A Dutch arbitration panel has ordered Tiffany & Co. to pay Swatch damages of about $449.5 million plus interest in a breach of contract case dating back to 2011. The dispute stems from Swatch’s claim that Tiffany failed to honor its obligation to develop and sell Swatch watches under the Tiffany name and split the profits.
The amount is 8.8% of the total damages sought by Swatch. Tiffany will also have to pay about $8.8 million in fees, expenses and other arbitration costs. One arbitrator on the three-arbitrator panel did not rule in favor of Swatch.
“We were shocked and extremely disappointed with the decision of the majority of the arbitral panel,” said Michael J. Kowalski, chairman and CEO of Tiffany. “We firmly believe the panel’s ruling is not supported by the facts of this case or the various agreements between the Swatch parties and the Tiffany parties. While we are reviewing our options with our legal counsel, I want to assure you that we do have sufficient financial resources to pay the full amount. We will record a charge for the after-tax impact of the award, which we estimate to be approximately $295 – 305 million, in the fourth quarter. However, we do not believe that the award will impact our ability to realize our existing business plans in the short or long term, and we are extremely pleased to be moving forward with our plans to design, produce, market and distribute our own Tiffany & Co. brand watches.”
Tiffany intends to fund any amounts to be paid from immediately available cash on hand and funds available under its existing debt facilities. The company has lowered its earnings per share guidance for fiscal 2014 to $2.30-$2.35 from $3.65-$3.75.