Unless the context otherwise requires, "G-III," "us," "we" and "our" refer to G-III Apparel Group, Ltd. and its subsidiaries. References to fiscal years refer to the year ended or ending on January 31 of that year. For example, our fiscal year ending January 31, 2023 is referred to as "fiscal 2023."

Vilebrequin, KLH, Fabco and Sonia Rykiel report results on a calendar year basis rather than on the January 31 fiscal year basis used by G-III. Accordingly, the results of Vilebrequin, KLH, Fabco and Sonia Rykiel are, and will be, included in our financial statements for the quarter ended or ending closest to G-III's fiscal quarter end. For example, with respect to our results for the six-month period ended July 31, 2022, the results of Vilebrequin, Fabco and Sonia Rykiel are included for the six-month period ended June 30, 2022 and for KLH for the period from the date of acquisition to June 30, 2022. We accounted for our investment in each of KLH and KLNA using the equity method of accounting through May 30, 2022. As of May 31, 2022, KLH is accounted for as our consolidated wholly-owned subsidiary and KLNA is an indirect wholly-owned subsidiary of ours. Our retail operations segment uses a 52/53-week fiscal year. For fiscal 2023 and 2022, the three and six-month period for the retail operations segment were each 13-week and 26-week periods and ended on July 30, 2022 and August 1, 2021, respectively.

Various statements contained in this Form 10-Q, in future filings by us with the SEC, in our press releases and in oral statements made from time to time by us or on our behalf constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on current expectations and are indicated by words or phrases such as "anticipate," "estimate," "expect," "will," "project," "we believe," "is or remains optimistic," "currently envisions," "forecasts," "goal" and similar words or phrases and involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from the future results, performance or achievements expressed in or implied by such forward-looking statements. Forward-looking statements also include representations of our expectations or beliefs concerning future events that involve risks and uncertainties, including, but not limited to, the following:

the global health crisis caused by the COVID-19 pandemic has had, and the

? current and uncertain future outlook of the outbreak will likely continue to

have, adverse effects on our business, financial condition and results of

the failure to maintain our material license agreements could cause us to lose

? significant revenues and have a material adverse effect on our results of

? our dependence on the strategies and reputation of our licensors;

any adverse change in our relationship with PVH and its Calvin Klein or Tommy

? Hilfiger brands would have a material adverse effect on our results of

risks relating to our wholesale operations including, among others, maintaining

? the image of our proprietary brands, business practices of our customers that

could adversely affect us and retail customer concentration;

? risks relating to our retail operations segment;

? our ability to achieve operating enhancements and cost reductions from our

our ability to make strategic acquisitions and possible disruptions from

? acquisitions, including our recent acquisition of the remaining interest in

? risks of operating through joint ventures;

? seasonal nature of our business and effect of unseasonable or extreme weather

? possible adverse effects from disruptions to the worldwide supply chain;

? price, availability and quality of materials used in our products;

? the need to protect our trademarks and other intellectual property;

? risk that our licensees may not generate expected sales or maintain the value

the impact of the current economic environment on us, our customers, suppliers

? and vendors, including without limitation, the effects of inflationary cost

? effects of war, acts of terrorism, natural disasters or public health crises

could adversely affect our business and results of operations;

? our dependence on foreign manufacturers;

? risks of expansion into foreign markets, conducting business internationally

and exposures to foreign currencies;

? risks related to the adoption of a national security law in Hong Kong;

? the need to successfully upgrade, maintain and secure our information systems;

? increased exposure to consumer privacy, cybersecurity and fraud concerns,

including as a result of the remote working environment;

? possible adverse effects of data security or privacy breaches;

? the impact on our business of the imposition of tariffs by the United States

government and the escalation of trade tensions between countries;

? risks related to the audit by the Canadian Border Services Agency;

? changes in tax legislation or exposure to additional tax liabilities could

? the effect of regulations applicable to us as a U.S. public company;

? focus on corporate responsibility issues by stakeholders;

? potential effect on the price of our stock if actual results are worse than

financial forecasts or if we are unable to provide financial forecasts;

? fluctuations in the price of our common stock;

? impairment of our goodwill, trademarks or other intangibles may require us to

record charges against earnings; and

? risks related to our indebtedness.

Any forward-looking statements are based largely on our expectations and judgments and are subject to a number of risks and uncertainties, many of which are unforeseeable and beyond our control. A detailed discussion of significant risk factors that have the potential to cause our actual results to differ materially from our expectations is described under the heading "Risk Factors" in our Annual Report on Form 10-K for the year ended January 31, 2022. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

G-III 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. G-III has a substantial portfolio of more than 30 licensed and proprietary brands, anchored by five global power brands: DKNY, Donna Karan, Calvin Klein, Tommy Hilfiger and Karl Lagerfeld. We are not only licensees, but also brand owners, and we distribute our products through multiple channels.

