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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 31, 2021

or

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from          to       

 

Commission File Number: 0-18183

 G-III APPAREL GROUP, LTD.

(Exact name of registrant as specified in its charter) 

 

Delaware

    

41-1590959

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

512 Seventh Avenue, New York, New York

 

10018

(Address of principal executive offices)

 

(Zip Code)

(212) 403-0500

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

GIII

The Nasdaq Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes      No 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files.)  Yes      No 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes     No 

As of December 3, 2021, there were 48,568,473 shares of issuer’s common stock, par value $0.01 per share, outstanding.

Table of Contents

TABLE OF CONTENTS

    

Page No.

Part I

FINANCIAL INFORMATION

Item 1.

Financial Statements

Condensed Consolidated Balance Sheets – October 31, 2021, October 31, 2020 and January 31, 2021

3

Condensed Consolidated Statements of Operations and Comprehensive Income - For the Three and Nine months Ended October 31, 2021 and 2020 (Unaudited)

4

Condensed Consolidated Statements of Stockholders’ Equity – October 31, 2021 and October 31, 2020 (Unaudited)

5

Condensed Consolidated Statements of Cash Flows - For the Nine months Ended October 31, 2021 and 2020 (Unaudited)

6

Notes to Condensed Consolidated Financial Statements

7

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31

Item 4.

Controls and Procedures

31

Part II

OTHER INFORMATION

Item 1A.

Risk Factors

32

Item 6.

Exhibits

32

2

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1.          Financial Statements.

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

October 31,

October 31,

January 31,

2021

2020

2021

    

(Unaudited)

    

(Unaudited)

    

(In thousands, except per share amounts)

ASSETS

Current assets

Cash and cash equivalents

$

279,564

$

149,745

$

351,934

Accounts receivable, net of allowance for doubtful accounts of $17.4 million, $15.5 million and $17.5 million, respectively

844,382

720,975

492,698

Inventories

448,991

461,769

416,503

Prepaid income taxes

994

2,043

26,102

Prepaid expenses and other current assets

53,532

37,274

56,803

Total current assets

1,627,463

1,371,806

1,344,040

Investments in unconsolidated affiliates

61,413

62,177

63,523

Property and equipment, net

49,948

60,973

57,064

Operating lease assets

176,530

181,187

186,070

Other assets, net

60,405

36,722

38,785

Other intangibles, net

32,208

35,669

35,059

Deferred income tax assets, net

4,682

18,136

5,098

Trademarks

450,252

441,062

443,612

Goodwill

265,116

261,684

263,135

Total assets

$

2,728,017

$

2,469,416

$

2,436,386

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities

Current portion of notes payable

$

4,063

$

4,083

$

4,402

Accounts payable

233,893

157,654

139,183

Accrued expenses

141,456

125,675

102,787

Customer refund liabilities

81,271

120,395

99,355

Current operating lease liabilities

45,117

65,554

43,560

Income tax payable

38,974

8,702

11,853

Other current liabilities

2,228

21

862

Total current liabilities

547,002

482,084

402,002

Notes payable, net of discount and unamortized issuance costs

513,466

504,328

507,950

Deferred income tax liabilities, net

21,306

8,313

20,353

Noncurrent operating lease liabilities

147,688

157,983

161,668

Other noncurrent liabilities

11,558

6,441

7,208

Total liabilities

1,241,020

1,159,149

1,099,181

Redeemable noncontrolling interests

758

964

Stockholders' Equity

Preferred stock; 1,000 shares authorized; no shares issued

Common stock - $0.01 par value; 120,000 shares authorized; 49,396, 49,396 and, 49,396 shares issued, respectively

264

264

264

Additional paid-in capital

450,768

446,662

448,417

Accumulated other comprehensive loss

(11,428)

(11,194)

(2,094)

Retained earnings

1,068,575

902,041

916,683

Common stock held in treasury, at cost - 827, 1,037 and 1,019 shares, respectively

(21,940)

(27,506)

(27,029)

Total stockholders' equity

1,486,239

1,310,267

1,336,241

Total liabilities, redeemable noncontrolling interests and stockholders' equity

$

2,728,017

$

2,469,416

$

2,436,386

The accompanying notes are an integral part of these statements.

