UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
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(Exact name of registrant as specified in its charter)
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incorporation or organization) |
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(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
☒ | Accelerated filer | ☐ | |
Non-accelerated filer | ☐ | Smaller reporting company | |
Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of June 3, 2022, there were
TABLE OF CONTENTS
| Page No. | ||
Condensed Consolidated Balance Sheets – April 30, 2022, April 30, 2021 and January 31,2022 | 3 | ||
4 | |||
5 | |||
6 | |||
7 | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||
28 | |||
28 | |||
29 | |||
30 |
2
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
April 30, | April 30, | January 31, | |||||||
2022 | 2021 | 2022 | |||||||
| (Unaudited) |
| (Unaudited) |
| |||||
(In thousands, except per share amounts) | |||||||||
ASSETS | |||||||||
Current assets | |||||||||
Cash and cash equivalents | $ | | $ | | $ | | |||
Accounts receivable, net of allowance for doubtful accounts of $ | | | | ||||||
Inventories | | | | ||||||
Prepaid income taxes | | | | ||||||
Prepaid expenses and other current assets | | | | ||||||
Total current assets | | | | ||||||
Investments in unconsolidated affiliates | | | | ||||||
Property and equipment, net | | | | ||||||
Operating lease assets | | | | ||||||
Other assets, net | | | | ||||||
Other intangibles, net | | | | ||||||
Deferred income tax assets, net | | | | ||||||
Trademarks | | | | ||||||
Goodwill | | | | ||||||
Total assets | $ | | $ | | $ | | |||
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||||||
Current liabilities | |||||||||
Current portion of notes payable | $ | | $ | | $ | | |||
Accounts payable | | | | ||||||
Accrued expenses | | | | ||||||
Customer refund liabilities | | | | ||||||
Current operating lease liabilities | | | | ||||||
Income tax payable | | | | ||||||
Other current liabilities | | | | ||||||
Total current liabilities | | | | ||||||
Notes payable, net of discount and unamortized issuance costs | | | | ||||||
Deferred income tax liabilities, net | | | | ||||||
Noncurrent operating lease liabilities | | | | ||||||
Other noncurrent liabilities | | | | ||||||
Total liabilities | | | | ||||||
Redeemable noncontrolling interests | | | | ||||||
Stockholders' Equity | |||||||||
Preferred stock; | |||||||||
Common stock - $ | | | | ||||||
Additional paid-in capital | | | | ||||||
Accumulated other comprehensive loss | ( | ( | ( | ||||||
Retained earnings | | | | ||||||
Common stock held in treasury, at cost - | ( | ( | ( | ||||||
Total stockholders' equity | | | | ||||||
Total liabilities, redeemable noncontrolling interests and stockholders' equity | $ | | $ | | $ | |
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
Three Months Ended April 30, | ||||||
2022 |
| 2021 | ||||
(Unaudited) | ||||||
(In thousands, except per share amounts) | ||||||
Net sales | $ | | $ | | ||
Cost of goods sold | | | ||||
Gross profit | | | ||||
Selling, general and administrative expenses | | | ||||
Depreciation and amortization | | | ||||
Operating profit | | | ||||
Other (loss) income | ( | | ||||
Interest and financing charges, net | ( | ( | ||||
Income before income taxes | | | ||||
Income tax expense | | | ||||
Net income | | | ||||
Less: (Loss) income attributable to noncontrolling interests | ( | | ||||
Net income attributable to G-III Apparel Group, Ltd. | $ | | $ | | ||
NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.: | ||||||
Basic: | ||||||
Net income per common share | $ | | $ | | ||
Weighted average number of shares outstanding | | | ||||
Diluted: | ||||||
Net income per common share | $ | | $ | | ||
Weighted average number of shares outstanding | | | ||||
Net income | $ | | $ | | ||
Other comprehensive loss: | ||||||
Foreign currency translation adjustments | ( | ( | ||||
Other comprehensive loss: | ( | ( | ||||
Comprehensive income | $ | | $ | | ||
Comprehensive (loss) income attributable to noncontrolling interests: | ||||||