Our own proprietary brands include DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, G.H. Bass, Eliza J, Jessica Howard, Andrew Marc, Marc New York, Wilsons Leather and Sonia Rykiel. We sell products under an extensive portfolio of well-known licensed brands, including Calvin Klein, Tommy Hilfiger, Levi's, Guess?, Kenneth Cole, Cole Haan, Vince Camuto and Dockers. Through our team sports business, we have licenses with the National Football League, National Basketball Association, Major League Baseball, National Hockey League and over 150 U.S. colleges and universities. We also source and sell products to major retailers under their private retail labels.

Our products are sold through a cross section of leading retailers such as Macy's, including its Bloomingdale's division, Dillard's, Hudson's Bay Company, including their Saks Fifth Avenue division, Nordstrom, Kohl's, TJX Companies, Ross Stores and Burlington. We also sell our products using digital channels through retail partners such as macys.com, nordstrom.com and dillards.com, each of which has a substantial online business. In addition, we sell to leading online retail partners such as Amazon, Fanatics, Zalando and Zappos.

We also distribute apparel and other products directly to consumers through our DKNY, Karl Lagerfeld, Karl Lagerfeld Paris and Vilebrequin retail stores, as well as through our digital channels for the DKNY, Donna Karan, Karl Lagerfeld, Karl Lagerfeld Paris, Vilebrequin, G.H. Bass, Andrew Marc, Wilsons Leather and Sonia Rykiel businesses.

We operate in fashion markets that are intensely competitive. Our ability to continuously evaluate and respond to changing consumer demands and tastes, across multiple market segments, distribution channels and geographic areas is critical to

our success. Although our portfolio of brands is aimed at diversifying our risks in this regard, misjudging shifts in consumer preferences could have a negative effect on our business. Our success in the future will depend on our ability to design products that are accepted in the marketplace, source the manufacture of our products on a competitive basis, and continue to diversify our product portfolio and the markets we serve.

We believe that consumers prefer to buy brands they know, and we have continually sought to increase the portfolio of name brands we can offer through different tiers of retail distribution, for a wide array of products at a variety of price points. We have increased the portfolio of brands we offer through licenses, acquisitions and joint ventures. We focus our efforts on the sale of products under our five power brands. Effective May 31, 2022, we own three of our power brands (DKNY, Donna Karan and Karl Lagerfeld) and license two of our power brands (Calvin Klein and Tommy Hilfiger). It is our objective to continue to expand our product offerings and we are continually discussing new licensing opportunities with brand owners and seeking to acquire established brands.

On April 29, 2022, we entered into a share purchase agreement (the "Purchase Agreement") with a group of investors pursuant to which we agreed to acquire, on the terms set forth and subject to the conditions set forth in the Purchase Agreement, the remaining 81% in interests in KLH that we did not already own, for an aggregate consideration of €202.0 million ($216.8 million) in cash, subject to certain adjustments. The acquisition closed on May 31, 2022. We funded the purchase price from cash on hand. See Note 6 - Karl Lagerfeld Acquisition in the accompanying Notes to Condensed Consolidated Financial Statements for more information.

The addition of the iconic Karl Lagerfeld fashion brand to the G-III portfolio advances several of our key priorities, including increasing the direct ownership of brands, capitalizing on their licensing opportunities and further diversifying our global presence. This acquisition represents a significant opportunity to expand our international growth by further developing our European-based brands, which already include Vilebrequin and Sonia Rykiel. We also believe that Karl Lagerfeld's existing digital channel presence could enable us to enhance our omni-channel business and further accelerate our digital priorities. The influential legacy of the Karl Lagerfeld brand embodies a creative expression that aligns with our goal to provide innovative products for our customers.

We report based on two segments: wholesale operations and retail operations.

Our wholesale operations segment includes sales of products to retailers under owned, licensed and private label brands, as well as sales related to the Vilebrequin and Karl Lagerfeld businesses, other than sales of the Karl Lagerfeld Paris brand from retail stores and digital outlets. Wholesale revenues also include royalty revenues from license agreements related to our owned trademarks including DKNY, Donna Karan, Karl Lagerfeld, Vilebrequin, G.H. Bass and Andrew Marc.

Our retail operations segment consists primarily of direct sales to consumers through our company-operated stores and through digital channels. Our company-operated stores consists primarily of DKNY and Karl Lagerfeld Paris stores, as well as the digital channels for DKNY, Donna Karan, Karl Lagerfeld Paris, G.H. Bass, Andrew Marc and Wilsons Leather. Substantially all DKNY and Karl Lagerfeld Paris stores are operated as outlet stores.

Significant trends that affect the apparel industry include retail chains closing unprofitable stores, an increased focus by retail chains and others on expanding digital sales and providing convenience-driven fulfillment options, the continued consolidation of retail chains and the desire on the part of retailers to consolidate vendors supplying them.

We sell our products online through retail partners such as macys.com, nordstrom.com and dillards.com, each of which has a substantial online business. As sales of apparel through digital channels continue to increase, we are developing additional digital marketing initiatives on our web sites and through social media. We are investing in digital personnel,

marketing, logistics, planning, distribution and other strategic opportunities to expand our digital footprint. Our digital business consists of our own web platforms at www.dkny.com, www.donnakaran.com, www.ghbass.com, www.vilebrequin.com, www.andrewmarc.com, www.wilsonsleather.com and www.soniarykiel.com. We also sell Karl Lagerfeld Paris products on our www.karllagerfeldparis.com website and Karl Lagerfeld products on our www.karl.com website. In addition, we sell to leading online retail partners such as Amazon, Fanatics, Zalando and Zappos and have made minority investments in two different e-commerce retailers.

