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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

 

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

 

For the Quarterly Period Ended October 31, 2023

 

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: 1-16497

MOVADO GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

New York

13-2595932

(State or Other Jurisdiction

of Incorporation or Organization)

(IRS Employer

Identification No.)

 

 

 

650 From Road, Ste. 375

Paramus, New Jersey

07652-3556

(Address of Principal Executive Offices)

(Zip Code)

(201) 267-8000

(Registrant’s telephone number, including area code)

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, par value $0.01 per share

 

MOV

 

New York Stock Exchange

 

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 that 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

The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of November 27, 2023 were 15,596,895 and 6,483,116 respectively.

 

 


 

MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

October 31, 2023

 

 

 

 

Page

Part I

Financial Information (Unaudited)

 

 

 

 

 

Item 1.

 

 

Consolidated Balance Sheets at October 31, 2023, January 31, 2023 and October 31, 2022

 

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended October 31, 2023 and October 31, 2022

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended October 31, 2023 and October 31, 2022

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended October 31, 2023 and October 31, 2022

 

6

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

Item 2.

 

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

 

21

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

30

 

 

 

Item 4.

 

Controls and Procedures

 

31

 

Part II

 

Other Information

 

 

 

 

Item 1.

 

 

Legal Proceedings

 

32

 

 

Item 1A.

 

 

Risk Factors

 

32

 

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

32

 

 

 

Item 5.

 

 

Other Information

 

33

 

 

 

Item 6.

 

 

Exhibits

 

34

Signature

 

35

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

MOVADO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

October 31,

 

 

January 31,

 

 

October 31,

 

 

2023

 

 

2023

 

 

2022

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

200,965

 

 

$

251,584

 

 

$

186,665

 

Trade receivables, net

 

135,523

 

 

 

94,282

 

 

 

135,566

 

Inventories

 

171,966

 

 

 

186,203

 

 

 

215,006

 

Other current assets

 

18,856

 

 

 

24,212

 

 

 

18,664

 

Income taxes receivable

 

11,135

 

 

 

10,908

 

 

 

7,978

 

Total current assets

 

538,445

 

 

 

567,189

 

 

 

563,879

 

Property, plant and equipment, net

 

19,458

 

 

 

18,699

 

 

 

18,207

 

Operating lease right-of-use assets

 

84,212

 

 

 

80,897

 

 

 

74,918

 

Deferred and non-current income taxes

 

44,814

 

 

 

44,490

 

 

 

44,288

 

Other intangibles, net

 

7,688

 

 

 

9,642

 

 

 

9,818

 

Other non-current assets

 

68,780

 

 

 

66,788

 

 

 

64,570

 

Total assets

$

763,397

 

 

$

787,705

 

 

$

775,680

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

22,998

 

 

$

32,085

 

 

$

40,884

 

Accrued liabilities

 

57,165

 

 

 

46,720

 

 

 

66,894

 

Accrued payroll and benefits

 

10,317

 

 

 

17,343

 

 

 

15,581

 

Current operating lease liabilities

 

15,885

 

 

 

17,681

 

 

 

16,779

 

Income taxes payable

 

20,024

 

 

 

28,591

 

 

 

25,457

 

Total current liabilities

 

126,389

 

 

 

142,420

 

 

 

165,595

 

Deferred and non-current income taxes payable

 

7,966

 

 

 

15,163

 

 

 

15,639

 

Non-current operating lease liabilities

 

76,929

 

 

 

70,910

 

 

 

65,164

 

Other non-current liabilities

 

49,195

 

 

 

48,668

 

 

 

45,735

 

Total liabilities

 

260,479

 

 

 

277,161

 

 

 

292,133

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Redeemable noncontrolling interest

 

 

 

 

 

 

 

2,433

 

Equity:

 

 

 

 

 

 

 

 

Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares
   issued

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value, 100,000,000 shares authorized;
   
