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 13, 2019, 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 — Executive Officers of the Registrant” in Item 1 in this Form 10‑K.
The information required by Item 405 of Regulation S-K is contained under the heading “Section 16(a) Beneficial Ownership Reporting Compliance” 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.
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, 2019, the last day of fiscal 2019, regarding securities issued under G-III’s equity compensation plans that were in effect during fiscal 2019.
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Number
of Securities
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|
|
|
|
|
|
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Remaining Available for
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Number of Securities to
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Weighted Average
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Future Issuance Under
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be Issued Upon Exercise
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Exercise Price of
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Equity Compensation
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of Outstanding Options,
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Outstanding Options,
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Plans (Excluding Securities
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|
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Warrants and Rights
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Warrants and Rights
|
|
Reflected in Column (a))
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Plan Category
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(a)
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(b)
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(c)
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Equity compensation plans approved by security holders
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1,874,130
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(1)
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$
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15.70
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(2)
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717,381
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Equity compensation plans not approved by security holders
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—
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—
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—
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Total
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1,874,130
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(1)
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$
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15.70
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(2)
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717,381
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(3)
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(1)
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Includes outstanding awards of 1,821,619 shares of Common Stock issuable upon vesting of restricted stock units (‘‘RSUs’’) and stock options for 55,311 shares of common stock. Outstanding stock options have a weighted average exercise price of $15.70 and a weighted average remaining term of 1.95 years.
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(2)
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RSUs are excluded when determining the weighted average exercise price of outstanding stock options.
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(3)
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Under
our
2015 Long-Term Incentive Plan.
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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.
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2.
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Financial Statement Schedules.
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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.
Exhibits:
The following exhibits filed as part of this report or incorporated herein by reference are management contracts or compensatory plans or arrangements: Exhibits 10.1, 10.1(a), 10.1(b), 10.1(c), 10.1(d), 10.6, 10.6(a), 10.6(b), 10.6 (c), 10.6 (d), 10.6(e), 10.7, 10.7(a), 10.7(b), 10.7(c), 10.7(d), 10.8, 10.9, 10.9(a), 10.9(b), 10.9(c), 10.9(d), 10.12, 10.13, 10.13(a), 10.14, 10.15 and 10.16.
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Incorporated
by Reference
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Exhibit No.
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Document
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Form
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File No.
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Date Filed
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2.1
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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).
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8-K
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000-18183
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7/28/2016
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2.1(a)
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Amendment No. 1 to Stock Purchase Agreement, dated November 30, 2016, by and between G-III and LVMH.
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8-K
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000-18183
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12/6/2016
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3.1
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Certificate of Incorporation.
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8-K
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000-18183
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7/2/2008
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3.1(a)
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Certificate of Amendment of Certificate of Incorporation, dated June 8, 2006.
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10-Q (Q2 2007)
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000-18183
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9/13/2006
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3.1(b)
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Certificate of Amendment of Certificate of Incorporation, dated June 7, 2011.
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8-K
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000-18183
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6/9/2011
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3.1(c)
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Certificate of Amendment of Certificate of Incorporation, dated June 30, 2015.
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8-K
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000-18183
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7/1/2015
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3.2
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By-Laws, as amended, of G-III.
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8-K
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000-18183
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3/15/2013
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4.1
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Promissory Note, dated December 1, 2016, from G-III to LVMH.
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8-K
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000-18183
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12/6/2016
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10.1
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Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
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10-K/A (2006)
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000-18183
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5/8/2006
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10.1(a)
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Amendment, dated October 1, 1999, to the Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
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10-K/A (2006)
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000-18183
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5/8/2006
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10.1(b)
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Amendment, dated January 28, 2009, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
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8-K
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000-18183
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2/3/2009
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10.1(c)
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Letter Amendment, dated March 13, 2013, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
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8-K
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000-18183
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3/15/2013
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10.1(d)
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Letter Amendment, dated April 28, 2014, to Employment Agreement, dated February 1, 1994, between G-III and Morris Goldfarb.
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8-K
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000-18183
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5/14/2015
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10.2
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Amended and Restated Credit Agreement, dated as of December 1, 2016, among G-III Leather, 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.
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8-K
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000-18183
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12/6/2016
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10.2(a)
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Credit Agreement dated as of December 1, 2016, among G-III, the other loan parties thereto, the lenders party thereto and Barclays Bank PLC, as the Administrative Agent.
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8-K
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000-18183
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12/6/2016
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10.3
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Lease, dated June 1, 1993, between 512 Seventh Avenue Associates (“512”) and G-III Leather Fashions, Inc. (“G-III Leather”) (34th and 35th floors).
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10-K/A (2006)
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000-18183
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5/8/2006
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10.3(a)
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Lease amendment, dated July 1, 2000, between 512 and G-III Leather (34th and 35th floors).
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10-K/A (2006)
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000-18183
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5/8/2006
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Incorporated by Reference
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Exhibit No.
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Document
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Form
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File No.
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Date Filed
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10.3(b)
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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).
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10-Q (Q3 2011)
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000-18183
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12/10/2010
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10.4
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Lease, dated January 31, 1994, between 512 and G-III (33rd floor).
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10-K/A (2006)
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000-18183
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5/8/2006
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10.4(a)
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Lease amendment, dated July 1, 2000, between 512 and G-III (33rd floor).
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10-K/A (2006)
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000-18183
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5/8/2006
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10.4(b)
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Second Amendment of Lease, dated March 26, 2010, between 512 and G-III Leather (33rd floor).
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10-Q (Q3 2011)
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000-18183
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12/10/2010
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10.4(c)
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Second Amendment of Lease, dated March 26, 2010, between 512 and G-III Leather (10th floor).
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10-Q (Q3 2011)
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000-18183
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12/10/2010
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10.4(d)
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Third Amendment of Lease, dated March 26, 2010, between 512 and G-III Leather (21st, 22nd, 23rd, 24th and 36th floors).
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10-Q (Q3 2011)
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000-18183
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12/10/2010
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10.4(e)
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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).
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10-Q (Q1 2014)
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000-18183
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6/10/2013
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10.4(f)
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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).
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10-Q (Q1 2015)
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000-18183
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6/5/2014
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10.4(g)
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Eighth Amendment Of Lease, dated June 16, 2017, by and between G-III Leather Fashions, Inc. as Tenant and 500-512 Seventh Avenue Limited Partnership as Landlord* (2nd Floor (including mezzanine), 3rd, 4th, 5th, 21st, 22nd, 23rd, 24th, 27th, 28th, 29th, 30th, 31st, 36th, 39th and 40th Floors)
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10-K (2018)
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000-18183
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4/2/2018
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10.4(h)
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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).
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10-Q (Q1 2019)
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|
000-18183
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6/11/2018
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10.5
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Lease, dated February 10, 2009, between IRET Properties and AM Retail Group, Inc.
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10-Q (Q3 2011)
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000-18183
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12/10/2010
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10.6
|
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G-III 2005 Amended and Restated Stock Incentive Plan, (the “2005 Plan”).
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|
8-K
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000-18183
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3/15/2013
|
10.6(a)
|
|
Form of Option Agreement for awards made pursuant to the 2005 Plan.
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|
10-K (2009)
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000-18183
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|
4/16/2009
|
10.6(b)
|
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Form of Restricted Stock Agreement for restricted stock awards made pursuant to the 2005 Plan.
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8-K
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000-18183
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|
6/15/2005
|
10.6(c)
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|
Form of Deferred Stock Award Agreement for October 23, 2014 restricted stock unit grant.
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8-K
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000-18183
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|
10/28/2014
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10.6(d)
|
|
Form of Deferred Stock Award Agreement for May 12, 2015 restricted stock unit grant vesting on April 12, 2019.
|
|
8-K
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000-18183
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5/14/2015
|
10.6(e)
|
|
Form of Deferred Stock Award Agreement for May 12, 2015 restricted stock unit grant vesting on June 12, 2020.
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8-K
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000-18183
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5/14/2015
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10.7
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G-III 2015 Long-Term Incentive Plan, as amended.
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8-K
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000-18183
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12/14/2016
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Incorporated by Reference
|
Exhibit No.
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Document
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Form
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File No.
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Date Filed
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10.7(a)
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Form of Restricted Stock Unit Agreement for December 10, 2015 restricted stock unit grants.
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|
8-K
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000-18183
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12/14/2015
|
10.7(b)
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Form of Restricted Stock Unit Agreement for January 27, 2017 restricted stock unit grants.
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|
8-K
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000-18183
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|
1/31/2017
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10.7(c)
|
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Form of Restricted Stock Unit Agreement for March 28, 2017 restricted stock unit grants.
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|
8-K
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000-18183
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|
3/17/2017
|
10.7(d)
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Form of Restricted Stock Unit Agreement for April 26, 2018 restricted stock unit grants.
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|
8-K
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000-18183
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|
4/30/2018
|
10.8
|
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Form of Executive Transition Agreement, as amended.
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8-K
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000-18183
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2/16/2011
|
10.9
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Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
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10-Q (Q3 2011)
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000-18183
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|
12/10/2010
|
10.9(a)
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Amendment, dated October 3, 2008, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
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|
8-K
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000-18183
|
|
10/6/2008
|
10.9(b)
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|
Amendment, dated January 28, 2009, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
|
|
8-K
|
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000-18183
|
|
2/3/2009
|
10.9(c)
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|
Letter Amendment, dated March 13, 2013, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
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8-K
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000-18183
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3/15/2013
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10.9(d)
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Letter Amendment, dated April 28, 2014, to Employment Agreement, dated as of July 11, 2005, by and between Sammy Aaron and G-III.
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8-K
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000-18183
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4/30/2014
|
10.10 (a)
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Lease agreement dated June 29, 2006 between The Realty Associates Fund VI, LP and G-III.
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10-Q (Q2 2007)
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000-18183
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|
9/13/2006
|
10.10 (b)*
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|
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.
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—
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—
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—
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10.11
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|
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.
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10-Q (Q3 2011)
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000-18183
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|
12/10/2010
|
10.12
|
|
Form of Indemnification Agreement.
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|
10-Q (Q3 2011)
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000-18183
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|
12/10/2010
|
10.13
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Employment Agreement, made as of January 9, 2013, between G-III and Wayne S. Miller.
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8-K
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000-18183
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|
1/14/2013
|
10.13(a)
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Amendment to Employment Agreement and Executive Transition Agreement, dated as of December 9, 2016, between G-III and Wayne S. Miller.
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8-K
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000-18183
|
|
12/14/2016
|
10.14
|
|
Employment Agreement, dated as of December 9, 2016, between G-III and Jeffrey D. Goldfarb.
|
|
8-K
|
|
000-18183
|
|
12/14/2016
|
10.15
|
|
Amendment to Executive Transition Agreement, dated as of December 9, 2016, between G-III and Jeffrey D. Goldfarb.
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|
8-K
|
|
000-18183
|
|
12/6/2016
|
10.16
|
|
Severance Agreement, dated as of December 9, 2016, between G-III and Neal Nackman.
|
|
8-K
|
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000-18183
|
|
12/14/2016
|
10.17
|
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Lease, dated August 1, 2006, between 240 West 40th LLC. and G-III Leather Fashions, Inc.
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|
10-K (2017)
|
|
000-18183
|
|
4/3/2017
|
10.18
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|
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*
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|
Subsidiaries of G-III.
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—
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|
—
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—
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23.1*
|
|
Consent of Independent Registered Public Accounting Firm, Ernst & Young LLP.
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—
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—
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—
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Incorporated by Reference
|
Exhibit No.
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Document
|
|
Form
|
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File No.
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|
Date Filed
|
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, 2019.
|
|
—
|
|
—
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|
—
|
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, 2019.
|
|
—
|
|
—
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|
—
|
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, 2019.
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—
|
|
—
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|
—
|
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, 2019.
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—
|
|
—
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|
—
|
101.INS*
|
|
XBRL Instance Document.
|
|
—
|
|
—
|
|
—
|
101.SCH*
|
|
XBRL Schema Document.
|
|
—
|
|
—
|
|
—
|
101.CAL*
|
|
XBRL Calculation Linkbase Document.
|
|
—
|
|
—
|
|
—
|
101.DEF*
|
|
XBRL Extension Definition.
|
|
—
|
|
—
|
|
—
|
101.LAB*
|
|
XBRL Label Linkbase Document.
|
|
—
|
|
—
|
|
—
|
101.PRE*
|
|
XBRL Presentation Linkbase Document.
|
|
—
|
|
—
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|
—
|
* 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.
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.