A number of retailers have experienced financial difficulties, which in some cases have resulted in bankruptcies, liquidations and/or store closings. The financial difficulties of a retail customer of ours could result in reduced business with that customer. We may also assume higher credit risk relating to receivables of a retail customer experiencing financial difficulty that could result in higher reserves for doubtful accounts or increased write-offs of accounts receivable. We attempt to mitigate credit risk from our customers by closely monitoring accounts receivable balances and shipping levels, as well as the ongoing financial performance and credit standing of customers.

Retailers are seeking to differentiate their offerings by devoting more resources to the development of exclusive products, whether by focusing on their own private label products or on products produced exclusively for a retailer by a national brand manufacturer. Exclusive brands are only made available to a specific retailer, and thus customers loyal to their brands can only find them in the stores of that retailer.

We have attempted to respond to general trends in our industry by continuing to focus on selling products with recognized brand equity, by attention to design, quality and value and by improving our sourcing capabilities. We have also responded with the strategic acquisitions made by us, such as our recent purchase of the interests not owned by us that resulted in Karl Lagerfeld becoming a wholly-owned subsidiary, and new license agreements entered into by us that added to our portfolio of licensed and proprietary brands and helped diversify our business by adding new product lines and expanding distribution channels. We believe that our broad distribution capabilities help us to respond to the various shifts by consumers between distribution channels and that our operational capabilities will enable us to continue to be a vendor of choice for our retail partners.

Inflationary pressures have impacted the entire economy, including our industry. We are experiencing increased costs in many aspects of our business, including our freight costs as discussed below under "Supply Chain". We expect inflationary pressures to continue to impact our business throughout fiscal 2023. We have implemented price increases on many of our products. Our price increases are an effort to mitigate the effect of higher costs, although, the impact of price increases on consumer demand and on our business and results of operations is uncertain.

Our consolidated operations are impacted by the relationships between our reporting currency, the U.S. Dollar, and those of our non-United States subsidiaries whose functional/local currency is other than the U.S. Dollar, primarily the Euro. We continue to expect volatility in the global foreign currency exchange rates, which may have a negative impact on the reported results of certain of our non-United States subsidiaries in the future, when translated to the U.S. Dollar.

Numerous factors disrupting the shipping industry have negatively affected transit times from our overseas suppliers, as well as our ability to ensure that we are able to import our product in a manner that allows for timely delivery to our customers. Congestion at ports of origin and ports of entry have caused significant changes to the itineraries of our steamship carriers. Truck driver shortages, shortages of truck equipment such as the chassis that the containers are transported on, and the inability of ports to provide reliable pick uptimes, have also negatively impacted our ability to timely receive goods.

Our shipping costs have increased as a result of higher contractual shipping rates resulting from increased demand for container space and the need to purchase additional container space on the secondary market at spot rates. While increased spot rates have moderated, they are still higher than pre-pandemic levels. Our ability to secure container space has

improved. However, even when we are able to secure space, ports around the world are experiencing congestion, slowing transit times of product through ports of origin and ports of entry which negatively affects our ability to timely receive and deliver product to our retail partners and customers.

As a result of these supply chain disruptions, we have accelerated production schedules to allow for more lead time and accommodate the anticipated extended transit times from our overseas suppliers in an effort to import our product in a manner that allows for timely delivery to our customers. Product has been received earlier than anticipated due to the accelerated production schedules and transit times that were not delayed as much as planned. As a result, our inventory levels are higher than expected.

The elevated inventory levels are resulting in storage and process capacity pressures within our distribution centers. We expect these issues to continue into the first half of calendar 2023. As a result of these expected pressures, our operations may be less efficient, and as a result, we expect to incur additional labor, outside storage and other costs.

We have recently executed new contracts with two of our long-term steamship carrier partners and are continuing to pursue new carrier relationships for additional capacity. We expect that our existing carriers will manage the demand in a more efficient manner in fiscal 2023 and, as a result, our reliance on the secondary market will be reduced. We are actively managing shipments based on delivery dates to better utilize contracted cargo space and attempt to reduce our reliance on the secondary market.

The continued impact of the COVID-19 pandemic on our business operations remains uncertain and cannot be predicted. The extent to which COVID-19 impacts our results will depend on continued developments in the United States and around the world in the public and private responses to the pandemic. New information may emerge concerning the severity of the outbreak and the spread of variants, including the Delta, Omicron or other variants, of the COVID-19 virus in locations that are important to our business. Actions taken to contain COVID-19 or treat its impact may change or become more restrictive if additional waves of infections occur.

