially in excess of its carrying value.
Fiscal 2023 Annual Indefinite-Lived Intangible Assets Impairment Test
The Company performed its annual test of its indefinite-lived trademarks as of January 31, 2023 using a qualitative evaluation or a quantitative impairment 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 determined that the fair values of each of its indefinite-lived intangible assets substantially exceeded its carrying value and, therefore, there were no impairments identified as of January 31, 2023 as a result of these tests.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Fiscal 2022 and Fiscal 2021 Annual Indefinite-Lived Intangible Assets Impairment Test
The Company performed its annual test of its indefinite-lived trademarks using a qualitative review as of January 31, 2022 and 2021 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 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 trademarks that were acquired in fiscal 2017 and the Karl Lagerfeld trademark that was acquired in fiscal 2023.
The fair value of the Company’s goodwill and indefinite-lived intangible assets are considered a Level 3 valuation in the fair value hierarchy.
NOTE 8 — NOTES PAYABLE AND OTHER LIABILITIES
Long-term debt
Long-term debt consists of the following:
January 31, 2023
January 31, 2022
(in thousands)
Secured Notes
$
400,000
$
400,000
Revolving credit facility
80,087
—
Note issued to LVMH
125,000
125,000
Unsecured loans
10,866
8,367
Overdraft facilities
3,657
2,903
Foreign credit facility
7,792
—
Subtotal
627,402
536,270
Less: Net debt issuance costs (1)
( 4,246 )
( 5,944 )
Debt discount
( 3,798 )
( 10,745 )
Current portion of long-term debt
( 135,518 )
( 4,237 )
Total
$
483,840
$
515,344
(1) Does not include the debt issuance costs, net of amortization, totaling $ 4.0 million and $ 5.6 million as of January 31, 2023 and 2022, 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 were used (i) to repay the $ 300 million that was outstanding under the Company’s prior term loan facility (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 .
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
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(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. 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.
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.
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. 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.
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 certain of its subsidiaries (the “Guarantors”), are Loan Guarantors under the ABL Credit Agreement.
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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. As of December 31, 2022, interest under the ABL Credit Agreement was being paid at an average rate of 5.31 % per annum.
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, 2023, the Company was in compliance with these covenants .
As of January 31, 2023, the Company had $ 80.1 million borrowings outstanding under the ABL Credit Agreement. The ABL credit agreement also includes amounts available for letters of credit. As of January 31, 2023, there were outstanding trade and standby letters of credit amounting to $ 5.2 million and $ 3.4 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 . The LVMH Note is classified in current portion of notes payable in the Company’s consolidated balance sheet as of January 31, 2023.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 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
Several of the Company’s foreign entities borrow funds under various unsecured loans of which a portion is to provide funding for operations in the normal course of business while other loans are European state backed loans as part of COVID-19 relief programs. In the aggregate, the Company is currently required to make quarterly installment payments of principal in the amount of € 0.6 million under these loans. Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0 % to 5.0 % per annum, payable on either a quarterly or monthly basis. As of January 31, 2023, the Company had an aggregate outstanding balance of € 10.1 million ($ 10.9 million) under these 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, 2023, TRB had an aggregate of € 3.4 million ($ 3.7 million) drawn under these various facilities.
Foreign Credit Facility
KLH has a credit agreement with ABN AMRO Bank N.V. with a credit limit of € 15.0 million which is secured by specified assets of KLH. Borrowings bear interest at the Euro Interbank Offered Rate (“EURIBOR”) plus a margin of 1.7 %. As of January 31, 2023, KLH had € 7.3 million ($ 7.8 million) of borrowings outstanding under this credit facility.
Future Debt Maturities
As of January 31, 2023, the Company’s mandatory debt repayments mature in the years ending up to January 31, 2027 or thereafter.