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G-III APPAREL GROUP, LTD.
|
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By:
|
/s/ Morris Goldfarb
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|
|
Morris Goldfarb,
|
|
|
|
Chief Executive Officer
|
March 28, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Morris Goldfarb
|
|
Director, Chairman of the Board and Chief Executive Officer (principal executive officer)
|
|
March 28, 2019
|
Morris Goldfarb
|
|
|
|
|
|
/s/ Neal S. Nackman
|
|
Chief Financial Officer (principal financial and accounting officer)
|
|
March 28, 2019
|
Neal S. Nackman
|
|
|
|
|
|
/s/ Sammy Aaron
|
|
Director, Vice Chairman and President
|
|
March 28, 2019
|
Sammy Aaron
|
|
|
|
|
|
/s/ Thomas J. Brosig
|
|
Director
|
|
March 28, 2019
|
Thomas J. Brosig
|
|
|
|
|
|
/s/ Alan Feller
|
|
Director
|
|
March 28, 2019
|
Alan Feller
|
|
|
|
|
|
/s/ Jeffrey Goldfarb
|
|
Director
|
|
March 28, 2019
|
Jeffrey Goldfarb
|
|
|
|
|
|
/s/ Jeanette Nostra
|
|
Director
|
|
March 28, 2019
|
Jeanette Nostra
|
|
|
|
|
|
/s/ Laura Pomerantz
|
|
Director
|
|
March 28, 2019
|
Laura Pomerantz
|
|
|
|
|
|
/s/ Allen Sirkin
|
|
Director
|
|
March 28, 2019
|
Allen Sirkin
|
|
|
|
|
|
/s/ Willem van Bokhorst
|
|
Director
|
|
March 28, 2019
|
Willem van Bokhorst
|
|
|
|
|
|
/s/ Cheryl Vitali
|
|
Director
|
|
March 28, 2019
|
Cheryl Vitali
|
|
|
|
|
|
/s/ Richard White
|
|
Director
|
|
March 28, 2019
|
Richard White
|
EXHIBIT INDEX
|
|
|
10.10(b)
|
|
First Amendment of Lease, dated July 31, 2012, by and between Centerpoint Herrod, LLC, as successor in interest to The Realty Associates Fund VI, LP, and G-III.
|
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, 2019.
|
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, 2019.
|
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, 2019.
|
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, 2019.
|
101.INS
|
|
XBRL Instance Document.
|
101.SCH
|
|
XBRL Schema Document.
|
101.CAL
|
|
XBRL Calculation Linkbase Document.
|
101.DEF
|
|
XBRL Extension Definition.
|
101.LAB
|
|
XBRL Label Linkbase Document.
|
101.PRE
|
|
XBRL Presentation Linkbase Document.
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE
(Item 15(a)) G-III Apparel Group, Ltd. and Subsidiaries
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.
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, 2019 and 2018, the related consolidated statements of income and comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended January 31, 2019, 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, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended January 31, 2019, 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, 2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 28, 2019 expressed an unqualified opinion thereon.
Adoption of ASU No. 2014-09
As discussed in Note A to the consolidated financial statements, the Company changed its method for recognizing revenue as a result of the adoption of Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), and the amendments in ASUs 2015-14, 2016-08, 2016-10 and 2016-12 effective February 1, 2018.
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.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2000.
New York, New York
March 28, 2019
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, 2019, 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, 2019, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of January 31, 2019 and 2018, the related consolidated statements of income and comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended January 31, 2019, and the related notes and financial statement schedule listed in the Index at Item 15(a) and our report dated March 28, 2019 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, New York
March 28, 2019
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
January 31,
|
|
|
2019
|
|
2018
|
|
|
(In thousands, except per share
amounts)
|
ASSETS
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
70,138
|
|
$
|
45,776
|
|
Accounts receivable, net of allowance for doubtful accounts of $0.9 million and $2.1 million, respectively
|
|
|
502,133
|
|
|
294,430
|
(1)
|
Inventories
|
|
|
576,383
|
|
|
553,323
|
|
Prepaid income taxes
|
|
|
8,308
|
|
|
15,058
|
|
Prepaid expenses and other current assets
|
|
|
96,933
|
|
|
51,014
|
|
Total current assets
|
|
|
1,253,895
|
|
|
959,601
|
|
Investments in unconsolidated affiliates
|
|
|
66,587
|
|
|
62,422
|
|
Property and equipment, net
|
|
|
86,407
|
|
|
97,857
|
|
Other assets, net
|
|
|
35,459
|
|
|
32,478
|
|
Other intangibles, net
|
|
|
42,404
|
|
|
46,405
|
|
Deferred income tax assets, net
|
|
|
22,427
|
|
|
11,439
|
|
Trademarks
|
|
|
439,742
|
|
|
442,265
|
|
Goodwill
|
|
|
261,137
|
|
|
262,710
|
|
Total assets
|
|
$
|
2,208,058
|
|
$
|
1,915,177
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
Income tax payable
|
|
$
|
8,859
|
|
$
|
19,748
|
|
Accounts payable
|
|
|
225,499
|
|
|
232,364
|
|
Accrued expenses
|
|
|
102,841
|
|
|
95,055
|
|
Customer refund liabilities
|
|
|
243,589
|
|
|
—
|
|
Total current liabilities
|
|
|
580,788
|
|
|
347,167
|
|
Notes payable, net of discount and unamortized issuance costs
|
|
|
386,604
|
|
|
391,044
|
|
Deferred income tax liabilities, net
|
|
|
15,128
|
|
|
15,888
|
|
Other non-current liabilities
|
|
|
36,529
|
|
|
40,389
|
|
Total liabilities
|
|
|
1,019,049
|
|
|
794,488
|
|
|
|
|
|
|
|
|
|
Stockholders' Equity
|
|
|
|
|
|
|
|
Preferred stock; 1,000 shares authorized; no shares issued and outstanding
|
|
|
—
|
|
|
|
|
Common stock - $0.01 par value; 120,000 shares authorized; 49,387 and 49,219 shares issued, respectively
|
|
|
264
|
|
|
245
|
|
Additional paid-in capital
|
|
|
464,112
|
|
|
451,844
|
|
Accumulated other comprehensive loss
|
|
|
(15,194)
|
|
|
(5,522)
|
|
Retained earnings
|
|
|
758,881
|
|
|
674,542
|
|
Common stock held in treasury, at cost - 678 and 106 shares, respectively
|
|
|
(19,054)
|
|
|
(420)
|
|
Total stockholders' equity
|
|
|
1,189,009
|
|
|
1,120,689
|
|
Total liabilities and stockholders' equity
|
|
$
|
2,208,058
|
|
$
|
1,915,177
|
|
|
|
(1)
|
Also, net of accrued returns of $61.2 million and sales discounts of $102.1 million.
|
The
accompanying notes are an integral part of these statements.
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
(As Adjusted)
|
|
(As Adjusted)
|
|
|
(In thousands, except per share
amounts)
|
Net sales
|
|
$
|
3,076,208
|
|
$
|
2,806,938
|
|
$
|
2,386,435
|
Cost of goods sold
|
|
|
1,969,099
|
|
|
1,752,199
|
|
|
1,545,107
|
Gross profit
|
|
|
1,107,109
|
|
|
1,054,739
|
|
|
841,328
|
Selling, general and administrative expenses
|
|
|
834,763
|
|
|
855,247
|
|
|
704,436
|
Depreciation and amortization
|
|
|
38,819
|
|
|
37,783
|
|
|
32,481
|
Asset impairments
|
|
|
2,813
|
|
|
7,884
|
|
|
10,480
|
Operating profit
|
|
|
230,714
|
|
|
153,825
|
|
|
93,931
|
Other loss
|
|
|
(2,960)
|
|
|
(1,413)
|
|
|
(580)
|
Interest and financing charges, net
|
|
|
(43,924)
|
|
|
(42,363)
|
|
|
(15,589)
|
Income before income taxes
|
|
|
183,830
|
|
|
110,049
|
|
|
77,762
|
Income tax expense
|
|
|
45,763
|
|
|
47,925
|
|
|
25,824
|
Net income
|
|
$
|
138,067
|
|
$
|
62,124
|
|
$
|
51,938
|
|
|
|
|
|
|
|
|
|
|
NET INCOME PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
2.81
|
|
$
|
1.27
|
|
$
|
1.12
|
Weighted average number of shares outstanding
|
|
|
49,140
|
|
|
48,820
|
|
|
46,308
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
$
|
2.75
|
|
$
|
1.25
|
|
$
|
1.10
|
Weighted average number of shares outstanding
|
|
|
50,274
|
|
|
49,750
|
|
|
47,394
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138,067
|
|
$
|
62,124
|
|
$
|
51,938
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(9,672)
|
|
|
22,200
|
|
|
(4,033)
|
Other comprehensive income (loss)
|
|
|
(9,672)
|
|
|
22,200
|
|
|
(4,033)
|
Comprehensive income
|
|
$
|
128,395
|
|
$
|
84,324
|
|
$
|
47,905
|
The accompanying notes are an integral part of these statements.
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, 2016
|
|
$
|
229
|
|
$
|
353,750
|
|
$
|
(23,689)
|
|
$
|
560,480
|
|
$
|
(2,643)
|
|
$
|
888,127
|
Equity awards exercised/vested, net
|
|
|
(2)
|
|
|
(892)
|
|
|
—
|
|
|
—
|
|
|
1,153
|
|
|
259
|
Share-based compensation expense
|
|
|
—
|
|
|
16,901
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
16,901
|
Taxes paid for net share settlements
|
|
|
—
|
|
|
(6,956)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,956)
|
Shares issued to LVMH in connection with DKI acquisition
|
|
|
26
|
|
|
74,974
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
75,000
|
Other comprehensive loss, net
|
|
|
—
|
|
|
—
|
|
|
(4,033)
|
|
|
—
|
|
|
—
|
|
|
(4,033)
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
51,938
|
|
|
—
|
|
|
51,938
|
Balance as of January 31, 2017
|
|
|
253
|
|
|
437,777
|
|
|
(27,722)
|
|
|
612,418
|
|
|
(1,490)
|
|
|
1,021,236
|
Equity awards exercised/vested, net
|
|
|
(8)
|
|
|
516
|
|
|
—
|
|
|
—
|
|
|
1,070
|
|
|
1,578
|
Share-based compensation expense
|
|
|
—
|
|
|
19,665
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,665
|
Taxes paid for net share settlements
|
|
|
—
|
|
|
(6,114)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,114)
|
Other comprehensive gain, net
|
|
|
—
|
|
|
—
|
|
|
22,200
|
|
|
—
|
|
|
—
|
|
|
22,200
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
62,124
|
|
|
—
|
|
|
62,124
|
Balance as of January 31, 2018
|
|
|
245
|
|
|
451,844
|
|
|
(5,522)
|
|
|
674,542
|
|
|
(420)
|
|
|
1,120,689
|
Equity awards exercised/vested, net
|
|
|
19
|
|
|
(1,595)
|
|
|
—
|
|
|
—
|
|
|
1,677
|
|
|
101
|
Share-based compensation expense
|
|
|
—
|
|
|
19,694
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19,694
|
Taxes paid for net share settlements
|
|
|
—
|
|
|
(5,738)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,738)
|
Other comprehensive loss, net
|
|
|
—
|
|
|
(93)
|
|
|
(9,672)
|
|
|
—
|
|
|
—
|
|
|
(9,765)
|
Repurchases of common stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,311)
|
|
|
(20,311)
|
Cumulative effect of adoption of ASC 606
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(53,728)
|
|
|
—
|
|
|
(53,728)
|
Net income
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
138,067
|
|
|
—
|
|
|
138,067
|
Balance as of January 31, 2019
|
|
$
|
264
|
|
$
|
464,112
|
|
$
|
(15,194)
|
|
$
|
758,881
|
|
$
|
(19,054)
|
|
$
|
1,189,009
|
The accompanying notes are an integral part of these statements.
