Back to GetFilings.com
1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JANUARY 31, 2001,
OR
[ ] 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 0-22378
MOVADO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2595932
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 CHUBB AVENUE 07071
LYNDHURST, NEW JERSEY (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (201) 460-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
NAME OF EACH EXCHANGE ON WHICH REGISTERED:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT;
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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 the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Based on the closing sales price of the Common Stock as of April 20, 2001,
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $139,736,884. For purposes of this computation,
each share of Class A Common Stock is assumed to have the same market value as
one share of Common Stock into which it is convertible and only shares of stock
held by directors and executive officers were excluded.
The number of shares outstanding of the registrant's Common Stock and Class
A Common Stock as of April 20, 2001 were 9,687,960 and 3,509,733 respectively.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement relating to Registrant's 2001
annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference in Part III hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2
PART I
Item 1. Business
CORPORATE ORGANIZATION
The registrant, Movado Group, Inc. is a designer, manufacturer and distributor
of quality watches with prominent brands sold in almost every price category
comprising the watch industry. The Company was incorporated in New York in 1967
to acquire Piaget Watch Corporation and Corum Watch Corporation, which had been,
respectively, the exclusive importers and distributors of Piaget and Corum
watches in the United States since the 1950's. The registrant and its
subsidiaries are referred to herein as "Movado Group, Inc.," or the "Company"
unless the context otherwise requires.
In 1970, the Company acquired the Swiss manufacturer of Concord watches, which
had been manufacturing Concord watches since 1908, and in 1983, the Company
acquired the U.S. distributor of and substantially all the assets related to the
Movado watch brand from the Swiss manufacturer of Movado watches.
On October 7, 1993, the Company completed a public offering of 2,666,667 shares
of common stock, par value $.01 per share (the "Common Stock"). In connection
with the public offering, each share of the then currently existing Class A
Common Stock was converted into 10.46 shares of new Class A Common Stock, par
value of $.01 per share (the "Class A Common Stock"). Each share of Common Stock
is entitled to one vote per share and each share of Class A Common Stock is
entitled to 10 votes per share on all matters submitted to a vote of the
shareholders. Each holder of shares of Class A Common Stock is entitled to
convert, at anytime, any and all such shares into the same number of shares of
Common Stock. Each share of Class A Common Stock is converted automatically into
Common Stock in the event that the beneficial or record ownership of such shares
of Class A Common Stock is transferred to any person, except to certain family
members or affiliated persons deemed "permitted transferees" pursuant to the
Company's Amended Restated Certificate of Incorporation. The Common Stock is
traded on the NASDAQ National Market under the trading symbol "MOVA".
On October 21, 1997, the Company completed a secondary stock offering in which
1,500,000 shares of Common Stock were issued.
On February 22, 1999, the Company completed the sale of its Piaget business to
VLG North America, Inc. ("VLG"). The Company sold all of its rights, title and
interest in substantially all the assets and properties relating to the business
of selling and distributing Piaget watches and jewelry in the United States,
Canada, Central America and the Caribbean.
On January 14, 2000, the Company completed the sale of its Corum business to
Corum Reis Bannwart & Co. SA ("Corum Switzerland"). The Company sold all of its
rights, title and interest in substantially all the assets and properties
relating to the business of selling and distributing Corum watches in the United
States, Canada and the Caribbean.
With executive offices in Woodcliff Lake and Lyndhurst, New Jersey, the Company
operates wholly owned subsidiaries in Canada, Hong Kong, Japan, Singapore,
Switzerland and the United States.
1
3
INDUSTRY OVERVIEW
The largest markets for watches are North America, Western Europe and the Far
East. While exact worldwide wholesale sales volumes are difficult to quantify,
the Company estimates from data obtained from the Federation of the Swiss Watch
Industry that worldwide wholesale sales of watches and related components are
over $12 billion annually. Watches are produced predominantly in Switzerland,
Hong Kong/China and Japan. According to the Federation of the Swiss Watch
Industry, Switzerland, Hong Kong/China and Japan accounted for approximately
53%, 37% and 1% respectively, of worldwide watch exports based on units in 2000.
Among all the major watch exporting countries, Swiss watches have the highest
average unit value.
The Company divides the watch market into six principal categories as set forth
in the following table:
PRIMARY CATEGORY OF
SUGGESTED RETAIL MOVADO GROUP, INC.
MARKET CATEGORY PRICE RANGE BRANDS
--------------------- -------------------------- -----------------------
Exclusive $10,000 and over Concord
Luxury $1,000 to $9,999 Concord
Premium $500 to $999 Movado and Coach
Moderate $125 to $499 ESQ and Coach
Fashion Watch Market $55 to $125 Tommy Hilfiger
Mass Market Less than $55 __
The Company's Concord watches compete primarily in the Luxury category of the
market, although certain Concord watches compete in the Exclusive and Premium
categories. The Company's Movado watches compete primarily in the Premium
category of the market, although certain Movado watches compete in the
Exclusive, Luxury and Moderate categories. The Company's Coach brand competes in
both the Premium and Moderate categories. The ESQ line competes in the Moderate
category of the market. The Company entered the Fashion Watch Market category in
March 2001 with the launch of the Tommy Hilfiger line of watches manufactured,
distributed and marketed under a license agreement with Tommy Hilfiger
Licensing, Inc. The Company does not currently sell watches in the Mass Market
category.
Exclusive Watches
Exclusive watches are usually made of precious metals, including 18 karat gold
or platinum, and may be set with precious gems, including diamonds, emeralds,
rubies and sapphires. These watches are primarily mechanical or quartz-analog
watches. Mechanical watches keep time with intricate mechanical movements
consisting of an arrangement of wheels, jewels and winding and regulating
mechanisms. Quartz-analog watches have quartz movements in which time is
precisely calibrated to the regular frequency of the vibration of quartz
crystal. Exclusive watches are manufactured almost entirely in Switzerland. In
addition to the Company's Concord and Movado watches, well-known brand names of
Exclusive watches include Audemars Piguet, Patek Philippe, Piaget and Vacheron
Constantin.
2
4
Luxury Watches
Luxury watches are either quartz-analog watches or mechanical watches. These
watches typically are made with either 14 or 18 karat gold, stainless steel or a
combination of gold and stainless steel, and are occasionally set with precious
gems. Luxury watches are primarily manufactured in Switzerland. In addition to a
majority of the Company's Concord and certain Movado watches, well-known brand
names of Luxury watches include Baume & Mercier, Breitling, Cartier, Ebel,
Omega, Rolex and TAG Heuer.
Premium Watches
The majority of Premium watches are quartz-analog watches. These watches
typically are made with gold finish, stainless steel or a combination of gold
finish and stainless steel. Premium watches are manufactured primarily in
Switzerland, although some are manufactured in the Far East. In addition to a
majority of the Company's Movado, Coach and certain Concord watches, well-known
brand names of Premium watches include Gucci, Rado and Raymond Weil.
Moderate Watches
Most Moderate watches are quartz-analog watches. Moderate watches are
manufactured primarily in the Far East and Switzerland. These watches typically
are made with gold finish, stainless steel, brass or a combination of gold
finish and stainless steel. In addition to the Company's ESQ and Coach brands,
well-known brand names of watches in the Moderate category include Anne Klein,
Bulova, Gucci, Guess, Seiko, Citizen and Wittnauer.
Fashion Watch Market Watches
Watches comprising the Fashion Watch Market are primarily quartz-analog watches
but also include some digital watches. Digital watches, unlike quartz-analog
watches, have no moving parts. Instead, time is kept by electronic microchips
and is displayed as discrete Arabic digits illuminated on the watch face by
light emitting diodes (LED's) or liquid crystal displays (LCD's). Watches in the
Fashion Watch Market category are generally made with stainless steel, gold
finish, brass and/or plastic and are manufactured primarily in the Far East.
Fashion Watch Market watches are based on designs and use features that attempt
to reflect current and emerging fashion trends. Many are sold under licensed
designer and brand names that are well known principally in the apparel
industry. Well-known brands of Fashion Watch Market watches include Anne Klein
II, DKNY, Guess?, Kenneth Cole, Swatch and Fossil. The Company entered this
category in March 2001 with the launch of the Tommy Hilfiger line of watches
produced and sold under license from Tommy Hilfiger Licensing, Inc.
Mass Market Watches
Mass market watches typically consist of digital watches and analog watches
made from stainless steel, brass and/or plastic manufactured in the Far East.
Well known brands include Armatron, Casio, Citizen, Pulsar, Seiko and Timex.