Year Ending January 31,
Amount
(In thousands)
2024
$
219,403
2025
2,797
2026
402,313
2027
1,489
2028 and thereafter
1,400
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accrued expenses
Accrued expenses consist of the following:
January 31, 2023
January 31, 2022
(in thousands)
Accrued bonuses
$
16,831
$
50,119
Other accrued expenses
98,755
78,005
Total
$
115,586
$
128,124
NOTE 9 — INCOME TAXES
The income tax provision is comprised of the following:
Year Ended January 31,
2023
2022
2021
(In thousands)
Current
Federal
$
27,982
$
39,283
$
( 15,828 )
State and city
8,278
4,484
( 491 )
Foreign
14,647
5,991
3,803
50,907
49,758
( 12,516 )
Deferred
Federal
( 50,764 )
17,090
22,770
State and city
( 4,457 )
2,116
3,364
Foreign
526
1,911
( 1,415 )
( 54,695 )
21,117
24,719
Income tax expense (benefit)
$
( 3,788 )
$
70,875
$
12,203
Income (loss) before income taxes
United States
$
( 106,086 )
$
234,034
$
37,727
Non-United States
( 32,084 )
36,942
( 2,001 )
$
( 138,170 )
$
270,976
$
35,726
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 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, the Tax Cuts and Jobs Act (“TCJA”) subjects a U.S. parent company to current tax on its global intangible low-taxed income (“GILTI”). For fiscal 2023, the Company has elected to treat the tax effect of GILTI as a current period expense.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant components of the Company’s net deferred tax asset at January 31, 2023 and 2022 are summarized as follows:
2023
2022
(In thousands)
Deferred income tax assets:
Compensation
$
879
$
1,807
Inventory
12,197
7,918
Provision for bad debts and sales allowances
15,237
15,972
Supplemental employee retirement plan
688
710
Net operating loss
33,749
10,949
Operating lease liability
56,519
32,721
Foreign tax credit carryforward
3,865
2,805
Section 174 R&D amortization
478
—
Other
—
782
Gross deferred income tax assets
123,612
73,664
Less: valuation allowance
( 33,087 )
( 14,481 )
Net deferred income tax assets
90,525
59,183
Deferred income tax liabilities:
Depreciation and amortization
( 6,268 )
( 56,901 )
Intangibles
( 48,760 )
( 9,576 )
Operating lease asset
( 50,995 )
( 27,272 )
Accrued expenses
( 57 )
( 59 )
Prepaid expenses and other
( 2,279 )
( 1,826 )
Other
( 560 )
—
Total deferred income tax liabilities
( 108,919 )
( 95,634 )
Net deferred tax liabilities
$
( 18,394 )
$
( 36,451 )
The total undistributed earnings of the Company’s foreign subsidiaries are approximately $ 155 million for the fiscal year ended January 31, 2023. 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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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:
2023
2022
2021
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
( 2.1 )
2.0
( 0.6 )
Permanent differences
( 2.1 )
2.8
6.6
U.S. tax on foreign earnings (1)
( 6.0 )
1.5
6.2
Foreign tax rate differential
1.2
—
( 0.3 )
Share-based payments
( 0.1 )
—
12.5
Foreign tax credit
7.9
( 3.4 )
( 7.3 )
Valuation allowance
( 3.1 )
0.8
13.7
Net operating loss carryback
—
—
( 18.6 )
Goodwill Impairment
( 17.3 )
—
—
Non-taxable capital gain
5.1
—
—
Other, net
( 1.8 )
1.5
1.0
Actual provision for income taxes
2.7
%
26.2
%
34.2
%
(1) Prior year U.S. tax on foreign earnings has been reclassed for presentation purposes.