G-III Apparel Group, Ltd. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(In
thousands)
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138,067
|
|
$
|
62,124
|
|
$
|
51,938
|
Adjustments to reconcile net income to net cash provided by operating activities, net of assets and liabilities acquired:
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
38,819
|
|
|
37,783
|
|
|
32,481
|
Asset impairments
|
|
|
2,813
|
|
|
7,884
|
|
|
10,480
|
Dividend received from unconsolidated affiliate
|
|
|
—
|
|
|
3,575
|
|
|
—
|
Equity loss in unconsolidated affiliates
|
|
|
1,543
|
|
|
454
|
|
|
27
|
Share-based compensation
|
|
|
19,694
|
|
|
19,665
|
|
|
16,901
|
Deferred financing charges and debt discount amortization
|
|
|
10,052
|
|
|
10,890
|
|
|
5,157
|
Deferred income taxes
|
|
|
5,404
|
|
|
4,078
|
|
|
(7,319)
|
Loss on disposal of fixed assets
|
|
|
128
|
|
|
2,922
|
|
|
3,201
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
|
(207,877)
|
|
|
(29,947)
|
|
|
(29,310)
|
Inventories
|
|
|
(23,568)
|
|
|
(68,775)
|
|
|
12,633
|
Income taxes, net
|
|
|
(3,866)
|
|
|
11,284
|
|
|
14,233
|
Prepaid expenses and other current assets
|
|
|
(47,959)
|
|
|
(3,877)
|
|
|
(6,300)
|
Other assets, net
|
|
|
(6,237)
|
|
|
10,991
|
|
|
(10,863)
|
Customer refund liabilities
|
|
|
177,144
|
|
|
—
|
|
|
—
|
Accounts payable, accrued expenses and other liabilities
|
|
|
(328)
|
|
|
10,683
|
|
|
12,436
|
Net cash provided by operating activities
|
|
|
103,829
|
|
|
79,734
|
|
|
105,695
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(29,205)
|
|
|
(34,507)
|
|
|
(24,928)
|
Investment in unconsolidated affiliate
|
|
|
(9,951)
|
|
|
(49)
|
|
|
(35,432)
|
Return of capital from unconsolidated affiliate
|
|
|
1,470
|
|
|
—
|
|
|
—
|
Proceeds from sale of a retail store
|
|
|
354
|
|
|
644
|
|
|
—
|
Acquisition, net of cash acquired
|
|
|
—
|
|
|
—
|
|
|
(465,403)
|
Net cash used in investing activities
|
|
|
(37,332)
|
|
|
(33,912)
|
|
|
(525,763)
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Proceeds from term loan, net
|
|
|
—
|
|
|
—
|
|
|
283,204
|
Repayment of borrowings - new revolving credit facility
|
|
|
(2,315,935)
|
|
|
(2,018,892)
|
|
|
(413,282)
|
Proceeds from borrowings - new revolving credit facility
|
|
|
2,303,932
|
|
|
1,939,774
|
|
|
524,748
|
Repayment of borrowings - old revolving credit facility
|
|
|
—
|
|
|
—
|
|
|
(20,344)
|
Proceeds from exercise of equity awards
|
|
|
101
|
|
|
1,578
|
|
|
260
|
Purchase of treasury shares
|
|
|
(20,311)
|
|
|
—
|
|
|
—
|
Taxes paid for net share settlements
|
|
|
(5,738)
|
|
|
(6,114)
|
|
|
(6,955)
|
Net cash provided by (used in) financing activities
|
|
|
(37,951)
|
|
|
(83,654)
|
|
|
367,631
|
Foreign currency translation adjustments
|
|
|
(4,184)
|
|
|
3,651
|
|
|
(193)
|
Net increase (decrease) in cash and cash equivalents
|
|
|
24,362
|
|
|
(34,181)
|
|
|
(52,630)
|
Cash and cash equivalents at beginning of year
|
|
|
45,776
|
|
|
79,957
|
|
|
132,587
|
Cash and cash equivalents at end of year
|
|
$
|
70,138
|
|
$
|
45,776
|
|
$
|
79,957
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information
|
|
|
|
|
|
|
|
|
|
Cash payments:
|
|
|
|
|
|
|
|
|
|
Interest, net
|
|
$
|
35,807
|
|
$
|
31,644
|
|
$
|
21,773
|
Income tax payments, net
|
|
|
44,045
|
|
|
32,934
|
|
|
18,915
|
Non-cash investment and financing activities:
|
|
|
|
|
|
|
|
|
|
Shares of common stock issued to LVMH in connection with the acquisition of DKI
|
|
$
|
—
|
|
$
|
—
|
|
$
|
75,000
|
Note issued to LVMH in connection with the acquisition of DKI
|
|
|
—
|
|
|
—
|
|
|
125,000
|
The accompanying notes are an integral part of these statements.
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
January 31, 2019, 2018 and 2017
NOTE A — 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 all its wholly-owned and majority-owned subsidiaries. KL North America B.V. (“KLNA”) and Fabco Holding B.V. (“Fabco”) are Dutch limited liability companies that are joint ventures that are 49% owned by the Company. Karl Lagerfeld Holding B.V. (“KLH”), formerly known as Kingdom Holdings 1 B.V., is a Dutch limited liability company that is 19% owned by the Company. These investments are accounted for using the equity method of accounting. All material intercompany balances and transactions have been eliminated.
Vilebrequin International SA (“Vilebrequin”), a Swiss corporation that is wholly-owned by the Company, KLH, KLNA and Fabco 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 and Fabco are, and will be, included in the financial statements for the year ended or ending closest to the Company’s fiscal year. For example, with respect to the Company’s results for the year ended January 31, 2019, the results of Vilebrequin, KLH, KLNA and Fabco are included for the year ended December 31, 2018. The Company’s retail operations segment reports results on a 52/53‑week fiscal year. The Company’s years ended January 31, 2019 and 2017 were both 52‑week fiscal years for the retail operations segment. The Company’s year ended January 31, 2018 was a 53‑week fiscal year for the retail operations segment. For fiscal 2019, 2018 and 2017, the retail operations segment year end was February 2, 2019, February 3, 2018 and January 28, 2017, respectively.
2. Cash Equivalents
The Company considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.
3. Revenue Recognition
On February 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 606 –
Revenue From Contracts With Customers
(“ASC 606”) using the modified retrospective method as of January 31, 2018. Under ASC 606, wholesale revenue is recognized when control transfers to the customer. The Company considers control to have been transferred when the Company has transferred physical possession of the product, the Company has a right to payment for the product, the customer has legal title to the product and the customer has the significant risks and rewards of the product. Wholesale revenues are adjusted by variable considerations arising from implicit or explicit obligations. Variable consideration includes trade discounts, end of season markdowns, sales allowances, cooperative advertising, return liabilities and other customer allowances. Under ASC 606, 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. Prior to adopting ASC 606, certain components of variable consideration were recorded at a later date when the liability was known or incurred.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Variable consideration is estimated based on historical experience, current contractual and statutory requirements, specific known events and industry trends. The reserves for variable consideration are recorded under customer refund liabilities. Customer refund liabilities were recorded as a reduction to accounts receivable prior to the adoption of ASC 606. 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. E-commerce revenues from customers through the Company’s e-commerce 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. Under ASC 606, the Company now classifies cooperative advertising as a reduction of net sales. Previously, cooperative advertising was recorded in selling, general and administrative expenses.
Royalty revenue is recognized at the higher of royalty earned or guaranteed minimum royalty.
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.
Estimated costs associated with trade discounts, advertising allowances, markdowns, and reserves for returns are reflected as a reduction of net sales. Under ASC 606, all of these reserves, which constitute variable consideration, are classified as current liabilities under “Customer refund liabilities”. Prior to ASC 606, these reserves were part of the allowances netted against accounts receivable. The Company reserves against known chargebacks, as well as for an estimate of potential future deductions by customers. These provisions result from seasonal negotiations with the Company’s customers as well as historical deduction trends, net of historical recoveries and the evaluation of current market conditions.
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. Retail inventories are valued at the lower of cost or market as determined by the retail inventory method. 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 and certain 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 combining a discounted cash flow analysis and a market approach. 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.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In fiscal 2018, the Company wrote off goodwill of $0.7 million related to the retail operations segment, as a result of the performance of the retail operations segment.
7. 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.
8. Impairment of Long-Lived Assets
In accordance with ASC Topic 360 –
Property, Plant and Equipment
, the Company annually evaluates the carrying value of its long-lived assets to determine whether changes have occurred that would suggest that the carrying amount of such assets may not be recoverable based on the estimated future undiscounted cash flows of the businesses to which the assets relate. Any impairment would be equal to the amount by which the carrying value of the assets exceeded its fair value.
In fiscal 2019, the Company recorded a $2.8 million impairment charge related to leasehold improvements and furniture and fixtures at certain of its Wilsons, G.H. Bass and DKNY stores as a result of the performance at these stores.
In fiscal 2018, the Company recorded a $6.5 million impairment charge related to leasehold improvements and furniture and fixtures at certain of its Wilsons, G.H. Bass and Vilebrequin stores as a result of the performance at these stores. In addition, the Company recorded a $0.7 million impairment charge with respect to furniture and fixtures located in certain customers’ stores.
In fiscal 2017, the Company recorded a $10.5 million impairment charge related to leasehold improvements and furniture and fixtures at certain of its Wilsons and G.H. Bass stores as a result of the performance at these stores.
9. Income Taxes
The Company accounts for income taxes and uncertain tax positions in accordance with ASC Topic 740 —
Income Taxes
(“ASC 740”). 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.
Deferred income taxes reflect the tax effects of temporary differences between the carrying values of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
On December 22, 2017, the Tax Cuts and Jobs Act of 2017 (“TCJA”) was signed into law making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a corporate tax rate decrease from 35% to 21% effective for tax years beginning after December 31, 2017, a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017, a new taxation on foreign earnings called Global Intangible Low Taxed Income (“GILTI”), and the new Base Erosion Anti-Abuse Tax (“BEAT”).
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
10. Net Income Per Common Share
Basic net income per common share has been computed using the weighted average number of common shares outstanding during each period. Diluted net income per share is computed using the weighted average number of common shares and potential dilutive common shares, consisting of unvested restricted stock unit awards and stock options outstanding during the period. Approximately 336,000, 466,000 and 384,000 shares for the years ended January 31, 2019, 2018 and 2017, respectively, have been excluded from the diluted net income per share calculation. In addition, all share based payments outstanding that vest based on the achievement of performance and/or market price conditions, and for which the respective performance and/or market price conditions have not been achieved, have been excluded from the diluted per share calculation. The Company issued 168,179, 201,968 and 194,6
18
shares of common stock in connection with the exercise or vesting of equity awards during the years ended January 31, 2019, 2018 and 2017, respectively. In addition, the Company re-issued 150,809 and 270,083 treasury shares in connection with the vesting of equity awards in fiscal 2019 and fiscal 2018, respectively.
The following table reconciles the numerators and denominators used in the calculation of basic and diluted net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(In thousands, except per share
amounts)
|
Net income
|
|
$
|
138,067
|
|
$
|
62,124
|
|
$
|
51,938
|
Basic net income per share:
|
|
|
|
|
|
|
|
|
|
Basic common shares
|
|
|
49,140
|
|
|
48,820
|
|
|
46,308
|
Basic net income per share
|
|
$
|
2.81
|
|
$
|
1.27
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share:
|
|
|
|
|
|
|
|
|
|
Basic common shares
|
|
|
49,140
|
|
|
48,820
|
|
|
46,308
|
Diluted restricted stock awards and stock options
|
|
|
1,134
|
|
|
930
|
|
|
1,086
|
Diluted common shares
|
|
|
50,274
|
|
|
49,750
|
|
|
47,394
|
Diluted net income per share
|
|
$
|
2.75
|
|
$
|
1.25
|
|
$
|
1.10
|
11. 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 fair values.
The Company accounts for forfeited awards as they occur as permitted by Accounting Standard Update (“ASU”) 2016-09. Ultimately, the actual expense recognized over the vesting period will be for those shares that vested. Restricted stock unit awards generally vest over a t
wo
to five year period and certain awards also 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. All awards are expensed on a straight-line basis other than awards with market price performance and/or operating performance conditions, which are expensed under the requisite acceleration method.
It is the Company’s policy to grant stock options at prices not less than the fair market value on the date of the grant. Option terms, vesting and exercise periods vary, except that the term of an option may not exceed ten years.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Also, in accordance with ASU 2016‑09, excess tax benefits arising from the lapse or exercise of an equity award are no longer recognized in additional paid-in capital. The assumed proceeds from applying the treasury stock method when computing net income per share is amended to exclude the amount of excess tax benefits that would be recognized in additional paid-in capital. This change in accounting resulted in approximately 207,000 additional diluted common shares being included in the diluted net income per share calculation for the year ended January 31, 2017.
12. 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, ASC 606 requires that 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. These restocking costs were previously recognized when incurred and recorded in selling, general and administrative expenses.
13. 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 $125.9 million, $120.
2
million and $99.
1
million for the years ended January 31, 2019, 2018 and 2017, respectively.
14. 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 $87.0 million, $104.
8
million and $89.
5
million for the years ended January 31, 2019, 2018 and 2017, respectively. Prepaid advertising, which represents advance payments to licensors for minimum guaranteed payments for advertising under the Company’s licensing agreements, was $9.0 million and $9.
7
million at January 31, 2019 and 2018, respectively.
15. 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, and carrying values of intangible 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.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
16. Fair Value of Financial Instruments
GAAP establishes a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1 — inputs to the valuation methodology based on quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 — inputs to the valuation methodology based on quoted prices for similar assets or liabilities in active markets for substantially the full term of the financial instrument; quoted prices for identical or similar instruments in markets that are not active for substantially the full term of the financial instrument; and model-derived valuations whose inputs or significant value drivers are observable.
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
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
|
|
|
|
(In
thousands)
|
Term loan
|
|
2
|
|
$
|
300,000
|
|
$
|
300,000
|
|
$
|
300,000
|
|
$
|
300,000
|
Revolving credit facility
|
|
2
|
|
|
—
|
|
|
12,003
|
|
|
—
|
|
|
12,003
|
Note issued to LVMH
|
|
3
|
|
|
96,618
|
|
|
91,667
|
|
|
88,608
|
|
|
91,667
|
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 issued to LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) in connection with the acquisition of DKI was issued 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 note issued to LVMH on the initial fair value as determined at the date of the acquisition of DKI and records the amortization using the effective interest method over the term of the note.