Net (loss) income | ( | | ||||
Foreign currency translation adjustments | | ( | ||||
Comprehensive (loss) income attributable to noncontrolling interests | ( | | ||||
Comprehensive income attributable to G-III Apparel Group, Ltd. | $ | | $ | |
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Accumulated | Common | |||||||||||||||||
Additional | Other | Stock | ||||||||||||||||
Common | Paid-In | Comprehensive | Retained | Held In | ||||||||||||||
| Stock |
| Capital |
| Loss |
| Earnings |
| Treasury |
| Total | |||||||
(Unaudited) | ||||||||||||||||||
(In thousands) | ||||||||||||||||||
Balance as of January 31, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Equity awards exercised/vested, net | — | ( | — | — | | — | ||||||||||||
Share-based compensation expense | — | | — | — | — | | ||||||||||||
Taxes paid for net share settlements | — | ( | — | — | — | ( | ||||||||||||
Other comprehensive income, net | — | — | ( | — | — | ( | ||||||||||||
Net income attributable to G-III Apparel Group, Ltd. | — | — | — | | — | | ||||||||||||
Balance as of April 30, 2022 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Balance as of January 31, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
Equity awards exercised/vested, net | — | ( | — | — | | — | ||||||||||||
Share-based compensation expense | — | | — | — | — | | ||||||||||||
Other comprehensive loss, net | — | — | ( | — | — | ( | ||||||||||||
Cumulative effect of change in accounting principle | — | — | — | ( | — | ( | ||||||||||||
Net income attributable to G-III Apparel Group, Ltd. | — | — | — | | — | | ||||||||||||
Balance as of April 30, 2021 | $ | | $ | | $ | ( | $ | | $ | ( | $ | | ||||||
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended April 30, | ||||||
| 2022 |
| 2021 | |||
(Unaudited) | ||||||
(In thousands) | ||||||
Cash flows from operating activities | ||||||
Net income attributable to G-III Apparel Group, Ltd. | $ | | $ | | ||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||
Depreciation and amortization | | | ||||
Loss on disposal of fixed assets | | — | ||||
Non-cash operating lease costs | | | ||||
Dividend received from unconsolidated affiliate | — | | ||||
Equity gain in unconsolidated affiliates | ( | ( | ||||
Change in fair value of equity investment | | — | ||||
Share-based compensation | | | ||||
Deferred financing charges and debt discount amortization | | | ||||
Deferred income taxes | | ( | ||||
Changes in operating assets and liabilities: | ||||||
Accounts receivable, net | | ( | ||||
Inventories | ( | | ||||
Income taxes, net | | | ||||
Prepaid expenses and other current assets | ( | | ||||
Other assets, net | | | ||||
Customer refund liabilities | ( | ( | ||||
Operating lease liabilities | ( | ( | ||||
Accounts payable, accrued expenses and other liabilities | ( | ( | ||||
Net cash provided by operating activities | | | ||||
Cash flows from investing activities | ||||||
Investment in e-commerce retailer | ( | — | ||||
Capital expenditures | ( | ( | ||||
Net cash used in investing activities | ( | ( | ||||
Cash flows from financing activities | ||||||
Repayment of borrowings - revolving facility | — | ( | ||||
Proceeds from borrowings - revolving facility | — | | ||||
Repayment of borrowings - foreign facilities | ( | — | ||||
Proceeds from borrowings - foreign facilities | | | ||||
Taxes paid for net share settlements | ( | — | ||||
Net cash (used in) provided by financing activities | ( | | ||||
Foreign currency translation adjustments | ( | ( | ||||
Net (decrease) increase in cash and cash equivalents | ( | | ||||
Cash and cash equivalents at beginning of period | | | ||||
Cash and cash equivalents at end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information | ||||||
Cash payments: | ||||||
Interest, net | $ | | $ | | ||
Income tax payments, net | $ | ( | $ | |
The accompanying notes are an integral part of these statements.
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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Basis of Presentation
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 for several product categories.