The Company’s effective tax rate decreased 23.5 % percent in fiscal 2023 compared to fiscal 2022. This decrease in the Company’s effective tax rate is primarily the result of the Company’s charges related to goodwill impairment of $ 347.2 million which significantly decreased pretax book income in relation to its tax expense. The Company’s effective tax rate decreased 8.0 % percent in fiscal 2022 as compared to fiscal 2021. The decrease in the Company’s fiscal 2022 effective tax rate compared to the fiscal 2021 effective tax rate is primarily the result of the Company’s significant increase in pretax book income in relation to its tax expense.
At January 31, 2023, the Company had state net operating loss carryforwards of $ 4.7 million that expire at various times beginning in 2023. In addition, the Company had foreign net operating loss carryforwards of $ 28.9 million, some jurisdictions having indefinite expirations. The Company also has federal foreign tax credit carryforwards of $ 3.9 million, which expire beginning in 2030.
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, 2023, the Company recorded an additional valuation allowance of $ 18.6 million against its deferred tax assets, of which $ 14 million relates to opening balance sheet adjustments on the Karl Lagerfeld acquisition and $ 4.6 million relates to 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:
2023
2022
2021
(In thousands)
Balance at February 1,
$
2,442
$
2,293
$
2,111
Additions based on tax positions related to the current year
245
—
—
Additions for tax positions of prior years
895
595
182
Lapses of statues of limitations
—
( 446 )
—
Balance at January 31,
$
3,582
$
2,442
$
2,293
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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, 2023, there was an increase in the unrecognized tax position reserve of $ 1.1 million related to state and local income 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 operations and comprehensive income (loss). 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 France 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 $ 162.9 million, $ 145.1 million and $ 116.8 million for the years ended January 31, 2023, 2022 and 2021, 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 $ 45.2 million, $ 41.2 million and $ 29.5 million for the years ended January 31, 2023, 2022 and 2021, 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)
2024
127,542
2025
88,412
2026
63,839
2027
29,206
2028
6,490
Thereafter
—
$
315,489
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 an audit report to G-III Apparel Canada ULC (“G-III Canada”), a wholly-owned subsidiary of the Company, challenging the valuation used by G-III Canada for certain goods imported into Canada between February 1, 2014 and October 27, 2017. The CBSA requested that G-III Canada
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
reassess its customs entries for that period and change the valuation method used to pay duties with respect to goods imported in the future. As a result of this reassessment, in March 2018, G-III Canada provided a bond to the CBSA in the amount of CAD$ 26.9 million ($ 20.9 million) representing customs duty and interest through December 31, 2017 that was claimed to be owed to the CBSA.
Beginning February 1, 2018, the Company began paying duties based on the new valuation method. Cumulative amounts paid and deferred through January 31, 2023, related to the higher dutiable values, were CAD$ 15.5 million ($ 11.5 million).
G-III Canada filed a Notice of Appeal with the Canadian International Trade Tribunal (the “Tribunal”) appealing the CBSA decision. A hearing on the appeal was held on December 7, 2021. On August 22, 2022, the Tribunal ruled in favor of G-III Canada and G-III Canada’s appeal has been allowed by the Tribunal. The decision was not appealed by the CBSA. As a result, G-III Canada will continue to declare dutiable values utilizing its pre-audit methodology, with the addition of a dutiable design assist (“design assist”).
In accordance with the Tribunal ruling, G-III Canada has received a refund from the CBSA of CAD $ 1.5 million ( $ 1.1 million), including interest and net of the design assist, for amounts paid by G-III Canada between February 1, 2014 and January 31, 2018. G-III Canada has filed adjustment requests with the CBSA for the period from February 1, 2018 to January 31, 2022 to amend declared dutiable values. These amendments are expected to result in a refund of duty and interest of approximately CAD $ 13.2 million ( $ 9.8 million) after deductions for the design assist and related interest. The bond issued by G-III Canada in March 2018 has been released back to the Company.