The fair value of the note issued to LVMH was considered a Level 3 valuation in the fair value hierarchy.
17. 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.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Effects of Recently Adopted and Issued Accounting Pronouncements
Recently Adopted Accounting Guidance
In February 2018, the FASB issued ASU 2018‑03, “Technical Corrections and Improvements to Financial Instruments – Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities”, which makes technical corrections to certain aspects of ASU 2016‑01 (on recognition of financial assets and financial liabilities), including the following: (i) equity securities without a readily determinable fair value — discontinuation, (ii) equity securities without a readily determinable fair value — adjustments, (iii) forward contracts and purchased options, (iv) presentation requirements for certain fair value option liabilities, (v) fair value option liabilities denominated in a foreign currency and (vi) transition guidance for equity securities without a readily determinable fair value. Public business entities with fiscal years beginning between December 15, 2017, and June 15, 2018, were not required to adopt the amendments until the interim period beginning after June 15, 2018. The Company adopted the provisions of ASU 2018‑03 during the third quarter of fiscal 2019. The adoption of ASU 2018‑03 did not have any impact on the Company’s consolidated financial statements.
In May 2017, the Financial Accounting Standards Board (“FASB”) issued ASU 2017‑09, “Compensation — Stock Compensation (Topic 718): Scope of Modification Accounting.” ASU 2017‑09 provides clarification as to when modification accounting should be used for changes to the terms or conditions of a share-based payment award. ASU 2017‑09 does not change the accounting for modifications but clarifies that modification accounting guidance should only be applied if there is a change to the value, vesting conditions or award classification and would not be required if the changes are considered non-substantive. The amendments of ASU 2017‑09 are effective for reporting periods beginning after December 15, 2017. The Company adopted the provisions of ASU 2017‑09 during the first quarter of fiscal 2019. The adoption of ASU 2017‑09 did not have any impact on the Company’s consolidated financial statements.
In December 2017, the SEC staff issued Staff Accounting Bulletin 118 (“SAB 118”) to provide guidance for companies that had not completed their accounting for the income tax effects of the Tax Cuts and Jobs Act (“TCJA”). Due to the complexities of the TCJA, the Company’s final tax liability may materially differ from provisional estimates due to additional guidance and regulations issued by the U.S. Treasury Department, the Internal Revenue Service ("IRS") and state and local tax authorities.
December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed its analysis based on legislative updates relating to TCJA, which resulted in an immaterial impact to the Company’s overall financial results.
In January 2017, the FASB issued ASU 2017‑01, “Business Combinations (Topic 805): Clarifying the Definition of a Business.” The purpose of ASU 2017‑01 is to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. ASU 2017‑01 is effective for fiscal years beginning after December 15, 2017, including interim periods within that year. The amendments in ASU 2017‑01 should be applied prospectively on or after the effective date. The Company adopted the provisions of ASU 2017‑01 during the first quarter of fiscal 2019. The adoption of ASU 2017‑01 did not have any impact on the Company’s consolidated financial statements.
In October 2016, the FASB issued ASU 2016‑16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory.” The update requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset upon transfer other than inventory, eliminating the current recognition exception. Prior to the update, GAAP prohibited the recognition of current and deferred income taxes for intra-entity asset transfers until the asset was sold to an outside party. The amendments in this update do not include new disclosure requirements; however, existing disclosure requirements might be applicable when accounting for the current and deferred income taxes for an intra-entity transfer of an asset other than inventory. For public business entities, the amendments in this update are effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within those fiscal years. The Company adopted the provisions of ASU 2016‑16 during the first quarter of fiscal 2019. The adoption of ASU 2016‑16 did not have a material impact on the Company’s consolidated financial statements.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In August 2016, the FASB issued ASU 2016‑15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which clarifies guidance with respect to the classification of eight specific cash flow issues. ASU 2016‑15 was issued to reduce diversity in practice and prevent financial statement restatements. Cash flow issues include: debt prepayment or debt extinguishment costs, settlement of zero-coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies and bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions and separately identifiable cash flows and application of the predominance principle. ASU 2016‑15 is effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Under ASU 2016‑15, entities must apply the guidance retrospectively to all periods presented but may apply it prospectively if retrospective application would be impracticable. The Company adopted the provisions of ASU 2016‑15 during the first quarter of fiscal 2019. The adoption of ASU 2016‑15 did not have a material impact on the Company’s consolidated financial statements.
In January 2016, the FASB issued ASU 2016‑01, “Financial Instruments — Overall (Subtopic 825‑10): Recognition and Measurement of Financial Assets and Financial Liabilities.” This standard (i) modifies how entities measure equity investments and present changes in the fair value of financial liabilities, (ii) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment, (iii) changes presentation and disclosure requirements and (iv) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016‑01 is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted the provisions of ASU 2016‑15 during the first quarter of fiscal 2019. The adoption of ASU 2016‑15 did not have a material impact on the Company’s consolidated financial statements.
In May 2014, the FASB issued ASU 2014‑09, “Revenue from Contracts with Customers (Topic 606).” This update replaces the previous revenue recognition guidance in GAAP and requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The FASB clarified this guidance by issuing ASU 2017‑13, “Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments”; ASU 2016‑08, “Principal versus Agent Considerations (Reporting Revenue Gross versus Net)”; ASU 2016‑10, “Identifying Performance Obligations and Licensing”; ASU 2016‑12, “Narrow-Scope Improvements and Practical Expedients”; and ASU 2016‑20, “Technical Corrections and Improvements to ASC 606, Revenue from Contracts with Customers.” The amendments to ASU 2014‑09 were intended to render more detailed implementation guidance with the expectation of reducing the degree of judgment necessary to comply with ASC 606. These new standards have the same effective date as ASU 2014‑09 and were effective for public entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company adopted the provisions of ASU 2014‑09, as subsequently amended, during the first quarter of fiscal 2019. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented (full retrospective method), or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application (modified retrospective method). The Company adopted the pronouncement using a modified retrospective approach. The Company performed an analysis of its current revenue streams worldwide and identified changes that resulted from the adoption of the new guidance. The Company implemented changes to its accounting processes and controls to support the new revenue recognition and disclosure requirements. The adoption of ASC 606 primarily affects the wholesale operations segment in the timing of recognition of certain adjustments that were recorded in net sales. For example, the Company previously recorded markdowns and certain customer allowances when the liability was known or incurred. Please refer to Note B for further details with respect to the adoption of this guidance by the Company.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Accounting Guidance Issued Being Evaluated for Adoption
In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” which makes a number of changes meant to add, modify or remove certain disclosure requirements associated with the movement among or hierarchy associated with Level 1, Level 2 and Level 3 fair value measurements. The amendments in ASU 2018-13 modify the disclosure requirements with respect to fair value measurements based on the concepts in FASB Concepts Statement, Conceptual Framework for Financial Reporting—Chapter 8: Notes to Financial Statements, including the consideration of costs and benefits. The amendments to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. The amendments are effective for all entities for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. The Company is currently evaluating the potential impact of ASU 2018-13 on its consolidated financial statements.
In June 2018, the FASB issued ASU 2018‑07, “FASB Simplifies Guidance on Nonemployee Share-Based Payments”, which supersedes ASC 505‑50 and expands the scope of ASC 718 to include all share-based payment arrangements related to the acquisition of goods and services from both nonemployees and employees. As a result, most of the guidance in ASC 718 associated with employee share-based payments, including most of its requirements related to classification and measurement, applies to nonemployee share-based payment arrangements. ASU 2018‑07 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018‑07 is permitted for all entities, but no earlier than the date on which an entity adopts ASC 606. The Company does not expect ASU 2018‑07 to have an impact on its consolidated financial statements.
In February 2018, the FASB issued ASU 2018‑02, “Income Statement — Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income”, which provides financial statement preparers with an option to reclassify stranded tax effects within accumulated other comprehensive income to retained earnings in each period in which the effect of the change in the U.S. federal corporate income tax rate (or portion thereof) in the TCJA is recorded. The amendments to ASU 2018‑02 are effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2018‑02 is permitted, including adoption in any interim period for the public business entities for reporting periods for which financial statements have not yet been issued. The amendments of ASU 2018‑02 should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the TCJA is recognized. The Company is currently assessing the impact that adopting ASU 2018‑02 will have on its financial statements and footnote disclosures.
In February 2016, the FASB issued ASU 2016‑02, “Leases (Topic 842).” The primary difference between the current requirement under GAAP and ASU 2016‑02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases. The FASB has continued to clarify this guidance and most recently issued ASU 2018-20, “Leases (Topic 842) – Narrow-Scope Improvements for Lessors”, ASU 2018-11, “Leases (Topic 842) – Targeted Improvements”, ASU 2018-10, “Codification Improvements to Topic 842, Leases” and ASU 2017‑13, “Amendments to SEC Paragraphs Pursuant to the Staff Announcement at the July 20, 2017 EITF Meeting and Rescission of Prior SEC Staff Announcements and Observer Comments.” ASU 2016‑02 requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term (other than leases that meet the definition of a short-term lease). The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). Classification will be based
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
on criteria that are for the most part similar to those applied in current lease accounting. ASU 2016‑02 may be adopted using a modified retrospective transition, and provides for certain practical expedients. Transactions will require application of the new guidance at the beginning of the earliest comparative period presented. With the issuance of ASU 2018-11, the FASB has provided entities with an additional transition method which will not require adjustments to comparative periods or require modified disclosures in those comparative periods. The guidance is effective for public entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years.
The Company has adopted the requirements of the new lease standard effective February 1, 2019. The Company has elected the optional transition method to apply the standard as of the effective date and therefore, will not apply the standard to the comparative periods presented in its financial statements. If the Company determines any right-of-use assets are impaired at the effective date of adoption, a cumulative-effect adjustment in retained earnings will be recognized. The Company has elected the transition package of three practical expedients permitted within the standard, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The hindsight practical expedient, which permits the use of hindsight when determining lease term and impairment of right-of-use assets will not be elected. Further, the Company elected the short-term lease exception policy, permitting it to not apply the recognition requirements of this standard to short-term leases (i.e. leases with terms of 12 months or less) and an accounting policy to account for lease and non-lease components as a single component. The Company is finalizing the impact of the standard to its accounting policies, processes, disclosures, and internal controls over financial reporting.
The adoption of ASU 2016-02 will have a significant impact on the Consolidated Balance Sheet as material assets and obligations primarily related to approximately 437 retail store leases, as well to corporate office, warehouse and distribution center operating leases, will be recorded. The Company expects to record operating lease liabilities and corresponding right-of-use assets of approximately $300.0 million to $400.0 million based on the present value of the remaining minimum rental payments using discount rates as of the effective date and certain adjustments. The Company does not expect a material impact on its Consolidated Statement of Income and Comprehensive Income or Consolidated Statement of Cash Flows as a result of the adoption of the new lease accounting standard.
The Company reviewed all other recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a significant impact to its consolidated financial statements.
19. Reclassification of Prior Year Presentation
Certain reclassifications have been made to the Consolidated Statements of Income and Comprehensive Income as a result of the Company’s reclassifying the impact of certain components of foreign currency gain (loss) from cost of goods sold and interest expense to other loss.
NOTE B
—
REVENUE RECOGNITION
On February 1, 2018, the Company adopted ASC 606 using the modified retrospective method as of January 31, 2018. The Company recognized a cumulative effect adjustment to the opening balance of stockholders’ equity at February 1, 2018 that reduced stockholders’ equity by $53.7 million, net of tax, as a result of the adoption of ASC 606.
Prospectively, the adoption of ASC 606 primarily affects the timing of recognition of certain adjustments that are recorded in net sales for the wholesale operations segment. Under ASC 606, 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. Under ASC 606, 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. Prior to adopting ASC 606, certain components of variable consideration were recorded at a later date when the liability was known or incurred.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The adoption of ASC 606 also resulted in prospectively changing the presentation of certain items on the Consolidated Balance Sheets and the Consolidated Statements of Income and Comprehensive Income. Under the prior guidance, the liability recorded in connection with variable consideration was recorded as a reduction to accounts receivable. With the adoption of ASC 606, these amounts have been classified as a current liability under “Customer refund liabilities” in the Consolidated Balance Sheet. Additionally, the Company now classifies cooperative advertising as a reduction of net sales in the Consolidated Statements of Income and Comprehensive Income. Previously, cooperative advertising was recorded in selling, general and administrative expenses. ASC 606 requires that 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. These restocking costs were previously recognized when incurred and recorded in selling, general and administrative expenses.