The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. KL North America B.V. (“KLNA”) is a Dutch joint venture limited liability company that is
Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, KLNA, Fabco Holding B.V. (“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, KLNA, Fabco and Sonia Rykiel are, and will be, included in the financial statements for the quarter ended or ending closest to the Company’s fiscal quarter end. For example, with respect to the Company’s results for the three-month period ended April 30, 2022, the results of Vilebrequin, KLH, KLNA, Fabco and Sonia Rykiel are included for the three-month period ended March 31, 2022. The Company’s retail operations segment reports on a 52/53-week fiscal year. The Company’s three-month periods ended April 30, 2022 and 2021 were each 13-week periods for the retail operations segment. For fiscal 2023 and 2022, the three-month periods for the retail operations segment ended on April 30, 2022 and May 1, 2021, respectively.
The results for the three months ended April 30, 2022 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the effects of the COVID-19 pandemic on the Company’s business. The accompanying financial statements included herein are unaudited. All adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period presented have been reflected.
The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2022 filed with the Securities and Exchange Commission (the “SEC”).
Assets and liabilities of the Company’s foreign operations, where the functional currency is not the U.S. dollar (reporting currency), 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.
Note 2 – 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
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The Company’s accounts receivable and allowance for doubtful accounts as of April 30, 2022, April 30, 2021 and January 31, 2022 were:
April 30, 2022 | |||||||||
| Wholesale |
| Retail |
| Total | ||||
(In thousands) | |||||||||
Accounts receivable, gross | $ | | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | ( | ||||||
Accounts receivable, net | $ | | $ | | $ | | |||
April 30, 2021 | |||||||||
Wholesale |
| Retail |
| Total | |||||
(In thousands) | |||||||||
Accounts receivable, gross | $ | | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | ( | ||||||
Accounts receivable, net | $ | | $ | | $ | | |||
January 31, 2022 | |||||||||
Wholesale |
| Retail |
| Total | |||||
(In thousands) | |||||||||
Accounts receivable, gross | $ | | $ | | $ | | |||
Allowance for doubtful accounts | ( | ( | ( | ||||||
Accounts receivable, net | $ | | $ | | $ | |
The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (such as in the case of bankruptcy filings (including potential bankruptcy filings), extensive delay in payment or substantial downgrading by credit rating agencies), a specific reserve for bad debt 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:
| Wholesale |
| Retail |
| Total | ||||
(In thousands) | |||||||||
Balance as of January 31, 2022 | $ | ( | $ | ( | $ | ( | |||
Provision for credit losses, net | | | | ||||||
Accounts written off as uncollectible | | — | | ||||||
Balance as of April 30, 2022 | $ | ( | $ | ( | $ | ( | |||
Balance as of January 31, 2021 | $ | ( | $ | ( | $ | ( | |||
Provision for credit losses, net | ( | ( | ( | ||||||
Accounts written off as uncollectible | | — | | ||||||
Balance as of April 30, 2021 | $ | ( | $ | ( | $ | ( | |||
Balance as of January 31, 2021 | $ | ( | $ | ( | $ | ( | |||
Provision for credit losses, net | ( | ( | ( | ||||||
Accounts written off as uncollectible | | — | | ||||||
Balance as of January 31, 2022 | $ | ( | $ | ( | $ | ( |
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Note 3 – 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 $
Inventory held on consignment by the Company’s customers totaled $
Note 4 – Fair Value of Financial Instruments
Generally Accepted Accounting Principles establish a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
● | Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets. |
● | Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable. |
● | 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 | |||||||||||||||||||
| April 30, | April 30, | January 31, |
| April 30, | April 30, | January 31, | |||||||||||||
Financial Instrument | Level | 2022 | 2021 | 2022 | 2022 | 2021 | 2022 | |||||||||||||
(In thousands) | ||||||||||||||||||||
Secured notes | 1 | $ | | $ | | $ | | $ | | $ | | $ | | |||||||
Revolving credit facility | 2 | — | — | — | — | — | — | |||||||||||||
Note issued to LVMH | 3 | | | | | | | |||||||||||||
Unsecured loans | 2 | | | | | | | |||||||||||||
Overdraft facilities | 2 | | | | | | |
The Company’s debt instruments are recorded at their carrying values in its condensed 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 April 30, 2022. The carrying amount of the Company’s variable rate debt approximates the fair value, as interest rates change with the market rates. Furthermore, the carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash, accounts receivable and accounts payable) also approximates fair value due to the short-term nature of these accounts.