NOTE 11 — STOCKHOLDERS’ EQUITY
Share Repurchase Program
In March 2022, our Board of Directors authorized an increase in the number of shares covered by our share repurchase program to an aggregate amount of 10,000,000 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 2023, pursuant to this program, the Company acquired 1,587,581 shares of its common stock for an aggregate purchase price of $ 26.9 million. 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. As of January 31, 2023, we had 8,412,419 authorized shares remaining under this program.
Long-Term Incentive Plan
As of January 31, 2023, the Company had 2,214,053 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. Restricted stock units (“RSU’s”) 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. Performance stock units (“PSU’s”) were granted to executives beginning in fiscal 2020 and generally 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 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.
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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, 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
Granted
1,076,509
$
26.88
308,317
$
31.42
Vested
( 656,814 )
$
29.11
( 78,998 )
$
35.77
Cancelled
( 17,599 )
$
31.21
( 261,898 )
$
35.60
Unvested as of January 31, 2023
1,918,245
$
17.07
484,529
$
31.41
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 PRSU’s and 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.
Performance stock units (“PSU’s”) were granted to executives beginning in fiscal 2020 and vest after a three year performance period during which certain earnings before interest and taxes and return on invested capital performance 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.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recognized $ 32.5 million, $ 17.4 million and $ 6.1 million in share-based compensation expense for the years ended January 31, 2023, 2022 and 2021 respectively, related to restricted stock unit grants. At January 31, 2023, 2022 and 2021, unrecognized costs related to the restricted stock units totaled $ 20.8 million, $ 21.2 million and $ 12.9 million, respectively. The total fair value of awards for which restrictions lapsed was $ 20.4 million, $ 10.8 million and $ 5.0 million as of January 31, 2023, 2022 and 2021, respectively.
Stock Options
2023
2022
2021
Weighted
Weighted
Weighted
Average
Average
Average
Shares
Exercise
Shares
Exercise
Shares
Exercise
Stock options outstanding at beginning of year
10,000
$
18.11
18,245
$
23.63
39,311
$
18.51
Exercised
—
$
—
—
$
—
( 21,066 )
$
14.07
Granted
—
$
—
—
$
—
—
$
—
Cancelled or forfeited
( 10,000 )
$
18.11
( 8,245 )
$
30.32
—
$
—
Stock options outstanding at end of year
—
$
—
10,000
$
18.11
18,245
$
23.63
Exercisable
—
$
—
10,000
$
18.11
18,245
$
23.63
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 expense for stock options. No stock options were granted during the years ended January 31, 2023, January 31, 2022 and January 31, 2021.
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.
There were no stock options outstanding at January 31, 2023.
There were no stock options exercised during the years ended January 31, 2023 and January 31, 2022.
The Company did no t recognize compensation expense for year ended January 31, 2023 and January 31, 2022 related to stock options. The Company recognized $ 0.1 million in compensation expense for the year ended January 31, 2021 related to stock options.
NOTE 12 — CONCENTRATION
Two customers in the wholesale operations segment accounted for approximately 21.6 % and 15.4 %, respectively, of the Company’s net sales for the year ended January 31, 2023. 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. Four customers in the wholesale operations segment accounted for approximately 22.9 %, 13.2 %, 12.3 % and 11.5 %, respectively, of the Company’s net accounts receivable as of January 31, 2023. 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.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 $ 4.0 million, $ 0.3 million and $ 1.5 million for the years ended January 31, 2023, 2022 and 2021, 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 and Karl Lagerfeld businesses, other than sales of the Karl Lagerfeld Paris brand from retail stores and digital outlets. Wholesale revenues also include revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, G.H. Bass and Andrew Marc and Sonia Rykiel. 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.