3

Table of Contents

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

Three Months Ended October 31,

Nine Months Ended October 31,

2021

    

2020

    

2021

    

2020

(Unaudited)

(In thousands, except per share amounts)

Net sales

$

1,015,392

$

826,561

$

2,018,383

$

1,528,904

Cost of goods sold

667,882

528,806

1,282,526

972,055

Gross profit

347,510

297,755

735,857

556,849

Selling, general and administrative expenses

182,360

177,625

470,803

454,347

Depreciation and amortization

7,024

10,187

21,166

29,745

Asset impairments, net of loss (gain) on lease modifications

(117)

17,372

Operating profit

158,126

110,060

243,888

55,385

Other income

898

225

4,693

112

Interest and financing charges, net

(12,354)

(18,681)

(36,932)

(38,237)

Income before income taxes

146,670

91,604

211,649

17,260

Income tax expense

40,198

28,430

59,692

8,357

Net income

106,472

63,174

151,957

8,903

Less: Loss attributable to noncontrolling interests

(202)

(206)

Net income attributable to G-III Apparel Group, Ltd.

$

106,674

$

63,174

$

152,163

$

8,903

NET INCOME PER COMMON SHARE ATTRIBUTABLE TO G-III APPAREL GROUP, LTD.:

Basic:

Net income per common share

$

2.20

$

1.31

$

3.14

$

0.18

Weighted average number of shares outstanding

48,567

48,359

48,474

48,201

Diluted:

Net income per common share

$

2.16

$

1.29

$

3.07

$

0.18

Weighted average number of shares outstanding

49,458

48,809

49,499

48,589

Net income

$

106,472

$

63,174

$

151,957

$

8,903

Other comprehensive income (loss):

Foreign currency translation adjustments

(4,402)

7,066

(9,340)

6,814

Other comprehensive income (loss):

(4,402)

7,066

(9,340)

6,814

Comprehensive income

$

102,070

$

70,240

$

142,617

$

15,717

Comprehensive loss attributable to noncontrolling interests:

Net loss

(202)

(206)

Foreign currency translation adjustments

6

Comprehensive loss attributable to noncontrolling interests

(202)

(200)

Comprehensive income attributable to G-III Apparel Group, Ltd.

$

101,868

$

70,240

$

142,417

$

15,717

The accompanying notes are an integral part of these statements.

4

Table of Contents

G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

Accumulated

Common

Additional

Other

Stock

Common

Paid-In

Comprehensive

Retained

Held In

    

Stock

    

Capital

    

Loss

    

Earnings

    

Treasury

    

Total

(Unaudited)

(In thousands)

Balance as of July 31, 2021

$

264

$

447,476

$

(7,026)

$

961,901

$

(22,003)

$

1,380,612

Equity awards exercised/vested, net

(63)

63

Share-based compensation expense

3,354

3,354

Taxes paid for net share settlements

1

1

Other comprehensive income, net

(4,402)

(4,402)

Net income attributable to G-III Apparel Group, Ltd.

106,674

106,674

Balance as of October 31, 2021

$

264

$

450,768

$

(11,428)

$

1,068,575

$

(21,940)

$

1,486,239

Balance as of July 31, 2020

$

264

$

444,384

$

(18,260)

$

838,867

$

(27,506)

$

1,237,749

Share-based compensation expense

2,278

2,278

Other comprehensive loss, net

7,066

7,066

Net income attributable to G-III Apparel Group, Ltd.