The following tables summarize the impact of adopting ASC 606 on the Company’s Consolidated Balance Sheet as of January 31, 2019 and the Company’s Consolidated Statements of Income and Comprehensive Income for the year ended January 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
|
(In
thousands)
|
|
|
As Reported
|
|
Without Adoption
of ASC 606
|
|
Impact
of Adoption
of ASC 606
|
Assets
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
502,133
|
|
$
|
322,785
|
|
$
|
179,348
|
Inventories
|
|
|
576,383
|
|
|
618,902
|
|
|
(42,519)
|
Prepaid expenses and other current assets
|
|
|
96,933
|
|
|
58,792
|
|
|
38,141
|
Deferred income tax assets, net
|
|
|
22,427
|
|
|
5,883
|
|
|
16,544
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Accrued expenses
|
|
|
(102,841)
|
|
|
(102,425)
|
|
|
(416)
|
Customer refund liabilities
|
|
|
(243,589)
|
|
|
—
|
|
|
(243,589)
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
|
|
|
Retained earnings
|
|
|
(758,881)
|
|
|
(811,372)
|
|
|
52,491
|
|
|
|
|
|
|
|
|
|
|
|
|
For the year ended January 31, 2019
|
|
|
(In thousands, except per share amounts)
|
|
|
As Reported
|
|
Without Adoption
of ASC 606
|
|
Impact of Adoption
of ASC 606
|
Net sales
|
|
$
|
3,076,208
|
|
$
|
3,099,114
|
|
$
|
(22,906)
|
Cost of goods sold
|
|
|
1,969,099
|
|
|
1,965,153
|
|
|
3,946
|
Selling, general and administrative expenses
|
|
|
834,763
|
|
|
863,261
|
|
|
(28,498)
|
Operating profit
|
|
|
230,714
|
|
|
229,067
|
|
|
1,647
|
Income tax expense
|
|
|
45,763
|
|
|
45,353
|
|
|
410
|
Net income
|
|
|
138,067
|
|
|
136,830
|
|
|
1,237
|
|
|
|
|
|
|
|
|
|
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
2.81
|
|
|
2.78
|
|
|
0.03
|
Diluted
|
|
|
2.75
|
|
|
2.72
|
|
|
0.03
|
The adoption of ASC 606 had no net impact on the Company’s cash flows from operations.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Disaggregation of Revenue
In accordance with ASC 606, the Company elected to disclose its revenues by segment. Each segment presents its own characteristics with respect to the timing of revenue recognition and the type of customer. In addition, disaggregating revenues using a segment basis is consistent with how the Company’s Chief Operating Decision Maker manages the Company. The Company identified the wholesale operations segment and the retail operations segment as distinct sources of revenue.
Wholesale Operations Segment.
Wholesale revenues include sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues from sales of products are recognized when control transfers to the customer. The Company considers control to have been transferred when the Company has transferred physical possession of the product, the Company has a right to payment for the product, the customer has legal title to the product and the customer has the significant risks and rewards of the product. Wholesale revenues are adjusted by variable considerations arising from implicit or explicit obligations. Wholesale revenues also include revenues from license agreements related to trademarks owned by the DKNY, Donna Karan, G.H. Bass, Andrew Marc and Vilebrequin businesses. As of January 31, 2019, revenues from license agreements represented an insignificant portion of wholesale revenues.
Retail Operations Segment.
Retail store revenues are generated by direct sales to consumers through company-operated stores and product sales through the Company’s owned websites for the DKNY, Donna Karan, Wilsons, G.H. Bass, Andrew Marc and Karl Lagerfeld Paris businesses. Retail stores primarily consist of Wilsons Leather, G.H. Bass and DKNY retail stores, substantially all of which are operated as outlet stores. Retail operations segment revenues are recognized at the point of sale when the customer takes possession of the goods and tenders payment. E-commerce revenues primarily consist of sales to consumers through the Company’s e-commerce platforms. E-commerce 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.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Other Allowances
. General allowances consist of price reductions granted to a wholesale customer and may relate to the Company’s participation in costs incurred by the customer during the sales process, as well as price differences, shortages and charges for operational non-compliance.
Return of Merchandise
. For wholesale customers, the Company may make accommodations for returns of merchandise that is underperforming at a customer’s retail stores. For retail customers, as a matter of Company policy, whether merchandise is purchased at the Company’s stores or on its e-commerce platforms, the consumer 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, 2019, customer refund liabilities amounted to $243.6 million. Customer refund liabilities were recorded as a reduction to accounts receivable as of January 31, 2018. 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 $6.4 million and $6.0 million at January 31, 2019 and 2018, respectively. The Company recognized $5.8 million in revenue for the year ended January 31, 2019 which related to contract liabilities that existed at January 31, 2018. There were no contract assets recorded as of January 31, 2019 and January 31, 2018. Substantially all of the advance payments from licenses as of January 31, 2019 are expected to be recognized as revenue within the next twelve months.
NOTE C — 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. Retail inventories are valued at the lower of cost or market as determined by the retail inventory method. Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value. Substantially all of the Company’s inventories consist of finished goods.
The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, represented $42.4 million and $39.4 million at January 31, 2019 and 2018, respectively. The inventory return asset is recorded within prepaid expenses and other current assets as of January 31, 2019 and within inventories as of January 31, 2018.
Inventory held on consignment by the Company’s customers totaled $4.9 million at January 31, 201
9
and $3.
3
million at January 31, 201
8
. The Company retains the title to its inventory stored at its customers’ facilities.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE D — PROPERTY AND EQUIPMENT
Property and equipment consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
|
2019
|
|
2018
|
|
|
|
|
(In
thousands)
|
Machinery and equipment
|
|
5 years
|
|
$
|
2,270
|
|
$
|
1,529
|
Leasehold improvements
|
|
3-13 years
|
|
|
78,403
|
|
|
77,091
|
Furniture and fixtures
|
|
3-10 years
|
|
|
97,133
|
|
|
88,733
|
Computer equipment and software
|
|
2-5 years
|
|
|
32,537
|
|
|
28,301
|
|
|
|
|
|
210,343
|
|
|
195,654
|
Less: accumulated depreciation
|
|
|
|
|
(123,936)
|
|
|
(97,797)
|
|
|
|
|
$
|
86,407
|
|
$
|
97,857
|
The Company wrote off fixed assets of $2.0 million and $3.6 million, net of accumulated depreciation, for the years ended January 31, 2019 and 2018. Depreciation expense was $33.9 million, $32.
8
million and $29.6 million for the years ended January 31, 2019, 2018 and 2017, respectively. For the year ended January 31, 2019, the Company recorded a $2.8 million impairment charge related to leasehold improvements and furniture and fixtures of certain Wilsons, G.H. Bass and DKNY stores as a result of the performance of these stores. For the year ended January 31, 2018, the Company recorded (i) a $6.5 million impairment charge related to leasehold improvements and furniture and fixtures of certain Wilsons, G.H. Bass and Vilebrequin stores as a result of the performance of these stores and (ii) a $0.7 million impairment charge with respect to furniture and fixtures located in certain customers’ stores. For the year ended January 31, 2017, the Company recorded a $10.5 million impairment charge on leasehold improvements and furniture and fixtures of certain of its Wilsons and G.H. Bass stores as a result of the performance of these stores.
The Company evaluates long-lived 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 to the asset’s 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 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.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE E — INTANGIBLE ASSETS
Intangible assets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31,
|
|
|
|
Estimated Life
|
|
2019
|
|
2018
|
|
|
|
|
|
(In thousands)
|
Finite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
Licenses
|
|
|
14 years
|
|
$
|
19,395
|
|
$
|
19,714
|
Trademarks
|
|
|
8-12 years
|
|
|
2,194
|
|
|
2,194
|
Customer relationships
|
|
|
15-17 years
|
|
|
48,261
|
|
|
48,371
|
Other
|
|
|
5-10 years
|
|
|
7,313
|
|
|
5,876
|
Subtotal
|
|
|
|
|
|
77,163
|
|
|
76,155
|
Accumulated amortization
|
|
|
|
|
|
(34,759)
|
|
|
(29,750)
|
Total finite-lived intangible assets
|
|
|
|
|
$
|
42,404
|
|
$
|
46,405
|
Indefinite-lived intangible assets
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
|
|
|
261,137
|
|
|
262,710
|
Trademarks
|
|
|
|
|
|
439,742
|
|
|
442,265
|
Total indefinite-lived intangible assets
|
|
|
|
|
|
700,879
|
|
|
704,975
|
Total intangible assets, net
|
|
|
|
|
$
|
743,283
|
|
$
|
751,380
|
Amortization expense
Amortization expense with respect to finite-lived intangibles amounted to $4.6 million, $4.5 million and $2.
5
million for the years ended January 31, 2019, 2018 and 2017, 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)
|
2020
|
|
$
|
4,367
|
2021
|
|
|
3,871
|
2022
|
|
|
3,421
|
2023
|
|
|
3,154
|
2024
|
|
|
2,928
|
Trademarks and customer relationships having finite lives are amortized over their estimated useful lives and measured for impairment when events or circumstances indicate that the carrying value may be impaired.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Change in Goodwill
Changes in the amounts of goodwill for each of the years ended January 31, 2019 and 2018 are summarized by reportable segment as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
Wholesale
|
|
Retail
|
|
Total
|
January 31, 2017
|
|
$
|
268,546
|
|
$
|
716
|
|
$
|
269,262
|
Adjustments to acquired goodwill
|
|
|
(8,973)
|
|
|
—
|
|
|
(8,973)
|
Goodwill impairment
|
|
|
—
|
|
|
(716)
|
|
|
(716)
|
Currency translation
|
|
|
3,137
|
|
|
—
|
|
|
3,137
|
January 31, 2018
|
|
|
262,710
|
|
|
—
|
|
|
262,710
|
Currency translation
|
|
|
(1,573)
|
|
|
—
|
|
|
(1,573)
|
January 31, 2019
|
|
$
|
261,137
|
|
$
|
—
|
|
$
|
261,137
|
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 the test in the fourth fiscal quarter of each year using a qualitative evaluation or a quantitative test that is a combination of a discounted cash flow analysis and a market approach. The discounted cash flow approach requires that certain assumptions and estimates be made regarding industry economic factors and future profitability. The market approach estimates the fair value based on comparisons with the market values and market multiples of earnings and revenues of similar public companies.
In fiscal 2018, the Company reduced goodwill recorded in connection with the acquisition of DKI by $9.0 million due to certain adjustments related to unrecorded indemnification obligations from LVMH, asset reserves, fixed assets and the section 338(h)(10) tax election adjustment. The Company also wrote off the goodwill associated with the retail operations segment of $0.7 million as a result of the performance of the retail operations segment.
NOTE F — NOTES PAYABLE AND OTHER LIABILITIES
Long-term debt
Long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
January 31, 2018
|
|
|
(in thousands)
|
Term loan
|
|
$
|
300,000
|
|
$
|
300,000
|
New revolving credit facility
|
|
|
—
|
|
|
12,003
|
Note issued to LVMH
|
|
|
125,000
|
|
|
125,000
|
Subtotal
|
|
|
425,000
|
|
|
437,003
|
Less: Net debt issuance costs
(1)
|
|
|
(10,014)
|
|
|
(12,626)
|
Debt discount
|
|
|
(28,382)
|
|
|
(33,333)
|
Total
|
|
$
|
386,604
|
|
$
|
391,044
|
|
(1)
|
|
Does not include the debt issuance costs, net of amortization, totaling $7.1 million and $9.
5
million as of January 31, 2019 and 2018, respectively, related to the new revolving credit facility. The debt issuance costs have been deferred and are classified in prepaid expense in the accompanying Consolidated Balance Sheets as required under ASU 2015‑15.
|
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Term Loan
In connection with the acquisition of DKI, the Company borrowed $350.0 million under a senior secured term loan facility (the “Term Loan”). The Term Loan will mature in December 2022. The Term Loan was subject to amortization payments of 0.625% of the original aggregate principal amount of the Term Loan per quarter, with the balance due at maturity. On December 1, 2016, the Company prepaid $50.0 million in principal amount of the Term Loan. This prepayment relieved the Company of its obligation to make quarterly amortization payments for the remainder of the Term Loan.
Interest on the outstanding principal amount of the Term Loan accrues at a rate equal to LIBOR, subject to a 1% floor, plus an applicable margin of 5.25% or an alternate base rate (defined as the greatest of (i) the “prime rate” as published by the Wall Street Journal from time to time, (ii) the federal funds rate plus 0.5% or (iii) the LIBOR rate for a borrowing with an interest period of one month) plus 4.25%, per annum, payable in cash.
The Term Loan is secured (i) on a first-priority basis by a lien on the Company’s real estate assets, equipment and fixtures, equity interests and intellectual property and certain related rights owned by the Company and by certain of the Company’s subsidiaries and (ii) by a second-priority security interest in other assets of the Company and certain of its subsidiaries, which secure on a first-priority basis the Company’s asset-based loan facility described below under the caption “New Revolving Credit Facility”.
The Term Loan contains covenants that restrict the Company’s ability to among other things, incur additional debt, sell or dispose certain assets, make certain investments, incur liens and enter into acquisitions. This loan also includes a mandatory prepayment provision on excess cash flow as defined within the agreement. A first lien leverage covenant requires the Company to maintain a level of debt to EBITDA at a ratio as defined over the term of the agreement. As of January 31, 2019, the Company was in compliance with these covenants.