The following segment information, in thousands, is presented for the fiscal years ended:
January 31, 2023
Wholesale
Retail
Elimination (1)
Total
Net sales
$
3,160,025
$
137,231
$
( 70,528 )
$
3,226,728
Cost of goods sold
2,127,318
68,801
( 70,528 )
2,125,591
Gross profit
1,032,707
68,430
—
1,101,137
Selling, general and administrative expenses
736,820
96,331
—
833,151
Depreciation and amortization
23,980
3,782
—
27,762
Asset impairments and gain on lease terminations
347,722
1,964
—
349,686
Operating profit (loss)
$
( 75,815 )
$
( 33,647 )
$
—
$
( 109,462 )
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 and gain on lease terminations
368
1,087
—
1,455
Operating profit (loss)
$
335,914
$
( 24,821 )
$
—
$
311,093
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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 and gain on lease terminations
1,010
16,863
—
17,873
Operating profit (loss)
$
209,658
$
( 126,816 )
$
—
$
82,842
(2) 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,
2023
2022
2021
(In thousands)
Licensed brands
$
1,891,522
$
1,820,491
$
1,390,112
Proprietary brands
1,268,503
890,296
526,651
Wholesale net sales
$
3,160,025
$
2,710,787
$
1,916,763
Licensed brands
$
—
$
39,604
$
17,488
Proprietary brands
137,231
78,052
152,933
Retail net sales
$
137,231
$
117,656
$
170,421
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.
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,
2023
2022
(In thousands)
Wholesale
$
1,746,314
$
2,073,834
Retail
127,047
111,517
Corporate
839,044
557,177
Total Assets
$
2,712,405
$
2,742,528
The total net sales and long-lived assets by geographic region are as follows:
2023
2022
2021
Long-Lived
Long-Lived
Long-Lived
Geographic Region
Net Sales
Assets
Net Sales
Assets
Net Sales
Assets
United States
$
2,609,710
$
633,799
$
2,365,919
$
938,947
$
1,755,791
$
834,181
Non-United States
617,018
426,106
400,619
150,724
299,355
258,165
$
3,226,728
$
1,059,905
$
2,766,538
$
1,089,671
$
2,055,146
$
1,092,346
Capital expenditures for locations outside of the United States totaled $ 10.5 million, $ 4.3 million and $ 3.0 million for the years ended January 31, 2023, 2022 and 2021, respectively.
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE 15 — KARL LAGERFELD ACQUISITION
On April 29, 2022, the Company entered into a share purchase agreement (the “Purchase Agreement”) with a group of investors pursuant to which the Company agreed to acquire, on the terms set forth and subject to the conditions set forth in the Purchase Agreement, the remaining 81 % interest in KLH that it did not already own, for an aggregate consideration
of € 202.0 million (approximately $ 216.8 million) in cash, after taking into account certain adjustments. The acquisition closed on May 31, 2022. The Company funded the purchase price from cash on hand.
On May 31, 2022, the effective date of the acquisition, the Company’s previously held 19 % investment in KLH and 49 % investment in KLNA were remeasured at fair value using a market approach based on the purchase price of the acquisition and a discount for lack of control related to the Company’s previously held minority investment in KLH. As a result of this remeasurement, a non-cash gain of $ 27.1 million was recorded as of the effective date of the acquisition.
The addition of KLH to the Company’s portfolio of owned brands advances several of its strategic initiatives, including increasing its direct ownership of brands and their licensing opportunities and further diversifying its global presence. This acquisition offers additional opportunities to expand the Company’s international growth by further developing its European-based brands, which also include Vilebrequin and Sonia Rykiel. The Company believes that KLH’s existing digital channel presence provides an opportunity for the Company to enhance its omni-channel business and further accelerate its digital initiatives.
Purchase Price Consideration
The purchase price of $ 207.6 million, after taking into account certain adjustments, was paid from cash on hand. The purchase price has been revised to include adjustments in accordance with the Purchase Agreement.