The current war in Ukraine and the continued threat of terrorism, heightened security measures and military action in response to acts of terrorism or civil unrest has, at times, disrupted commerce and intensified concerns regarding the United States and world economies. Less than 1% of our revenue in fiscal 2022 was generated in Russia and Ukraine. As such, we do not expect that the war in Ukraine will have a direct material negative impact on our results of operations in fiscal 2023. However, the war has also led to, and may lead to further, broader unfavorable macroeconomic implications, including unfavorable foreign exchange rates, increases in fuel prices, food shortages, a weakening of the European economy and volatility in financial markets. These implications of the war in Ukraine could have a material adverse effect on our business and our results of operations.

Three months ended July 31, 2022 compared to three months ended July 31, 2021

Net sales for the three months ended July 31, 2022 increased to $605.2 million from $483.1 million in the same period last year. Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $588 million for the three months ended July 31, 2022 from $467 million in the comparable period last year. This increase is primarily the result of a $32.3 million increase in net sales of our DKNY and Donna Karan products, a $23.1 million increase in net sales of Calvin Klein licensed products, a $9.9 million increase in net sales of Karl Lagerfeld Paris products and a $3.6 million increase in net sales of Tommy Hilfiger licensed products. The increase in sales of DKNY/Donna Karan products was primarily related to dresses, handbags and jeanswear. The increase in sales of Calvin Klein products was primarily related to dresses, women's suits and handbags. The increase in sales of Karl Lagerfeld Paris products was primarily related to handbags, men's outerwear and sportswear. The increase in sales of Tommy Hilfiger products was primarily related to suits, jeanswear and women's outerwear.

Additionally, the inclusion of the results of KLH for one month in the period increased net sales of our wholesale operations segment by $17.3 million.

Net sales of our retail operations segment increased to $31.1 million for the three months ended July 31, 2022 from $27.3 million in the same period last year. This increase is primarily due to an increase in our store count in the current year. The number of retail stores operated by us increased from 50 at July 31, 2021 to 59 at July 31, 2022. In addition, the continued recovery from the COVID-19 pandemic resulted in increased store traffic and comparable store sales increases during the three months ended July 31, 2022 compared to the same period last year.

Gross profit was $228.9 million, or 37.8% of net sales, for the three months ended July 31, 2022, compared to $192.9 million, or 39.9% of net sales, in the same period last year. The gross profit percentage in our wholesale operations segment was 36.2% in the three months ended July 31, 2022 compared to 38.3% in the same period last year. The gross profit percentage in the current year period was negatively impacted by inflationary pressure on product costs and increased freight costs, partially offset by benefits from less promotional activity and the implementation of price increases by us. The gross profit percentage in our retail operations segment was 51.6% for the three months ended July 31, 2022 compared to 51.9% for the same period last year.

Selling, general and administrative expenses increased to $191.0 million in the three months ended July 31, 2022 from $146.8 million in the same period last year. The increase in expenses was primarily due to an increase of $15.8 million in compensation expense, primarily from increased salary and bonus expense accruals. The increase in expenses was also due to a $13.5 million increase in third-party warehouse and facility expenses primarily related to higher inventory levels and increased shipping volume and a $7.5 million increase in advertising related to increased sales. Additionally, the inclusion of the results of KLH for one month in the period increased selling, general and administrative expenses by $10.4 million which included $5.0 million of compensation expense, primarily related to bonus accruals, and $1.0 million of acquisition related expenses.

Depreciation and amortization was $6.7 million for the three months ended July 31, 2022 compared to $7.1 million in the same period last year. This decrease primarily relates to a reduction in capital expenditures during the COVID-19 pandemic.

Other income was $30.3 million in the three months ended July 31, 2022 compared to other income of $2.0 million for the same period last year. Other income in the current period consisted of a gain of $30.9 million during the three months ended July 31, 2022 as a result of the remeasurement of our previously held 19% investment in KLH and 49% investment in KLNA as of the effective date of the acquisition. We recorded $2.0 million of foreign currency losses during the three months ended July 31, 2022 compared to foreign currency losses of $0.4 million during the same period last year. We recorded $0.3 million in income from unconsolidated affiliates during the three months ended July 31, 2022 compared to $1.8 million in income from unconsolidated affiliates in the same period last year. In addition, we recorded $1.0 million in income from net gains on investments in equity securities. Additionally, we recorded other income of $0.6 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 relief during the three months ended July 31, 2022.

Interest and financing charges, net, were $12.6 million for both the three months ended July 31, 2022 and 2021.

Income tax expense was $13.0 million for the three months ended July 31, 2022 compared to $9.2 million for the same period last year. Our effective tax rate decreased to 26.4% in the current year's quarter from 32.6% in last year's comparable quarter. This decrease is primarily due to an increase in forecasted foreign pretax income, which is taxed at a lower tax rate compared to the tax rates associated with income based in the United States.

Six months ended July 31, 2022 compared to six months ended July 31, 2021

Net sales for the six months ended July 31, 2022 increased to $1.29 billion from $1.0 billion in the same period last year. Net sales of our segments are reported before intercompany eliminations.