63,174

63,174

Balance as of October 31, 2020

$

264

$

446,662

$

(11,194)

$

902,041

$

(27,506)

$

1,310,267

Balance as of January 31, 2021

$

264

$

448,417

$

(2,094)

$

916,683

$

(27,029)

$

1,336,241

Equity awards exercised/vested, net

(5,089)

5,089

Share-based compensation expense

11,773

11,773

Taxes paid for net share settlements

(4,333)

(4,333)

Cumulative effect of change in accounting principle

(271)

(271)

Other comprehensive income, net

(9,334)

(9,334)

Net income attributable to G-III Apparel Group, Ltd.

152,163

152,163

Balance as of October 31, 2021

$

264

$

450,768

$

(11,428)

$

1,068,575

$

(21,940)

$

1,486,239

Balance as of January 31, 2020

$

264

$

452,142

$

(18,008)

$

893,138

$

(36,864)

$

1,290,672

Equity awards exercised/vested, net

(9,178)

9,358

180

Share-based compensation expense

4,015

4,015

Taxes paid for net share settlements

(317)

(317)

Other comprehensive loss, net

6,814

6,814

Net income attributable to G-III Apparel Group, Ltd.

8,903

8,903

Balance as of October 31, 2020

$

264

$

446,662

$

(11,194)

$

902,041

$

(27,506)

$

1,310,267

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

Nine Months Ended October 31,

    

2021

    

2020

(Unaudited)

(In thousands)

Cash flows from operating activities

Net income attributable to G-III Apparel Group, Ltd.

$

152,163

$

8,903

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

21,166

29,745

Loss on disposal of fixed assets

55

474

Non-cash operating lease costs

31,635

59,643

Gain on lease modifications

(2,539)

Asset impairments

19,911

Dividend received from unconsolidated affiliate

1,376

2,695

Equity (gain)/loss in unconsolidated affiliates

(2,783)

(340)

Change in fair value of equity investment

(1,206)

Share-based compensation

11,773

4,015

Deferred financing charges and debt discount amortization

7,212

7,712

Extinguishment of deferred financing costs

6,503

Deferred income taxes

1,747

2

Changes in operating assets and liabilities:

Accounts receivable, net

(351,683)

(190,838)

Inventories

(32,488)

90,148

Income taxes, net

52,229

6,587

Prepaid expenses and other current assets

9,071

42,704

Other assets, net

1,003

(342)

Customer refund liabilities

(18,085)

(113,023)

Operating lease liabilities

(34,720)

(61,822)

Accounts payable, accrued expenses and other liabilities

136,147

(37,709)

Net cash used in operating activities

(15,388)

(127,571)

Cash flows from investing activities

Operating lease assets initial direct costs

(4,041)

Minority investment in e-commerce retailer

(25,000)

Capital expenditures

(13,004)

(12,392)

Investment in brand acquisition

(13,266)

Net cash used in investing activities

(51,270)

(16,433)

Cash flows from financing activities

Repayment of borrowings - revolving facility

(878,083)

Proceeds from borrowings - revolving facility

878,083

Repayment of borrowings - foreign facilities

(277)

Proceeds from borrowings - foreign facilities

100

Repayment of borrowings - unsecured term loan

(300,262)

Proceeds from borrowings - unsecured term loan

7,103

Proceeds from borrowings - senior secured notes

400,000

Payment of financing costs

(13,276)

Proceeds from exercise of equity awards

180

Taxes paid for net share settlements

(4,333)

(317)

Net cash (used in) provided by financing activities

(4,510)

93,428

Foreign currency translation adjustments

(1,202)

2,949

Net decrease in cash and cash equivalents

(72,370)

(47,627)

Cash and cash equivalents at beginning of period

351,934

197,372

Cash and cash equivalents at end of period

$

279,564

$

149,745

Supplemental disclosures of cash flow information

Cash payments:

Interest, net

$

36,954

$

14,864

Income tax payments, net

$

5,370

$

1,628

Stock received from licensing agreement

$

4,831

$

The accompanying notes are an integral part of these statements.