The initial purchase price and the valuation of the prior minority ownership for the acquisition of KLH is as follows (in thousands):
Cash disbursed for the acquisition of KLH
$
168,592
Plus: cash acquired
38,499
Plus: aggregate adjustments to purchase price
516
Initial purchase price
207,607
Plus: fair value of prior minority ownership
102,858
Total consideration
$
310,465
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Allocation of the Purchase Price Consideration
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of acquisition:
(In thousands)
Cash and cash equivalents
$
38,499
Accounts receivable, net
28,449
Inventories
33,489
Prepaid income taxes
1,100
Prepaid expenses and other current assets
3,347
Property, plant and equipment, net
11,545
Operating lease assets
55,753
Goodwill
84,336
Trademarks
178,823
Customer relationships
4,294
Deferred income taxes
5,131
Other long-term assets
2,237
Total assets acquired
$
447,003
Notes payable
3,606
Accounts payable
9,175
Accrued expenses
15,261
Operating lease liabilities
58,942
Income taxes payable
2,099
Deferred income taxes
42,222
Other long-term liabilities
5,233
Total liabilities assumed
$
136,538
Total fair value of acquisition consideration
$
310,465
During the year ended January 31, 2023, the Company recorded adjustments to the fair values of assets acquired and liabilities assumed at the date of acquisition based on additional information obtained. The Company recorded an additional $ 36.9 million in both total assets and total liabilities , primarily related to goodwill, deferred tax assets and liabilities, operating lease assets, inventories, accounts receivable, net, accounts payable, customer relationships and operating lease liabilities.
The Company recognized goodwill for tax purposes of approximately $ 84.3 million in connection with the acquisition of KLH. The goodwill was assigned to the Company’s wholesale operations reporting unit. The Company intends to make an election under Internal Revenue Code Section 338(g) to amortize the total goodwill and intangible assets over a 15 year period for income tax purposes in the United States.
The fair values assigned to identifiable intangible assets acquired were based on assumptions and estimates made by management using unobservable inputs reflecting the Company’s own assumptions about the inputs that market participants would use in pricing the asset or liability based on the best information available. The fair values of the trademarks were determined using the relief from royalty method and the fair value of the customer relationships were determined using an income approach. The Company classifies these intangibles as Level 3 fair value measurements. Identifiable intangible assets acquired include the following (in thousands):
Weighted Average
Fair Value
Amortization Period
Trademarks
$
178,823
—
Customer relationships
4,294
8
$
183,117
—
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Table of Contents
G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recognized approximately $ 5.6 million of acquisition related costs that were expensed in fiscal 2023 and fiscal 2022. The fiscal 2023 and fiscal 2022 acquisition and integration costs are recorded within selling, general and administrative expenses in the Company’s consolidated statements of operations and comprehensive income (loss) for the fiscal years ended January 31, 2023 and January 31, 2022, respectively.
The estimates of fair value of assets acquired and liabilities assumed are preliminary and subject to change based on completion of certain working capital adjustments and the tax implications of the Company’s purchase price allocation. The purchase price allocation for acquired companies can be modified for up to one year from the date of acquisition.
Net Sales, Operating Income and Pro Forma Impact of the Transaction
The amount of net sales and operating loss of KLH since the acquisition date included in the consolidated statements of operations and comprehensive income (loss) for the year ended January 31, 2023 were $ 129.4 million and ($ 75.6 ) million, respectively. The operating loss of KLH includes a $ 83.2 million non-cash impairment charge related to goodwill recognized during the fourth quarter of fiscal 2023.
The following table reflects the unaudited pro forma consolidated results of operations of the Company for the periods presented, as though the acquisition of KLH had occurred on February 1, 2021.
