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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, 2024

 

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 December 2, 2024 were 15,684,480 and 6,458,376 respectively.

 

 


 

MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

October 31, 2024

 

 

 

 

Page

Part I

Financial Information (Unaudited)

 

 

 

 

 

Item 1.

 

 

Consolidated Balance Sheets at October 31, 2024, January 31, 2024 and October 31, 2023

 

3

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended October 31, 2024 and October 31, 2023

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended October 31, 2024 and October 31, 2023

 

5

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended October 31, 2024 and October 31, 2023

 

6

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

Item 2.

 

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

 

20

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

 

29

 

 

 

Item 4.

 

Controls and Procedures

 

30

 

Part II

 

Other Information

 

 

 

 

Item 1.

 

 

Legal Proceedings

 

31

 

 

Item 1A.

 

 

Risk Factors

 

31

 

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

31

 

 

 

Item 5.

 

 

Other Information

 

32

 

 

 

Item 6.

 

 

Exhibits

 

33

Signature

 

34

 

 

 

 

 


 

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,

 

 

2024

 

 

2024

 

 

2023

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

181,548

 

 

$

262,059

 

 

$

200,965

 

Trade receivables, net

 

139,163

 

 

 

104,472

 

 

 

135,523

 

Inventories

 

168,929

 

 

 

148,031

 

 

 

171,966

 

Other current assets

 

22,625

 

 

 

17,962

 

 

 

18,856

 

Income taxes receivable

 

7,922

 

 

 

11,354

 

 

 

11,135

 

Total current assets

 

520,187

 

 

 

543,878

 

 

 

538,445

 

Property, plant and equipment, net

 

20,480

 

 

 

19,436

 

 

 

19,458

 

Operating lease right-of-use assets

 

88,892

 

 

 

82,661

 

 

 

84,212

 

Deferred and non-current income taxes

 

43,767

 

 

 

43,016

 

 

 

44,814

 

Other intangibles, net

 

6,192

 

 

 

7,493

 

 

 

7,688

 

Other non-current assets

 

86,358

 

 

 

72,598

 

 

 

68,780

 

Total assets

$

765,876

 

 

$

769,082

 

 

$

763,397

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

$

29,429

 

 

$

32,775

 

 

$

22,998

 

Accrued liabilities

 

51,245

 

 

 

38,695

 

 

 

57,165

 

Accrued payroll and benefits

 

12,541

 

 

 

7,591

 

 

 

10,317

 

Current operating lease liabilities

 

18,851

 

 

 

15,696

 

 

 

15,885

 

Income taxes payable

 

9,760

 

 

 

18,318

 

 

 

20,024

 

Total current liabilities

 

121,826

 

 

 

113,075

 

 

 

126,389

 

Deferred and non-current income taxes payable

 

1,188

 

 

 

8,234

 

 

 

7,966

 

Non-current operating lease liabilities

 

79,410

 

 

 

76,396

 

 

 

76,929

 

Other non-current liabilities

 

57,028

 

 

 

52,420

 

 

 

49,195

 

Total liabilities

 

259,452

 

 

 

250,125

 

 

 

260,479

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

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;
29,174,709, 29,004,001 and 28,879,497 shares issued and outstanding,
 respectively

 

292

 

 

 

290

 

 

 

289

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;
 
6,458,376, 6,483,116 and 6,483,116 shares issued and outstanding

 

64

 

 

 

64

 

 

 

64

 

Capital in excess of par value

 

243,311

 

 

 

239,062

 

 

 

236,438

 

Retained earnings

 

458,660

 

 

 

470,317

 

 

 

465,919

 

Accumulated other comprehensive income

 

90,323

 

 

 

92,335

 

 

 

81,727

 

Treasury Stock, 13,490,483, 13,328,095 and 13,282,860 shares,
 respectively, at cost

 

(289,067

)

 

 

(285,270

)

 

 

(283,998

)

Total Movado Group, Inc. shareholders' equity

 

503,583

 

 

 

516,798

 

 

 

500,439

 

Noncontrolling interest

 

2,841

 

 

 

2,159

 

 

 

2,479

 

Total equity

 

506,424

 

 

 

518,957

 

 

 

502,918

 

Total liabilities and equity

$

765,876

 

 

$

769,082

 

 

$

763,397

 

 

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,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net sales

$

182,727

 

 

$

187,686

 

 

$

478,709

 

 

$

492,981

 

Cost of sales

 

84,331

 

 

 

85,358

 

 

 

218,435

 

 

 

219,364

 

Gross profit

 

98,396

 

 

 

102,328

 

 

 

260,274

 

 

 

273,617

 

Selling, general and administrative

 

91,846

 

 

 

81,636

 

 

 

247,383

 

 

 

232,378

 

Operating income

 

6,550

 

 

 

20,692

 

 

 

12,891

 

 

 

41,239

 

Non-operating income/(expense):

 

 

 

 

 

 

 

 

 

 

 

Other income, net

 

1,522

 

 

 

1,632

 

 

 

5,571

 

 

 

4,194

 

Interest expense

 

(144

)

 

 

(135

)

 

 

(372

)

 

 

(361

)

Income before income taxes

 

7,928

 

 

 

22,189

 

 

 

18,090

 

 

 

45,072

 

Provision for income taxes (Note 10)

 

2,495

 

 

 

4,519

 

 

 

5,733

 

 

 

9,938

 

Net income

 

5,433

 

 

 

17,670

 

 

 

12,357

 

 

 

35,134

 

Less: Net income attributable to noncontrolling interests

 

383

 

 

 

281

 

 

 

695

 

 

 

568

 

Net income attributable to Movado Group, Inc.

$

5,050

 

 

$

17,389

 

 

$

11,662

 

 

$

34,566

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

Weighted basic average shares outstanding

 

22,283

 

 

 

22,209

 

 

 

22,280

 

 

 

22,222

 

Net income per share attributable to Movado Group, Inc.

$

0.23

 

 

$

0.78

 

 

$

0.52

 

 

$

1.56

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

Weighted diluted average shares outstanding

 

22,559

 

 

 

22,677

 

 

 

22,627

 

 

 

22,641

 

Net income per share attributable to Movado Group, Inc.

$

0.22

 

 

$

0.77

 

 

$

0.52

 

 

$

1.53

 

 

 

 

 

 

 

 

 

 

 

 

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,

 

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Net income

 

$

5,433

 

 

$

17,670

 

 

$

12,357

 

 

$

35,134

 

Other comprehensive income/(loss):

 

 

 

 

 

 

 

 

 

 

 

 

Net unrealized gain/(loss) on investments, net of tax provision/(benefit) of $1, ($3), $8 and ($13), respectively

 

 

4

 

 

 

(9

)

 

 

24

 

 

 

(38

)

Amortization of prior service cost, net of tax provision of $3, $4, $10 and $12, respectively

 

 

13

 

 

 

15

 

 

 

37

 

 

 

45

 

Foreign currency translation adjustments

 

 

2,266

 

 

 

(10,066

)

 

 

(2,247

)

 

 

256

 

Cash flow hedges:

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated other comprehensive (loss)/income before reclassification, net of tax (benefit)/provision of ($37), $56, $1 and $51, respectively

 

 

(186

)

 

 

284

 

 

 

4

 

 

 

260

 

Amounts reclassified from accumulated other comprehensive income/(loss), net of tax provision/(benefit) of $76, ($61), $33 and ($18), respectively

 

 

388

 

 

 

(307

)

 

 

170

 

 

 

(91

)

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

 

 

2,485

 

 

 

(10,083

)

 

 

(2,012

)

 

 

432

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income/(loss) attributable to noncontrolling interests:

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

383

 

 

 

281

 

 

 

695

 

 

 

568

 

Foreign currency translation adjustments

 

 

(1

)

 

 

(136

)

 

 

(13

)

 

 

(247

)

Total comprehensive income attributable to noncontrolling interests

 

$

382

 

 

$

145

 

 

$

682

 

 

$

321

 

Total comprehensive income attributable to Movado Group, Inc.

 

$

7,536

 

 

$

7,442

 

 

$

9,663

 

 

$

35,245

 

 

See Notes to Consolidated Financial Statements

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

Nine Months Ended October 31,

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

Net income

$

12,357

 

 

$

35,134

 

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

 

 

 

 

 

Depreciation and amortization

 

6,960

 

 

 

7,278

 

Transactional losses

 

594

 

 

 

204

 

Provision for inventories and accounts receivable

 

4,489

 

 

 

3,803

 

Deferred income taxes

 

(1,582

)

 

 

(2,032

)

Stock-based compensation

 

4,094

 

 

 

5,529

 

Other

 

265

 

 

 

754

 

Changes in assets and liabilities:

 

 

 

 

 

Trade receivables

 

(37,026

)

 

 

(42,027

)

Inventories

 

(24,697

)

 

 

10,758

 

Other current assets

 

(4,675

)

 

 

4,107

 

Accounts payable

 

(3,709

)

 

 

(7,492

)

Accrued liabilities

 

11,974

 

 

 

12,336

 

Accrued payroll and benefits

 

4,994

 

 

 

(7,039

)

Income taxes receivable

 

8,374

 

 

 

(4,494

)

Income taxes payable

 

(19,855

)

 

 

(10,014

)

Other non-current assets

 

(3,141

)

 

 

1,293

 

Other non-current liabilities

 

(43

)

 

 

(730

)

Net cash (used in)/provided by operating activities

 

(40,627

)

 

 

7,368

 

Cash flows from investing activities:

 

 

 

 

 

Capital expenditures

 

(6,368

)

 

 

(6,627

)

Long-term investments

 

(5,467

)

 

 

(2,040

)

Trademarks and other intangibles

 

(86

)

 

 

(113

)

Net cash used in investing activities

 

(11,921

)

 

 

(8,780

)

Cash flows from financing activities:

 

 

 

 

 

Dividends paid

 

(23,319

)

 

 

(45,399

)

Stock repurchases

 

(2,628

)

 

 

(2,349

)

Distribution of noncontrolling interest earnings

 

 

 

 

(780

)

Stock awards and options exercised and other changes

 

(1,101

)

 

 

(73

)

Net cash used in financing activities

 

(27,048

)

 

 

(48,601

)

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

 

(917

)

 

 

(377

)

Net decrease in cash, cash equivalents and restricted cash

 

(80,513

)

 

 

(50,390

)

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

 

262,814

 

 

 

252,179

 

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

$

182,301

 

 

$

201,789

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

Cash and cash equivalents

$

181,548

 

 

$

200,965

 

Restricted cash included in other non-current assets

 

753

 

 

 

824

 

Cash, cash equivalents, and restricted cash

$

182,301

 

 

$

201,789

 

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, 2024 (the “2024 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, 2024 is derived from the audited annual financial statements, which are included in the Company’s 2024 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

 

In November 2023, the Financial Accounting Standards Board ("FASB") issued ASU 2023-07 "Improvements to Reportable Segment Disclosures" which requires expanded disclosures about an entity's reportable segments, including more enhanced information about a reportable segment's expenses, interim segment profit or loss, and how an entity's chief operating decision maker uses reported segment profit or loss information in assessing segment performance and allocating resources. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within the fiscal years beginning after December 15, 2024. ASU 2023-07 should be adopted on a retrospective basis. Early adoption is permitted. The Company plans to adopt ASU 2023-07 in the fourth quarter of fiscal year 2025 and the adoption will result in additional segment-related footnote disclosures within the notes to the Consolidated Financial Statements.

In December 2023, the FASB issued ASU 2023-09 "Improvements to Income Tax Disclosures" which requires expanded income tax disclosures primarily related to an entity's effective tax rate reconciliation and income taxes paid. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, and should be adopted on a prospective basis. Early adoption is permitted. The Company is currently evaluating this ASU to determine the timing and impact of adoption on its Consolidated Financial Statements and related disclosures.

 

NOTE 3 - COST-SAVINGS INITIATIVE

 

During the third quarter of fiscal year 2025, in light of the ongoing challenging consumer-spending environment, the Company committed to a cost-savings initiative to reduce operating expenses through headcount reductions, bringing them more in line with sales.

 

During the third quarter of fiscal year 2025, the Company recorded to date $2.7 million in severance and payroll related charges which are included in Selling, general and administrative in the Consolidated Statements of Operations for the three and nine months ended October 31, 2024. The amounts are included in the Watch and Accessory segment with $1.5 million in the United States locations and $1.2 million in the International locations.

 

The Company expects the severance and payroll related expenses to be paid out within the next twelve months. $0.3 million was paid during the third quarter of fiscal 2025 and the remaining $2.4 million is included in Accrued payroll and benefits in the Consolidated Balance Sheet at October 31, 2024.

 

 

NOTE 4 – 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.

7


 

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,

 

 

2024

 

 

2023

 

 

2024

 

 

2023

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

Basic

 

22,283

 

 

 

22,209

 

 

 

22,280

 

 

 

22,222

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

 

 

Stock awards and options to purchase shares of
common stock

 

276

 

 

 

468

 

 

 

347

 

 

 

419

 

Diluted

 

22,559

 

 

 

22,677

 

 

 

22,627

 

 

 

22,641

 

 

For the three months ended October 31, 2024 and 2023, approximately 751,000 and 497,000, 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, 2024 and 2023, approximately 694,000 and 671,000, respectively, of potentially dilutive common stock equivalents were excluded from the computation of diluted earnings per share because their effect would have been antidilutive.

During the nine months ended October 31, 2024, the Company has declared and paid a total of three separate cash dividends of $0.35 per share aggregating to $23.3 million. During the nine months ended October 31, 2023, the Company declared and paid three separate cash dividends of $0.35 per share and a special cash dividend of $1.00 per share aggregating to $45.4 million.

 

NOTE 5 – INVENTORIES

Inventories consisted of the following (in thousands):

 

 

 

October 31,
2024

 

 

January 31,
2024

 

 

October 31,
2023

 

Finished goods

 

$

139,501

 

 

$

117,909

 

 

$

141,109

 

Component parts

 

 

25,802

 

 

 

26,386

 

 

 

27,217

 

Work-in-process

 

 

3,626

 

 

 

3,736

 

 

 

3,640

 

 

 

$

168,929

 

 

$

148,031

 

 

$

171,966

 

 

 

 

NOTE 6 – DEBT AND LINES OF CREDIT

 

The Company and its U.S. and Swiss subsidiaries (collectively, the "Borrowers") are parties to an Amended and Restated Credit Agreement originally dated October 12, 2018 (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”). 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, 2024, and October 31, 2023, 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, 2024 and October 31, 2023. At October 31, 2024, the letters of credit have expiration dates through June 2, 2025. As of both October 31, 2024, and October 31, 2023, availability under the Facility was $99.7 million.

8


 

The Company had weighted average borrowings under the Facility of zero during both the three and nine months ended October 31, 2024 and 2023, respectively.

The Company's Swiss subsidiary maintains unsecured lines of credit with a Swiss bank that are subject to repayment upon demand. As of October 31, 2024, and 2023, these lines of credit totaled 6.5 million Swiss Francs for both periods, with a dollar equivalent of $7.5 million and $7.1 million, respectively. As of October 31, 2024, and 2023, there were no borrowings against these lines. As of October 31, 2024 and 2023, two European banks had guaranteed obligations to third parties on behalf of two of the Company’s foreign subsidiaries in the dollar equivalent of $1.4 million and $1.5 million, respectively, in various foreign currencies, of which $0.8 million and $0.8 million ($0.1 million was refunded in November 2023), 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, 2024 and October 31, 2023 and amortization of debt fees was $0.2 million for both the nine month periods ended October 31, 2024 and October 31, 2023.

 

NOTE 7 – 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, 2024, the Company's net forward contracts hedging portfolio designated as qualified cash flow hedging instruments consisted of 9.0 million Euros equivalent with various expiry dates ranging through November 27, 2024. 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, 2024, the Company’s net forward contracts hedging portfolio not designated as qualified hedges consisted of 7.3 million Chinese Yuan equivalent, 30.0 million Swiss Francs equivalent, 29.6 million U.S. dollars equivalent, 24.0 million Euros equivalent and 4.8 million British Pounds equivalent with various expiry dates ranging through April 10, 2025. 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, 2024, January 31, 2024 and October 31, 2023 (in thousands):

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

October 31,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

October 31,
 2023
Fair
 Value

 

 

Balance
Sheet
Location

 

October 31,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

October 31,
 2023
Fair
 Value

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current
Assets

 

$

219

 

 

$

26

 

 

$

 

 

Accrued
Liabilities

 

$

 

 

$

11

 

 

$

5

 

Total Derivative Instruments

 

 

 

$

219

 

 

$

26

 

 

$

 

 

 

 

$

 

 

$

11

 

 

$

5

 

 

 

 

Asset Derivatives

 

 

Liability Derivatives

 

 

 

Balance
Sheet
Location

 

October 31,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

October 31,
 2023
Fair
 Value

 

 

Balance
Sheet
Location

 

October 31,
 2024
Fair
 Value

 

 

January 31,
 2024
Fair
 Value

 

 

October 31,
 2023
Fair
 Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign Exchange Contracts

 

Other Current
Assets

 

$

154

 

 

$

528

 

 

$

 

 

Accrued
Liabilities

 

$

77

 

 

$

 

 

$

650

 

Total Derivative Instruments

 

 

 

$

154

 

 

$

528

 

 

$

 

 

 

 

$

77

 

 

$

 

 

$

650

 

As of October 31, 2024, January 31, 2024 and October 31, 2023, the balance of net deferred gains on derivative financial instruments designated as cash flow hedges included in accumulated other comprehensive income/(loss) were $0.2 million, $43,000 and ($2,000), respectively. For the three months ended October 31, 2024, and October 31, 2023, the Company reclassified ($0.4) million and $0.3 million, respectively, from accumulated other comprehensive (loss)/income to Net sales in the Consolidated Statements of Operations.

9


 

For the nine months ended October 31, 2024, and October 31, 2023, the Company reclassified ($0.2) million and $0.1 million, respectively, from accumulated other comprehensive (loss)/income to Net sales in the Consolidated Statements of Operations. No ineffectiveness has been recorded for the three and nine months ended October 31, 2024.

 

See Note 8 - Fair Value Measurements for fair value and presentation in the Consolidated Balance Sheets for derivatives.

 

NOTE 8 – 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, 2024 and 2023 and January 31, 2024 (in thousands):

 

<

 

 

 

 

Fair Value at October 31, 2024

 

 

 

Balance Sheet Location