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G-III APPAREL GROUP, LTD. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Note 1 – Basis of Presentation

As used in these financial statements, the term “Company” or “G-III” refers to G-III Apparel Group, Ltd. and its subsidiaries. The Company designs, sources and markets an extensive range of apparel, including outerwear, dresses, sportswear, swimwear, women’s suits and women’s performance wear, as well as women’s handbags, footwear, small leather goods, cold weather accessories and luggage. The Company also operates retail stores and licenses its proprietary brands for several product categories.

The Company consolidates the accounts of its wholly-owned and majority-owned subsidiaries. Fabco Holding B.V (“Fabco”) is a Dutch joint venture limited liability company that was 49% owned by the Company through November 30, 2020 and was accounted for using the equity method of accounting. Effective December 1, 2020, the Company increased its ownership interest in Fabco to 75% and, as a result, Fabco is treated as a consolidated majority-owned subsidiary. KL North America B.V. (“KLNA”) is a Dutch joint venture limited liability company that is 49% owned by the Company. Karl Lagerfeld Holding B.V. (“KLH”) is a Dutch limited liability company that is 19% owned by the Company. The Company accounts for these two investments using the equity method of accounting. All material intercompany balances and transactions have been eliminated.

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 quarter ended or ending closest to the Company’s fiscal quarter end. For example, with respect to the Company’s results for the nine-month period ended October 31, 2021, the results of Vilebrequin, KLH, KLNA and Fabco are included for the nine-month period ended September 30, 2021. The Company’s retail operations segment reports on a 52/53-week fiscal year. For fiscal 2022 and 2021, the three and nine-month periods for the retail operations segment were each 13-week and 39-week periods, respectively, and ended on October 30, 2021 and October 31, 2020, respectively.

The results for the three and nine months ended October 31, 2021 are not necessarily indicative of the results expected for the entire fiscal year, given the seasonal nature of the Company’s business and the effects of the COVID-19 pandemic on the Company’s business. The accompanying financial statements included herein are unaudited. All adjustments (consisting of only normal recurring adjustments) necessary for a fair presentation of the financial position, results of operations and cash flows for the interim period presented have been reflected.

The accompanying financial statements should be read in conjunction with the financial statements and notes included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2021 filed with the Securities and Exchange Commission (the “SEC”).

Assets and liabilities of the Company’s foreign operations, where the functional currency is not the U.S. dollar (reporting currency), are translated from foreign currency into U.S. dollars at period-end rates, while income and expenses are translated at the weighted-average exchange rates for the period. The related translation adjustments are reflected as a foreign currency translation adjustment in accumulated other comprehensive loss within stockholders’ equity.

Change in Accounting Principle

Effective February 1, 2021, the Company elected to change its method of accounting for retail inventories from the lower of cost or market as determined by the retail inventory method to the lower of cost or net realizable value using the weighted average cost method. The Company believes the new method is preferable as it provides better matching of cost of goods sold with revenue, improves the precision of inventory valuation at the balance sheet dates, and more closely aligns with the valuation methods used throughout the rest of the Company. In addition, the change in inventory valuation better aligns with the way the Company manages its business with a focus on the actual margin realized.

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The Company determined that it was impractical to apply this change in accounting principle retrospectively due to a lack of available information. As a result, the Company applied the change prospectively as of February 1, 2021. The cumulative adjustment as of February 1, 2021 was a decrease of $0.3 million in both inventories and retained earnings. The change in accounting principle did not have a material effect on the Company’s condensed consolidated financial statements as of and for the three and nine-month periods ended October 31, 2021.

Note 2 – Retail Restructuring

In fiscal 2021, the Company restructured its retail operations segment, including the closing of the Wilsons Leather, G.H. Bass and Calvin Klein Performance stores. Restructuring charges are recorded within selling, general and administrative expenses in the Company’s condensed consolidated statements of operations and comprehensive income. During the three months ended October 31, 2021, the Company paid the final $46,000 related to store closing costs. As a result, as of October 31, 2021, the Company has paid all remaining restructuring charges.