28,879,497, 28,806,511 and 28,783,101 shares issued and outstanding,
   respectively

 

289

 

 

 

288

 

 

 

287

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;
   
6,483,116, 6,524,805 and 6,524,805 shares issued and outstanding,
   respectively

 

64

 

 

 

65

 

 

 

65

 

Capital in excess of par value

 

236,438

 

 

 

230,782

 

 

 

227,997

 

Retained earnings

 

465,919

 

 

 

476,752

 

 

 

461,789

 

Accumulated other comprehensive income

 

81,727

 

 

 

81,295

 

 

 

66,196

 

Treasury Stock, 13,282,860, 13,194,339 and 13,090,839 shares,
   respectively, at cost

 

(283,998

)

 

 

(281,576

)

 

 

(278,313

)

Total Movado Group, Inc. shareholders' equity

 

500,439

 

 

 

507,606

 

 

 

478,021

 

Noncontrolling interest

 

2,479

 

 

 

2,938

 

 

 

3,093

 

Total equity

 

502,918

 

 

 

510,544

 

 

 

481,114

 

Total liabilities, redeemable noncontrolling interest and equity

$

763,397

 

 

$

787,705

 

 

$

775,680

 

 

See Notes to Consolidated Financial Statements

3


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net sales

$

187,686

 

 

$

211,397

 

 

$

492,981

 

 

$

557,625

 

Cost of sales

 

85,358

 

 

 

90,370

 

 

 

219,364

 

 

 

232,986

 

Gross profit

 

102,328

 

 

 

121,027

 

 

 

273,617

 

 

 

324,639

 

Selling, general and administrative

 

81,636

 

 

 

82,756

 

 

 

232,378

 

 

 

230,417

 

Operating income

 

20,692

 

 

 

38,271

 

 

 

41,239

 

 

 

94,222

 

Non-operating income/(expense):

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

1,632

 

 

 

422

 

 

 

4,194

 

 

 

704

 

Interest expense

 

(135

)

 

 

(143

)

 

 

(361

)

 

 

(356

)

Income before income taxes

 

22,189

 

 

 

38,550

 

 

 

45,072

 

 

 

94,570

 

Provision for income taxes (Note 9)

 

4,519

 

 

 

8,439

 

 

 

9,938

 

 

 

20,868

 

Net income

 

17,670

 

 

 

30,111

 

 

 

35,134

 

 

 

73,702

 

Less: Net income attributable to noncontrolling interests

 

281

 

 

 

825

 

 

 

568

 

 

 

1,900

 

Net income attributable to Movado Group, Inc.

$

17,389

 

 

$

29,286

 

 

$

34,566

 

 

$

71,802

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

Weighted basic average shares outstanding

 

22,209

 

 

 

22,379

 

 

 

22,222

 

 

 

22,590

 

Net income per share attributable to Movado Group, Inc.

$

0.78

 

 

$

1.31

 

 

$

1.56

 

 

$

3.18

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

Weighted diluted average shares outstanding

 

22,677

 

 

 

22,794

 

 

 

22,641

 

 

 

23,044

 

Net income per share attributable to Movado Group, Inc.

$

0.77

 

 

$

1.28

 

 

$

1.53

 

 

$

3.12

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Consolidated Financial Statements

4


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Net income

 

$

17,670

 

 

$

30,111

 

 

$

35,134

 

 

$

73,702

 

Other comprehensive (loss)/income:

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized (loss)/gain on investments, net of tax (benefit)/provision of ($3), $8, ($13) and $3, respectively

 

 

(9

)

 

 

23

 

 

 

(38

)

 

 

9

 

Amortization of prior service cost, net of tax provision of $4, $3, $12 and $11, respectively

 

 

15

 

 

 

13

 

 

 

45

 

 

 

41

 

Foreign currency translation adjustments

 

 

(10,066

)

 

 

(8,339

)

 

 

256

 

 

 

(18,870

)