3
5
PRODUCTS
During Fiscal 2001, the Company marketed five distinctive brands of watches:
Movado, Concord, ESQ, Coach and Tommy Hilfiger, which compete in the Exclusive,
Luxury, Premium, Moderate and Fashion Watch Market categories. The Company
designs, manufactures and contracts for the assembly of Movado and Concord
watches primarily in Switzerland, as well as in the United States, for sale
throughout the world. ESQ and Tommy Hilfiger watches are manufactured to the
Company's specifications by independent contractors located in the Far East. ESQ
watches are presently sold primarily in the United States, Canada and the
Caribbean. Tommy Hilfiger watches are presently sold in the United States. Coach
watches are assembled in Switzerland by independent suppliers and primarily sold
in North America, Caribbean and Far East. Until the end of fiscal 1999, the
Company distributed Piaget watches. On February 22, 1999, the Company sold its
Piaget business to VLG. Until the end of fiscal 2000, the Company distributed
Corum watches. On January 14, 2000, the Company sold its Corum business to Corum
Switzerland.
Movado
Founded in 1881 in La Chaux-de-Fonds, Switzerland, the Movado brand today
includes a line of watches based on the design of the world famous Movado Museum
watch and a number of other watch collections with more traditional dial
designs. The design for the Movado Museum watch was the first watch design
chosen by the Museum of Modern Art for its permanent collection. It has since
been honored by 10 other museums throughout the world. All Movado watches have
Swiss movements, and are made with 14 or 18 karat gold, 18 karat gold finish,
stainless steel or a combination of 18 karat gold finish and stainless steel.
The majority of Movado watches have suggested retail prices between
approximately $195 and $4,000.
Concord
Concord was founded in 1908 in Bienne, Switzerland. All Concord watches have
Swiss movements, either quartz or mechanical. Concord watches are made with 18
karat gold, stainless steel or a combination of 18 karat gold and stainless
steel, except for Concord Royal Gold watches, most of which are made with 14
karat gold. The majority of Concord watches have suggested retail prices between
approximately $1,000 and $15,000.
Coach
During fiscal 1999, the Company introduced Coach watches under an exclusive
license with Coach, Inc. All Coach watches contain Swiss movements and are made
with stainless steel, gold finish or a combination of stainless steel and gold
finish with leather straps, stainless steel bracelets or gold finish bracelets.
The suggested retail prices range from $195 to $795.
ESQ
ESQ was launched in the second half of fiscal 1993 under an exclusive license
agreement with The Hearst Corporation. All ESQ watches contain Swiss movements
and are made with stainless steel, gold finish or a combination of stainless
steel and gold finish, with leather straps, stainless steel bracelets or gold
finish bracelets. The ESQ brand consists of sport and fashion watches with
suggested retail prices ranging from $125 to $495, with features and styles
comparable to more expensive watches.
4
6
Tommy Hilfiger
The Company launched Tommy Hilfiger watches in March 2001, under an exclusive
agreement with Tommy Hilfiger Licensing, Inc. Marketed under the TOMMY
HILFIGER(R) and TOMMY(R) labels. Tommy Hilfiger watches feature quartz, digital
and analog-digital movements, with stainless steel, titanium, aluminum,
silver-tone, two-tone and gold-tone cases and bracelets, and leather, fabric,
plastic and rubber straps. The line includes fashion and sport models with
suggested retail prices from $55 to $195.
Other Revenue
During fiscal 2001, sales of other products and services totaled approximately
$45.1 million, or approximately 14% of consolidated net sales. Approximately
$39.3 million of this other revenue is derived from the Company's retail
operations which consist of 23 outlet stores and seven Movado Boutiques. The
outlet stores sell discontinued models and factory seconds of all of the
Company's watch brands. The Movado Boutiques sell selected models of Movado
watches as well as proprietary jewelry, home and personal accessory lines which
were launched in 1998. The jewelry, home and personal accessory lines are sold
exclusively in the Movado Boutiques. Other revenue also includes the Company's
after sales service and watch repair operations.
WARRANTY AND REPAIR
The Company has service facilities around the world including eight
Company-owned service facilities and approximately 120 authorized independent
service centers. The Company conducts training sessions for and distributes
technical information and updates to repair personnel in order to maintain
consistency and quality at its service facilities and authorized independent
service centers. The Company's products are covered by limited warranties
against defects in materials and workmanship for periods ranging from one to
three years from the date of purchase for movements and up to five years for
Movado watch casings and bracelets. Products that are returned under warranty to
the Company are generally serviced by the Company's employees at its service
facilities.
Historically, the Company retained significant inventories of component parts
to facilitate after sales service of its watches for an extended period of
time after the discontinuance of such watches from its core range line. During
fiscal 1999, the Company decided that it would no longer retain this level of
non-core component inventories and took steps to begin assembling some of these
components into finished watches for resale through liquidation channels and its
outlet stores.
ADVERTISING
Advertising is important to the successful marketing of the Company's watches.
Hence, the Company devotes significant resources to advertising. Since 1972, the
Company has maintained its own in-house advertising department which the Company
restructured to focus primarily on the implementation and management of global
marketing and advertising programs. At the time, the Company also shifted the
creative development of advertising campaigns to an outside agency with no
increase in cost. Advertising expenditures totaled approximately 19.4%, 21.0%
and 19.4% of net sales in fiscal 2001, 2000 and 1999, respectively. Advertising
is developed individually for each of the Company's watch
5
7
brands and is directed primarily to the ultimate consumer rather than to
trade customers and is developed by targeting consumers with particular
demographic characteristics appropriate to the image and price range of the
brand. Advertisements are placed predominately in magazines and other print
media, but are also created for radio and television campaigns, catalogues and
promotional materials.
SALES AND DISTRIBUTION
Overview
The Company divides its business into two major geographic segments: "Domestic"
which includes the results of the Company's United States and Canadian
operations and "International" which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe and the Far East.
Domestic Wholesale
The Company sells all of its brands in the domestic market primarily through
department stores, such as Macy's, Neiman-Marcus and Saks Fifth Avenue; jewelry
store chains, such as Zales, Helzberg and Sterling; and independent jewelers.
Sales to trade customers in the United States and Canada are made directly by
the Company's sales force of approximately 105 employees who typically
specialize in a particular brand. A majority of the sales force is compensated
solely on the basis of commissions, which are determined as a percentage of
sales. Zale Corporation accounted for 10%, 13% and 10% of the Company's
consolidated net sales for fiscal 2001, 2000 and 1999, respectively. At
January 31, 2001 and 2000, the same trade customer accounted for 13% and 18% of
consolidated trade receivables, respectively.
International Wholesale
The Company sells Movado, Concord and Coach watches internationally through its
own sales force of approximately 30 employees operating from the Company's sales
and distribution offices in Hong Kong, Singapore, and Switzerland, and also
through a network of approximately 72 independent distributors operating in
numerous countries around the world. A majority of the Company's arrangements
with its international distributors are long term, generally require certain
minimum purchases and restrict the distributor from selling competitive
products.
Retail
In addition to its sales to trade customers and independent distributors, the
Company sells Movado watches as well as Movado jewelry, tabletop accessories and
other product line extensions in seven company-operated Movado Boutiques. The
Company also operates 23 outlet stores which sell discontinued and sample
merchandise and factory seconds, providing the Company with an organized and
efficient method of reducing inventory without competing directly with trade
customers.
BACKLOG
At March 31, 2001, the Company had unfilled customer orders of approximately
$45.8 million, compared to approximately $49.8 million at March 31, 2000. The
Company believes the backlog is affected by a variety of factors, including
seasonality and the scheduling of the manufacture and shipment of products.
6
8
SOURCES AND AVAILABILITY OF SUPPLIES
Concord watches are generally assembled at the Company's manufacturing facility
in Bienne, Switzerland with some off-site assembly performed principally by
independent Swiss watchmakers. Movado watches are assembled primarily in
Switzerland by independent third party subcontract assemblers. Until the middle
of fiscal 2001, certain lower price point Movado models were assembled by
subcontractors in the Far East. Movado and Concord watches are assembled using
Swiss movements and other components obtained from third party suppliers. Coach
watches are assembled in Switzerland by independent assemblers using Swiss
movements and other components obtained from third party suppliers in
Switzerland and elsewhere. ESQ and Tommy Hilfiger watches are assembled by
independent contractors in the Far East. ESQ watches are manufactured using
Swiss movements and other components purchased from third party suppliers
principally located in the Far East. Tommy Hilfiger watches are manufactured
using movements and other components purchased from third party suppliers
located in the Far East.
A majority of the watch movements used in the manufacture of Movado, Concord and
ESQ watches are purchased from two suppliers. The Company obtains other watch
components for all of its manufactured brands, including movements, cases,
crystals, dials, bracelets and straps from a number of other suppliers.
Precious stones used in the Company's watches are purchased from various
suppliers and are set in the United States and Switzerland. The Company does not
have long-term supply contracts with any of its component parts suppliers.
COMPETITION
The markets for each of the Company's watch brands are highly competitive. With
the exception of The Swatch Group, Ltd. (formerly known as SMH), a large
Swiss-based competitor, no single company competes with the Company across all
of its brands. Certain companies, however, compete with Movado Group, Inc. with
respect to one or more of its watch brands. Certain of these companies have, and
other companies that may enter the Company's markets in the future may have,
substantially greater financial, distribution, marketing and advertising
resources than the Company. The Company's future success will depend, to a
significant degree, upon its continued ability to compete effectively with
regard to, among other things, the style, quality, price, advertising, marketing
and distribution of its watch brands.
TRADEMARKS, PATENTS AND LICENSING AGREEMENTS
Movado Group, Inc. owns the trademarks MOVADO(R), CONCORD(R) and VIZIO(R), as
well as trademarks for the Movado Museum dial design, and related trademarks for
watches in the United States and in numerous other countries. The Company
licenses ESQUIRE(R), ESQ(R) and related trademarks on an exclusive basis for use
in connection with the manufacture, distribution, advertising and sale of
watches pursuant to an agreement with the Hearst Corporation ("Hearst License
Agreement"). The current term of the Hearst License Agreement expires December
31, 2003 but contains options for renewal at the Company's discretion through
December 31, 2018. The Company licenses the trademark COACH(R) and related
trademarks on an exclusive basis for use in connection with the manufacture,
distribution, advertising and sale of watches pursuant to an agreement with
Coach, Inc. ("Coach License Agreement"). Subject to meeting certain performance
goals, the Coach License Agreement expires in March 2008.
7
9
The Company has also entered into a license agreement with Tommy Hilfiger
Licensing, Inc. ("THLI"), the initial term of which expires December 31, 2005
but which can be extended at the request of the Company through December 31,
2010 if it is in compliance with all material terms of the agreement. Under the
agreement with THLI, the Company has been granted the exclusive license to use
the trademark TOMMY HILFIGER(R) and related trademarks in connection with the
manufacture of watches worldwide and in connection with the marketing,
advertising, sale and distribution of watches at wholesale (and at retail
through its outlet stores) in the United States, Canada, the Caribbean, and in
duty free and U.S. military shops worldwide.
In connection with the sale of the Piaget business to VLG, and the Corum
business to Corum Switzerland, the Company assigned the trademark PIAGET(R)for
watches and jewelry and certain related trademarks in the United States to VLG
and assigned the trademark CORUM(R) and certain related trademarks in the United
States to Corum Switzerland.
The Company also owns and has pending applications for a number of design
patents in the United States and internationally for various watch designs, as
well as designs of watch cases, bracelets and jewelry.
The Company actively seeks to protect and enforce its intellectual property
rights by working with industry associations, anti-counterfeiting organizations,
private investigators and law enforcement authorities, including the United
States Customs Service and, when necessary, suing infringers of its trademarks
and patents. Consequently, the Company is involved from time to time in
litigation or other proceedings to determine the enforceability, scope and
validity of these rights. With respect to the trademarks MOVADO(R) and
CONCORD(R) and certain other related trademarks, the Company has received
exclusion orders that prohibit the importation of counterfeit goods or goods
bearing confusingly similar trademarks into the United States. In accordance
with Customs regulations, these exclusion orders, however, cannot cover the
importation of gray-market Movado or Concord watches because the Company is the
manufacturer of such watches. All of the Company's exclusion orders are
renewable.
EMPLOYEES
As of January 31, 2001, the Company has approximately 838 full-time employees in
its domestic and international operations. No employee of the Company is
represented by a labor union or is subject to a collective bargaining agreement.
The Company has never experienced a work stoppage due to labor difficulties and
believes that its employee relations are good.
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, SEASONALITY, FOREIGN AND
DOMESTIC OPERATIONS
The Company divides its business into two major geographic segments: "Domestic",
which includes the results of the Company's United States and Canadian
operations, and "International", which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe and the Far East and its international assets are substantially located
in Europe.
The Company's domestic sales are traditionally greater during the Christmas and
holiday season and are significantly more seasonal than its international sales.
Consequentially, the Company's net sales historically have been higher during
8
10
the second half of its fiscal year. The second half of each year accounted for
approximately 59.6%, 60.3% and 60.2% of the Company's net sales for the fiscal
years ending January 31, 2001, 2000, and 1999, respectively. The amount of net
sales and operating income generated during the second half of each fiscal year
depends upon the general level of retail sales during the Christmas and holiday
season, as well as economic conditions and other factors beyond the Company's
control. The Company does not expect any significant change in the seasonality
of its domestic business in the foreseeable future. International sales tend to
be less seasonal, particularly those derived from the Middle and Far Eastern
markets.
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the design,
manufacture and distribution of quality watches. The Company's other segment
includes the Company's retail and service center operations. See Note 12 to the
Consolidated Financial Statements for financial information regarding segment
data.
Item 2. Properties
The Company leases various facilities in the United States, Canada, Switzerland,
and the Far East for its corporate, manufacturing, distribution and sales
operations. The Company's leased facilities are as follows:
SQUARE LEASE
LOCATION FUNCTION FOOTAGE EXPIRATION
- -------- -------- ------- ----------
Moonachie, New Jersey Watch assembly, distribution 100,000 June 2010
and repair
Paramus, New Jersey New executive offices 57,500 July 2013
Lyndhurst, New Jersey Former watch assembly and 57,000 May 2002
distribution
Bienne, Switzerland Corporate functions, watch 52,000 January 2007
sales, distribution,
assembly and repair
Lyndhurst, New Jersey Corporate offices 28,000 December 2001
Woodcliff Lake, New Jersey Executive offices 19,400 July 2001
Markham, Canada Office and distribution 11,200 June 2007
Hong Kong Watch sales, distribution 8,500 June 2004
and repair
Hackensack, New Jersey Warehouse 6,600 July 2004
New York, New York Watch repair and Public 4,900 April 2008
Relations Office
Los Angles, California Watch repair 3,000 December 2002
Miami, Florida Watch repair 2,600 October 2001
Grenchen, Switzerland Watch sales 2,600 March 2005
Toronto, Canada Office 1,600 June 2001
Japan Watch sales 1,500 Month to Month
Singapore Watch sales, distribution 1,100 August 2001
and repair
The Company believes that its existing facilities are suitable and adequate for
its current operations. The Company leases retail space averaging 1,400 square
feet per store with leases expiring from July 2001 to November 2007 for the
9
11
operation of the Company's 23 outlet stores. The Company also leases retail
space for the operation of each of its nine Movado Boutiques, two opening in
fiscal 2002, averaging 1,960 square feet per store with leases expiring from
January 2005 to January 2012.
The Company also owns approximately 2,400 square feet of office space in Hanau,
Germany, which it previously used for sales, distribution and watch repair
functions. The Company is currently subletting this facility.
The Company will move its Woodcliff Lake, New Jersey offices to its new Paramus,
New Jersey, Corporate Headquarters in July 2001 and its Lyndhurst, New Jersey
offices by the end of 2001. In February 2001 the Company moved its U.S.
Distribution operations from Lyndhurst, New Jersey to a 100,000 sq. ft. facility
in Moonachie, New Jersey. This lease expires in June 2010.
Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the normal
course of its business. The Company believes that none of these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's operating results, liquidity or its financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company during the
fourth quarter of fiscal 2001.
10
12
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
As of March 26, 2001, there were 46 holders of record of the Class A Common
Stock and, the Company estimates, approximately 2,445 beneficial owners of the
Common Stock represented by 410 holders of record. The Common Stock is traded on
the NASDAQ National Market under the symbol "MOVA" and on March 26, 2001, the
closing price of the Common Stock was $13.39. The quarterly high and low closing
prices for the fiscal years ended January 31, 2001 and 2000 were as follows:
FISCAL 2001 FISCAL 2000
----------- -----------
QUARTER ENDED LOW HIGH LOW HIGH
------------- --- ---- --- ----
April 30 $8.57 $19.08 $20.75 $25.75
July 31 $7.70 $14.07 $22.88 $27.75
October 31 $13.20 $17.31 $21.63 $27.13
January 31 $11.50 $15.59 $18.63 $25.38
The Class A Common Stock is not publicly traded and is subject to certain
restrictions on transfer as provided under the Company's Restated Certificate of
Incorporation, as amended and, consequently, there is currently no established
public trading market for these shares.
During the fiscal year ended January 31, 2001, the Board of Directors approved
for each of the first three quarters a cash dividend of $0.025 per share and,
for the fourth quarter, approved an increase of the quarterly cash dividend to
$0.03 per share to Common Stock and Class A Common Stock shareholders. During
the fiscal year ended January 31, 2000, the Board of Directors approved four
$0.025 per share quarterly cash dividends to Common Stock and Class A Common
Stock shareholders. The declaration and payment of future dividends, if any,
will be at the sole discretion of the Board of Directors and will depend upon
the Company's profitability, financial condition, capital and surplus
requirements, future prospects, terms of indebtedness and other factors deemed
relevant by the Board of Directors. See Notes 4 and 5 to the Consolidated
Financial Statements regarding contractual restrictions on the Company's ability
to pay dividends.
11
13
Item 6. Selected Financial Data
The selected financial data presented below has been derived from the
Consolidated Financial Statements. This information should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in Item 7 of this report. Amounts
are in thousands except per share amounts.
FISCAL YEAR ENDED JANUARY 31,
-----------------------------------------------------------------
2001 2000 1999 1998 1997
--------- ----------- ----------- ---------- ----------
STATEMENT OF INCOME DATA:
Net sales $320,841 $295,067 $277,836 $237,005 $215,107
--------- ----------- ----------- ---------- ----------
Cost of sales 123,392 126,667 111,766 97,456 95,031
Selling, general and
administrative 163,317 152,631 133,395 113,593 99,657
--------- ----------- ----------- ---------- ----------
Total expenses 286,709 279,298 245,161 211,049 194,688
--------- ----------- ----------- ---------- ----------
Operating income 34,132 15,769 32,675 25,956 20,419
Gain on disposition of business 4,752
Net interest expense 6,443 5,372 5,437 5,383 4,874
--------- ----------- ----------- ---------- ----------
Income before income taxes 27,689 15,149 27,238 20,573 15,545
Provision for income taxes 6,922 1,428 6,265 4,731 3,853
--------- ----------- ----------- ---------- ----------
Net income (1) $20,767 $ 13,721 $ 20,973 $15,842 $11,692
========= =========== =========== ========== ==========
Net income per share-Basic $1.78 $1.10 $1.63 $1.35 $1.04
Net income per share-Diluted (1) $1.75 $1.06 $1.58 $1.29 $1.02
Basic shares outstanding 11,651 12,527 12,842 11,736 11,273
Diluted shares outstanding 11,866 12,890 13,256 12,236 11,489
Cash dividends declared per share $0.105 $0.10 $0.08 $0.08 $0.064
BALANCE SHEET DATA (END OF
PERIOD):
Working capital $154,637 $157,465 $191,033 $157,103 $126,690
Total assets 290,405 259,649 296,375 249,069 208,443
Long-term debt 40,000 45,000 55,000 35,000 40,000
Shareholders' equity $159,470 $147,815 $162,608 $145,533 $ 13,870
(1) Includes $8.3 million pre-tax or $0.46 per share after tax one-time charge
and $4.8 million pre-tax or $0.28 per share after tax gain from the sale of the
Company's Piaget business during 2000. Excluding these items, net income would
have been $15.9 million or $1.24 per share on a diluted basis.
12
14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS
Statements in this annual report on Form 10-K, including statements under this
Item 7 and elsewhere in this report as well as statements in future filings by
the Company with the Securities and Exchange Commission ("SEC"), in the
Company's press releases and oral statements made by or with the approval of an
authorized executive officer of the Company, which are not historical in nature,
are intended to be, and are hereby identified as, "FORWARD LOOKING STATEMENTS"
for purposes of the safe harbor provided by Section 21E of the Securities
Exchange Act of 1934. The Company cautions readers that FORWARD LOOKING
STATEMENTS include, without limitation, those relating to the Company's future
business prospects, revenues, working capital, liquidity, capital needs, plans
for future operations, effective tax rates, margins, interest costs, and income
as well as assumptions relating to the foregoing. FORWARD LOOKING STATEMENTS are
subject to certain risks and uncertainties, some of which cannot be predicted or
quantified. Actual results and future events could differ materially from those
indicated in the FORWARD LOOKING STATEMENTS, due to several important factors
herein identified, among others, and other risks and factors identified from
time to time in the Company's reports filed with the SEC including, without
limitation, the following: general economic and business conditions which may
impact disposable income of consumers, changes in consumer preferences and
popularity of particular designs, new product development and introduction,
competitive products and pricing, seasonality, availability of alternative
sources of supply in the case of the loss of any significant supplier, the loss
of significant customers,the Company's dependence on key officers, the
continuation of licensing arrangements with third parties, ability to secure and
protect trademarks, patents and other intellectual property rights, ability to
lease new stores on suitable terms in desired markets and to complete
construction on a timely basis, continued availability to the Company of
financing and credit on favorable terms, business disruptions, general risks
associated with doing business outside the United States including, without
limitations, import duties, tariffs, quotas, political and economic stability,
and success of hedging strategies with respect to currency exchange rate
fluctuations.
GENERAL
Wholesale Sales. Among the more significant factors that influence annual sales
are general economic conditions in the Company's domestic and international
markets, new product introductions, the level and effectiveness of advertising
and marketing expenditures, and product pricing decisions.
Approximately 19% of the Company's total sales are from international markets
and therefore reported sales are affected by foreign exchange rates. Significant
portions of the Company's international sales are billed in Swiss francs and
translated to U.S. dollars at average exchange rates for financial reporting
purposes.
The Company's business is very seasonal. There are two major selling seasons in
the Company's domestic 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
around significant local holidays that occur in late Winter or early Spring.
These markets are a less significant portion of the Company's business and,
therefore, their impact is far less than that of the selling seasons in North
America.
13
15
During fiscal 2000, the Company completed the sale of both the Piaget and Corum
distribution businesses and substantially all the assets associated with these
businesses. Prior to the sale, the Company had been the exclusive distributor of
these brands in North America. The Company completed the sale of its Piaget
business to VLG in February 1999 and sold its Corum business to Corum
Switzerland in January 2000. The disposition of these brands negatively impacted
sales in fiscal 2000.
Retail Sales. The Company's retail operations consist of 23 outlet stores
located throughout the U.S. and seven full-priced Movado Boutiques. The Company
does not have any overseas retail operations.
The significant factors that influence annual sales volumes in the Company's
retail operations are similar to those that influence domestic wholesale
operations. In addition, many of the Company's outlet stores are located near
vacation destinations and, therefore, the seasonality of these stores is driven
by the peak tourist season associated with these locations.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: sales mix, product pricing strategy, manufacturing costs and
the U.S. dollar/Swiss franc exchange rate.
Gross margins vary among the brands included in the Company's portfolio and also
among watch models within each brand. Luxury and premium retail price point
models generally earn lower gross margins than more popular moderate price
models. Gross margins in the Company's outlet business are lower than those of
the wholesale business since the outlets primarily sell seconds and discontinued
models that generally command lower retail prices. Gross margins in the full
priced Movado Boutiques exceed those of the wholesale business since the Company
earns full channel margins from manufacture to point of sale in this business.
All of the Company's brands compete with a number of other brands on the basis
of not only styling but also wholesale and retail price. The Company's ability
to improve margins through price increases is, therefore, to some extent,
constrained by competitors' actions. In addition, the Company's wholesale
operation periodically engages in liquidation sales of discontinued models at
reduced prices. The level of these sales in a particular period can also have a
significant impact on the Company's gross margins.
Manufacturing costs of the Company's brands consist primarily of component
costs, internal and subcontractor assembly costs and unit overhead costs
associated with the Company's supply chain operations in the U.S., Switzerland
and the Far East. The Company seeks to control and reduce component and
subcontractor labor costs through a combination of negotiations with existing
suppliers and alternative sourcing. The Company's supply chain operations
consist of logistics management of assembly operations and product sourcing in
Switzerland and the Far East and minor assembly in the U.S. The Company has
historically controlled the level of overhead costs and maintained flexibility
in its cost structure by outsourcing a significant portion of its component and
assembly requirements and expects to extend this strategy over the near term.
Since a substantial amount of the Company's product costs are incurred in Swiss
francs, fluctuations in the U.S. dollar/Swiss franc exchange rate can impact the
Company's production costs and, therefore, its gross margins. The Company,
therefore, hedges its Swiss franc purchases using a combination of forward
contracts, purchased currency options and spot purchases. The Company's hedging
program has, in the recent past, been reasonably successful in stabilizing
product costs and therefore gross margins despite exchange rate fluctuations.
14
16
Operating Expenses. The Company's operating expenses consist primarily of
advertising, selling, distribution and general and administrative expenses.
Annual advertising 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.
Selling expenses consist primarily of sales commissions, sales force costs and
operating costs incurred in connection with the Company's retail business. Sales
commissions vary proportionally with overall sales levels. Retail operating
expenses consist primarily of salaries and store rents.
Distribution expenses consist primarily of salaries of distribution staff, the
cost of part-time help to meet seasonal needs, and shipping costs and supplies.
General and administrative expenses consist primarily of salaries, employee
benefit plan costs, office rent, management information systems costs and
various other general corporate expenses.
Operating expenses over the last three fiscal years reflect the effect of the
implementation of the Company's growth strategy. The more significant expenses
associated with this strategy include advertising and marketing expenses
designed to increase market share for all of the Company's watch brands, both
domestically and internationally; additions to the Company's sales force;
salaries and rents associated with additional outlet stores and the Movado
Boutiques; the addition of staff to support distribution, inventory management
and customer service requirements coincident with growth of the Company's
business; and general and administrative expenses, such as employee benefits and
the development of the Company's information systems infrastructure.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 31, 2001, 2000 AND 1999
Net Sales. Comparative net sales by product class were as follows:
FISCAL YEARS ENDED JANUARY 31,
2001 2000 1999
--------- --------- ----------
(in thousands)
Concord, Movado, Coach and
ESQ:
Domestic $216,390 $200,480 $180,909
International 59,668 56,185 50,940
Piaget and Corum (336) (726) 13,934
Other 45,119 39,128 32,053
--------- --------- ----------
Net Sales $320,841 $295,067 $277,836
========= ========= ==========
Total net sales increased 8.7% to $320.8 million in fiscal 2001 from $295.1
million in fiscal 2000. Domestic sales increased 9.5% to $260.6 million from
$237.9 million in the prior year. Domestic sales were led by double digit growth
in the Movado brand and high single digit growth in the ESQ brand. International
sales of the Company's core brands increased 6.2% led by the continuing
international rollout of the Coach watch brand in the Far East, which resulted
in a doubling of Coach watch international sales in fiscal 2001 and double digit
growth in the Concord brand.
15
17
Other net domestic sales, which includes the Company's outlet stores, Movado
Boutiques and after sales service business, increased 16% over the prior year.
This growth was primarily attributable to comparable store sales gains in the
Movado Boutiques of approximately 27% and new store openings in the Company's
outlet stores and Movado Boutiques, offset by a decrease in after sales service
revenues as a result of the sale of the Piaget and Corum businesses. Comparable
store sales in the Company's outlet stores were relatively flat.
Total net sales increased 6.2% for the year ended January 31, 2000. Sales from
ongoing operations, excluding the disposed Piaget and Corum distribution
businesses, increased 13.4% to $295.8 million from $260.9 million in the prior
year. Domestic sales of the Company's core Concord, Movado, ESQ and Coach brands
increased 10.8%. All of the Company's core brands experienced high single or low
double digit percentage growth rates in the domestic market. International sales
of the Company's core brands increased 10.3% led by the continuing international
rollout of the Coach watch brand in the Far East, which resulted in a near
doubling of Coach watch international sales in fiscal 2000. International sales
of the Concord brand also increased approximately 10%.
Other net sales, which includes the Company's outlet stores, Movado Boutiques
and after sales service business, increased 22% over the prior year. This growth
was primarily attributable to double digit comparable store sales gains in both
the outlets and the Boutiques and new store openings in both of these retail
venues, offset by a decrease in after sales service revenues as a result of the
sale of the Piaget business.
Gross Margins. The gross margin for fiscal 2001 was 61.5% as compared to 57.1%
for fiscal 2000. Gross margin increases reflect the improvements the Company
initiated in fiscal 2001. These improvements included the improved availability
of core range products, higher margins on new model introductions, reduction of
product acquisition costs mainly due to the strength of the U.S. dollar against
the Swiss franc and significant reduction of liquidation sales. The gross margin
increase was also due to one time charges of $5.0 million made in fiscal 2000 to
write down non-core component inventories and the $2.3 million book to physical
inventory adjustment during fiscal 2000.
The Company's gross margin decreased from 59.8% in fiscal 1999 to 57.1% in
fiscal 2000 due to the one time charge of $5.0 million to write down non-core
component inventories and $2.3 million book to physical inventory adjustments.
The decrease was also attributed to a higher level of liquidation sales in
fiscal 2000 due to the unavailability of higher margin core range products.
Operating Expenses. Operating expenses for fiscal 2001 were $163.3 million or
50.9% of net sales as compared to $152.6 million or 51.7% of net sales in fiscal
2000. The increase in operating expenses of approximately 7% or $10.7 million
relates to several areas, including advertising and marketing expenses, which
increased $0.4 million or 0.65%; selling expenses, which increased $2.2 million
or 5%; distribution costs, which decreased $0.2 million or 2%, and general and
administrative expenses, which increased $8.3 million or 21%.
The increase in advertising costs were the results of an increase of $1.3
million in the Movado Boutiques and cooperative advertising programs offset by a
decrease of expenditures for special events, point of sale support material such
as displays and product brochures and media advertising programs. Increases in
advertising expenses at the Movado Boutiques reflect the costs associated with
new business initiatives.
16
18
Selling expenses increased in both the Company's wholesale and retail
businesses. Increases in selling expenses in the wholesale business primarily
reflects higher levels of sales commissions due to sales increases in the Movado
brands and increases in head count to support the launch of the
Tommy Hilfiger line.
Increases in selling expenses associated with the Company's retail operations
relate primarily to the addition of one new outlet and two new Movado Boutiques
in fiscal 2001 as well as the annualized cost of stores opened during fiscal
2000.
Distribution expenses are largely variable in nature and these expenses grew
proportionately with increases in unit volume shipments offset by a nonrecurring
charge of $1.0 million made in fiscal 2000, for expenses related to the
relocation of the Company's U.S. distribution operations.
Increases in general and administrative expenses were substantially due to the
recording of a management bonus as a result of exceeding corporate performance
targets, a moving and relocation expense associated with the shutdown of the
distribution and service center in Lyndhurst, N.J. and costs associated with new
business initiatives including staffing costs for the launch of the Tommy
Hilfiger brand, Movado Boutiques and Company outlet stores. In addition, there
were cost increases in a small number of general and administrative expenses
which are consistent with industry cost increases.
Operating expenses for fiscal 2000 were $152.6 million or 51.7% of net sales as
compared to $133.4 million or 48.0% of net sales in fiscal 1999. The increase in
operating expenses of approximately 14% or $19.2 million relates to several
areas, including advertising and marketing expenses, which increased $8.1
million or 15%; selling expenses, which increased $4.5 million or 12%;
distribution costs, which increased $2.3 million or 38%, and general and
administrative expenses, which increased $4.3 million or 12%.
The increase in advertising costs related to increased media and cooperative
advertising programs with retailers in support of the Company's brands, higher
advertising production costs due to the launch of new media campaigns for both
the Concord and ESQ brands, increased spending on point of sale support material
such as displays and product brochures, and the development of a new advertising
and marketing management team.
Selling expenses increased in both the Company's wholesale and retail
businesses. Selling expenses in the wholesale business primarily reflect higher
levels of sales commissions due to sales increases across the Company's brands.
Headcount increases in the Coach and ESQ brands to support growth also resulted
in increased compensation and travel expenses. Selling expenses for fiscal 2000
also reflect the first year of amortization of the Company's major trade show
exhibition facility constructed for use at the annual Basel International Watch
and Jewelry Show.
Increases in selling expenses associated with the Company's retail operations
relate primarily to the addition of four new outlets and one new Movado Boutique
in fiscal 2000 as well as the annualization of cost of stores opened during
fiscal 1999.
Increases in distribution expenses include a nonrecurring charge associated with
the planned relocation of the Company's U.S. distribution operations. The
remaining increase is due to the variable nature of distribution expenses which
grew proportionately with increases in unit volume shipments.
17
19
Increases in general and administrative expenses were primarily in the area of
human resources and information systems. The Company experienced increases in
employee benefit costs associated with a growing workforce as well as recruiting
fees, specifically associated with the hiring of two senior executives in the
fourth quarter. Information systems related expenses increased as the Company
began amortizing its significant investment in its new U.S. core system
effective with the March 1999 implementation date and incurred Year 2000
remediation expenses relative to systems in Switzerland and its other
international subsidiaries. The Company also added information systems support
personnel in fiscal 2000.
Interest Expense. Net interest expense in fiscal 2001 increased $1.0 million
from $5.4 million in fiscal 2000 to $6.4 million in fiscal 2001. The increase in
interest expense was primarily a result of a decrease in investment income from
the investment of the $28.4 million proceeds from the Company's sale of the
Piaget business in February 1999. Gross interest expense decreased by $148,000
or 2.4% due to a decrease in the average revolving credit and working capital
borrowings from $40.3 million in fiscal 2000 to $31.7 million in fiscal 2001, a
21% reduction of debt, offset by an increase in average interest rates. In
addition, a $5.0 million payment on the Senior Note borrowings was made in
January 2000, interest for this borrowing was reduced by approximately $0.3
million.
Net interest expense for fiscal 2000 and 1999 was $5.4 million and consisted
primarily of interest on the Company's 6.56% Senior Notes, 6.90% Series A Senior
Notes, revolving lines of credit and borrowings against working capital lines.
Income Taxes. The Company's income tax provision amounted to $6.9 million, $1.4
million, and $6.3 million for fiscal 2001, 2000 and 1999, respectively, or 25%
of pretax income for fiscal 2001, 9.4% for fiscal 2000 and 23% for fiscal 1999.
Also, a portion of the Company's consolidated operations are located in non-U.S.
jurisdictions, and, therefore, the Company's effective rate differs from U.S.
statutory rates. The majority of the Company's non-U.S. operations are located
in jurisdictions with statutory rates below U.S. rates. The Company believes
that the near term future effective tax rate will stabilize in the 25% to 30%
range reflecting the Company's current expectation that domestic earnings will
gradually increase as a percentage of the overall earnings mix. However, there
can be no assurance of this result as it is dependent on a number of factors,
including the mix of foreign to domestic earnings, local statutory tax rates and
the Company's ability to utilize net operating loss carryforwards in certain
jurisdictions.
LIQUIDITY AND FINANCIAL POSITION
Operating activities generated cash flows of $25.3 million in fiscal 2001, $28.3
million in fiscal 2000 and ($9.1) million in fiscal 1999. Cash flows from
operating activities in fiscal 2001 were less than fiscal 2000 mainly due to
increased inventory positions. Operating cash flows in fiscal 2000 increased
from fiscal 1999 due to a reduction in working capital.
The Company used cash of $11.7 million in fiscal 2001 for investing activities,
primarily for capital expenditures. This compared to a cash inflow of $17.5
million in fiscal 2000 mainly as a result of the sale of its Piaget business to
VLG for $28.4 million in cash. In fiscal 1999, $10.9 million of cash was
utilized in investing activities, primarily for capital expenditures.
Capital expenditures amounted to $10.8 million in fiscal 2001 and related
primarily to management information systems projects, the addition of one outlet
store and two Movado Boutiques and the build out of the new distribution center
in Moonachie, New Jersey. The Company's capital expenditures for fiscal 2000 and
18
20
fiscal 1999 amounted to $10.1 million and $11.7 million, respectively.
Expenditures in fiscal 2000 were primarily related to management information
systems projects, the addition of four new outlet stores and one Movado
Boutique, and construction of a major tradeshow exhibition facility used
annually at the Basel International Watch and Jewelry show. Expenditures in
fiscal 1999 were primarily related to planned expenditures for the Company's
information systems, including retail information systems, expansion of the
Company's Movado Boutiques and further expansion of the Company's network of
outlet stores. The Company expects that annual capital expenditures in the near
term will approximate the levels experienced in fiscal 2001 and 2000 and will
relate primarily to relocating its U.S. headquarters, various information
systems projects and leasehold improvements associated with additional Movado
Boutiques and outlet stores.
Cash used in financing activities amounted to $17.4 million in fiscal 2001. This
compares to $22.1 million of cash used in and $18.6 million of cash provided by
financing activities in fiscal 2000 and 1999, respectively.
At January 31, 2001 the Company had two series of Senior Notes outstanding.
Senior Notes due January 31, 2005 were originally issued in a private placement
completed in fiscal 1994. These notes have required annual principal payments of
$5.0 million since January 1998. The Company repaid $5 million and $10 million
in principal amount of these notes in fiscal 2001 and fiscal 2000, respectively.
At January 31, 2001, $20 million in principal amount of these notes remained
outstanding.
During fiscal 1999, the Company issued $25 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. The
$25 million Series A Senior Notes bear interest at 6.90%, mature on October 30,
2010 and are subject to annual repayments of $5.0 million commencing October 31,
2006.
On March 21, 2001, the Company entered into a new Note Purchase and Private
Shelf Agreement which allows for the issuance for up to three years after the
date thereof, of senior promissory notes in the aggregate principal amount of up
to $40 million with maturities up to 12 years from their original date of
issuance.
The Company finances its seasonal working capital requirements through
borrowings under its bank lines of credit. The Company borrows from its bank
group under both a $100 million unsecured revolving line and $15.0 million of
uncommitted working capital lines of credit. The borrowings are governed under a
three year renewed Bank Credit Agreement dated June 22, 2000, among the Company
and its bank group, which replaced a previous agreement dated July 23, 1997. The
previous agreement provided for a $90 million unsecured revolving line and $31.6
million of annually renewable working capital lines of credit. At January 31,
2001, the Company had $8.8 million of outstanding borrowings under its bank
lines as compared to $13.5 million at January 31, 2000.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program
throughout fiscal 2001. Share repurchases under the repurchase program amounted
to $7.3 million, $17.6 million and $0.6 million in fiscal 2001, 2000 and 1999,
respectively. As of January 31, 2001, the Company had authority to repurchase
$4.5 million against an aggregate authorization of $30 million.
During fiscal 1999, the Company repurchased $2.3 million of stock under a
400,000 share program that had been authorized by the Board of Directors in
19
21
March 1998. This program had been put in place to mitigate the dilutive impact
of employee compensation programs.
Cash dividends in fiscal 2001 amounted to $1.2 million compared to $1.2 million
in fiscal 2000 and $1.0 million in fiscal 1999.
Cash and cash equivalents at January 31, 2001 amounted to $23.1 million compared
to $26.6 million at January 31, 2000. Net debt to total capitalization at
January 31, 2001 was 16% as compared to 20% at January 31, 2000.
In summary, the Company made significant progress in fiscal 2001 in maintaining
its liquidity primarily through the success of its operating expense reduction
initiatives and increased product profitability. The Company plans to continue
to focus on improving its cash flows in fiscal 2002.
RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which is effective for the
Company as of February 1, 2001. SFAS 133 requires that an entity recognizes all
derivatives as either assets or liabilities measured at fair value. Changes in
derivative fair values will either be recognized in earnings as offsets to the
changes in fair values of related hedged assets, liabilities and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be immediately recognized in earnings. Adoption of
this statement is not expected to materially impact the Company's financial
statements.
In December 1999, the Securities and Exchange Commission "SEC", issued Staff
Accounting Bulletin No. 101, "SAB 101", "Revenue Recognition in Financial
Statements". SAB 101 summarizes certain of the SEC's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements. The Company adopted the guidance of this
bulletin during fiscal 2001, which had no material impact on the Company's
revenue recognition policy.
MARKET RISKS
The Company's primary market risk exposure relates to foreign currency exchange
risk (see Note 6 to the Consolidated Financial Statements). The majority of the
Company's purchases are denominated in Swiss francs. The Company reduces its
exposure to the Swiss franc exchange rate risk through a hedging program. Under
the hedging program, the Company purchases various financial instruments,
predominately forward and option contracts. Gains and losses on financial
instruments resulting from this hedging activity are offset by the effects of
the currency movements on respective underlying hedged transactions. If the
Company did not engage in a hedging program, any change in the Swiss franc to
local currency would have an equal effect on the entities' cost of sales. As of
January 31, 2001, the Company's hedging portfolio consisted of various dates
ranging through April 30, 2003 with an average forward rate of 1.6368 Swiss
francs per dollar. The Company has $20.0 million of option contracts with a
maturity date of February 1, 2001 and $25 million of option contracts with a
maturity date of December 11, 2001. The option contracts have an average strike
price of 1.6543 Swiss francs per dollar. As of January 31, 2001, the carrying
value of the options amounted to approximately $0.6 million, which represents
the unamortized premium of the option and a fair market value of approximately
$1.3 million.
20
22
In addition, the Company has certain debt obligations with variable interest
rates, which are based on LIBOR plus a fixed additional interest rate. The
Company does not hedge these interest rate risks. The Company also has certain
debt obligations with fixed interest rates. The difference between the market
based interest rates at January 31, 2001 and the fixed rates was minimal.
21
23
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Schedule Page
Number Number
-------- --------
Report of Independent Accountants F-1
Consolidated Statements of Income for the fiscal years ended
January 31, 2001, 2000 and 1999 F-2
Consolidated Balance Sheets at January 31, 2001 and 2000 F-3
Consolidated Statements of Cash Flows for the fiscal years
ended January 31, 2001, 2000 and 1999 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended January 31, 2001, 2000 and
1999 F-5
Notes to Consolidated Financial Statements F-6 to F-21
Valuation and Qualifying Accounts and Reserves II S-1
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
22
24
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
Item 11. Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the 2001 annual meeting of shareholders and is incorporated herein
by reference.
23
25
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
1. Financial Statements:
See Financial Statements Index on page 22 included in Item 8 of part II
of this report.
2. Financial Statement Schedule:
Schedule II Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits:
Incorporated herein by reference is a list of the Exhibits contained in
the Exhibit Index on pages 27 through 32 of this report.
(b) Current Reports on Form 8-K
None
24
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: April 30, 2001 By: /s/ Gedalio Grinberg
--------------------
Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
Dated: April 30, 2001 /s/ Gedalio Grinberg
--------------------
Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: April 30, 2001 /s/ Efraim Grinberg
-------------------
Efraim Grinberg
President
Dated: April 30, 2001 /s/ Richard J. Cote
-------------------
Richard J. Cote
Executive Vice President of Finance and
Administration
Dated: April 30, 2001 /s/ Kennith C. Johnson
----------------------
Kennith C. Johnson
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
Dated: April 30, 2001 /s/ Margaret Hayes Adame
------------------------
Margaret Hayes Adame
Director
Dated: April 30, 2001 /s/ Donald Oresman
------------------
Donald Oresman
Director
25
27
Dated: April 30, 2001 /s/ Leonard L. Silverstein
--------------------------
Leonard L. Silverstein
Director
Dated: April 30, 2001 /s/ Alan H. Howard
------------------
Alan H. Howard
Director
26
28
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
3.1 Restated By-Laws of the Registrant. Incorporated by reference to
Exhibit 3.1 filed with the Registrant's Registration statement
on Form S-1 (Registration No. 33-666000).
3.2 Restated Certificate of Incorporation of the Registrant as
amended. Incorporated herein by reference to Exhibit 3(i) to the
Registrant's Quarterly Report on Form 10-Q filed for the quarter
ended July 31, 1999.
4.1 Specimen Common Stock Certificate. Incorporated herein by
reference to Exhibit 4.1 to the Registrant's Annual Report on
Form 10-K for the year ended January 31, 1998.
4.2 Note Agreement, dated as of November 9, 1993, by and between the
Registrant and The Prudential Insurance Company of America.
Incorporated herein by reference to Exhibit 4.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1993.
4.3 Note Purchase and Private Shelf Agreement dated as of November
30, 1998 between the Registrant and The Prudential Insurance
Company of America. Incorporated herein by reference to Exhibit
10.31 to the Registrant's Annual Report on Form 10-K for the
year ended January 31, 1999.
4.4 Note Purchase and Private Shelf agreement dated as of March 21,
2001 between the Registrant and The Prudential Insurance Company
of America.
10.1 Lease dated August 5, 1998 between Grand Canal Shops
Mall Construction, LLC as landlord and Movado Retail Group,
Inc., as tenant, for premises at Grand Canal Shops, Clark
County, Nevada. Incorporated herein by reference to Exhibit 10.1
to the Registrant's Quarterly Report on Form 10-Q for the
quarter Ended July 31, 1998.
27
29
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.2 Amendment Number 1 to License Agreement dated December 9, 1996
between Registrant as Licensee and Coach, a division of Sara Lee
Corporation as Licensor, dated as of February 1, 1998.
Incorporated herein by reference to exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1998.
10.3 Agreement, dated January 1, 1992, between The Hearst Corporation
and the Registrant, as amended on January 17, Incorporated
herein by reference to Exhibit 10.8 filed with Company's
Registration Statement on Form S-1 (Registration No. 33-666000).
10.4 Letter Agreement between the Registrant and The Hearst
Corporation dated October 24, 1994 executed October 25, 1995
amending License Agreement dated as of January 1, 1992, as
amended. Incorporated herein by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1995.
10.5 Lease Agreement between the Registrant and Meadowlands
Associates, dated October 31, 1986, for office space in
Lyndhurst, New Jersey, together with the Non-Disturbance and
Attornment Agreement, dated March 11, 1987. Incorporated herein
by reference to Exhibit 10.10 filed with Company's Registration
Statement on Form S-1 (Registration No. 33-666000).
10.6 Registrant's 1996 Stock Incentive Plan amending and restating
the 1993 Employee Stock Option Plan. Incorporated herein by
reference to Exhibit 10.5 to Registrant's Quarterly Report on
Form 10-Q for the quarter ended October 31, 1996.**
28
30
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.7 Lease dated August 10, 1994 between Rockefeller Center
Properties, as landlord and SwissAm Inc., as tenant for space at
630 Fifth Avenue, New York, New York. Incorporated herein by
reference to Exhibit 10.4 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended July 31,1994.
10.8 First Amendment of Lease dated May 31, 1994 between Meadowlands
Associates, as landlord and the Registrant, as tenant for
additional space at 125 Chubb Avenue, Lyndhurst, New Jersey.
Incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1994.
10.9 Death and Disability Benefit Plan Agreement dated September 23,
1994 between the Registrant and Gedalio Grinberg, Incorporated
herein by reference to Exhibit 10.1 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 31, 1994.**
10.10 Registrant's amended and restated Deferred Compensation Plan for
Executives effective January 1, 1998. Incorporated herein by
reference to Exhibit 10.25 to the Registrant's Annual Report on
Form 10-K for the year ended January 31, 1998. **
10.11 Policy Collateral Assignment and Split Dollar Agreement dated
December 5, 1995 by and between the Registrant and The Grinberg
Family Trust together with Demand Note dated December 5, 1995.
Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1996.**
10.12 License Agreement dated December 9, 1996 between the Registrant
and Sara Lee Corporation. Incorporated herein by reference to
Exhibit 10.32 to the Registrant's Annual Report on Form 10-K for
the year ended January 31, 1997.
10.13 First Amendment to Lease dated April 8, 1998 between RCPI Trust,
successor in interest to Rockefeller Center Properties
("Landlord") and Movado Retail Group, Inc., successor in
29
31
EXHIBIT
NUMBER DESCRIPTION
------ -----------
interest to SwissAm Inc. ("Tenant") amending lease dated August
10, 1994 between Landlord and Tenant for space at 630 Fifth
Avenue, New York, New York. Incorporated herein by reference to
Exhibit 10.37 to the Registrant's Annual Report on Form 10-K for
the year ended January 31, 1998.
10.14 Second Amendment dated as of September 1, 1999 to the December
1, 1996 license agreement between Sara Lee Corporation and
Registrant. Incorporated herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1999.
10.15 License Agreement entered into as of June 3, 1999 between Tommy
Hilfiger Licensing, Inc. and Registrant. Incorporated herein by
reference to Exhibit 10.2 to the Registrant's Quarterly Report
on Form 10-Q for the quarter ended October 31, 1999.
10.16 Second Amendment of Lease dated as of December 23, 1998 between
Meadowlands Associates, as landlord and the Registrant, as
tenant, further amending lease dated as of October 31, 1986.
Incorporated herein by reference to Exhibit 10.30 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.
10.17 Lease termination agreement dated as of February 1, 2000 between
PW/MS OP SUB I, LLC, successor in interest to Belle Mead
Corporation, landlord, and Movado Group, Inc., tenant,
terminating lease dated as of April 15, 1996, as amended,
respecting premises located at 1200 Wall Street West, Lyndhurst,
New Jersey. Incorporated herein by reference to Exhibit 10.31
to the Registrant's Annual Report on Form 10-K for the year
ended January 31, 2000.
10.18 Sublease made as of October 26, 1999 between Merck-Medco Managed
Care, L.L.C. as sublessor and Registrant as Sublessee for
premises at 300 Tice Boulevard, Woodcliff Lake, New Jersey.
Incorporated herein by reference to Exhibit 10.32 to the
30
32
EXHIBIT
NUMBER DESCRIPTION
------ -----------
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.
10.19 Third Amendment of lease dated as of February 17, 2000 between
Meadowlands Associates, as landlord, and the Registrant, as
tenant, further amending lease dated as of October 31, 1986.
Incorporated herein by reference to Exhibit 10.33 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.
10.20 License Agreement entered into as of October 31, 1999 by and
between Movado Corporation, Movado Watch Company S.A. and Lantis
Eyewear Corporation. Incorporated herein by reference to Exhibit
10.34 to the Registrant's Annual Report on Form 10-K for the
year ended January 31, 2000.
10.21 Severance Agreement dated December 15, 1999, and entered into
December 16, 1999 between the Registrant and Richard J. Cote.
Incorporated herein by reference to Exhibit 10.35 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 2000.**
10.22 Lease made December 21, 2000 between the Registrant and
Mack-Cali Realty, L.P. for premises in Paramus, New Jersey
together with First Amendment thereto made December 21, 2000.
10.23 Temporary rental agreement between the Registrant and 300 Tice
Realty Associates L.L.C. for premises in Woodcliff Lake, New
Jersey dated December 21, 2000.
10.24 Credit Agreement dated June 22, 2000 among the Registrant, the
Chase Manhattan Bank as Administrative Agent, and as
Swingline Bank, and as issuing Bank, Fleet Bank, N.A. as
Syndication Agent, The Bank of New York as Documentation Agent
and the other Lenders signatory thereto. Incorporated herein by
reference to Exhibit 10.1 to the Registrant's Quarterly Report
on Form 10-Q filed for the quarter ended July 31, 2000.
10.25 Lease agreement dated May 22, 2000 between Forsgate Industrial
Complex and the Registrant for premises located at 105 State
31
33
EXHIBIT
NUMBER DESCRIPTION
------ -----------
Street, Moonachie, New Jersey. Incorporated herein by reference
to Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q filed for the quarter ended April 30, 2000.