Note 3 – Allowance for Doubtful Accounts

The Company’s financial instruments consist of trade receivables arising from revenue transactions in the ordinary course of business. The Company considers its trade receivables to consist of two portfolio segments: wholesale and retail trade receivables. Wholesale trade receivables result from credit the Company has extended to its wholesale customers based on pre-defined criteria and are generally due within 30 to 60 days. Retail trade receivables primarily relate to amounts due from third-party credit card processors for the settlement of debit and credit card transactions and are typically collected within 3 to 5 days.

The Company’s accounts receivable and allowance for doubtful accounts as of October 31, 2021, October 31, 2020 and January 31, 2021 were:

October 31, 2021

    

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

860,245

$

1,586

$

861,831

Allowance for doubtful accounts

(17,412)

(37)

(17,449)

Accounts receivable, net

$

842,833

$

1,549

$

844,382

October 31, 2020

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

734,481

$

1,968

$

736,449

Allowance for doubtful accounts

(15,437)

(37)

(15,474)

Accounts receivable, net

$

719,044

$

1,931

$

720,975

January 31, 2021

Wholesale

    

Retail

    

Total

(In thousands)

Accounts receivable, gross

$

509,010

$

1,147

$

510,157

Allowance for doubtful accounts

(17,429)

(30)

(17,459)

Accounts receivable, net

$

491,581

$

1,117

$

492,698

The allowance for doubtful accounts for wholesale trade receivables is estimated based on several factors. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations (such as in the case of bankruptcy filings (including potential bankruptcy filings), extensive delay in payment or substantial downgrading by credit rating agencies), a specific reserve for bad debt is recorded against amounts due from that customer to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other wholesale customers, an allowance for doubtful accounts is determined through analysis of the aging of accounts receivable at the end of the reporting period for financial statements, assessments of collectability based on historical trends and an evaluation of the

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impact of economic conditions. The Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

The allowance for doubtful accounts for retail trade receivables is estimated at the credit card chargeback rate applied to the previous 90 days of credit card sales. In addition, the Company considers both current and forecasted future economic conditions in determining the adequacy of its allowance for doubtful accounts.

The Company had the following activity in its allowance for credit losses:

    

Wholesale

    

Retail

    

Total

(In thousands)

Balance as of January 31, 2021

$

(17,429)

$

(30)

$

(17,459)

Provision for credit losses

(54)

(7)

(61)

Accounts written off as uncollectible

71

71

Balance as of October 31, 2021

$

(17,412)

$

(37)

$

(17,449)

Balance as of January 31, 2020

$

(628)

$

(82)

$

(710)

Provision for credit losses

(14,919)

45

(14,874)

Accounts written off as uncollectible

110

110

Balance as of October 31, 2020

$

(15,437)

$

(37)

$

(15,474)

Balance as of January 31, 2020

$

(628)

$

(82)

$

(710)

Provision for credit losses

(16,934)

52

(16,882)

Accounts written off as uncollectible

133

133

Balance as of January 31, 2021

$

(17,429)

$

(30)

$

(17,459)

Note 4 – Inventories

Wholesale inventories, which comprise a significant portion of the Company’s inventory, are stated at the lower of cost (determined by the first-in, first-out method) or net realizable value. Prior to February 1, 2021, retail inventories were valued at the lower of cost or market as determined by the retail inventory method. Effective February 1, 2021, the Company elected to change its method of accounting for retail inventories to the lower of cost (determined by the weighted average method) or net realizable value. See Note 1 – Basis of Presentation for more details on the preferability and application of this change in accounting principle. Vilebrequin inventories are stated at the lower of cost (determined by the weighted average method) or net realizable value. Substantially all of the Company’s inventories consist of finished goods.

The inventory return asset, which consists of the amount of goods that are anticipated to be returned by customers, represented $13.9 million, $20.6 million and $22.5 million as of October 31, 2021, October 31, 2020 and January 31, 2021, respectively. The inventory return asset is recorded within prepaid expenses and other current assets on the condensed consolidated balance sheets.