The Term Loan may be prepaid, at the option of the Company, in whole or in part, at any time at par plus accrued interest, and, in the case of prepayments from the proceeds of certain refinancings prior to December 1, 2017, subject to a 1% prepayment fee. The Term Loan is required to be prepaid with the proceeds of certain asset sales if such proceeds are not applied as required by the Term Loan within certain specified deadlines. The Term Loan is also required to be prepaid in an amount equal to 75% of the “Excess Cash Flow” (as defined in the Term Loan) of the Company with respect to each fiscal year ending on or after January 31, 2018. The percentage of Excess Cash Flow that must be so applied is reduced to 50% if the Company’s senior secured leverage ratio is less than 3.00 to 1.00, to 25% if the Company’s senior secured leverage ratio is less than 2.75 to 1.00 and to 0% if the Company’s senior secured leverage ratio is less than 2.25 to 1.00. As of January 31, 2019, the Company was not required to make a mandatory prepayment provision on excess cash flow as defined within the Term Loan.
The Company also incurred debt issuance costs totaling $18.3 million related to the Term Loan, of which $2.6 million have been expensed in connection with the $50 million prepayment. In accordance with ASU 2015‑15, the debt issuance costs have been deferred and are presented as a contra-liability, offsetting the outstanding balance of the Term Loan, and are amortized using the effective interest method over the remaining life of the Term Loan.
The weighted average interest rate for amounts borrowed under the Term Loan was 7.48% for the year ended January 31, 2019. A 0.25% change in the interest rates applied to the Term Loan would change annual interest expense under the Term Loan by $0.8 million.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
New Revolving Credit Facility
Upon closing of the acquisition of DKI, the Company’s prior credit agreement (the “prior revolving credit facility”) was refinanced and replaced by a $650 million amended and restated credit agreement (the “new revolving credit facility”). Amounts available under the new revolving credit facility are subject to borrowing base formulas and over advances as specified in the new revolving credit facility agreement. Borrowings bear interest, at the Company’s option, at LIBOR plus a margin of 1.25% to 1.75% or an alternate base rate (defined as the greatest of (i) the “prime rate” of JPMorgan Chase Bank, N.A. from time to time, (ii) the federal funds rate plus 0.5% or (iii) the LIBOR rate for a borrowing with an interest period of one month) plus a margin of 0.25% to 0.75%, with the applicable margin determined based on the availability under the new revolving credit facility agreement. The new revolving credit facility has a five-year term ending December 1, 2021. In addition to paying interest on any outstanding borrowings under the new revolving credit facility, 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 rate equal to 0.25% per annum on the average daily amount of the available commitments.
The Company also incurred debt issuance costs totaling $12.4 million related to the new revolving credit facility. As permitted under ASU 2015‑15, the debt issuance costs have been deferred and are presented as an asset, which is subsequently amortized ratably over the term of the new revolving credit facility.
The new revolving credit facility is secured by specified assets of the Company and certain of its subsidiaries.
The new revolving credit facility contains a number of covenants that, among other things, restrict the Company’s ability, subject to specified exceptions, to incur additional debt; incur liens; sell or dispose of assets; merge with other companies; liquidate or dissolve itself; acquire other companies; make loans, advances, or guarantees; and make certain investments. In certain circumstances, the new revolving credit facility also requires G-III to maintain a minimum fixed charge coverage ratio, as defined, that should not exceed 1.00 to 1.00 for each period of twelve consecutive fiscal months of holdings. As of January 31, 2019, the Company was in compliance with these covenants.
As of January 31, 2019, interest under the new revolving credit facility was being charged at the weighted average rate of 3.77% per annum. The new revolving credit facility also includes amounts available for letters of credit. As of January 31, 201
9
, the Company had no borrowings outstanding under the new revolving credit facility. As of January 31, 201
9
, there were outstanding trade and standby letters of credit amounting to $11.4 million and $3.4 million, respectively.
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 $125.0 million (the “LVMH Note”) that bears interest at the rate of 2% per year. $75.0 million of the principal amount of the LVMH Note is due and payable on June 1, 2023 and $50.0 million of such principal amount is due and payable on December 1, 2023.
In connection with the issuance of the LVMH Note, LVMH entered into (i) a subordination agreement with Barclays Bank PLC, as administrative agent for the lenders party to the Term Loan and collateral agent for the Senior Secured Parties thereunder and JPMorgan Chase Bank, N.A., as administrative agent for the lenders and other Senior Secured Parties under the new revolving credit facility, providing that the Company’s obligations under the LVMH Note are subordinate and junior to the Company’s obligations under the new 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 is subordinate and junior to the security interest granted by the Company with respect to the Company’s obligations under the new revolving credit facility agreement and Term Loan.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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.
Prior Revolving Credit Facility
Prior to the acquisition of DKI, the prior revolving credit facility consisted of a five-year senior secured credit facility providing for borrowings in the aggregate principal amount of up to $450 million through August 2017. Amounts available under the prior revolving credit facility were subject to borrowing base formulas and other advances as specified in the related credit agreement. Borrowings bore interest, at the Company’s option, at LIBOR plus a margin of 1.5% to 2.0% or prime plus a margin of 0.5% to 1.0%, with the applicable margin determined based on availability under the prior revolving credit facility.
The weighted average interest rate for amounts borrowed under the prior revolving credit facility was 2.1% for the period starting February 2, 2016 and ending November 30, 2016, when the prior revolving credit facility was replaced by the new revolving credit facility.
Future Debt Maturities
As of January 31, 2019, the Company’s mandatory debt repayments mature in the years ending up to January 31, 2024 or thereafter.
|
|
|
|
Year Ending January 31,
|
|
Amount
|
|
|
(In thousands)
|
2020
|
|
$
|
—
|
2021
|
|
|
—
|
2022
|
|
|
—
|
2023
|
|
|
300,000
|
2024 and thereafter
|
|
|
125,000
|
Accrued expenses
Accrued expenses consist of the following:
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
January 31, 2018
|
|
|
(in thousands)
|
Accrued bonuses
|
|
$
|
44,519
|
|
$
|
36,137
|
Other accrued expenses
|
|
|
58,322
|
|
|
58,918
|
Total
|
|
$
|
102,841
|
|
$
|
95,055
|
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE G — INCOME TAXES
The income tax provision is comprised of the following:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended January 31,
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Current
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
23,463
|
|
$
|
28,723
|
|
$
|
22,925
|
State and city
|
|
|
5,907
|
|
|
2,592
|
|
|
4,034
|
Foreign
|
|
|
10,989
|
|
|
12,532
|
|
|
6,150
|
|
|
|
40,359
|
|
|
43,847
|
|
|
33,109
|
Deferred
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
4,419
|
|
|
4,084
|
|
|
(4,776)
|
State and city
|
|
|
191
|
|
|
1,285
|
|
|
(2,807)
|
Foreign
|
|
|
794
|
|
|
(1,291)
|
|
|
298
|
|
|
|
5,404
|
|
|
4,078
|
|
|
(7,285)
|
Income tax expense
|
|
$
|
45,763
|
|
$
|
47,925
|
|
$
|
25,824
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
137,748
|
|
$
|
93,691
|
|
$
|
55,363
|
Non-United States
|
|
|
46,082
|
|
|
16,358
|
|
|
22,399
|
|
|
$
|
183,830
|
|
$
|
110,049
|
|
$
|
77,762
|
On December 22, 2017, the U.S. government enacted comprehensive tax legislation regime commonly referred to as the TCJA. The TCJA included a broad range of complex provisions impacting the taxation of multi-national companies including the Company. Specifically, the Company is impacted by the change in the U.S. Federal corporate income tax rate from 35% to 21% (effective January 1, 2018). Further, the new regime includes a one-time transition tax on foreign earnings that were previously deferred, taxation of certain performance-based compensation paid to the Company’s top executive officers that was previously deductible, full expensing of fixed assets and the deductibility of certain costs, and GILTI.
I
n accordance with TCJA, the Company recorded $6.9 million as additional income tax expense in the fourth quarter of 2017, the period in which the legislation was enacted. The total expense
primarily
comprised of approximately $3.3 million related to the transition
tax and approximately $4.4 million tax expense related to revaluing
U.S. deferred tax assets and liabilities using the new U.S.
c
orporate tax rate of 21%. Other provisional impacts were primarily related to the state tax impact of the prorated reduced federal tax rate.
SAB 118 was issued to address the application of U.S. GAAP in situations when a company does not have the necessary information available, prepared, or analyzed to complete the accounting for certain income tax effects of the TCJA. December 22, 2018 marked the end of the measurement period for purposes of SAB 118. As such, the Company has completed its analysis based on legislative updates relating to TCJA, which resulted in an immaterial impact to the Company’s overall financial results.
Effective January 1, 2018, the TCJA subjects a U.S. parent company to current tax on its GILTI. We elected to account for any tax on GILTI in the period in which it was incurred. At January 31, 2019, the Company incurred a GILTI tax impact of $0.2 million.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The significant components of the Company’s net deferred tax asset at January 31, 2019 and 2018 are summarized as follows:
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
|
(In thousands)
|
Deferred income tax assets:
|
|
|
|
|
|
|
Compensation
|
|
$
|
10,605
|
|
$
|
10,783
|
Inventory
|
|
|
2,244
|
|
|
—
|
Straight-line lease
|
|
|
6,642
|
|
|
6,856
|
Provision for bad debts and sales allowances
|
|
|
33,221
|
|
|
17,819
|
Supplemental employee retirement plan
|
|
|
401
|
|
|
415
|
Inventory write-downs
|
|
|
—
|
|
|
—
|
Net operating loss
|
|
|
3,362
|
|
|
2,983
|
Other
|
|
|
2,891
|
|
|
212
|
Gross deferred income tax assets
|
|
|
59,366
|
|
|
39,068
|
Less: valuation allowance
|
|
|
(2,303)
|
|
|
(1,648)
|
Net deferred income tax assets
|
|
|
57,063
|
|
|
37,420
|
Deferred income tax liabilities:
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
(25,617)
|
|
|
(16,234)
|
Intangibles
|
|
|
(21,742)
|
|
|
(22,804)
|
Prepaid expenses and other
|
|
|
(2,405)
|
|
|
(2,585)
|
Inventory
|
|
|
—
|
|
|
(246)
|
Total deferred income tax liabilities
|
|
|
(49,764)
|
|
|
(41,869)
|
Net deferred tax assets (liabilities)
|
|
$
|
7,299
|
|
$
|
(4,449)
|
As of January 31, 2019 and 2018, deferred tax liabilities of $15.1 million and $15.8 million, respectively, relate to intangible assets in Switzerland. The remaining intangible assets relate primarily to the U.S.
The total undistributed earnings of the Company’s foreign subsidiaries are approximately $78.0 million for the fiscal year ended January 31, 2019. Those earnings are considered indefinitely reinvested. Even though the undistributed earnings can be distributed back generally without U.S. federal income tax as a result of the one-time transition tax under the TCJA regime, the Company will not change its indefinite reinvestment assertion with respect to those earnings. 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.
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:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Provision for Federal income taxes at the statutory rate
|
|
21.0
|
%
|
|
33.8
|
%
|
|
35.0
|
%
|
State and local income taxes, net of Federal tax benefit
|
|
2.4
|
|
|
0.5
|
|
|
1.0
|
|
Permanent differences resulting in Federal taxable income
|
|
6.6
|
|
|
8.8
|
|
|
9.6
|
|
Tax reform
|
|
—
|
|
|
7.5
|
|
|
—
|
|
Foreign tax rate differential
|
|
0.5
|
|
|
0.2
|
|
|
(1.7)
|
|
Share-based payments
|
|
(0.6)
|
|
|
(1.2)
|
|
|
(3.8)
|
|
Foreign tax credit
|
|
(5.5)
|
|
|
(7.7)
|
|
|
(6.5)
|
|
Valuation allowance
|
|
0.2
|
|
|
1.5
|
|
|
—
|
|
Other, net
|
|
0.3
|
|
|
0.2
|
|
|
(0.4)
|
|
Actual provision for income taxes
|
|
24.9
|
%
|
|
43.6
|
%
|
|
33.2
|
%
|
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Valuation allowances represent deferred tax benefits where management is uncertain if the Company will have the ability to recognize those benefits in the future. As of January 31, 2019, the Company recorded an additional valuation allowance of $0.4 million against its deferred tax assets.
Unrecognized Tax Benefits
A reconciliation of the beginning and ending amounts of gross unrecognized tax benefits (excluding interest and penalties) is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
(In thousands)
|
Balance at February 1,
|
|
$
|
82
|
|
$
|
1,094
|
|
$
|
1,094
|
Additions based on tax positions related to the current year
|
|
|
—
|
|
|
—
|
|
|
—
|
Additions for tax positions of prior years
|
|
|
—
|
|
|
—
|
|
|
—
|
Reductions for tax positions of prior years
|
|
|
—
|
|
|
—
|
|
|
—
|
Settlements
|
|
|
—
|
|
|
—
|
|
|
—
|
Lapses of statues of limitations
|
|
|
(82)
|
|
|
(1,012)
|
|
|
—
|
Balance at January 31,
|
|
$
|
—
|
|
$
|
82
|
|
$
|
1,094
|
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, 2019, there was a decrease in the unrecognized tax position reserve of $0.1 million for lapses in the statute of limitations in the uncertain income tax positions reserves.