Net sales of our wholesale operations segment increased to $1.27 billion for the six months ended July 31, 2022 from $978.5 million in the comparable period last year. This increase is primarily the result of a $90.1 million increase in net

sales of Calvin Klein licensed products, a $60.2 million increase in net sales of our DKNY and Donna Karan products, a $30.8 million increase in net sales of Karl Lagerfeld Paris products and a $18.4 million increase in net sales of Tommy Hilfiger licensed products. The increase in sales of Calvin Klein products was primarily related to dresses, women's suits and handbags. The increase in sales of DKNY/Donna Karan products was primarily related to dresses, handbags and swimwear. The increase in sales of Karl Lagerfeld Paris products was primarily related to handbags, men's outerwear and sportswear. The increase in sales of Tommy Hilfiger products was primarily related to suits, jeanswear and dresses. Additionally, the inclusion of the results of KLH for one month in the period increased net sales of our wholesale operations segment by $17.3 million.

Net sales of our retail operations segment increased to $59.0 million for the six months ended July 31, 2022 from $46.7 million in the same period last year. This increase is primarily due to an increase in our store count in the current year. The number of retail stores operated by us increased from 50 at July 31, 2021 to 59 at July 31, 2022. In addition, the continued recovery from the COVID-19 pandemic resulted in increased store traffic and comparable store sales increases during the three months ended July 31, 2022 compared to the same period last year.

Gross profit was $475.0 million, or 36.7% of net sales, for the six months ended July 31, 2022, compared to $388.3 million, or 36.7% of net sales, in the same period last year. The gross profit percentage in our wholesale operations segment was 35.1% in the six months ended July 31, 2022 compared to 37.2% in the same period last year. The gross profit percentage in the current year period was negatively impacted by inflationary pressure on product costs and increased freight costs, partially offset by benefits from less promotional activity and the implementation of price increases by us. The gross profit percentage in our retail operations segment was 50.8% for the six months ended July 31, 2022 compared to 51.3% for the same period last year.

Selling, general and administrative expenses increased to $376.5 million in the six months ended July 31, 2022 from $288.4 million in the same period last year. The increase in expenses was primarily due to an increase of $31.3 million in compensation expense, primarily from increased salary and bonus expense accruals. The increase in expenses was also due to a $20.6 million increase in third-party warehouse and facility expenses and a $15.5 million increase in advertising primarily related to increased sales and inventory levels resulting from our accelerated production schedules. In addition, professional fees increased $3.8 million primarily due to expenses associated with the acquisition of the Karl Lagerfeld business. The inclusion of the results of KLH for one month in the period increased selling, general and administrative expenses by $10.4 million which included $5.0 million of compensation expense, primarily related to bonus accruals, and $1.0 million of acquisition related expenses.

Depreciation and amortization was $12.8 million for the six months ended July 31, 2022 compared to $14.1 million in the same period last year. This decrease primarily relates to a reduction in capital expenditures during the COVID-19 pandemic.

Other income was $27.6 million in the six months ended July 31, 2022 compared to $3.8 million for the same period last year. Other income in the current period consisted of a gain of $30.9 million during the six months ended July 31, 2022 as a result of the remeasurement of our previously held 19% investment in KLH and 49% interest in KLNA as of the effective date of the acquisition. We recorded $5.4 million of foreign currency losses during the six months ended July 31, 2022 compared to foreign currency losses of $0.6 million during the same period last year. We recorded $1.0 million in income from unconsolidated affiliates during the six months ended July 31, 2022 compared to $2.3 million in income from unconsolidated affiliates in the same period last year. We recorded other income of $1.2 million from non-refundable European government-backed grants received by Vilebrequin for COVID-19 during the six months ended July 31, 2022 compared to $2.1 million during the same period last year.

Interest and financing charges, net, for the six months ended July 31, 2022 were $24.8 million compared to $24.6 million for the same period last year.

Income tax expense was $22.0 million for the six months ended July 31, 2022 compared to $19.5 million for the same period last year. Our effective tax rate decreased to 24.8% in the current year's period from 30.0% in last year's comparable period. This decrease is primarily due to an increase in forecasted foreign pretax income, which is taxed at a lower tax rate compared to the tax rates associated with income based in the United States. In addition, a $1.3 million tax benefit related to the foreign tax credit was recorded in the first quarter of this year.

We rely on our cash flows generated from operations in most periods, cash and cash equivalents and the borrowing capacity under our revolving credit facility to meet the cash requirements of our business. The cash requirements of our business are primarily related to the seasonal buildup in inventories, compensation paid to employees, payments to vendors in the normal course of business, capital expenditures, interest payments on debt obligations and income tax payments. We have also used cash to make minority investments in private companies and to acquire the remaining portion of the Karl Lagerfeld business.

As of July 31, 2022, we had cash and cash equivalents of $151.0 million and availability under our revolving credit facility of approximately $580 million. As of July 31, 2022, we were in compliance with all covenants under our debt agreements.

In August 2020, we completed a private debt offering of $400 million aggregate principal amount of our 7.875% Senior Secured Notes due 2025 (the "Notes). The terms of the Notes are governed by an indenture, dated as of August 7, 2020 (the "Indenture"), among us, the guarantors party thereto and U.S. Bank, National Association, as trustee and collateral agent (the "Collateral Agent"). The net proceeds of the Notes have been used (i) to repay the $300 million that was outstanding under our prior term loan facility due 2022 (the "Term Loan"), (ii) to pay related fees and expenses and (iii) for general corporate purposes.

The Notes bear interest at a rate of 7.875% per year payable semi-annually in arrears on February 15 and August 15 of each year.

The Notes are unconditionally guaranteed on a senior-priority secured basis by our current and future wholly-owned domestic subsidiaries that guarantee any of our credit facilities, including our ABL facility (the "ABL Facility") pursuant to the ABL Credit Agreement, or certain future capital markets indebtedness of ours or the guarantors.

The Notes and the related guarantees are secured by (i) first priority liens on our Cash Flow Priority Collateral (as defined in the Indenture), and (ii) a second-priority lien on our ABL Priority Collateral (as defined in the Indenture), in each case subject to permitted liens described in the Indenture.

In connection with the issuance of the Notes and execution of the Indenture, we and the Guarantors entered into a pledge and security agreement (the "Pledge and Security Agreement"), among us, the Guarantors and the Collateral Agent.

The Notes are subject to the terms of the intercreditor agreement which governs the relative rights of the secured parties in respect of the ABL Facility and the Notes (the "Intercreditor Agreement"). The Intercreditor Agreement restricts the actions permitted to be taken by the Collateral Agent with respect to the Collateral on behalf of the holders of the Notes. The Notes are also subject to the terms of the LVMH Note subordination agreement which governs the relative rights of the secured parties in respect of the LVMH Note, the ABL Facility and the Notes.

We may redeem some or all of the Notes at any time and from time to time at the redemption prices set forth in the Indenture, plus accrued and unpaid interest, if any, to, but excluding, the applicable redemption date.

If we experience a Change of Control (as defined in the Indenture), we are required to offer to repurchase the Notes at 101% of the principal amount of such Notes plus accrued and unpaid interest, if any, to, but excluding, the date of repurchase.

The Indenture contains covenants that, among other things, limit our ability and the ability of our restricted subsidiaries to incur or guarantee additional indebtedness, pay dividends or make other restricted payments, make certain investments, incur restrictions on the ability of our restricted subsidiaries that are not guarantors to pay dividends or make certain other payments, create or incur certain liens, sell assets and subsidiary stock, impair the security interests, transfer all or substantially all of our assets or enter into merger or consolidation transactions, and enter into transactions with affiliates. The Indenture provides for customary events of default which include (subject in certain cases to customary grace and

cure periods), among others, nonpayment of principal or interest, breach of other agreements in the Indenture, failure to pay certain other indebtedness, failure of certain guarantees to be enforceable, failure to perfect certain collateral securing the Notes, failure to pay certain final judgments, and certain events of bankruptcy or insolvency.

We incurred debt issuance costs totaling $8.5 million related to the Notes. In accordance with ASC 835, the debt issuance costs have been deferred and are presented as a contra-liability, offsetting the outstanding balance of the Notes, and are amortized over the remaining life of the Notes. In addition, we had unamortized debt issuance costs of $6.1 million associated with the Term Loan. Upon repayment of the Term Loan, these debt issuance costs were fully extinguished and charged to interest expense in our results of operations.

Second Amended and Restated ABL Credit Agreement

In August 2020, our subsidiaries, G-III Leather Fashions, Inc., Riviera Sun, Inc., CK Outerwear, LLC, AM Retail Group, Inc. and The Donna Karan Company Store LLC (collectively, the "Borrowers"), entered into the second amended and restated credit agreement (the "ABL Credit Agreement") with the Lenders named therein and with JPMorgan Chase Bank, N.A., as Administrative Agent. The ABL Credit Agreement is a five year senior secured credit facility subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder. The ABL Credit Agreement provides for borrowings in the aggregate principal amount of up to $650 million. We and our subsidiaries, G-III Apparel Canada ULC, Gabrielle Studio, Inc., Donna Karan International Inc. and Donna Karan Studio LLC (the "Guarantors"), are Loan Guarantors under the ABL Credit Agreement.

The ABL Credit Agreement refinanced, amended and restated the Amended Credit Agreement, dated as of December 1, 2016 (as amended, supplemented or otherwise modified from time to time prior to August 7, 2020, the "Prior Credit Agreement"), by and among the Borrowers and the Loan Guarantors (each as defined therein) party thereto, the lenders from time to time party thereto, and JPMorgan Chase Bank, N.A., in its capacity as the administrative agent thereunder. The Prior Credit Agreement provided for borrowings of up to $650 million. The ABL Credit Agreement extended the maturity date of this facility from December 2021 to August 2025, subject to a springing maturity date if, subject to certain conditions, the LVMH Note is not refinanced or repaid prior to the date that is 91 days prior to the date of any relevant payment thereunder.