Inventory held on consignment by the Company’s customers totaled $5.6 million, $4.8 million and $3.5 million at October 31, 2021, October 31, 2020 and January 31, 2021, respectively. Consignment inventory is stored at the facilities of the Company’s customers. The Company reflects this inventory on its condensed consolidated balance sheets.

Note 5 – Fair Value of Financial Instruments

Generally Accepted Accounting Principles establish a three-level valuation hierarchy for disclosure of fair value measurements. The determination of the applicable level within the hierarchy for a particular asset or liability depends on the inputs used in its valuation as of the measurement date, notably the extent to which the inputs are market-based (observable) or internally-derived (unobservable). A financial instrument’s categorization within the valuation hierarchy

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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

    

October 31,

October 31,

January 31,

    

October 31,

October 31,

January 31,

Financial Instrument

Level

2021

2020

2021

2021

2020

2021

(In thousands)

Secured notes

2

$

400,000

$

400,000

$

400,000

$

400,000

$

400,000

$

400,000

Note issued to LVMH

3

112,613

106,361

107,869

107,983

99,832

101,810

Unsecured loans

2

8,444

7,232

9,119

8,444

7,232

9,119

Overdraft facilities

2

2,841

2,885

3,007

2,841

2,885

3,007

The Company’s debt instruments are recorded at their carrying values in its condensed consolidated balance sheets, which may differ from their respective fair values. The carrying amount of the Company’s variable rate debt approximates the fair value, as interest rates change with the market rates. Furthermore, the carrying value of all other financial instruments potentially subject to valuation risk (principally consisting of cash, accounts receivable and accounts payable) also approximates fair value due to the short-term nature of these accounts.

The 2% note in the principal amount of $125 million (the “LVMH Note”) issued to LVMH Moet Hennessy Louis Vuitton Inc. (“LVMH”) in connection with the acquisition of Donna Karan International (“DKI”) was recorded on the balance sheet at a discount of $40.0 million in accordance with ASC 820 – Fair Value Measurements. For purposes of this fair value disclosure, the Company based its fair value estimate for the LVMH Note on the initial fair value as determined at the date of the acquisition of DKI and records the amortization using the effective interest method over the term of the LVMH Note.

The fair value of the LVMH Note was considered a Level 3 valuation in the fair value hierarchy.

Non-Financial Assets and Liabilities

The Company’s non-financial assets that are measured at fair value on a nonrecurring basis include long-lived assets, which consist primarily of property and equipment and operating lease assets. The Company reviews these assets for impairment whenever events or changes in circumstances indicate that their carrying value may not be fully recoverable. For assets that are not recoverable, an impairment loss is recognized equal to the difference between the carrying amount of the asset or asset group and its estimated fair value. For operating lease assets, the Company determines the fair value of the assets by discounting the estimated market rental rates over the remaining term of the lease. These fair value measurements are considered level 3 measurements in the fair value hierarchy. During the second quarter of fiscal 2021, the Company recorded a $20 million impairment charge primarily related to operating lease assets, leasehold improvements and furniture and fixtures at certain Wilsons Leather, G.H. Bass, DKNY and Vilebrequin stores as a result of the performance at these stores.

Note 6 – Leases

The Company leases retail stores, warehouses, distribution centers, office space and certain equipment. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

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Most leases are for a term of one to ten years.  Some leases include one or more options to renew, with renewal terms that can extend the lease term from one to ten years.  Several of the Company’s retail store leases include an option to terminate the lease based on failure to achieve a specified sales volume. The exercise of lease renewal options is generally at the Company’s sole discretion. The exercise of lease termination options is generally by mutual agreement between the Company and the lessor.

Certain of the Company’s lease agreements include rental payments based on a percentage of retail sales over contractual levels and others include rental payments adjusted periodically for inflation. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

The Company’s lease assets and liabilities as of October 31, 2021, October 31, 2020 and January 31, 2021 consist of the following: