MOVADO GROUP, INC. GENERAL
The Company operates and manages its business in two principal business
segments: Watch and Accessory Brands and Company Stores. The Company also
operates in two geographic locations:
The Company divides its watch and accessory business into two principal categories: the owned brands category and the licensed brands category. The owned brands category consists of the Movado®, Concord®, Ebel®, Olivia Burton® and MVMT® brands. Products in the licensed brands category include the following brands manufactured and distributed under license agreements with the respective brand owners: Coach®, Tommy Hilfiger®, Hugo Boss®, Lacoste®, Calvin Klein® and Scuderia Ferrari®. The primary factors that influence annual sales are general economic conditions in the Company'sU.S. and international markets, new product introductions, the level and effectiveness of advertising and marketing expenditures and product pricing decisions. 52.7% of the Company's total sales are from international markets (see Note 20 to the Consolidated Financial Statements), and therefore reported sales made in those markets are affected by foreign exchange rates. The Company's international sales are primarily billed in local currencies (predominantly Euros, British Pounds and Swiss Francs) and translated toU.S. dollars at average exchange rates for financial reporting purposes. The Company divides its business into two major geographic locations:United States operations, and International, which includes the results of all other non-U.S. Company operations. The allocation of geographic revenue is based upon the location of the customer. The Company's International operations inEurope , theMiddle East , theAmericas (excludingthe United States ), andAsia account for 33.9%, 7.8%, 6.5% and 4.5%, respectively, of the Company's total net sales for fiscal 2022. A vast majority of the Company's tangible International assets are owned by the Company's Swiss andHong Kong subsidiaries. The Company's business is seasonal. There are two major selling seasons in the Company's markets: the spring season, which includes school graduations and several holidays; and, most importantly, the Christmas and holiday season. Major selling seasons in certain international markets center on significant local holidays that occur in late winter or early spring. The Company's net sales historically have been higher during the second half of the fiscal year. The second half of each fiscal year accounted for 57.9% and 68.8% of the Company's net sales for the fiscal years endedJanuary 31, 2022 and 2021, respectively.
The Company's retail operations consist of 47 retail outlet locations in
The significant factors that influence annual sales volumes in the Company's retail operations are similar to those that influenceU.S. wholesale sales. In addition, most of the Company's retail outlet locations are near vacation destinations and, therefore, the seasonality of these stores is driven by the peak tourist seasons associated with these locations. InDecember 2019 , COVID-19 emerged and subsequently spread worldwide. TheWorld Health Organization declared COVID-19 a pandemic inMarch 2020 , resulting in federal, state and local governments and other authorities mandating various restrictions, including travel restrictions, quarantines and other social distancing requirements. The Company's operating results for the fiscal year endedJanuary 31, 2021 were materially impacted by the COVID-19 pandemic. See "The COVID-19 pandemic has materially affected how we and our customers and suppliers operate, and the duration and extent to which COVID-19, new strains or variants, or other public health threats and epidemics will impact our future results of operations and overall financial performance remains uncertain" under Item 1A. Risk Factors, above. Gross Margins The Company's overall gross margins are primarily affected by four major factors: channel and product sales mix, product pricing strategy, manufacturing costs and fluctuation in foreign currency exchange rates, in particular the relationship between theU.S. dollar and the Swiss Franc, British Pound and the Euro. Gross margins for the Company may not be comparable to those of other companies, since some companies include all the costs related to their distribution networks in cost of sales whereas the Company does not include the costs associated with its warehousing and distribution facilities nor the occupancy costs for the Company Stores segment in the cost of sales line item. Those costs are included in selling, general and administrative expenses. Gross margins vary among the brands included in the Company's portfolio and also among watch models within each brand. Watches in the Company's owned brands category generally earn higher gross margin percentages than watches in the licensed brands category. The difference in gross margin percentages within the licensed brands category is primarily due to the impact of royalty payments made 28 -------------------------------------------------------------------------------- on the licensed brands. Gross margins in the Company's e-commerce business generally earn higher gross margin percentages than those of the traditional wholesale business. Gross margins in the Company's outlet business are affected by the mix of product sold and may exceed those of the wholesale business since the Company earns margins on its outlet store sales from manufacture to point of sale to the consumer. All of the Company's brands compete with a number of other brands not only on styling but also on wholesale and retail price. The Company's ability to improve margins through price increases is therefore, to some extent, constrained by competitors' actions. Cost of sales of the Company's products consists primarily of costs for raw materials, component costs, royalties, depreciation, amortization, assembly costs, shipping to customers, design costs and unit overhead costs associated with the Company's supply chain operations predominately inSwitzerland andAsia . The Company's supply chain operations consist of logistics management of assembly operations and product sourcing predominately inSwitzerland andAsia and minor assembly inSwitzerland . The Swiss watch movements used in the manufacture ofMovado , Ebel and Concord watches are purchased from three suppliers, one of which is a wholly-owned subsidiary of one of the Company's competitors. That competitive supplier announced inFebruary 2021 that it will no longer sell mechanical Swiss movements to third parties, although it continues to sell Swiss quartz movements. As a result of this development, the Company currently sources all of its mechanical Swiss movements from a single supplier. Although mechanical movements are only used in a relatively small number of the Company's watch styles, the elimination of a source of supply could make it more difficult for the Company to satisfy its requirements for mechanical movements. Through productivity improvement efforts, the Company has controlled the level of overhead costs and maintained flexibility in its cost structure by outsourcing a significant portion of its component and assembly requirements. Since a significant amount of the Company's product costs are incurred in Swiss Francs, fluctuations in theU.S. dollar/Swiss Franc exchange rate can impact the Company's cost of goods sold and, therefore, its gross margins. The Company reduces its exposure to the Swiss Franc exchange rate risk through a hedging program. Under the hedging program, the Company manages most of its foreign currency exposures on a consolidated basis, which allows it to net certain exposures and take advantage of natural offsets. In the event these exposures do not offset, the Company has the ability to hedge its Swiss Franc purchases using a combination of forward contracts and purchased currency options. The Company's hedging program mitigated the impact of the exchange rate fluctuations on product costs and gross margins for fiscal years 2022 and 2021.
Selling, General and Administrative ("SG&A") Expenses
The Company's SG&A expenses consist primarily of marketing, selling, distribution, general and administrative expenses.
Marketing expenditures are based principally on overall strategic considerations relative to maintaining or increasing market share in markets that management considers to be crucial to the Company's continued success as well as on general economic conditions in the various markets around the world in which the Company sells its products. Marketing expenses include salaries, various forms of media advertising, digital advertising (including social media), customer acquisition costs and co-operative advertising with customers and distributors and other point of sale marketing and promotion spending. Selling expenses consist primarily of salaries, sales commissions, sales force travel and related expenses, credit card fees, depreciation and amortization, expenses associated with the Company's annual worldwide customer conference and other industry trade shows and operating costs incurred in connection with the Company's retail business. Sales commissions vary with overall sales levels. Retail selling expenses consist primarily of payroll related and store occupancy costs. Distribution expenses consist primarily of costs of running distribution centers and customer service and include salaries, rental and other occupancy costs, security, depreciation and amortization of furniture and leasehold improvements and shipping supplies. General and administrative expenses consist primarily of salaries and other employee compensation including performance-based compensation, employee benefit plan costs, office rent, management information systems costs, professional fees, bad debts, depreciation and amortization of furniture, computer software, leasehold improvements, amortization of finite lived intangible assets, patent and trademark expenses and various other general corporate expenses.
Impairment of
As a result of the economic conditions caused by the response to the COVID-19 pandemic, the Company performed a quantitative assessment of its goodwill and long-lived intangible assets atApril 30, 2020 . The Company recorded a goodwill impairment of$133.7 million related to the Company's Watch and Accessory Brands reporting unit, as the carrying value of goodwill exceeded the fair value atApril 30, 2020 . The Company also recorded a$22.2 million impairment charge related to MVMT's trade name and customer relationships as the carrying amount of these long-lived intangible assets exceeded the fair value. 29 --------------------------------------------------------------------------------
Other Non-Operating Income
The Company recorded other non-operating income of$0.2 million due to the final settlement related to a sale of a building in an international location in the prior year period for the fiscal year endedJanuary 31, 2022 . The Company recorded a gain on sale of a non-operating asset of$1.3 million related to a sale of a building in an international location for the fiscal year endedJanuary 31, 2021 . Based on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company recorded a non-cash gain on remeasurement of the contingent consideration of$15.4 million for the fiscal year endedJanuary 31, 2020 . As the remeasurement is not a direct benefit realized from operating the MVMT business, the Company has recorded the change in contingent consideration within non-operating income.
Interest Expense
To the extent it borrows, the Company records interest expense on its revolving credit facility. Additionally, interest expense includes the amortization of deferred financing costs, and unused commitment fees associated with the Company's revolving credit facility.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes as prescribed under the Accounting Standards Codification guidance for
Income Taxes ("ASC Topic 740"). ASC Topic 740 requires the Company to recognize
deferred tax assets and liabilities for the future tax consequences attributable
to differences between the financial statement carrying amounts and tax bases of
existing assets and liabilities.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in accordance with accounting principles generally accepted inthe United States and those significant policies are more fully described in Note 1 to the Company's consolidated financial statements. The preparation of these financial statements and the application of certain critical accounting policies require management to make judgments based on estimates and assumptions that affect the information reported. On an on-going basis, management evaluates its estimates and judgments, including those related to sales discounts and markdowns, product returns, bad debt, inventories, income taxes, warranty obligations, useful lives of property, plant and equipment, impairments, stock-based compensation and contingencies and litigation. Management bases its estimates and judgments about the carrying values of assets and liabilities that are not readily apparent from other sources on historical experience, contractual commitments and on various other factors that are believed to be reasonable under the circumstances. Actual results could differ from these estimates. Management believes the following are the critical accounting policies requiring significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue Recognition
In the wholesale channel, revenue is recognized and recorded when a contract is in place, obligations under the terms of a contract with the customer are satisfied and control is transferred to the customer. Such revenue is measured as the ultimate amount of consideration the Company expects to receive in exchange for transferring goods including variable consideration. The Company considers transfer of control passes to the wholesale customer upon shipment or upon receipt depending on the agreement with the customer and shipping terms. Control passes to outlet store customers at the time of sale and to substantially all e-commerce upon shipment. Prior toJanuary 1, 2021 , the requirement for recognizing revenue for e-commerce was met upon delivery to the customer. Factors considered in the transfer of control include the right to payment, transfer of legal title, physical possession and customer acceptance of the goods and whether the significant risks and rewards for the goods belong with the customer. The Company records estimates of variable consideration, which includes sales returns, markdowns, volume-based programs and sales and cash discount allowances as a reduction of revenue in the same period that the sales are recorded. These estimates are based upon the expected value method considering all reasonably available information including historical analysis, customer agreements and/or currently known factors that arise in the normal course of business. Returns, discounts and allowances have historically been within the Company's expectations and the provisions established. The future provisional rates may differ from those experienced in the past. Taxes imposed by governmental authorities on the Company's revenue-producing activities with customers, such as sales taxes and value added taxes, are excluded from net sales. 30 -------------------------------------------------------------------------------- The Company's sale of smart watches contains multiple performance obligations. The Company allocates revenue to each performance obligation using the relative standalone selling price method. The Company determines the standalone selling prices based on the prices charged to customers. Amounts allocated to the delivered smart watch collections and the related essential software are recognized at the time of sale. The Company's smart watch collections have been available in limited quantities and in limited distribution, and, as a result, the amounts related to cloud service and app updates were immaterial to all periods presented and thereby recognized at time of sale. The Company has considered each transaction to sell goods as separate and distinct, with no additional promises made. The Company uses the understanding of what the customer expects to receive as the final product to determine whether goods or services should be combined and accounted for as a single performance obligation. The Company does not incur significant costs to obtain or fulfill its contracts.Goodwill At the time of an acquisition, in accordance with applicable guidance, the Company records all acquired net assets at their estimated fair values. These estimated fair values are based on management's assessments and independent third-party appraisals. The excess of the purchase consideration plus the fair value of any noncontrolling interest in the acquired company over the aggregate estimated fair values of the acquired net assets, including any contingent consideration, is recorded as goodwill.Goodwill is not amortized but is assessed for impairment at least annually onNovember 1st . Under applicable guidance, the Company generally performs its annual goodwill impairment analysis using a qualitative approach to determine whether it is more likely than not that the fair value of goodwill is less than its carrying value. If, based on the results of the qualitative assessment, it is concluded that it is more likely than not that the fair value of goodwill is less than its carrying value, a quantitative test is performed. The quantitative impairment test is performed to measure the amount of impairment loss, if any. The quantitative impairment test identifies the existence of potential impairment by comparing the fair value of each reporting unit with its carrying value, including goodwill. If a reporting unit's carrying amount exceeds its fair value, the Company will record an impairment charge, as an operating expense item, based on that difference. The impairment charge will be limited to the amount of goodwill allocated to that reporting unit. Determination of the fair value of a reporting unit and the fair value of individual assets and liabilities of a reporting unit is based on management's assessment, including the consideration of independent third-party appraisals when necessary. Furthermore, this determination is subjective in nature and involves the use of significant estimates and assumptions. These estimates and assumptions could have a significant impact on whether or not an impairment charge is recognized and the amount of any such charge. Estimates of fair value are primarily determined using discounted cash flows, market comparisons, and recent transactions. These approaches use significant estimates and assumptions, including projected future cash flows, discount rates, growth rates, and determination of appropriate market comparisons. The Company performs its annual impairment assessment of goodwill at the beginning of the fourth quarter of each fiscal year. The Company determined that there was no impairment in fiscal 2020. During the three months endedApril 30, 2020 , in light of the COVID-19 pandemic that resulted in the closing of the Company's stores and of the vast majority of the stores of the Company's wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in the Company's market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company'sOlivia Burton ,MVMT and Company Stores' long-lived assets as well as the Watch and Accessory Brands reporting unit. After adjusting the carrying value of MVMT's intangible assets, the Company completed an interim quantitative impairment test of goodwill as ofApril 30, 2020 in which the Company compared the fair value of the Watch and Accessory Brands reporting unit to its respective carrying value. An impairment test of goodwill was not performed for the Company Stores reporting unit as there was no goodwill at this reporting unit. The fair value estimate for the Watches and Accessory reporting unit was based on the income and market approaches. The discounted cash flow method under the income approach involves estimating the cash flows in a discrete forecast period and a terminal value based on the Gordon Growth Model and discounting at a rate of return that reflects the relative risk of the cash flows. The market approach involves applying valuation multiples to the operating performance of the Watch and Accessory Brands reporting unit derived from comparable publicly traded companies based on the relative historical and projected operations of the reporting unit. The key estimates and assumptions used in the discounted cash flows model included the Company's discount rate, revenue growth rates, EBIT margins and long-term growth rate. The Company's assumptions were based on the actual historical performance of the reporting units and took into account the recent severe and continued weakening of operating results as well as the anticipated rate of recovery, and implied risk premiums based on market prices of the Company's common stock as of the assessment date. The significant estimates in the market approach model included identifying similar companies with comparable business factors such as size, growth, 31 -------------------------------------------------------------------------------- profitability, risk and return on investment and assessing comparable revenue and earnings multiples in estimating the fair value of the reporting unit. The excess of the Watch and Accessory Brands unit's carrying value over the estimate of the fair value was recorded in the Watch and Accessory Brands segment as the goodwill impairment charge in the first quarter of 2021, totaling$133.7 million which resulted in zero goodwill remaining.
Intangibles
Intangible assets consist primarily of trade names, customer relationships and trademarks. In accordance with applicable guidance, the Company estimates and records the fair value of purchased intangible assets at the time of their acquisition. The fair values of these intangible assets are estimated based on independent third-party appraisals. Finite-lived intangible assets are amortized over their respective estimated useful lives, which range from three to ten years, and are evaluated for impairment periodically and whenever events or changes in circumstances indicate that their related carrying values may not be fully recoverable. Estimates of fair value for finite-lived intangible assets are primarily determined using discounted cash flows analysis of such assets, with consideration of market comparisons and recent transactions. This approach uses significant estimates and assumptions, including projected future cash flows, discount rates and growth rates. The Company determined that there was no impairment in fiscal 2022. During the three months endedApril 30, 2020 , in light of the COVID-19 pandemic that resulted in the closing of the Company's stores and of the vast majority of the stores of the Company's wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in the Company's market capitalization, the Company concluded that a triggering event had occurred during the first quarter, resulting in the need to perform a quantitative interim impairment assessment over the Company'sOlivia Burton , MVMT and Company Stores' long-lived assets as well as the Watch and Accessory Brands reporting unit. The Company performed recoverability tests for the long-lived assets of MVMT,Olivia Burton and the Company Stores as ofApril 30, 2020 . The Company concluded that the carrying amounts of the long-lived assets ofOlivia Burton and the Company Stores were recoverable, while the long-lived assets of MVMT may not be recoverable. Utilizing a royalty rate to determine discounted projected future cash flows in the valuation of MVMT's trade name and a discounted cash flow method for the valuation of MVMT's customer relationships, the Company concluded that the fair values of MVMT's tradenames and customer relationships did not exceed their carrying values. As a result, the Company recorded impairment charges in the Watch and Accessory Brands segment totaling$22.2 million in the first quarter of fiscal 2021, decreasing MVMT's trade name to$2.4 million and MVMT's customer relationships to zero.
Allowance for Doubtful Accounts
In the first quarter of 2021, the Company adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (ASU 2016-13). As a result of adoption, the Company replaced its methodology in determining the allowance for doubtful accounts which was based on an analysis of the aging of accounts receivable, assessments of collectability based on historical trends, the financial condition of the Company's customers and an evaluation of economic conditions with a methodology that reflects expected credit losses and requires the use of a forward-looking expected credit loss rate for its trade accounts receivables. The adoption had no material impact on the Company's Consolidated Financial Statements.
Inventories
The Company values its inventory at the lower of cost or net realizable value. Cost is determined using the average cost method. The Company performs reviews of its on-hand inventory to determine amounts, if any, of inventory that is deemed discontinued, excess, or unsaleable. Inventory classified as discontinued, together with the related component parts that can be assembled into saleable finished goods, is sold primarily through the Company's retail outlet locations. The Company retains adequate levels of component parts to facilitate both the manufacturing of its watches as well as the after-sales service of its watches for an extended period of time after the discontinuance of the manufacturing of such watches. The adjustment to reduce the value of component parts below their cost to their net realizable value is based on the timing of when a component part is no longer associated with a watch that is being manufactured as well as the significant assumption related to the anticipated utilization of component parts for after-sales service.
Long-Lived Assets
The Company periodically reviews the estimated useful lives of its depreciable
assets based on factors including historical experience, the expected beneficial
service period of the asset, the quality and durability of the asset and the
Company's maintenance policy including periodic upgrades. Changes in useful
lives are made on a prospective basis unless factors indicate the carrying
amounts of the assets may not be recoverable and an impairment is necessary.
The Company performs an impairment review of its long-lived assets once events
or changes in circumstances indicate, in management's judgment, that the
carrying value of such assets may not be recoverable. When such a determination
has been made, management compares the carrying value of the asset groups with
their estimated future undiscounted cash flows. If it is determined that an
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impairment has occurred, the fair value of the asset group is determined and
compared to its carrying value. The excess of the carrying value over the fair
value, if any, is recognized as a loss during that period. The impairment is
calculated as the difference between asset carrying values and their estimated
fair values. Other than as it relates to intangibles, as described above, no
impairment charge was recorded in fiscal 2022 or in fiscal 2021, respectively.
Warranties
All watches sold by the Company come with limited warranties covering the movement against defects in material and workmanship for periods ranging from two to three years from the date of purchase. In addition, the warranty period is five years for the gold plating on certainMovado watch cases and bracelets. The Company records an estimate for future warranty costs based on historical repair costs. Warranty costs have historically been within the Company's expectations and the provisions established. If such costs were to substantially exceed estimates, they could have an adverse effect on the Company's operating results. Stock-Based Compensation The Company utilizes the Black-Scholes option-pricing model which requires that certain assumptions be made to calculate the fair value of each option at the grant date. The expected life of stock option grants is determined using historical data and represents the time period during which the stock option is expected to be outstanding until it is exercised. The risk-free interest rate is based on theU.S. treasury note interest rate in effect on the date of grant for the expected life of the stock option. The expected stock price volatility is derived from historical volatility and calculated based on the estimated term structure of the stock option grant. The expected dividend yield is calculated using the Company's expected average of annualized dividend yields and applied over the expected term of the option. Management monitors stock option exercises and employee termination patterns to estimate forfeitures rates within the valuation model. Separate groups of employees that have similar historical exercise behavior are considered separately for valuation purposes. In addition to stock options, the Company may also grant stock awards to employees and directors. The stock awards are generally in the form of time-vesting restricted stock unit awards (pursuant to which unrestricted shares of Common Stock are issued to the grantee when the award vests) or performance-based awards (under which vesting occurs only if one or more predetermined financial goals are achieved within the relevant performance period); both are subject to the participant's continued employment (or board service) with the Company through such vesting date. Stock awards generally are cliff-vested after three years from the date of grant (one year in the case of directors' awards). The fair value of stock awards is generally equal to the closing price of the Company's publicly-traded common stock on the grant date. Compensation expense for all awards is accrued based on the estimated number of instruments for which the requisite service is expected to be rendered. This estimate is reflected in the period the stock option and stock awards are either granted or canceled. Expense related to stock options and stock awards compensation is recognized on a straight-line basis over the vesting term and only if the performance condition is probable of being achieved.
Pension Benefit Obligation
The Company sponsors a plan inSwitzerland . The pension expense and obligation are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are discount rate and expected long-term return on plan assets. The Company evaluates these assumptions annually. Other assumptions reflect demographic factors such as retirements, mortality and turnover and are evaluated periodically and updated to reflect actual experience. Actual results may differ from actuarial assumptions. The discount rate represents the market rate for high-qualityAAA and AA-rated corporate bonds with durations corresponding to the expected durations of the benefit obligations and service time and is used to calculate the present value of the expected future cash flows for benefit obligations under the pension plan. A decrease in the discount rate increases the present value of pension benefit obligations. The discount rate used to determine the Company's benefit obligation atJanuary 31, 2022 is 0%. A 25-basis point increase in the discount rate would decrease the present value of pension obligation by approximately$0.5 million atJanuary 31, 2022 . The Company considers the current and expected asset allocations of the pension plan, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term return on plan assets. A 25 basis point decrease in the expected long-term return on plan assets would not have resulted in a material impact on the Company's pension expense for fiscal 2022.
Income Taxes
The Company, under ASC Topic 740, follows the asset and liability method of
accounting for income taxes under which deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax laws and tax rates, in each jurisdiction where the Company
operates, and applied to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities due to a change in tax rates
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is recognized in income in the period that includes the enactment date. In
addition, the amounts of any future tax benefits are reduced by a valuation
allowance to the extent such benefits are not expected to be realized on a
more-likely-than-not basis. The Company calculates estimated income taxes in
each of the jurisdictions in which it operates. This process involves estimating
actual current tax expense along with assessing temporary differences resulting
from differing treatment of items for both book and tax purposes.
The Company follows guidance for accounting for uncertainty in income taxes.
This guidance clarifies the accounting for uncertainty in income taxes
recognized in a company's financial statements and prescribes a recognition
threshold and measurement standard for the financial statement recognition and
measurement of an income tax position taken or expected to be taken in a tax
return. This guidance also provides guidance for de-recognition, classification,
interest and penalties, accounting in interim periods, disclosures and
transitions.
The Company elected to account for the tax on Global Intangible Low-Taxed Income
("GILTI") as a period cost and therefore has not recorded deferred taxes related
to GILTI.
RECENT DEVELOPMENTS AND INITIATIVES
COVID-19
The COVID-19 pandemic and related public health measures materially impacted the Company's operating results for the fiscal year endedJanuary 31, 2021 and continue to materially affect how the Company and its customers and suppliers operate their businesses. Various containment and mitigation measures that have at times been imposed by governmental and other authorities around the world (such as quarantines and other social distancing requirements) have adversely affected sales of our products, given that those sales are heavily dependent on customer traffic in traditional retail stores, such as those of our wholesale partners, and our Company stores. Such measures have also adversely impacted our supply chain and resulted in late deliveries. In addition, during the 2021 fiscal year and continuing through fiscal 2022, the Company has implemented remote work policies and employed additional safety measures for on-site work. These policies and measures have caused strain for, and may have adversely impacted the productivity of, certain employees. Although the COVID-19 pandemic's adverse impact on the Company has significantly diminished in recent quarters, the full magnitude of the effects on the Company's business is difficult to predict at this time, and the pandemic is expected to continue to impact the Company's results of operations for the foreseeable future. In addition to unpredictable regional resurgences of COVID-19 cases, which often result in the reimposition or tightening of containment and mitigation measures, the ongoing economic impacts and health concerns associated with the pandemic will likely continue to affect supply chains, shipping operations, consumer behavior, spending levels, shopping preferences and tourism. Fiscal 2021 Impairments During the three months endedApril 30, 2020 , in light of the COVID-19 pandemic that resulted in the closing of the Company's stores and of the vast majority of the stores of the Company's wholesale customers (resulting in a decrease in revenues and gross margin), a decrease in customer spending and the recent decline in global equity markets, the Company concluded that a triggering event had occurred during the first quarter of fiscal 2021, resulting in the need to perform a quantitative interim impairment assessment over the Company'sOlivia Burton , MVMT and Company Stores' long-lived assets as well as the Watch and Accessory Brands reporting unit. The Company made revisions to its internal forecasts, resulting in a reduction in both current and future expected cash flows, due to the COVID-19 pandemic and the uncertain business environment. As a result, during the first quarter of fiscal 2021, the Company recorded impairment charges related to goodwill of$133.7 million and intangible assets related to MVMT's tradename and customer relationships of$22.2 million .
OnFebruary 24, 2022 ,Russia launched a comprehensive invasion ofUkraine . The invasion and the subsequent economic sanctions imposed by some countries may negatively impact the Company's revenue to the extent the conflict and the sanctions significantly impact the economic conditions in or our ability to sell products to customers in the affected region. In response to the invasion, the Company decided inMarch 2022 to suspend all sales toRussia andBelarus . Sales to these two countries are immaterial to the Company's results of operations. In addition, the conflict could have broader implications on economies outside the region, such as the global inflationary impact of a potential boycott of Russian oil and gas by other countries.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for fiscal 2022 compared to fiscal 2021 along with a discussion of the changes in financial condition during fiscal 2022. For a discussion of our results of operations in fiscal year 2021 compared to fiscal year 2020,
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please see "Results of Operations" in Item 7 (Management's Discussion and
Analysis of Financial Condition and Results of Operations) of our Annual Report
on Form 10-K for the fiscal year ended January 31, 2021 , filed with the SEC on
March 25, 2021 .
In light of the COVID-19 pandemic, the Company's results of operations for
fiscal 2022 may not be directly comparable to results for fiscal 2021 or prior
fiscal years and may not be indicative of the results that we will experience in
fiscal 2023. See "Recent Developments and Initiatives" above. See also "The
COVID-19 pandemic has materially affected how we and our customers and suppliers
operate, and the duration and extent to which COVID-19, new strains or variants,
or other public health threats and epidemics will impact our future results of
operations and overall financial performance remains uncertain" under Item 1A.
Risk Factors, above.
The following are net sales by business segment and geographic location (in
thousands):
Fiscal Year Ended January 31,
2022 2021
Watch and Accessory Brands:
United States $ 244,204 $ 157,951
International 382,019 289,411
Company Stores 106,170 59,035
Net sales $ 732,393 $ 506,397 The following are net sales by category (in thousands):
Fiscal Year Ended January 31,
2022 2021
Watch and Accessory Brands:
Owned brands category $ 249,940 $ 178,173
Licensed brands category 368,354 262,367
After-sales service and all other 7,929 6,822
Total Watch and Accessory Brands 626,223 447,362
Company Stores 106,170 59,035
Consolidated total $ 732,393 $ 506,397 The following table presents the Company's results of operations expressed as a percentage of net sales for the fiscal years indicated:
Fiscal Year Ended January 31,
2022 2021
Net sales 100.0 % 100.0 %
Gross margin 57.2 % 53.4 %
Selling, general and administrative expenses 41.2 % 50.7 %
Impairment of goodwill and intangible assets 0.0 % 30.8 %
Operating income/(loss) 16.0 % (28.1 %)
Gain on sale of a non-operating asset 0.0 % 0.3 %
Other income 0.1 % 0.1 %
Interest expense 0.1 % 0.4 %
Provision/(benefit) for income taxes 3.4 % (6.2 %)
Noncontrolling interests 0.1 % 0.1 %
Net income/(loss) attributable to Movado Group, Inc. 12.5 % (22.0 %)
Fiscal 2022 Compared to Fiscal 2021
Net sales in fiscal 2022 were$732.4 million , representing a$226.0 million or 44.6% increase above the prior year. This increase is primarily as a result of the partial recovery from the ongoing COVID-19 pandemic and increased volumes resulting from higher demand. For fiscal 2022, fluctuations in foreign currency exchange rates positively impacted net sales by$9.2 million when compared to the prior year.
Watch and Accessory Brands
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Net sales in fiscal 2022 in the Watch and Accessory Brands segment were $626.2
million , an increase above the prior year period of $178.9 million , or 40.0%.
The increase in net sales was primarily due to the partial recovery from the
ongoing COVID-19 pandemic and increased volumes resulting from higher demand
with growth in the Company's wholesale customers and in online retail, both in
the Company's owned and wholesale customers' e-commerce websites. Prior period
net sales were negatively impacted by closures and restrictions affecting the
stores of the Company's wholesale customers during a portion of the period due
to the COVID-19 pandemic. Some of these restrictions continued into fiscal 2022.
There were increases in net sales in both the United States and International
locations of the Watch and Accessory Brands segment.
United States Watch and Accessory Brands
Net sales in fiscal 2022 inthe United States locations of the Watch and Accessory Brands segment were$244.2 million , above the prior year period by$86.3 million , or 54.6%, resulting from net sales increases across all brands in both the owned and licensed brand categories primarily due to the partial recovery from the ongoing COVID-19 pandemic and increased volumes resulting from higher demand with growth in the Company's wholesale customers and in online retail, both in the Company's owned and wholesale customers' e-commerce websites. The net sales recorded in the owned brands category increased by$68.5 million , or 55.6%, and net sales recorded in the licensed brand category increased$17.1 million , or 54.5%.
International Watch and Accessory Brands
Net sales in fiscal 2022 in the International locations of the Watch and Accessory Brands segment were$382.0 million , above the prior year by$92.6 million , or 32.0%, which included fluctuations in foreign currency exchange rates which favorably impacted net sales by$9.2 million when compared to the prior year. The increase in net sales was across most brands in the owned brand category and all brands across the licensed brand category primarily due to the partial recovery from the ongoing COVID-19 pandemic and increased volumes resulting from higher demand with growth in the Company's wholesale customers and in online retail, both in the Company's owned and wholesale customers' e-commerce websites. The net sales increase recorded in the owned brands category was$3.3 million , or 6.0% and is due to sales increases in most regions. The net sales increase in the licensed brands category was$88.9 million , or 38.5%, due to net sales increases across all regions.
Company Stores
Net sales in fiscal 2022 in the Company Stores segment were$106.2 million ,$47.1 million or 79.8% above the prior year period. The net sales increase is primarily the result of all of the Company's retail stores being open during the period as compared to the closure of the Company's retail stores during part of the prior year period in response to the COVID-19 pandemic, lessened restrictions on the Company's retail stores during the period as compared to the prior year period, increased volumes resulting from higher demand, the opening of four new retail outlet stores and the growth of the Company's online outlet store at www.movadocompanystore.com. As ofJanuary 31, 2022 and 2021, the Company operated 51 and 47 retail outlet locations, respectively.
Gross Profit
Gross profit for fiscal 2022 was$419.1 million or 57.2% of net sales as compared to$270.5 million or 53.4% of net sales in the prior year. The increase in gross profit of$148.6 million was primarily due to higher net sales combined with a higher gross margin percentage. The increase in gross margin percentage of approximately 380 basis points for fiscal 2022 resulted primarily from a favorable impact of sales mix of approximately 280 basis points, increased leveraging of certain fixed costs as a result of higher net sales of approximately 60 basis points, a positive impact of fluctuations in foreign exchange rates of approximately 30 basis points and the non-recurrence of a prior year charge related to an increase in inventory reserves in response to the COVID-19 pandemic of approximately 20 basis points, partially offset by an approximately 10 basis point impact due to increased shipping costs. The favorable impact of sales mix is mainly due to an increase in direct-to-consumer sales channels, which produces higher margins, and an increase in net sales of brands with higher gross margins in the owned brands category.
Selling, General and Administrative ("SG&A")
SG&A expenses in fiscal 2022 were$301.6 million , representing an increase from the prior year of$44.9 million , or 17.5%. The prior year included corporate initiative charges primarily in response to the COVID-19 pandemic of$11.9 million consisting of$8.3 million in severance and payroll related,$1.5 million in the write-off of unrefunded trade show deposits,$1.2 million in other restructuring charges and$0.9 million in additional accounts receivable reserves. The current year includes a reversal in corporate initiative charges due to a$1.1 million change in estimate primarily impacting the accounts receivable reserve due to collection of a previously reserved receivable. Excluding these corporate initiative charges and reversals for both periods, SG&A expenses would have increased$57.9 million primarily from the following factors: higher marketing expenses of$32.0 million ; an increase in performance-based compensation of$9.2 million ; an increase in payroll related expenses of$8.6 million primarily due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior year period in response to the COVID-19 pandemic; an increase in credit card fees and sales commissions of$3.4 million due to higher sales in the current year; an increase in consulting and recruiting charges of$1.4 million ; an increase in rent and rent-related charges of$1.3 million primarily due to the opening of new company stores 36 --------------------------------------------------------------------------------
and an increase of
Impairment of
As a result of the economic conditions caused by the response to the COVID-19 pandemic, the Company performed a quantitative assessment of its goodwill and long-lived intangible assets atApril 30, 2020 . The Company recorded a goodwill impairment of$133.7 million in fiscal 2021 related to the Company's Watch and Accessory Brands reporting unit as the carrying value of goodwill exceeded the fair value atApril 30, 2020 . The Company also recorded a$22.2 million impairment charge in fiscal 2021 related to MVMT's trade name and customer relationships as the carrying amount of these long-lived intangible assets exceeded the fair value. The Company did not record any similar impairment charges in fiscal 2022.
Watch and Accessory Brands Operating Income/(Loss)
For fiscal 2022 the Company recorded operating income of$85.6 million in the Watch and Accessory Brands segment which includes$38.7 million of unallocated corporate expenses as well as$80.5 million of certain intercompany profits related to the Company's supply chain operations. For fiscal 2021, the Company recorded an operating loss of$152.7 million in the Watch and Accessory Brands segment, which included goodwill and intangible asset impairment charges of$133.7 million and$22.2 million , respectively. Without these charges, for the twelve months endedJanuary 31, 2021 , the Company would have generated operating income of$3.2 million which included$29.1 million of unallocated corporate expenses as well as$63.0 million of certain intercompany profits related to the Company's supply chain operations. In addition to the absence of asset impairments in fiscal 2022, the increase in operating income was the result of an increase in gross profit of$115.4 million , which included corporate initiatives costs in the prior year period of$0.7 million comprising an increase in inventory reserves, partially offset by an increase in SG&A expenses of$33.0 million when compared to the prior year. The increase in gross profit was primarily the result of higher net sales and also a higher gross margin percentage primarily due to a favorable change in sales mix partially offset by increased shipping costs. The favorable impact of sales mix is mainly due to an increase in direct-to-consumer sales channels, which produces higher margins, and an increase in net sales of brands with higher gross margins in the owned brands category. The SG&A expenses for the prior year period included corporate initiatives charges primarily in response to the COVID-19 pandemic of$11.9 million consisting of$8.3 million in severance and payroll related charges, a$1.5 million write-off of unrefunded trade show deposits,$1.2 million in other restructuring charges and$0.9 million in additional accounts receivable reserves. The current year SG&A expenses include a reversal in certain fiscal 2021 corporate initiatives charges due to a change in estimate of$1.1 million primarily impacting the accounts receivable reserve due to collection of a previously reserved receivable. Excluding these corporate initiative charges and reversals for both periods, SG&A expense would have increased$46.0 million primarily due to the following factors: higher marketing expenses of$27.3 million ; an increase in performance-based compensation of$8.7 million ; an increase in payroll related expenses of$5.9 million primarily due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior year period in response to the COVID-19 pandemic; an increase in credit card fees and sales commissions of$1.7 million due to higher sales in the current year; an increase in consulting and recruiting charges of$1.4 million ; and an increase of$1.2 million in donations primarily to theMovado Group Foundation . For the twelve months endedJanuary 31, 2022 , fluctuations in foreign currency exchange rates positively impacted the Watch and Accessory Brands segment operating income by$1.7 million when compared to the prior year.
Inthe United States locations of the Watch and Accessory Brands segment, for the twelve months endedJanuary 31, 2022 , the Company recorded operating income of$9.6 million , which includes unallocated corporate expenses of$38.7 million . For the twelve months endedJanuary 31, 2021 the Company recorded an operating loss of$138.4 million inthe United States locations of the Watch and Accessory Brands segment which included goodwill and intangible asset impairment charges of$77.5 million and$22.2 million , respectively. Without these impairment charges, for the twelve months endedJanuary 31, 2021 , operating loss would have been$38.7 million , which included unallocated corporate expenses of$29.1 million . In addition to these assets impairments in the prior year, the increase to operating income from operating loss was the result of higher gross profit of$66.2 million , which included corporate initiative costs in the prior year of$0.7 million comprising an increase in inventory reserves, partially offset by an increase in SG&A expenses of$17.9 million when compared to the prior year. The increase in gross profit of$66.2 million was due to higher net sales, combined with a higher gross margin percentage primarily from a favorable impact of sales mix. The favorable impact of sales mix is mainly due to an increase in direct-to-consumer sales channels, which produces higher margins, and an increase in net sales of brands with higher gross margins in the owned brands category. The SG&A expenses for the prior year included$7.3 million of corporate initiatives charges primarily in response to the COVID-19 pandemic and primarily consisting of$6.3 million in severance and payroll related charges and$1.0 million in other restructuring charges. The current year SG&A expenses include a reversal in certain fiscal 2021 corporate initiatives charges due to a change in estimate of$0.1 million . Excluding these corporate initiative charges and reversals from both periods, SG&A expense would have increased$25.3 million due to the following factors: higher marketing expenses of$14.6 million ; an increase in performance-based compensation of$7.3 million ; an increase in payroll related expenses of$2.9 million primarily due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior year period in response to the COVID-19 37 -------------------------------------------------------------------------------- pandemic; an increase of$1.2 million in donations primarily to theMovado Group Foundation ; and an increase in credit card fees of$0.9 million due to higher sales in the current year.
International Watch and Accessory Brands Operating Income/(Loss)
In the International locations of the Watch and Accessory Brands segment, for the twelve months endedJanuary 31, 2022 the Company recorded operating income of$76.0 million , which includes$80.5 million of certain intercompany profits related to the Company's International supply chain operations. For the twelve months endedJanuary 31, 2021 the Company recorded an operating loss of$14.3 million in the International locations of the Watch and Accessory Brands segment which included goodwill impairment charges of$56.2 million . Without this impairment charge, for the twelve months endedJanuary 31, 2021 , the Company would have generated operating income of$41.9 million , which included$63.0 million of certain intercompany profits related to the Company's supply chain operations. In addition to the goodwill impairment charge, the increase in operating income was primarily related to higher gross profit of$49.2 million , partially offset by higher SG&A expenses of$15.1 million . The increase in gross profit of$49.2 million was primarily due to higher net sales. The SG&A expenses for the prior year included$4.6 million of corporate initiatives charges primarily in response to the COVID-19 pandemic consisting of$2.0 million in severance and payroll related charges, a$1.5 million write-off of unrefunded trade show deposits,$0.9 million in additional accounts receivable reserves and$0.2 million in other restructuring charges. The current year SG&A expenses include a partial reversal of certain fiscal 2021 corporate initiative charges due to a change in estimate of$1.0 million primarily impacting the accounts receivable reserve due to collection of a previously reserved receivable. Excluding these corporate initiative charges and reversals from both periods, SG&A expense would have increased$20.7 million primarily due to the following factors: higher marketing expenses of$12.7 million ; an increase in payroll related expenses of$3.0 million primarily due to the absence of the furloughing of employees and temporary salary reductions that occurred in the prior year period in response to the COVID-19 pandemic; an increase in consulting and recruiting charges of$2.2 million ; an increase in performance-based compensation of$1.4 million ; and an increase in sales commissions of$0.8 million due to higher sales in the current year. Fluctuation in foreign currency exchange rates positively impacted operating income by$1.7 million when compared to the prior year.
Company Stores Operating Income
The Company recorded operating income of$31.9 million and$10.5 million in the Company Stores segment for fiscal 2022 and 2021, respectively. The improvement in operating income of$21.4 million was primarily related to higher gross profit of$33.2 million mainly due to higher sales and a higher gross margin percentage, partially offset by a$11.8 million increase in SG&A expenses. The increase in SG&A expenses was primarily due to higher marketing expenses of$4.7 million ; an increase in payroll related expenses of$2.7 million primarily due to company stores being open throughout the period (as compared to the significant closures during the prior year); an increase in credit card fees and sales commissions of$1.7 million due to higher sales in the current year as compared to the prior year; an increase in rent and rent-related expenses of$1.3 million due to the opening of new company stores; and an increase in performance-based compensation of$0.5 million . As ofJanuary 31, 2022 , and 2021, the Company operated 51 and 47 retail outlet locations, respectively.
Other Non-Operating Income
The Company recorded other income of$0.5 million primarily due to the final settlement related to a sale of a building in an international location in the prior year and the non-service components of the Company's Swiss pension plan for fiscal 2022.
The Company recorded a gain on the sale of a non-operating asset of
The Company recorded other income of
Interest Expense
Interest expense was$0.7 million for fiscal 2022 as compared to$2.0 million for fiscal 2021. The decrease was primarily due to lower weighted average borrowings outstanding under the Company's revolving credit facility, partially offset by a higher weighted average interest rate and higher unused credit line fees during fiscal 2022 as compared to fiscal 2021.
Income Taxes
The Company recorded an income tax provision of
The effective tax rate for fiscal 2022 was 21.1% and differed from theU.S. statutory tax rate of 21.0% primarily due toU.S. state and local taxes, net of the federal benefit, partially offset by the CARES Act NOL Carryback Provision and related tax effects and foreign 38 -------------------------------------------------------------------------------- profits being taxed in lower taxing jurisdictions. The effective tax rate for fiscal 2021 was 21.9% and differed from theU.S. statutory tax rate of 21.0% primarily due to the CARES Act NOL Carryback Provision and related tax effects, andU.S. state net operating loss carryforwards generated in fiscal 2021, partially offset by impairments of the portion of goodwill of the Watch and Accessory Brands reporting unit which is not tax deductible.
Net Income/(Loss) Attributable to
The Company recorded net income attributable to
LIQUIDITY AND CAPITAL RESOURCES
At
During fiscal 2021 the Company's cash generated from operations was negatively impacted due to the COVID-19 pandemic. During fiscal 2021, the Company responded to the pandemic by taking actions to enhance its financial liquidity and flexibility, including minimizing non-essential operating expenses and capital expenditures, applying for available government payroll subsidies, and temporarily suspending the Company's share repurchase program and regular quarterly dividends. The Company also committed to a restructuring plan during fiscal 2021. Although the COVID-19 pandemic is expected to continue to impact the Company's results of operations for the foreseeable future, the pandemic's adverse impact on the Company has significantly diminished in recent quarters, and the Company believes that based on the Company's current expectations, cash flows from operations and its credit lines and cash on-hand, the Company has adequate funds to support its operating, capital and debt service requirements and expects to maintain compliance with its debt covenants for the next twelve months subsequent to the issuance of the accompanying Consolidated Financial Statements. AtJanuary 31, 2022 the Company had working capital of$402.4 million as compared to$374.0 million atJanuary 31, 2021 . The increase in working capital was primarily the result of an increase in cash of$53.3 million and an increase in accounts receivable resulting primarily from higher net sales, partially offset by an increase in accounts payable. The Company defines working capital as the difference between current assets and current liabilities. The Company had$130.8 million of cash provided by operating activities for fiscal 2022 as compared to$68.4 million for fiscal 2021. Cash provided by operating activities for fiscal 2022 included net income of$92.6 million , positively adjusted by$20.8 million related to non-cash items. Cash provided by operating activities for fiscal 2022 was impacted by an increase in accounts payable of$18.3 million primarily as a result of timing of payments, a decrease in income taxes receivable of$17.1 million due to a receipt of aU.S. federal income tax refund and an increase in accrued payroll and benefits of$7.3 million primarily due to an increase in accrued performance-based compensation. Cash used in operating activities in fiscal 2022 was impacted by an increase in trade receivables of$18.6 million as a result of higher net sales and an increase in investment in inventories of$15.4 million primarily to support sales growth. Cash used in investing was$7.9 million for fiscal 2022 as compared to$1.9 million for fiscal 2021. The cash used in fiscal 2022 was primarily related to capital expenditures of$5.7 million primarily due to the Company's opening of four new stores (two inCanada ) and website platform upgrades and$2.0 million of long-term investments. The prior year included proceeds from a sale of a non-operating asset inSwitzerland of$1.3 million . The Company expects that capital expenditures in fiscal 2023 will be approximately$10.0 million as compared to$5.7 million in fiscal 2022. The capital spending will be primarily for projects in the ordinary course of business including facilities improvements, shop-in-shops, website development, computer hardware and software and tooling costs. The Company has the ability to manage its capital expenditures on discretionary projects. Cash used by financing activities was$66.6 million for fiscal 2022 as compared to$34.4 million for fiscal 2021. The cash used in fiscal 2022 included$22.6 million in stock repurchased in the open market,$22.0 million in dividends paid ($2.3 million of which had been declared inJanuary 2021 ) repayment of$21.1 million of bank borrowings and$3.1 million in shares repurchased as a result of the surrender of shares in connection with the vesting of certain stock awards and options, partially offset by$3.4 million received in connection with stock options exercised. Cash used in financing activities for fiscal 2021 included net repayment of bank borrowings of$33.6 million . OnOctober 12, 2018 , the Company, together withMovado Group Delaware Holdings Corporation ,Movado Retail Group, Inc. andMovado LLC (together with the Company, the "U.S. Borrowers"), each a wholly owned domestic subsidiary of the Company, andMovado Watch Company S.A. andMGI Luxury Group S.A. (collectively, the "Swiss Borrowers" and, together with theU.S. Borrowers, the "Borrowers"), each a wholly owned Swiss subsidiary of the Company, entered into an Amended and Restated Credit Agreement 39 -------------------------------------------------------------------------------- (the "Credit Agreement") with the lenders party thereto andBank of America, N.A . as administrative agent (in such capacity, the "Agent"). The Credit Agreement amended and restated the Company's prior credit agreement dated as ofJanuary 30, 2015 and extended the maturity of the$100.0 million senior secured revolving credit facility (the "Facility") provided thereunder toOctober 12, 2023 . 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 Borrowers, with provisions for uncommitted increases to the Facility of up to$50.0 million in the aggregate subject to customary terms and conditions. OnJune 5, 2020 , the Company and its lenders entered into an amendment (the "Second Amendment") to the Credit Agreement effective as ofApril 30, 2020 . Among other things, the Second Amendment provided for temporary relief with respect to the financial maintenance covenants in the Credit Agreement startingApril 30, 2020 while also temporarily tightening certain covenants and temporarily increasing the interest rate and commitment fee. These temporary changes to the Credit Agreement ended as a result of the Company's achievement of certain financial milestones as of and for the periods endingJanuary 31, 2021 . In addition, the Second Amendment increased the LIBOR floor for loans under the Credit Agreement from 0% to 1.00% and reduced the minimum EBITDA financial covenant level to$35.0 million starting with the four-quarter period endingJuly 31, 2021 . EffectiveOctober 29, 2021 , the Company and its lenders entered into an additional amendment (the "Third Amendment") to the Credit Agreement. Among other things, the Third Amendment extends the maturity of the Facility toOctober 28, 2026 ; reinstates the 0% LIBOR floor; reduces the commitment fee at certain leverage ratio levels; allows the Company to net up to$25 million of unrestricted cash and cash equivalents held inU.S. accounts from total debt for purposes of determining the leverage ratio for financial covenant and other purposes; and increases the Company's general basket for making investments under the Credit Agreement's operating covenants. The foregoing summary of the Third Amendment is qualified by reference to the full text of the amendment, which is attached as Exhibit 4.1 to the Company's quarterly report on Form 10-Q for the quarter endedOctober 31, 2021 and incorporated herein by reference. As ofJanuary 31, 2022 , andJanuary 31, 2021 , there was zero and$21.2 million (of which$10 million was denominated in Swiss Francs), respectively, in 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 bothJanuary 31, 2022 andJanuary 31, 2021 . AtJanuary 31, 2022 , the letters of credit have expiration dates throughMay 31, 2022 . As ofJanuary 31, 2022 , andJanuary 31, 2021 , availability under the Facility was$99.7 million and$78.5 million , respectively. For additional information regarding the Facility, see Note 9 - Debt and Lines of Credit to the Consolidated Financial Statements.
The Company had weighted average borrowings under the facility of
A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified maturity with a Swiss bank. As ofJanuary 31, 2022 , and 2021, these lines of credit totaled6.5 million Swiss Francs for both periods, with a dollar equivalent of$7.0 million and$7.3 million , respectively. As ofJanuary 31, 2022 , and 2021, there were no borrowings against these lines. As ofJanuary 31, 2022 , and 2021, two European banks had guaranteed obligations to third parties on behalf of two of the Company's foreign subsidiaries in the dollar equivalent of$1.2 million and$1.3 million , respectively, in various foreign currencies, of which$0.6 million , in both periods, was a restricted deposit as it relates to lease agreements.
Cash paid for interest, including unused commitments fees, was
From time to time the Company may make minority investments in growth companies in the consumer products sector and other sectors relevant to its business, including certain of the Company's suppliers and customers, as well as in venture capital funds that invest in companies in media, entertainment, information technology and technology-related fields and in digital assets. During fiscal 2022, the Company committed to invest up to$21.5 million in such investments. The Company funded approximately$2.0 million of these commitments in fiscal 2022 and may be called upon to satisfy capital calls in respect of the remaining$19.5 million in such commitments at any time during a period generally ending ten years after the first capital call in respect of a given commitment. OnJanuary 11, 2021 , the Company's Board of Directors declared a cash dividend of$0.10 per share, which was paid onFebruary 5, 2021 in the amount of$2.3 million , to shareholders of record onJanuary 21, 2021 . The Company paid additional cash dividends of$0.20 per share or$4.6 million during the three months endedApril 30, 2021 ,$0.20 per share or$4.7 million during the three months endedJuly 31, 2021 ,$0.20 per share or$4.6 million during the three months endedOctober 31, 2021 and$0.25 per share or$5.7 million during the three months endedJanuary 31, 2022 . The Company did not pay cash dividends during fiscal 2021. Although the Company currently expects to continue to declare cash dividends in the future, the decision of whether to declare any future cash dividend, including the amount of any such dividend and the establishment of record and payment dates, will be determined, in each quarter, by the Board of Directors, in its sole discretion. 40 -------------------------------------------------------------------------------- OnMarch 25, 2021 , the Board approved a share repurchase program under which the Company is authorized to purchase up to$25.0 million of its outstanding common stock throughSeptember 30, 2022 , depending on market conditions, share price and other factors. OnNovember 23, 2021 , the Board approved a share repurchase program under which the Company is authorized to purchase up to an additional$50.0 million of its outstanding common stock throughNovember 23, 2024 , depending on market conditions, share price and other factors. Under both share repurchase programs, the Company is permitted to purchase shares of its common stock from time to time through open market purchases, repurchase plans, block trades or otherwise. During fiscal 2022, the Company repurchased a total of 686,559 shares of its common stock under theMarch 25, 2021 share repurchase program at a total cost of$22.6 million , or an average of$32.92 per share. AtJanuary 31, 2022 ,$2.4 million remains available for purchase under the Company'sMarch 25, 2021 repurchase program and all$50.0 million remains available for purchase under the Company'sNovember 23, 2021 repurchase program. During fiscal 2021, the Company did not repurchase any shares of its common stock.
CONTRACTUAL OBLIGATIONS
Payments due by period (in thousands):
Less than 2-3 4-5 More than
Total 1 year years years 5 years
Contractual Obligations:
Operating and Finance Lease
Obligations (1) $ 86,549 $ 16,423 $ 28,823 $ 19,959 $ 21,344
Purchase Obligations (2) 118,211 118,211 - - -
Other Long-Term Obligations (3) 294,829 71,170 130,743 92,916 -
Transition Tax (4) 19,241 2,264 9,903 7,074 -
Total Contractual Obligations $ 518,830 $ 208,068 $ 169,469 $ 119,949 $ 21,344
(1)
Includes store operating and finance leases, which generally provide for payment
of direct operating costs in addition to rent. These obligation amounts only
include future minimum lease payments and exclude direct operating costs.
(2)
The Company had outstanding purchase obligations with suppliers at the end of
fiscal 2022 for raw materials, finished watches and packaging in the normal
course of business. These purchase obligation amounts do not represent total
anticipated purchases but represent only amounts to be paid for items required
to be purchased under agreements that are enforceable, legally binding and
specify minimum quantity, price and term.
(3)
Other long-term obligations primarily consist of minimum commitments related to
the Company's license agreements and endorsement agreements with brand
ambassadors, and also include service agreements. The Company sources,
distributes, advertises and sells watches pursuant to its exclusive license
agreements with unaffiliated licensors. Royalty amounts are generally based on a
stipulated percentage of revenues, although most of these agreements contain
provisions for the payment of minimum annual royalty amounts. The license
agreements have various terms, and some have renewal options, provided that
minimum sales levels are achieved. Additionally, the license agreements require
the Company to pay minimum annual advertising amounts.
(4)
The Transition Tax obligation is due to the enactment of the 2017 Tax Act and
will be paid in installments over eight years, with the first payment having
been made in fiscal 2019.
Liabilities for unrecognized income tax benefits are excluded from the table
above as the Company is unable to reasonably predict the ultimate amount or
timing of a settlement of such liabilities. See Note 14- Income Taxes for more
information.
Long-term liabilities associated with the Company's defined benefit plan in
Management's estimate of contributions the Company will make to its Swiss pension plan for the fiscal year ending 2023 is approximately$1.2 million . In addition, total benefit payments to be paid to participants in the Swiss pension plan for the fiscal year ending 2023 from the Company's plan are estimated to be approximately$0.3 million .
Accounting Changes and Recent Accounting Pronouncements
See Note 3 to the accompanying audited consolidated financial statements for a description of recent accounting pronouncements which may impact the consolidated financial statements in future reporting periods.
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