Amounts available under the ABL Credit Agreement are subject to borrowing base formulas and overadvances as specified in the ABL Credit Agreement. Borrowings bear interest, at the Borrowers' option, at LIBOR plus a margin of 1.75% to 2.25% or an alternate base rate margin of 0.75% to 1.25% (defined as the greatest of (i) the "prime rate" of JPMorgan Chase Bank, N.A. from time to time, (ii) the federal funds rate plus 0.5% and (iii) the LIBOR rate for a borrowing with an interest period of one month) plus 1.00%, with the applicable margin determined based on Borrowers' availability under the ABL Credit Agreement. The ABL Credit Agreement is secured by specified assets of the Borrowers and the Guarantors. In addition to paying interest on any outstanding borrowings under the ABL Credit Agreement, we are required to pay a commitment fee to the lenders under the credit agreement with respect to the unutilized commitments. The commitment fee accrues at a tiered rate equal to 0.50% per annum on the average daily amount of the available commitments when the average usage is less than 50% of the total available commitments and decreases to 0.35% per annum on the average daily amount of the available commitments when the average usage is greater than or equal to 50% of the total available commitments. As of July 31, 2022, interest under the ABL Credit Agreement was being paid at an average rate of 6.05% per annum.

The revolving credit facility contains covenants that, among other things, restrict our ability to, subject to specified exceptions, incur additional debt; incur liens; sell or dispose of certain assets; merge with other companies; liquidate or dissolve the Company; acquire other companies; make loans, advances, or guarantees; and make certain investments. In certain circumstances, the revolving credit facility also requires us to maintain a fixed charge coverage ratio, as defined in the agreement, not less than 1.00 to 1.00 for each period of twelve consecutive fiscal months of the Company. As of July 31, 2022, the Company was in compliance with these covenants.

As of July 31, 2022, we had $51.6 million of borrowings outstanding under the ABL Credit Agreement, all of which are classified as long-term liabilities. The ABL Credit Agreement also includes amounts available for letters of credit. As of

July 31, 2022, there were outstanding trade and standby letters of credit amounting to $7.9 million and $3.4 million, respectively.

At the date of the refinancing of the Prior Credit Agreement, we had $3.3 million of unamortized debt issuance costs remaining from the Prior Credit Agreement. We extinguished and charged to interest expense $0.4 million of the prior debt issuance costs and incurred new debt issuance costs totaling $5.1 million related to the ABL Credit Agreement. We have a total of $8.0 million debt issuance costs related to our ABL Credit Agreement. As permitted under ASC 835, the debt issuance costs have been deferred and are presented as an asset which is amortized ratably over the term of the ABL Credit Agreement.

The interest rate of our revolving credit facility is indexed to LIBOR. LIBOR quotations could cease as of December 31, 2022. We have discussed alternatives to LIBOR with the administrative agent under our ABL Credit Agreement and we expect that if LIBOR can no longer be used as the reference rate, we will be able to use an alternative such as the Secured Overnight Financing Rate, known as SOFR. We do not expect a material change to our interest expense or results of operations if LIBOR is no longer available as a reference rate under our ABL Credit Agreement.

We issued to LVMH, as a portion of the consideration for the acquisition of DKI, a junior lien secured promissory note in favor of LVMH in the principal amount of $125 million (the "LVMH Note") that bears interest at the rate of 2% per year. $75 million of the principal amount of the LVMH Note is due and payable on June 1, 2023 and therefore has been recorded within current portion of notes payable on the condensed consolidated balance sheets and $50 million of such principal amount is due and payable on December 1, 2023.

Based on an independent valuation, it was determined that the LVMH Note should be treated as having been issued at a discount of $40 million in accordance with ASC 820 - Fair Value Measurements. This discount is being amortized as interest expense using the effective interest method over the term of the LVMH Note.

In connection with the issuance of the LVMH Note, LVMH entered into (i) a subordination agreement providing that our obligations under the LVMH Note are subordinate and junior to our obligations under the revolving credit facility and Term Loan and (ii) a pledge and security agreement with us and our subsidiary, G-III Leather, pursuant to which we and G-III Leather granted to LVMH a security interest in specified collateral to secure our payment and performance of our obligations under the LVMH Note that is subordinate and junior to the security interest granted by us with respect to our obligations under the revolving credit facility and Term Loan.

During fiscal 2020 and fiscal 2021, T.R.B International SA ("TRB"), a subsidiary of Vilebrequin, borrowed funds under several unsecured loans. A portion of the unsecured loans was to provide funding for operations in the normal course of business, while other unsecured loans were various European state backed loans as part of COVID-19 relief programs. Additionally, Sonia Rykiel and KLH borrowed funds under European state backed loans that were part of COVID-19 relief programs. In the aggregate, the Company is currently required to make quarterly installment payments of principal in the amount of €0.2 million. Interest on the outstanding principal amount of the unsecured loans accrues at a fixed rate equal to 0% to 3.0% per annum, payable on either a quarterly or monthly basis. As of July 31, 2022, the Company had an aggregate outstanding balance of €7.6 million ($8.0 million) under these unsecured loans.