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive income/(loss) before reclassification, net of tax provision/(benefit) of $56, ($17), $51 and $376, respectively

 

 

284

 

 

 

(87

)

 

 

260

 

 

 

1,902

 

Amounts reclassified from accumulated other comprehensive (loss)/income, net of tax (benefit) of ($61), ($225), ($18) and ($431), respectively

 

 

(307

)

 

 

(1,138

)

 

 

(91

)

 

 

(2,181

)

Total other comprehensive (loss)/income, net of taxes

 

 

(10,083

)

 

 

(9,528

)

 

 

432

 

 

 

(19,099

)

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income/(loss) attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

281

 

 

 

825

 

 

 

568

 

 

 

1,900

 

Foreign currency translation adjustments

 

 

(136

)

 

 

(319

)

 

 

(247

)

 

 

(652

)

Total comprehensive income attributable to noncontrolling interests

 

$

145

 

 

$

506

 

 

$

321

 

 

$

1,248

 

Total comprehensive income attributable to Movado Group, Inc.

 

$

7,442

 

 

$

20,077

 

 

$

35,245

 

 

$

53,355

 

 

See Notes to Consolidated Financial Statements

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Nine Months Ended October 31,

 

 

2023

 

 

2022

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

35,134

 

 

$

73,702

 

Adjustments to reconcile net income to net cash provided by/(used in) operating activities:

 

 

 

 

 

Depreciation and amortization

 

7,278

 

 

 

8,218

 

Transactional losses/(gains)

 

204

 

 

 

(180

)

Provision for inventories and accounts receivable

 

3,803

 

 

 

4,150

 

Deferred income taxes

 

(2,032

)

 

 

(993

)

Stock-based compensation

 

5,529

 

 

 

4,246

 

Other

 

754

 

 

 

190

 

Changes in assets and liabilities:

 

 

 

 

 

Trade receivables

 

(42,027

)

 

 

(49,967

)

Inventories

 

10,758

 

 

 

(66,150

)

Other current assets

 

4,107

 

 

 

(2,712

)

Accounts payable

 

(7,492

)

 

 

(3,470

)

Accrued liabilities

 

12,336

 

 

 

19,582

 

Accrued payroll and benefits

 

(7,039

)

 

 

(9,190

)

Income taxes receivable

 

(4,494

)

 

 

9,494

 

Income taxes payable

 

(10,014

)

 

 

(6,444

)

Other non-current assets

 

1,293

 

 

 

(4,599

)

Other non-current liabilities

 

(730

)

 

 

474

 

Net cash provided by/(used in) operating activities

 

7,368

 

 

 

(23,649

)

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(6,627

)

 

 

(4,703

)

Long-term investments

 

(2,040

)

 

 

(2,716

)

Trademarks and other intangibles

 

(113

)

 

 

(175

)

Net cash used in investing activities

 

(8,780

)

 

 

(7,594

)

Cash flows from financing activities:

 

 

 

 

 

Dividends paid

 

(45,399

)

 

 

(23,600

)

Stock repurchases

 

(2,349

)

 

 

(28,150

)

Distribution of noncontrolling interest earnings

 

(780

)

 

 

 

Stock awards and options exercised and other changes

 

(73

)

 

 

(80

)

Other

 

 

 

 

(85

)

Net cash used in financing activities

 

(48,601

)

 

 

(51,915

)

Effect of exchange rate changes on cash, cash equivalents, and restricted cash

 

(377

)

 

 

(7,349

)

Net decrease in cash, cash equivalents and restricted cash

 

(50,390

)

 

 

(90,507

)

Cash, cash equivalents, and restricted cash at beginning of year

 

252,179

 

 

 

277,716

 

Cash, cash equivalents, and restricted cash at end of period

$

201,789

 

 

$

187,209

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

Cash and cash equivalents

$

200,965

 

 

$

186,665

 

Restricted cash included in other non-current assets

 

824

 

 

 

544

 

Cash, cash equivalents, and restricted cash

$

201,789

 

 

$

187,209

 

See Notes to Consolidated Financial Statements

6


 

MOVADO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

NOTE 1 – BASIS OF PRESENTATION

The accompanying interim unaudited Consolidated Financial Statements have been prepared by Movado Group, Inc. (the “Company”), in a manner consistent with that used in the preparation of the annual audited Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2023 (the “2023 Annual Report on Form 10-K”). The unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited Consolidated Financial Statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited Consolidated Financial Statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 2023 is derived from the audited annual financial statements, which are included in the Company’s 2023 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

 

 

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

The Company has reviewed all recently issued accounting pronouncements and concluded that they were either not applicable or not expected to have a material impact on the Consolidated Financial Statements or related disclosures.

NOTE 3 – EARNINGS PER SHARE AND CASH DIVIDENDS

The Company presents net income attributable to Movado Group, Inc. after adjusting for noncontrolling interests, as applicable, per share on a basic and diluted basis. Basic earnings per share is computed using weighted-average shares outstanding during the period. Diluted earnings per share is computed using the weighted-average number of shares outstanding adjusted for dilutive common stock equivalents.

The number of shares used in calculating basic and diluted earnings per share is as follows (in thousands):

 

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

2023

 

 

2022

 

 

2023

 

 

2022

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

22,209

 

 

 

22,379

 

 

 

22,222

 

 

 

22,590

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

Stock awards and options to purchase shares of
common stock

 

468

 

 

 

415

 

 

 

419

 

 

 

454

 

Diluted

 

22,677

 

 

 

22,794

 

 

 

22,641

 

 

 

23,044

 

 

For the three months ended October 31, 2023 and 2022, approximately 497,000 and 433,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive. For the nine months ended October 31, 2023 and 2022, approximately 671,000 and 270,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

On August 24, 2023, the Company declared a quarterly cash dividend of $0.35 per share payable on September 21, 2023, to shareholders of record on September 7, 2023. The total dividend of $7.8 million was paid on September 21, 2023. On May 25, 2023, the Company declared a quarterly cash dividend of $0.35 per share payable on June 21, 2023, to shareholders of record on June 7, 2023. The total dividend of $7.7 million was paid on June 21, 2023. On March 23, 2023, the Company declared a special cash dividend of $1.00 per share, as well as a quarterly cash dividend of $0.35 per share, both payable on April 19, 2023, to shareholders of record on April 5, 2023. The total dividends of $29.9 million were paid on April 19, 2023. The Company paid cash dividends of $0.35 per share, or $7.9 million, $7.9 million and $7.8 million, during the three months ended April 30, 2022, July 31, 2022 and October 31, 2022, respectively.

7


 

 

NOTE 4 – INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

October 31,
2023

 

 

January 31,
2023

 

 

October 31,
2022

 

Finished goods

 

$

141,109

 

 

$

154,700

 

 

$

182,093

 

Component parts

 

 

27,217

 

 

 

28,805

 

 

 

30,192

 

Work-in-process

 

 

3,640

 

 

 

2,698

 

 

 

2,721

 

 

 

$

171,966

 

 

$

186,203

 

 

$

215,006

 

 

 

 

NOTE 5 – DEBT AND LINES OF CREDIT

 

On October 12, 2018, the Company, together with Movado Group Delaware Holdings Corporation, Movado Retail Group, Inc. and Movado LLC (together with the Company, the “U.S. Borrowers”), each a wholly owned domestic subsidiary of the Company, and Movado Watch Company S.A. and MGI Luxury Group S.A., each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated Credit Agreement (as subsequently amended, the “Credit Agreement”) with the lenders party thereto and Bank of America, N.A. as administrative agent (in such capacity, the “Agent”). As a result of the merger of Movado Watch Company S.A. into MGI Luxury Group S.A. in July 2022, MGI Luxury Group S.A. (subsequently renamed MGI Luxury Group GmbH as a result of the conversion of its corporate form) became the sole Swiss subsidiary of the Company party to the Credit Agreement (in such capacity, the "Swiss Borrower" and, together with the U.S. Borrowers, the "Borrowers"). The Credit Agreement provides for a $100.0 million senior secured revolving credit facility (the “Facility”) and has a maturity date of October 28, 2026. The Facility includes a $15.0 million letter of credit subfacility, a $25.0 million swingline subfacility and a $75.0 million sublimit for borrowings by the Swiss Borrower, with provisions for uncommitted increases to the Facility of up to $50.0 million in the aggregate subject to customary terms and conditions. The Credit Agreement contains affirmative and negative covenants binding on the Company and its subsidiaries that are customary for credit facilities of this type, including, but not limited to, restrictions and limitations on the incurrence of debt and liens, dispositions of assets, capital expenditures, dividends and other payments in respect of equity interests, the making of loans and equity investments, mergers, consolidations, liquidations and dissolutions, and transactions with affiliates (in each case, subject to various exceptions).

The borrowings under the Facility are joint and several obligations of the Borrowers and are also cross-guaranteed by each Borrower, except that the Swiss Borrower is not liable for, nor does it guarantee, the obligations of the U.S. Borrowers. In addition, the Borrowers' obligations under the Facility are secured by first priority liens, subject to permitted liens, on substantially all of the U.S. Borrowers' assets other than certain excluded assets. The Swiss Borrower does not provide collateral to secure the obligations under the Facility.

As of both October 31, 2023, and October 31, 2022, there were no amounts of loans outstanding under the Facility. Availability under the Facility was reduced by the aggregate number of letters of credit outstanding, issued in connection with retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada, totaling approximately $0.3 million at both October 31, 2023 and October 31, 2022. At October 31, 2023, the letters of credit have expiration dates through May 31, 2024. As of both October 31, 2023, and October 31, 2022, availability under the Facility was $99.7 million.

The Company had weighted average borrowings under the Facility of zero during both the three and nine months ended October 31, 2023 and 2022, respectively.

8


 

A Swiss subsidiary of the Company maintains unsecured lines of credit with a Swiss bank that are subject to repayment upon demand. As of October 31, 2023, and 2022, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.1 million and $6.5 million, respectively. As of October 31, 2023, and 2022, there were no borrowings against these lines. As of October 31, 2023 and 2022, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.5 million and $1.1 million, respectively, in various foreign currencies, of which $0.8 million ($0.1 million was refunded in November) and $0.5 million, respectively, was a restricted deposit as it relates to lease agreements.

Cash paid for interest, including unused commitments fees, was $0.2 million for both the nine-month periods ended October 31, 2023 and October 31, 2022.

 

NOTE 6 – DERIVATIVE FINANCIAL INSTRUMENTS

The Company addresses certain financial exposures that include the use of derivative financial instruments. The Company enters into foreign currency forward contracts to reduce the effects of fluctuating foreign currency exchange rates. As of October 31, 2023, the Company's net forward contracts hedging portfolio designated as qualified cash flow hedging instruments consisted of 3.0 million Euros equivalent with an expiry date of November 10, 2023. The net gain or loss on the derivatives is reported as a component of accumulated other comprehensive income/(loss) and reclassified into earnings in the same period during which the hedged transaction affects earnings using the same revenue or expense category that the hedged item impacted. The Company also enters into foreign currency forward contracts not designated as qualified hedges in accordance with ASC 815, Derivatives and Hedging. As of October 31, 2023, the Company’s net forward contracts hedging portfolio not designated as qualified hedges consisted of 20.7 million Chinese Yuan equivalent, 28.0 million Swiss Francs equivalent, 24.7 million U.S. dollars equivalent, 24.6 million Euros equivalent and 5.8 million British Pounds equivalent with various expiry dates ranging through April 4, 2024. Changes in the fair value of these derivatives are recognized in earnings in the period they arise. Net gains or losses related to these forward contracts are included in cost of sales, selling and general and administrative expenses in the Consolidated Statements of Operations. The cash flows related to these foreign currency contracts are classified in operating activities.