The
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disclosure, the Company based its fair value estimate for the LVMH Note on the initial fair value as determined at the date of the acquisition of DKNY and Donna Karan and records the amortization using the effective interest method over the term of the LVMH Note.
The fair value of the LVMH Note was considered a Level 3 valuation in the fair value hierarchy.
Non-Financial Assets and Liabilities
The Company’s non-financial assets that are measured at fair value on a nonrecurring basis include long-lived assets, which consist primarily of property and equipment and operating lease assets. The Company reviews these assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable. For assets that are not recoverable, an impairment loss is recognized equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. For operating lease assets, the Company determines the fair value of the assets by discounting the estimated market rental rates over the remaining term of the lease. These fair value measurements are considered level 3 measurements in the fair value hierarchy. During the fourth quarter of fiscal 2022, the Company recorded a $
Note 5 – Leases
The Company leases retail stores, warehouses, distribution centers, office space and certain 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.
Most leases are for a term of
Certain of the Company’s lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. 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 April 30, 2022, April 30, 2021 and January 31, 2022 consist of the following:
Leases | Classification | April 30, 2022 | April 30, 2021 | January 31, 2022 | |||||||
(In thousands) | |||||||||||
Assets | |||||||||||
Operating | $ | | $ | | $ | | |||||
Liabilities | |||||||||||
Current operating | $ | | $ | | $ | | |||||
Noncurrent operating | | | | ||||||||
Total lease liabilities | $ | | $ | | $ | |
The Company recorded lease costs of $
10
As of April 30, 2022, the Company’s maturity of operating lease liabilities in the years ending up to January 31, 2027 and thereafter are as follows:
Year Ending January 31, | Amount | ||
(In thousands) | |||
2023 | $ | | |
2024 | | ||
2025 | | ||
2026 | | ||
2027 | | ||
After 2027 | | ||
Total lease payments | $ | | |
Less: Interest | | ||
Present value of lease liabilities | $ | |
As of April 30, 2022, the weighted average remaining lease term related to operating leases is
Cash paid for amounts included in the measurement of operating lease liabilities is $
Note 6 – Net Income per Common Share
Basic net income per common share has been computed using the weighted average number of common shares outstanding during each period. Diluted net income per share, when applicable, is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and stock options outstanding during the period. Approximately
The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income per share:
Three Months Ended April 30, | ||||||
| 2022 |
| 2021 | |||
(In thousands, except share and per share amounts) | ||||||
Net income attributable to G-III Apparel Group, Ltd. | $ | | $ | | ||
Basic net income per share: | ||||||
Basic common shares | | | ||||
Basic net income per share | $ | | $ | | ||
Diluted net income per share: | ||||||
Basic common shares | | | ||||
Dilutive restricted stock unit awards and stock options | | | ||||
Diluted common shares | | | ||||
Diluted net income per share | $ | | $ | |
11
Note 7 – Notes Payable
Long-term debt consists of the following:
| April 30, 2022 |
| April 30, 2021 |
| January 31, 2022 | ||||
(In thousands) | |||||||||
Secured Notes | $ | | $ | | $ | | |||
Revolving credit facility | — | — | — | ||||||
LVMH Note | | | | ||||||
Unsecured loans | | | | ||||||
Overdraft facilities | | | | ||||||
Subtotal | | | | ||||||
Less: Net debt issuance costs (1) | ( | ( | ( | ||||||
Debt discount | ( | ( | ( | ||||||
Current portion of long-term debt | ( | ( | ( | ||||||
Total | $ | | $ | | $ | |
(1) | Does not include debt issuance costs, net of amortization, totaling $ |
Senior Secured Notes
In August 2020, the Company completed a private debt offering of $
The Notes are unconditionally guaranteed on a senior-priority secured basis by the Company’s current and future wholly-owned domestic subsidiaries that guarantee any of the Company’s credit facilities, including the Company’s ABL facility (the “ABL Facility”) pursuant to the ABL Credit Agreement, or certain future capital markets indebtedness of the Company or guarantors.