During fiscal 2021, TRB entered into several overdraft facilities that allow for applicable bank accounts to be in a negative position up to a certain maximum overdraft. TRB entered into an uncommitted overdraft facility with HSBC Bank allowing for a maximum overdraft of €5 million. Interest on drawn balances accrues at a fixed rate equal to the Euro Interbank Offered Rate plus a margin of 1.75% per annum, payable quarterly. The facility may be cancelled at any time by TRB or HSBC Bank. As part of a COVID-19 relief program, TRB and its subsidiaries have also entered into several state backed

overdraft facilities with UBS Bank in Switzerland for an aggregate of CHF 4.7 million at varying interest rates of 0% to 0.5%. As of July 31, 2022, TRB had an aggregate €3.1 million ($3.2 million) drawn under these facilities.

KLH has a credit agreement with ABN AMRO Bank N.V. with a credit limit of €15.0 million which is secured by specified assets of KLH. Borrowings bear interest at the Euro Interbank Offered Rate ("EURIBOR") plus a margin of 1.7%. As of July 31, 2022, KLH had €0.4 million ($0.4 million) of borrowings outstanding under this credit facility.

Our primary operating cash requirements are to fund our seasonal buildup in inventories and accounts receivable, primarily during the second and third fiscal quarters each year. Due to the seasonality of our business, we generally reach our peak borrowings under our asset-based credit facility during our third fiscal quarter. The primary sources to meet our operating cash requirements have been borrowings under this credit facility and cash generated from operations.

We had no borrowings outstanding under our revolving credit facility at July 31, 2022 and 2021. We had $400 million in borrowings outstanding under the Notes at July 31, 2022 and July 31, 2021, respectively. Our contingent liability under open letters of credit was approximately $11.3 million and $13.2 million at July 31, 2022 and 2021, respectively. In addition to the amounts outstanding under these two loan agreements, at July 31, 2022 and 2021, we had $125 million of face value principal amount outstanding under the LVMH Note. As of July 31, 2022 and 2021, we had an aggregate of €7.6 million ($8.0 million) and €7.5 million ($8.9 million) outstanding under the Company's various unsecured loans. As of July 31, 2022 and 2021, we had €3.1 million ($3.2 million) and €3.8 million ($4.5 million) outstanding under Vilebrequin's overdraft facilities. As of July 31, 2022, we had €0.4 million ($0.4 million) outstanding under KLH's foreign credit facility.

In March 2022, our Board of Directors authorized an increase in the number of shares covered by our share repurchase program to an aggregate amount of 10,000,000 shares. Pursuant to this program, during the three months ended July 31, 2022, we acquired 811,874 of our shares of common stock for an aggregate purchase price of $16.6 million. 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 our 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. As of September 6, 2022, we had 9,188,126 authorized shares remaining under this program and 47,486,633 shares of common stock outstanding.

We used $109.9 million in cash from operating activities during the six months ended July 31, 2022, primarily as a result of an increase of $496.4 million in inventories, a decrease of $30.4 million in customer refund liabilities and a non-cash $30.9 million gain on our 19% investment in KLH and 49% investment in KLNA. These items were offset, in part, by our net income of $67.0 million and non-cash charges consisting primarily of $25.2 million relating to share-based compensation and depreciation and amortization of $12.8 million, as well as an increase of $182.5 million in accounts payable and accrued expenses and a decrease of $145.1 in accounts receivable.

The changes in operating cash flow items varied to some extent from seasonal patterns in prior years. While inventories normally increase in the first half of our fiscal year, they increased more than normal due an acceleration in our production schedule in an attempt to mitigate the potential effects of supply chain disruptions and to accommodate the anticipated extended transit times from our overseas suppliers. Accounts payable increased primarily due to the acceleration of inventory purchases. Accounts receivable and customer refund liabilities decreased because we experience lower sales levels in our first and second quarters than in our third and fourth quarters.

We used $224.6 million of cash in investing activities during the six months ended July 31, 2022, primarily as a result of cash paid, net of cash acquired, of $168.6 million for the acquisition to KLH. We also used cash for a $25.0 million minority investment in an e-commerce retailer and a $22.4 million investment in equity securities. In addition, we had $8.5 million in capital expenditures primarily related to infrastructure and information technology expenditures and additional fixturing costs at department stores.

Net cash provided by financing activities was $22.9 million during six months ended July 31, 2022 primarily as a result of borrowings of $57.9 million under our ABL Credit Agreement, partially offset by repayments of $8.6 million. This borrowing was also offset, in part, by $16.6 million of cash used to repurchase 811,874 shares of our common stock under our share repurchase program and $9.8 million for taxes paid in connection with net share settlements of stock grants that vested.

Our discussion of results of operations and financial condition relies on our consolidated financial statements that are prepared based on certain critical accounting policies that require management to make judgments and estimates that are subject to varying degrees of uncertainty. We believe that investors need to be aware of these policies and how they impact our financial statements as a whole, as well as our related discussion and analysis presented herein. While we believe that these accounting policies are based on sound measurement criteria, actual future events can, and often do, result in outcomes that can be materially different from these estimates or forecasts.

The accounting policies and related estimates described in our Annual Report on Form 10-K for the year ended January 31, 2022 are those that depend most heavily on these judgments and estimates. As of July 31, 2022, there have been no material changes to our critical accounting policies.

© Edgar Online, source Glimpses