The following table presents the fair values of the Company's derivative financial instruments included in the Consolidated Balance Sheets as of October 31, 2023, January 31, 2023 and October 31, 2022 (in thousands):

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

October 31,
 2023
Fair
 Value

 

 

January 31,
 2023
Fair
 Value

 

 

October 31,
 2022
Fair
 Value

 

 

Balance
Sheet
Location

 

October 31,
 2023
Fair
 Value

 

 

January 31,
 2023
Fair
 Value

 

 

October 31,
 2022
Fair
 Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current
Assets

 

$

 

 

$

 

 

$

90

 

 

Accrued
Liabilities

 

$

5

 

 

$

192

 

 

$

48

 

Total Derivative Instruments

 

 

 

$

 

 

$

 

 

$

90

 

 

 

 

$

5

 

 

$

192

 

 

$

48

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

October 31,
 2023
Fair
 Value

 

 

January 31,
 2023
Fair
 Value

 

 

October 31,
 2022
Fair
 Value

 

 

Balance
Sheet
Location

 

October 31,
 2023
Fair
 Value

 

 

January 31,
 2023
Fair
 Value

 

 

October 31,
 2022
Fair
 Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current
Assets

 

$

 

 

$

1,146

 

 

$

31

 

 

Accrued
Liabilities

 

$

650

 

 

$

 

 

$

981

 

Total Derivative Instruments

 

 

 

$

 

 

$

1,146

 

 

$

31

 

 

 

 

$

650

 

 

$

 

 

$

981

 

As of October 31, 2023, January 31, 2023 and October 31, 2022, the balance of net deferred gains on derivative financial instruments designated as cash flow hedges included in accumulated other comprehensive (loss) were ($2,000), ($0.2) million and ($0.1) million, respectively. For the three months ended October 31, 2023, and October 31, 2022, the Company reclassified $0.3 million and $1.1 million, respectively, from accumulated other comprehensive income to Net sales in the Consolidated Statements of Operations. For the nine months ended October 31, 2023, and October 31, 2022, the Company reclassified $0.1 million and $2.2 million,

9


 

respectively, from accumulated other comprehensive income to Net sales in the Consolidated Statements of Operations. No ineffectiveness has been recorded for the three and nine months ended October 31, 2023.

 

See Note 7 - Fair Value Measurements for fair value and presentation in the Consolidated Balance Sheets for derivatives.

 

NOTE 7 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

Level 1 – Quoted prices in active markets for identical assets or liabilities.
Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.
Level 3 – Unobservable inputs based on the Company’s assumptions.

The guidance requires the use of observable market data if such data is available without undue cost and effort.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of October 31, 2023 and 2022 and January 31, 2023 (in thousands):

 

 

 

 

 

Fair Value at October 31, 2023

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

213

 

 

$

 

 

$

 

 

$

213

 

Short-term investment

 

Other current assets

 

 

150

 

 

 

 

 

 

 

 

 

150

 

SERP assets - employer

 

Other non-current assets

 

 

591

 

 

 

 

 

 

 

 

 

591

 

SERP assets - employee

 

Other non-current assets

 

 

45,534

 

 

 

 

 

 

 

 

 

45,534

 

Defined benefit plan assets

 

Other non-current liabilities

 

 

 

 

 

 

 

 

29,712

 

 

 

29,712

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

 

 

$

46,488

 

 

$

 

 

$

29,712

 

 

$

76,200

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

45,534

 

 

$

 

 

$

 

 

$

45,534

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

655

 

 

 

 

 

 

655

 

Total

 

 

 

$

45,534

 

 

$

655