The Company’s policy on classification is to include interest in interest and financing charges, net and penalties in selling, general and administrative expenses in the accompanying Consolidated Statements of Income and Comprehensive Income. The Company and certain of its subsidiaries are subject to U.S. Federal income tax as well as income tax of multiple state, local, and foreign jurisdictions. One of its foreign subsidiaries, T.R.B. International S.A., has a ruling with the Swiss government that taxes commercial foreign sourced income at an 11.6% rate. The ruling was extended to the year ending December 31, 2019.
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 and Canada for fiscal year 2014 and 2015. 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 H — COMMITMENTS AND CONTINGENCIES
Lease Agreements
The Company leases warehousing, executive and sales facilities, retail stores, equipment and vehicles under operating leases with options to renew at varying terms. Leases with provisions for increasing rents have been accounted for on a straight-line basis over the life of the lease.
Certain leases provide for contingent rents, which are determined as a percentage of gross sales. The Company records a contingent rent liability in accrued expenses on the Consolidated Balance Sheets and the corresponding rent expense in the Consolidated Statements of Income and Comprehensive Income when management determines that achieving the specified levels during the fiscal year is probable.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following schedule sets forth the future minimum rental payments for operating leases having non-cancelable lease periods in excess of one year at January 31, 2019:
|
|
|
|
Year Ending January 31,
|
|
Amount
|
|
|
(In thousands)
|
2020
|
|
$
|
94,089
|
2021
|
|
|
81,085
|
2022
|
|
|
68,281
|
2023
|
|
|
60,358
|
2024
|
|
|
49,416
|
Thereafter
|
|
|
79,996
|
|
|
$
|
433,225
|
Rent expense on the above operating leases for the years ended January 31, 2019, 2018 and 2017 was $108.2 million, $110.
4
million and $84.
7
million, respectively.
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 $165.7 million, $154.
3
million and $139.
0
million for the years ended January 31, 2019, 2018 and 2017, respectively. Contractual advertising expense, which is normally based on a percentage of net sales associated with certain license agreements (included in selling, general and administrative expenses), was $46.2 million, $43.
4
million and $39.
2
million for the years ended January 31, 2019, 2018 and 2017, 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)
|
2020
|
|
$
|
154,203
|
2021
|
|
|
97,827
|
2022
|
|
|
89,485
|
2023
|
|
|
87,048
|
2024
|
|
|
49,683
|
Thereafter
|
|
|
—
|
|
|
$
|
478,246
|
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 except for the following:
Canadian Customs Duty Examination
In October 2017, the Canada Border Service Agency (“CBSA”) issued a final audit report to G-III Apparel Canada ULC (“G-III Canada”), a wholly-owned subsidiary of the Company. The report challenged the valuation used by G-III Canada for certain goods imported into Canada. The period covered by the examination is February 1, 2014 through the date of the final report, October 27, 2017. The CBSA has requested G-III Canada to reassess its customs entries for that period using the price paid or payable by the Canadian retail customers for certain imported goods rather than the price paid by G-III Canada to the vendor. The CBSA has also requested that G-III Canada change the valuation method used to pay duties with respect to goods imported in the future.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In March 2018, G-III Canada secured a bond to guarantee payment to the CBSA for additional duties payable as a result of the reassessment required by the final audit report. The Company secured a bond in the amount of CAD$26.9 million ($20.9 million) representing customs duty and interest through December 31, 2017 that is claimed to be owed to the CBSA. In March 2018, the Company amended the duties filed for the month of January 2018 under the new valuation method. This amount was paid to the CBSA. Beginning February 1, 2018, the Company began paying duties based on the new valuation method. Expense amounts deferred for the year ended January 31, 2019, related to the higher dutiable values, were CAD$10.5 million ($8.0 million).
G-III Canada, based on the advice of counsel, believes it has positions that support its ability to receive a refund of amounts claimed to be owed to the CBSA on appeal and intends to vigorously contest the findings of the CBSA. G-III Canada filed its appeal with the CBSA in May 2018.
NOTE I — STOCKHOLDERS’ EQUITY
Share Repurchase Program
The Company’s Board of Directors has authorized a share repurchase program of 5,000,000 shares. The timing and actual number of shares repurchased, if any, will depend on a number of factors, including market conditions and prevailing stock prices, and are subject to compliance with certain covenants contained in the loan agreement. Share repurchases may take place on the open market, in privately negotiated transactions or by other means, and would be made in accordance with applicable securities laws.
During fiscal 2019, pursuant to this program, the Company acquired 723,072 of its shares of common stock for an aggregate purchase price of $20.3 million. The Company did not repurchase any shares during fiscal 2018.
Long-Term Incentive Plan
As of January 31, 2019, the Company had 717,381 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 unit awards generally vest over a t
wo
to five year period and certain awards also 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. It is the Company’s policy to grant stock options at prices not less than the fair market value on the date of the grant. Option terms, vesting and exercise periods vary, except that the term of an option may not exceed ten years.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Restricted Stock Units
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
Awards
|
|
Grant Date
|
|
|
Outstanding
|
|
Fair Value
|
Unvested as of January 31, 2016
|
|
2,048,883
|
|
$
|
30.79
|
Granted
|
|
630,642
|
|
$
|
25.82
|
Vested
|
|
(678,164)
|
|
$
|
22.43
|
Canceled
|
|
(2,500)
|
|
$
|
17.95
|
Unvested as of January 31, 2017
|
|
1,998,861
|
|
$
|
31.70
|
Granted
|
|
279,479
|
|
$
|
16.28
|
Vested
|
|
(495,372)
|
|
$
|
26.39
|
Canceled
|
|
(10,391)
|
|
$
|
28.42
|
Unvested as of January 31, 2018
|
|
1,772,577
|
|
$
|
29.51
|
Granted
|
|
529,253
|
|
$
|
32.34
|
Vested
|
|
(451,929)
|
|
$
|
27.49
|
Canceled
|
|
(28,282)
|
|
$
|
29.23
|
Unvested as of January 31, 2019
|
|
1,821,619
|
|
$
|
30.83
|
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. For restricted stock units with no performance conditions, grant date fair value is based on the market price on the date of grant.
The Company recognized $19.
7
million, $19.
7
million and $16.
9
million in share-based compensation expense for the years ended January 31, 2019, 2018 and 2017, respectively, related to restricted stock unit grants. At January 31, 2019, 2018 and 2017, unrecognized costs related to the restricted stock units totaled $19.4 million, $23.
0
million and $40.7 million, respectively.
Stock Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
Weighted
|
|
|
|
|
Average
|
|
|
|
Average
|
|
|
|
Average
|
|
|
Shares
|
|
Exercise
|
|
Shares
|
|
Exercise
|
|
Shares
|
|
Exercise
|
Stock options outstanding at beginning of year
|
|
62,666
|
|
$
|
11.50
|
|
251,131
|
|
$
|
9.16
|
|
331,651
|
|
$
|
10.59
|
Exercised
|
|
(15,600)
|
|
$
|
6.55
|
|
(188,465)
|
|
$
|
8.38
|
|
(20,520)
|
|
$
|
12.65
|
Granted
|
|
8,245
|
|
$
|
30.32
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
Cancelled or forfeited
|
|
—
|
|
$
|
—
|
|
—
|
|
$
|
—
|
|
(60,000)
|
|
$
|
15.87
|
Stock options outstanding at end of year
|
|
55,311
|
|
$
|
15.70
|
|
62,666
|
|
$
|
11.50
|
|
251,131
|
|
$
|
9.16
|
Exercisable
|
|
47,066
|
|
$
|
13.14
|
|
62,666
|
|
$
|
11.50
|
|
251,131
|
|
$
|
9.16
|
The following table summarizes information about stock options outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
Weighted
|
|
Weighted
|
|
Number
|
|
Weighted
|
|
|
Outstanding as of
|
|
Average
|
|
Average
|
|
Exercisable as of
|
|
Average
|
|
|
January 31,
|
|
Remaining
|
|
Exercise
|
|
January 31,
|
|
Exercise
|
Range of Exercise Prices
|
|
2019
|
|
Contractual Life
|
|
Price
|
|
2019
|
|
Price
|
$5.55 - $9.20
|
|
10,000
|
|
0.26
|
|
$
|
6.57
|
|
10,000
|
|
$
|
6.57
|
$12.51 - $17.45
|
|
27,066
|
|
1.52
|
|
$
|
13.73
|
|
27,066
|
|
$
|
13.73
|
$18.11 - $30.32
|
|
18,245
|
|
3.51
|
|
$
|
23.63
|
|
10,000
|
|
$
|
18.11
|
|
|
55,311
|
|
|
|
|
|
|
47,066
|
|
|
|
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The fair value of stock options was estimated using the Black-Scholes option-pricing model. This model requires the input of subjective assumptions that will usually have a significant impact on the fair value estimate. The Company granted 8,245 stock options during the year ended January 31, 2019. No stock options were granted during the years ended January 31, 2018 and 2017.
The following table summarizes the assumptions used in the Black-Scholes option-pricing model for grants in fiscal 2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
Weighted-average risk free rate of interest
|
|
|
|
2.5
|
%
|
Expected volatility
|
|
|
|
51.2
|
%
|
Weighted-average expected award life (in years)
|
|
|
|
2.25
|
|
Dividend yield
|
|
|
|
0
|
%
|
Weighted-average fair value
|
|
|
$
|
9.68
|
|
The weighted average volatility was developed using historical volatility for periods equal to the expected term of the options.
The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected term of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense.
The dividend yield is a ratio that estimates the expected dividend payments to shareholders. The Company has not declared a cash dividend and has estimated dividend yield at 0%.
The expected term of stock option grants was developed after considering vesting schedules, life of the option, and historical experience. An increase in the expected holding period will increase stock compensation expense.
The Company accounts for forfeited awards as they occur as permitted by ASU 2016‑09. Ultimately, the actual expense recognized over the vesting period will be for those shares that vest.
The weighted average remaining term for stock options outstanding was 1.9 years at January 31, 2019. The aggregate intrinsic value at January 31, 2019 was $1.
1
million for stock options outstanding and $1.0 million for stock options exercisable. The intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the market price of the Company’s common stock as of January 31, 2019, the reporting date.
Proceeds received from the exercise of stock options were $0.1 million and $1.6 million during the years ended January 31, 2019 and 2018, respectively. The intrinsic value of stock options exercised was $0.4 million and $3.6 million for the years ended January 31, 2019 and 2018, respectively. A portion of this amount is currently deductible for tax purposes.
The Company recognized a nominal amount and $0.1 million in compensation expense for the year ended January 31, 2019 and 2017, respectively, related to stock options. No compensation expense related to stock options was recognized for the year ended January 31, 2018.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE J — CONCENTRATION
Major Customers
Two customers in the wholesale operations segment accounted for approximately 24.8%
and 12.4%, respectively, of the Company’s net sales for the year ended January 31, 2019. One customer accounted for
22.2% and 21.8% of the Company’s net sales for the years ended January 31, 2018 and 2017, respectively. Two customers in the wholesale operations segment accounted for approximately 27.5% and 16.5%, respectively, of the Company’s net accounts receivable as of January 31, 2019. Two customers accounted for approximately 22.2% and 17.2%, respectively, of the Company’s net accounts receivable as of January 31, 2018.
Inventory Sourcing
The Company sourced from China approximately 61.5%, 65.1% and 72.0%
of the inventory purchased for the years ended January 31, 2019, 2018 and 2017, respectively. During the year ended January 31, 2019 and 2018, the Company sourced 14.4% and 14.7% of its purchases from one vendor in China, respectively. During the year ended January 31, 2017, the Company sourced 23.9% (13.6% and 10.3%) of its purchases from two vendors in China. The Company believes it has alternative manufacturing sources available to meet its current and future production requirements in the event the Company is required to change current manufacturers or current manufacturers are unavailable to fulfill the Company’s production needs.
NOTE K — 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 $3.8 million, $3.
6
million and $2.
9
million for the years ended January 31, 2019, 2018 and 2017, respectively. The DKI 401(k) plan and trust for U.S. based non-union employees was merged with the GIII Plan on June 1, 2017.
NOTE L — SEGMENTS
The Company’s reportable segments are business units that offer products through different channels of distribution. The Company has two reportable segments: wholesale operations and retail operations. The wholesale operations segment includes sales of products under the Company’s owned, licensed and private label brands, as well as sales related to the Vilebrequin business. Wholesale revenues also include revenues from license agreements related to trademarks owned by the Donna Karan, DKNY, G.H. Bass, Andrew Marc and Vilebrequin businesses. The retail operations segment consists primarily of the Wilsons Leather, G.H. Bass and DKNY stores, as well as a limited number of Calvin Klein Performance and Karl Lagerfeld Paris stores. Sales through the Company’s owned websites, with the exception of Vilebrequin, are also included in the retail operations segment.