Year Ended January 31,
2023
2022
(unaudited, in thousands, except per share amounts)
Net sales
$
3,295,452
$
2,931,583
Net income
( 154,908 )
219,108
Earnings per share:
Basic
( 3.25 )
4.52
Diluted
( 3.25 )
4.42
The pro forma adjustments are based upon available information and certain assumptions that the Company considers reasonable. The unaudited pro forma condensed combined financial data is based on preliminary estimates and assumptions set forth in the accompanying notes. Pro forma adjustments are necessary to reflect (i) the changes in depreciation and amortization expense resulting from fair value adjustments to intangible assets, (ii) amortization of the inventory fair value adjustment, (iii) expenses for incentive compensation arrangements acquired as part of the acquisition agreement, (iv) elimination of royalty expenses related to the Company’s license agreement with KLNA, (v) the taxation of G-III’s and KLH’s combined income as a result of the acquisition, as well as the tax effects related to such pro forma adjustments, (vi) the $ 27.1 million gain recorded to remeasure to fair value the previously held investments in KLH and KLNA as though the gain was recorded on February 1, 2021 and (vii) adjustments for accounting policy changes to conform to G-III’s presentation. The pro forma results do not include any realized or anticipated cost synergies or other effects of the integration of KLH. Accordingly, such pro forma amounts are not indicative of the results that actually would have occurred had the acquisition been completed on February 1, 2021, nor are they indicative of the future operating results of the combined company.
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. In May 2022, the Company
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G-III Apparel Group, Ltd. And Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
acquired the remaining 81 % interest in KLH that it did not previously own, and, as a result, KLH began being treated as a consolidated wholly-owned subsidiary. Prior to May 2022, the investment in KLH was accounted for under the equity method of accounting and was reflected in Investment in Unconsolidated Affiliates on the consolidated balance sheets at January 31, 2022.
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 eyewear, fragrance, cosmetics, watches, jewelry, and hospitality services) and apparel in the United States, Canada and Mexico. In May 2022, KLNA became an indirect wholly-owned subsidiary of the Company as a result of the Company’s acquisition of the remaining 81 % interest in KLH it did not previously own. Prior to May 2022, the investment in KLNA was accounted for under the equity method of accounting and was reflected in Investment in Unconsolidated Affiliates on the consolidated balance sheets at January 31, 2022.
NOTE 17 — RELATED PARTY TRANSACTIONS
Transactions with E-Commerce Retailer
In fiscal 2023, the Company made a $ 25.0 million investment in an e-commerce retailer. The Company’s Chief Executive Officer and Executive Vice President indirectly own 1.4 % of the e-commerce retailer through their ownership in a private investment partnership. The Company had no material transactions with the e-commerce retailer during the year ended January 31, 2023.
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, the Company sold $ 2.7 million in inventory to Fabco. 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.
Transactions with KL North America
Prior to May 30, 2022, G-III owned a 49 % ownership interest in KLNA and was 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 $ 3.6 million during the period of February 1, 2022 through May 30, 2022 prior to KLNA becoming a consolidated indirect wholly-owned subsidiary of the Company. The Company incurred royalty and advertising expense of $ 8.1 million, $ 3.5 million for the years ended January 31, 2022 and 2021, respectively.
NOTE 18 — SUBSEQUENT EVENTS
In March 2023, the Company announced the signing of a long-term license with Authentic Brands Group for the Nautica brand in North America. The Company will produce across a number of categories starting with a full women’s jeanswear collection and then expanding in a phased approach into additional categories including sportswear, suit separates and dresses. The new five-year license agreement, effective beginning in January 2024, includes three extensions, for five years each. First deliveries are expected to hit the floor in January 2024. The product is expected to be distributed in better department stores, digital channels and Nautica’s stores and website in North America and franchised stores globally.
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SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended January 31, 2023, 2022 and 2021
Balance at
Charges to
Balance at
Beginning
Cost and
End of
Description
of Period
Expenses
Deductions (1)
Period
(In thousands)
Year ended January 31, 2023
Deducted from asset accounts
Allowance for doubtful accounts
$
17,391
$
978
$
72
$
18,297
Reserve for returns
30,821
31,944
32,155
30,610
Reserve for sales allowances (2)
55,967
155,388
152,205
59,150
$
104,179
$
188,310
$
184,432
$
108,057
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
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
(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 .
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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.