The Notes and the related guarantees are secured by (i) first priority liens on the Company’s Cash Flow Priority Collateral (as defined in the Indenture), and (ii) a second-priority lien on the Company’s ABL Priority Collateral (as defined in the Indenture), in each case subject to permitted liens described in the Indenture.
In connection with the issuance of the Notes and execution of the Indenture, the Company and the Guarantors entered into a pledge and security agreement (the “Pledge and Security Agreement”), among the Company, the Guarantors and the Collateral Agent.
The Notes are subject to the terms of the intercreditor agreement which governs the relative rights of the secured parties in respect of the ABL Facility and the Notes (the “Intercreditor Agreement”). The Intercreditor Agreement restricts the actions permitted to be taken by the Collateral Agent with respect to the Collateral on behalf of the holders of the Notes. The Notes are also subject to the terms of the LVMH Note subordination agreement which governs the relative rights of the secured parties in respect of the LVMH Note, the ABL Facility and the Notes.
At any time prior to August 15, 2022, the Company may redeem some or all of the Notes at a price equal to
12
plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date. In addition, at any time prior to August 15, 2022, the Company may redeem up to
If the Company experiences a Change of Control (as defined in the Indenture), the Company is required to offer to repurchase the Notes at
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 $
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
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 $
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
13
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
The revolving credit facility contains covenants that, among other things, restrict the Company’s ability to, subject to specified exceptions, 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
As of April 30, 2022, the Company had
At the date of the refinancing of the Prior Credit Agreement, the Company had $
LVMH Note
As a portion of the consideration for the acquisition of DKI, the Company issued to LVMH a junior lien secured promissory note in the principal amount of $
ASC 820 requires the note to be recorded at fair value at issuance. As a result, the Company recorded a $
Unsecured Loans
During fiscal 2020 and fiscal 2021, T.R.B International SA (“TRB”), a subsidiary of Vilebrequin, borrowed funds under several unsecured loans. A portion of the unsecured loans was to provide funding for operations in the normal course of business, while other unsecured loans were various European state backed loans as part of COVID-19 relief programs. Additionally, Sonia Rykiel borrowed funds pursuant to European state backed loans that were part of COVID-19 relief programs. In the aggregate, the Company is currently required to make quarterly installment payments of €
Overdraft Facilities
During fiscal 2022, 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 €
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facilities with UBS Bank in Switzerland for an aggregate of CHF
Note 8 – Revenue Recognition
Disaggregation of Revenue
In accordance with ASC 606 – Revenue from Contracts with Customers, the Company discloses its revenues by segment. Each segment presents its own characteristics with respect to the timing of revenue recognition and the type of customer. In addition, disaggregating revenues using a segment basis is consistent with how the Company’s Chief Operating Decision Maker manages the Company. The Company has identified the wholesale operations segment and the retail operations segment as distinct sources of revenue.
Wholesale Operations Segment. Wholesale revenues include sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues from sales of products are recognized when control transfers to the customer. The Company considers control to have been transferred when the Company has transferred physical possession of the product, the Company has a right to payment for the product, the customer has legal title to the product and the customer has the significant risks and rewards of the product. Wholesale revenues are adjusted by variable consideration arising from implicit or explicit obligations. Wholesale revenues also include revenues from license agreements related to the DKNY, Donna Karan, G.H. Bass, Andrew Marc and Vilebrequin trademarks owned by the Company. As of April 30, 2022, revenues from license agreements represented an insignificant portion of wholesale revenues.
Retail Operations Segment. Retail store revenues are generated by direct sales to consumers through company-operated stores and product sales through the Company’s digital channels for the DKNY, Donna Karan, G.H. Bass, Karl Lagerfeld Paris, Andrew Marc and Wilsons Leather businesses. Retail stores primarily consist of DKNY and Karl Lagerfeld Paris retail stores, substantially all of which are operated as outlet stores. 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.
Contract Liabilities
The Company’s contract liabilities, which are recorded within accrued expenses in the accompanying condensed 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 $
Note 9 – Segments
The Company’s reportable segments are business units that offer products through different channels of distribution. The Company has
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