The following segment information, in thousands, is presented for the fiscal years ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2019
|
|
|
Wholesale
|
|
Retail
|
|
Elimination
(1)
|
|
Total
|
Net sales
|
|
$
|
2,716,958
|
|
$
|
476,764
|
|
$
|
(117,514)
|
|
$
|
3,076,208
|
Cost of goods sold
|
|
|
1,837,335
|
|
|
249,278
|
|
|
(117,514)
|
|
|
1,969,099
|
Gross Profit
|
|
|
879,623
|
|
|
227,486
|
|
|
—
|
|
|
1,107,109
|
Selling, general and administrative expenses
|
|
|
570,290
|
|
|
264,473
|
|
|
—
|
|
|
834,763
|
Depreciation and amortization
|
|
|
29,644
|
|
|
9,175
|
|
|
—
|
|
|
38,819
|
Asset impairments
|
|
|
—
|
|
|
2,813
|
|
|
—
|
|
|
2,813
|
Operating profit (loss)
|
|
$
|
279,689
|
|
$
|
(48,975)
|
|
$
|
—
|
|
$
|
230,714
|
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2018
|
|
|
Wholesale
|
|
Retail
|
|
Elimination
(1)
|
|
Total
|
Net sales
|
|
$
|
2,454,008
|
|
$
|
502,494
|
|
$
|
(149,564)
|
|
$
|
2,806,938
|
Cost of goods sold
|
|
|
1,650,084
|
|
|
251,679
|
|
|
(149,564)
|
|
|
1,752,199
|
Gross Profit
|
|
|
803,924
|
|
|
250,815
|
|
|
—
|
|
|
1,054,739
|
Selling, general and administrative expenses
|
|
|
571,164
|
|
|
284,083
|
|
|
—
|
|
|
855,247
|
Depreciation and amortization
|
|
|
27,679
|
|
|
10,104
|
|
|
—
|
|
|
37,783
|
Asset impairments
|
|
|
2,310
|
|
|
5,574
|
|
|
—
|
|
|
7,884
|
Operating profit (loss)
|
|
$
|
202,771
|
|
$
|
(48,946)
|
|
$
|
—
|
|
$
|
153,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 31, 2017
|
|
|
Wholesale
|
|
Retail
|
|
Elimination
(1)
|
|
Total
|
Net sales
(2)
|
|
$
|
2,021,736
|
|
$
|
474,217
|
|
$
|
(109,518)
|
|
$
|
2,386,435
|
Cost of goods sold
|
|
|
1,387,274
|
|
|
267,351
|
|
|
(109,518)
|
|
|
1,545,107
|
Gross Profit
|
|
|
634,462
|
|
|
206,866
|
|
|
—
|
|
|
841,328
|
Selling, general and administrative expenses
|
|
|
457,786
|
|
|
246,650
|
|
|
—
|
|
|
704,436
|
Depreciation and amortization
|
|
|
21,483
|
|
|
10,998
|
|
|
—
|
|
|
32,481
|
Asset impairments
|
|
|
—
|
|
|
10,480
|
|
|
—
|
|
|
10,480
|
Operating profit (loss)
|
|
$
|
155,193
|
|
$
|
(61,262)
|
|
$
|
—
|
|
$
|
93,931
|
|
(1)
|
|
Represents intersegment sales to the Company’s retail operations segment.
|
|
(2)
|
|
Certain reclassifications have been made between the wholesale operations segment and the elimination column as a result of sales eliminations within the wholesale operations segment being misclassified as inter-segment eliminations.
|
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,
|
|
|
2019
|
|
2018
|
|
|
(In thousands)
|
Wholesale
|
|
$
|
1,834,610
|
|
$
|
1,554,191
|
Retail
|
|
|
190,996
|
|
|
215,568
|
Corporate
|
|
|
182,452
|
|
|
145,418
|
Total Assets
|
|
$
|
2,208,058
|
|
$
|
1,915,177
|
The total net sales and long-lived assets by geographic region are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
|
|
|
|
Long-Lived
|
|
|
|
|
Long-Lived
|
|
|
|
|
Long-Lived
|
Geographic Region
|
|
Net Sales
|
|
Assets
|
|
Net Sales
|
|
Assets
|
|
Net Sales
|
|
Assets
|
United States
|
|
$
|
2,656,479
|
|
$
|
762,444
|
|
$
|
2,466,107
|
|
$
|
770,128
|
|
$
|
2,180,409
|
|
$
|
790,341
|
Non-United States
|
|
|
419,729
|
|
|
191,719
|
|
|
340,831
|
|
|
185,448
|
|
|
206,026
|
|
|
178,665
|
|
|
$
|
3,076,208
|
|
$
|
954,163
|
|
$
|
2,806,938
|
|
$
|
955,576
|
|
$
|
2,386,435
|
|
$
|
969,006
|
Capital expenditures for locations outside of the United States totaled $4.3 million, $3.
7
million and $4.
6
million for the years ended January 31, 2019, 2018 and 2017, respectively.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE M — EQUITY INVESTMENTS
Investment in Fabco Holding B.V.
In August 2017, the Company entered into a joint venture agreement with Amlon Capital B.V. (“Amlon”), a private company incorporated in the Netherlands, to produce and market women’s and men’s apparel and accessories pursuant to a long-term license for DKNY and Donna Karan in the People’s Republic of China, including Macau, Hong Kong and Taiwan. The Company owns 49% of the joint venture, with Amlon owning the remaining 51%. The joint venture was funded with $25 million of equity to be used to strengthen the DKNY and Donna Karan brands and accelerate the growth of the business in the region. Of this amount, the Company contributed an aggregate of $10.0 million. Starting January 1, 2018, this joint venture is the exclusive seller of women’s and men’s apparel, handbags, luggage and certain accessories under the DKNY and Donna Karan brands in the territory. The investment in Fabco, which is being accounted for under the equity method of accounting, is reflected in Investment in Unconsolidated Affiliates on the Consolidated Balance Sheets at January 31, 2019 and 2018.
Investment in Karl Lagerfeld Holding B.V.
In February 2016, the Company acquired a 19% minority interest in KLH, the parent company of the group that holds the worldwide rights to the Karl Lagerfeld brand. The Company paid 32.5€ million (equal to $35.4 million at the date of the transaction) for this interest. This investment was intended to expand the partnership between the Company and the owners of Karl Lagerfeld brand and extend their business development opportunities on a global scale. The investment in KLH, which is being accounted for under the equity method of accounting, is reflected in Investment in Unconsolidated Affiliates on the Consolidated Balance Sheets at January 31, 2019 and 2018.
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. The investment in KLNA, which is being accounted for under the equity method of accounting, is reflected in Investment in Unconsolidated Affiliates on the Consolidated Balance Sheets at January 31, 2019 and 2018.
NOTE N — RELATED PARTY TRANSACTIONS
Transactions with Fabco
G-III owns a 49% ownership interest in Fabco and is considered a related party of Fabco (see Note M). The Company sells inventory to Fabco and granted Fabco’s subsidiary the right to use certain Donna Karan and DKNY trademarks. In fiscal 2019, the Company sold $4.3 million in inventory to Fabco. The Company recorded $2.2 million and $0.2 million of licensing revenue from Fabco during the years ended January 31, 2019 and 2018, respectively. As of January 31, 2019, Fabco prepaid $
0.8
million to the Company for minimum royalties and marketing fees relating to the first quarter of 2019 and has a $
0.5
million payable balance relating to inventory purchased from the Company and its subsidiaries.
Transactions with KL North America
G-III owns a 49% ownership interest in KLNA and is considered a related party of KLNA (see note M). 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 $6.4 million, $4.
8
million and $4.0 million for the years ended January 31, 2019, 2018 and 2017, respectively. The amount of royalty and advertising due to KLNA as of January 31, 2019, 2018 and 2017 was $2.1 million, $1.5 million and $0.7 million, respectively.
Table of Contents
G-III Apparel Group, Ltd. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
NOTE O — QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the fiscal years ended January 31, 2018 and 2019 are as follows (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
January 31,
|
|
|
2018
|
|
2018
|
|
2018
|
|
2019
(1)
|
Net sales
|
|
$
|
611,743
|
|
$
|
624,698
|
|
$
|
1,072,982
|
|
$
|
766,785
|
Gross Profit
|
|
|
234,527
|
|
|
231,544
|
|
|
382,100
|
|
|
258,938
|
Net income
|
|
|
9,885
|
|
|
10,077
|
|
|
94,025
|
|
|
24,080
|
Net income per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.20
|
|
$
|
0.20
|
|
$
|
1.91
|
|
$
|
0.49
|
Diluted
|
|
$
|
0.20
|
|
$
|
0.20
|
|
$
|
1.86
|
|
$
|
0.48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
April 30,
|
|
July 31,
|
|
October 31,
|
|
January 31,
|
|
|
2017
|
|
2017
|
|
2017
|
|
2018
(2)
|
|
|
(As Adjusted)
(3)
|
Net sales
|
|
$
|
529,042
|
|
$
|
538,006
|
|
$
|
1,024,993
|
|
$
|
714,897
|
Gross Profit
|
|
|
201,716
|
|
|
202,990
|
|
|
391,096
|
|
|
258,937
|
Net income (loss)
|
|
|
(10,391)
|
|
|
(8,568)
|
|
|
81,625
|
|
|
(542)
|
Net income (loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.21)
|
|
$
|
(0.18)
|
|
$
|
1.67
|
|
$
|
(0.01)
|
Diluted
|
|
$
|
(0.21)
|
|
$
|
(0.18)
|
|
$
|
1.65
|
|
$
|
(0.01)
|
|
(1)
|
|
During the fourth quarter of fiscal 2019, the Company recorded a $2.
8
million impairment charge related to leasehold improvements and furniture and fixtures at certain of Wilsons, G.H. Bass and DKNY stores as a result of the performance at these stores.
|
|
(2)
|
|
During the fourth quarter of fiscal 2018, the Company recorded (i) a $6.5 million impairment charge related to leasehold improvements and furniture and fixtures at certain of Wilsons, G.H. Bass and Vilebrequin stores as a result of the performance at these stores, (ii) a $0.7 million impairment charge with respect to furniture and fixtures located in certain customers’ stores and (iii) a $0.7 million write-off of goodwill related to the retail operations segment as a result of the performance of the retail operations segment.
|
|
(3)
|
|
Certain reclassifications have been made as a result of the Company’s reclassifying the impact of certain components of foreign currency gain (loss) from cost of goods sold and interest expense to other loss.
|
G-III Apparel Group, Ltd. and Subsidiaries
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
Years ended January 31, 2019, 2018 and 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
ASC 606
|
|
Charges to
|
|
|
|
Balance at
|
|
|
Beginning
|
|
Transition
|
|
Cost and
|
|
|
|
End of
|
Description
|
|
of Period
|
|
Adjustment
|
|
Expenses
|
|
Deductions
(1)
|
|
Period
|
|
|
(In thousands)
|
Year ended January 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
2,093
|
|
$
|
—
|
|
$
|
(140)
|
|
$
|
1,029
|
|
$
|
924
|
Reserve for returns
|
|
|
61,179
|
|
|
—
|
|
|
57,777
|
|
|
56,678
|
|
|
62,278
|
Reserve for sales allowances
(2)
|
|
|
102,144
|
|
|
66,617
|
|
|
375,118
|
|
|
362,567
|
|
|
181,312
|
|
|
$
|
165,416
|
|
$
|
66,617
|
|
$
|
432,755
|
|
$
|
420,274
|
|
$
|
244,514
|
Year ended January 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deducted from asset accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,192
|
|
$
|
—
|
|
$
|
854
|
|
$
|
(47)
|
|
$
|
2,093
|
Reserve for returns
|
|
|
59,802
|
|
|
—
|
|
|
32,710
|
|
|
31,333
|
|
|
61,179
|
Reserve for sales allowances
(2)
|
|
|
94,494
|
|
|
—
|
|
|
303,734
|
|
|
296,084
|
|
|
102,144
|
|
|
$
|
155,488
|
|
$
|
—
|
|
$
|
337,298
|
|
$
|
327,370
|
|
$
|
165,416
|
Year ended January 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,346
|
|
$
|
—
|
|
$
|
682
|
|
$
|
836
|
|
$
|
1,192
|
Reserve for returns
|
|
|
61,437
|
|
|
—
|
|
|
40,783
|
|
|
42,418
|
|
|
59,802
|
Reserve for sales allowances
(2)
|
|
|
72,915
|
|
|
—
|
|
|
266,263
|
|
|
244,684
|
|
|
94,494
|
|
|
$
|
135,698
|
|
$
|
—
|
|
$
|
307,728
|
|
$
|
287,938
|
|
$
|
155,488
|
(1)
|
Accounts written off as uncollectible, net of recoveries.
|
(2)
|
See Note A in the accompanying Notes to Consolidated Financial Statements for a description of sales allowances.
|
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