Fair Value Measurements

6 Months Ended

Jul. 31, 2019

Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis [Abstract]

Fair Value Measurements

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 July 31, 2019 and 2018 and January 31, 2019 (in thousands):

		Fair Value at July 31, 2019
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	Other current assets	$	187	$	—	$	—	$	187
Short-term investment	Other current assets		156		—		—		156
SERP assets - employer	Other non-current assets		1,130		—		—		1,130
SERP assets - employee	Other non-current assets		42,298		—		—		42,298
Defined benefit plan assets	Other non-current liabilities		—		—		32,244		32,244
Hedge derivatives	Other current assets		—		140		—		140
Total		$	43,771	$	140	$	32,244	$	76,155
Liabilities:
SERP liabilities - employee	Other non-current liabilities	$	42,298	$	—	$	—	$	42,298
Hedge derivatives	Accrued liabilities		—		71		—		71
Contingent consideration	Other non-current liabilities		—		—		1,900		1,900
Total		$	42,298	$	71	$	1,900	$	44,269

		Fair Value at January 31, 2019
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	Other current assets	$	177	$	—	$	—	$	177
Short-term investment	Other current assets		155		—		—		155
SERP assets - employer	Other non-current assets		860		—		—		860
SERP assets - employee	Other non-current assets		38,170		—		—		38,170
Defined benefit plan assets	Other non-current liabilities		—		—		33,223		33,223
Hedge derivatives	Other current assets		—		22		—		22
Total		$	39,362	$	22	$	33,223	$	72,607
Liabilities:
SERP liabilities - employee	Other non-current liabilities	$	38,170	$	—	$	—	$	38,170
Hedge derivatives	Accrued liabilities		—		156		—	$	156
Contingent consideration	Other non-current liabilities		—		—		16,718		16,718
Total		$	38,170	$	156	$	16,718	$	55,044

		Fair Value at July 31, 2018
	Balance Sheet Location	Level 1		Level 2		Level 3		Total
Assets:
Available-for-sale securities	Other current assets	$	187	$	—	$	—	$	187
Short-term investment	Other current assets		156		—		—		156
SERP assets - employer	Other non-current assets		1,262		—		—		1,262
SERP assets - employee	Other non-current assets		38,970		—		—		38,970
Hedge derivatives	Other current assets		—		161		—		161
Total		$	40,575	$	161	$	—	$	40,736
Liabilities:
SERP liabilities - employee	Other non-current liabilities	$	38,970	$	—	$	—	$	38,970
Hedge derivatives	Accrued liabilities		—		481		—		481
Total		$	38,970	$	481	$	—	$	39,451

The fair values of the Company’s available-for-sale securities are based on quoted prices. The fair value of the short-term investment, which is a guaranteed investment certificate, is based on its purchase price plus one half of a percent calculated annually. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives are entered into by the Company principally to reduce its exposure to Swiss franc and Euro exchange rate risks. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates and quoted interest rates. The carrying amount of debt approximated fair value as of July 31, 2019, and January 31, 2019, due to the availability and floating rate for similar instruments.      

The Company sponsors a pension plan in Switzerland which was amended to a defined benefit plan effective December 31, 2018. The plan covers certain international employees and is based on years of service and compensation on a career-average pay basis. The assets within the plan are classified as a Level 3 asset within the fair value hierarchy and consist of an investment in pooled assets and include separate employee accounts that are invested in equity securities, debt securities and real estate. The values of the separate accounts invested are based on values provided by the administrator of the funds that cannot be readily derived from or corroborated by observable market data. The value of the assets is part of the funded status of the defined benefit plan and included in other non-current liabilities in the consolidated balance sheets at July 31, 2019 and January 31, 2019. 

The fair value of the Level 3 contingent purchase price liability related to the acquisition of MVMT Watches, Inc. owner of the MVMT brand, is measured using a Monte Carlo simulation with key assumptions that include revenue and brand EBITDA, (as defined in the acquisition agreement) of the acquired business during the earn-out period, volatilities, estimated discount rates, risk-free rate, and correlation. The liability is revalued each reporting period after the acquisition and increases or decreases in the fair value of the liability are recorded in the Consolidated Statements of Operations. Changes in fair value can result from the estimated achievement of the revenue and brand EBITDA performance hurdles, and movements in discount rates, volatilities, and the other key assumptions. The inputs and assumptions are not observable in the market but reflect the assumptions the Company believes would be made by a market participant. The possible outcomes for the contingent consideration range from $0 to $100 million on an undiscounted basis. As a result, changes in the estimated fair value of the contingent consideration over time may result in significant volatility in the Company’s reported earnings.

Based on updated revenue and EBITDA (as defined in the acquisition agreement) performance expectations during the earn-out period for MVMT, the Company remeasured the contingent consideration to $1.9 million at July 31, 2019. Of the $15.0 million decrease in the liability, $13.6 million is included in non-operating income (portion of contingent consideration allocated to purchase price) in the Consolidated Statements of Operations for the three and six months ended July 31, 2019, and $0.5 million and $0.9 million are reflected as a reduction of deferred compensation (portion of contingent consideration allocated to deferred compensation based on future service requirements) within other current assets and other non-current assets, respectively, in the Consolidated Balance Sheets. 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 in the Consolidated Statements of Operations and as such, has not included it in operating income for the Watch and Accessory Brands segment. Refer to Note 17 for Segment and Geographic Information.

The following tables presents the change in the Level 3 contingent purchase price liability during the three and six months ended July 31, 2019:

	Three Months Ended July 31,
(In thousands)	2019
Balance at April 30, 2019	$	16,884
Payments		—
Adjustments included in income before income taxes		(13,627	)
Adjustments to deferred compensation		(1,357	)
Ending Balance	$	1,900

	Six Months Ended July 31,
(In thousands)	2019
Balance at January 31, 2019	$	16,718
Payments		—
Adjustments included in income before income taxes		(13,461	)
Adjustments to deferred compensation		(1,357	)
Ending Balance	$	1,900

There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.