10.26 Line of Credit Letter Agreement dated June 22, 2000 between the
Registrant and Fleet Bank, N.A.
10.27 Amended and Restated Master Promissory Note agreement dated
June 27, 2000 between the Registrant and The Bank of New York.
10.28 Loan Agreement dated May 19, 1999 between Concord Watch
Company, S.A. and credit Swiss (English translation).
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
** Constitutes a compensatory plan or arrangement.
32
34
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Movado Group, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) on page 24 present fairly, in all material
respects, the financial position of Movado Group, Inc. and its subsidiaries at
January 31, 2001 and 2000, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 2001, in
conformity with accounting principles generally accepted in the United States of
America. In addition, in our opinion, the financial statement schedule listed in
the index appearing under Item 14(a)(2) on page 24 presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. These financial statements
and financial statement schedule are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits. We conducted
our audit of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 23, 2001
F-1
35
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JANUARY 31,
---------------------------------------
2001 2000 1999
--------- --------- ---------
Net sales $ 320,841 $ 295,067 $ 277,836
--------- --------- ---------
Costs and expenses:
Cost of sales 123,392 126,667 111,766
Selling, general and administrative 163,317 152,631 133,395
--------- --------- ---------
286,709 279,298 245,161
--------- --------- ---------
Operating income 34,132 15,769 32,675
Interest expense, net 6,443 5,372 5,437
Gain on disposition of business -- 4,752 --
--------- --------- ---------
Income before income taxes 27,689 15,149 27,238
Provision for income taxes 6,922 1,428 6,265
--------- --------- ---------
Net income $ 20,767 $ 13,721 $ 20,973
========= ========= =========
Net income per share - Basic $ 1.78 $ 1.10 $ 1.63
========= ========= =========
Weighted average shares outstanding 11,651 12,527 12,842
========= ========= =========
Net income per share - Diluted $ 1.75 $ 1.06 $ 1.58
========= ========= =========
Weighted average shares and share
equivalents outstanding 11,866 12,890 13,256
========= ========= =========
COMPREHENSIVE INCOME:
- --------------------
Net Income $ 20,767 $ 13,721 $ 20,973
Other comprehensive income, net of tax:
Foreign currency translation adjustment (1,707) (10,456) (869)
--------- --------- ---------
Comprehensive income $ 19,060 $ 3,265 $ 20,104
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
36
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 31,
------------------------
2001 2000
--------- ---------
ASSETS
- ------
Current assets:
Cash $ 23,059 $ 26,615
Trade receivables, net 98,797 96,258
Inventories, net 95,863 77,075
Other 23,501 18,076
--------- ---------
Total current assets 241,220 218,024
Plant, property and equipment, net 32,906 27,593
Other assets 16,279 14,032
--------- ---------
$ 290,405 $ 259,649
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Loans payable to banks $ 8,800 $ 13,500
Current portion of long-term debt 5,000 5,000
Accounts payable 28,819 17,562
Accrued liabilities 28,157 19,065
Current taxes payable 12,677 2,013
Deferred taxes payable 3,130 3,419
--------- ---------
Total current liabilities 86,583 60,559
--------- ---------
Long-term debt 40,000 45,000
Deferred and noncurrent foreign income taxes 3,517 5,105
Other liabilities 835 1,170
--------- ---------
Total liabilities 130,935 111,834
--------- ---------
Commitments and contingencies (Note 10)
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued -- --
Common Stock, $0.01 par value, 20,000,000 shares
authorized; 9,600,435 and 9,496,529 shares issued, respectively 96 95
Class A Common Stock, $0.01 par value, 10,000,000 shares
authorized; 3,509,733 and 3,509,733 shares issued and
outstanding, respectively 35 35
Capital in excess of par value 67,242 66,113
Retained earnings 138,176 118,615
Accumulated other comprehensive income (18,169) (16,462)
Treasury stock, 1,556,670 and 920,690 shares at cost, respectively (27,910) (20,581)
--------- ---------
Total shareholders' equity 159,470 147,815
--------- ---------
$ 290,405 $ 259,649
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
37
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
2001 2000 1999
-------- -------- --------
Cash flows from operating activities:
Net income $ 20,767 $ 13,721 $ 20,973
Adjustments to reconcile net income to net cash provided by (used
in) operating activities:
Depreciation and amortization 6,341 5,189 5,380
Deferred and noncurrent foreign income taxes (1,342) (1,636) 1,764
Provision for losses on accounts receivable 2,083 1,077 1,304
Provision for losses on inventory 1,710 7,263 --
Gain on disposition of business -- (4,752) --
Changes in current assets and liabilities:
Trade receivables (4,831) 2,469 (24,693)
Inventories (20,043) 14,609 (19,925)
Other current assets (3,383) (6,269) (1,265)
Accounts payable 11,142 (7,004) 4,108
Accrued liabilities 9,322 4,464 3,352
Deferred and current taxes payable 9,800 (2,532) 229
Other noncurrent assets (5,960) 2,305 (314)
Other noncurrent liabilities (335) (629) (29)
-------- -------- --------
Net cash provided by (used in) operating activities 25,271 28,275 (9,116)
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (10,833) (10,125) (11,707)
Proceeds from disposition of business -- 28,409 --
Goodwill, trademarks and other intangibles (852) (755) (1,835)
Sale of subsidiary -- -- 2,646
-------- -------- --------
Net cash (used in) provided by investing activities (11,685) 17,529 (10,896)
-------- -------- --------
Cash flows from financing activities:
Repayment of Senior Notes (5,000) (10,000) (5,000)
Proceeds from issuance of Series A Senior Notes -- -- 25,000
Net (payment of) proceeds from current bank borrowings (4,700) 6,300 2,200
Principal payments under capital leases -- (69) (387)
Stock options exercised 840 499 627
Dividends paid (1,206) (1,247) (1,026)
Purchase of treasury stock (7,329) (17,593) (2,860)
-------- -------- --------
Net cash (used in) provided by financing activities (17,395) (22,110) 18,554
-------- -------- --------
Effect of exchange rate changes on cash 253 (2,705) (3,790)
-------- -------- --------
Net (decrease) increase in cash (3,556) 20,989 (5,248)
Cash at beginning of year 26,615 5,626 10,874
-------- -------- --------
Cash at end of year $ 23,059 $ 26,615 $ 5,626
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
38
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Capital
in Accumulated
Excess Other
Class A of Comp-
Preferred Common Common Par Retained Rehensive Treasury
Stock Stock Stock Value Earnings Income Stock
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 1998 -- $93 $36 $64,475 $86,194 ($5,137) ($128)
Net income 20,973
Dividends ($0.08 per share) (1,026)
Stock options exercised, net
of tax benefit 857
Common stock repurchased (2,860)
Foreign currency translation
adjustment (869)
Conversion of Class A Common
Stock to Common Stock 1 (1)
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 1999 -- 94 35 65,332 106,141 (6,006) (2,988)
Net income 13,721
Dividends ($0.10 per share) (1,247)
Stock options exercised,
net of tax benefit 781
Common stock repurchased
Foreign currency translation (17,593)
adjustment (10,456)
Conversion of Class A Common
Stock to Common Stock 1
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 2000 -- 95 35 66,113 118,615 (16,462) (20,581)
Net income 20,767
Dividends ($0.105 per share) (1,206)
Stock options exercised,
net of tax benefit 1,129
Common stock repurchased (7,329)
Foreign currency translation
adjustment (1,707)
Conversion of Class A Common
Stock to Common Stock 1
----------- ----------- ----------- ----------- --------- ----------- ---------
Balance, January 31, 2001 -- $96 $35 $67,242 $138,176 ($18,169) ($27,910)
=========== =========== =========== =========== ========= =========== =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
39
NOTES TO MOVADO GROUP INC.'S CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (the "Company") is a designer, manufacturer and distributor
of quality watches with prominent brands in almost every price category
comprising the watch industry. In fiscal 2001, the Company marketed four
distinctive brands of watches: Movado, Concord, ESQ, and Coach, which compete in
most segments of the watch market.
The Company designs and manufactures Concord and Movado watches primarily
through its subsidiaries and third party contract assemblers in Switzerland, as
well as in the United States, for sale throughout the world. ESQ watches are
manufactured to the Company's specifications using Swiss movements by
independent contractors located in the Far East. Coach watches are assembled in
Switzerland by independent suppliers. The Company distributes its watch brands
through its United States operations as well as through sales subsidiaries in
Canada, Hong Kong, Singapore and Switzerland, and through a number of
independent distributors located in various countries throughout the world.
In addition to its sales to trade customers and independent distributors,
through a wholly owned domestic subsidiary, the Company sells Movado watches,
Movado jewelry, tabletop accessories and other product line extensions within
the Movado brand directly to consumers in its Movado Boutiques. Another of the
Company's domestic subsidiaries also operates a number of Movado outlet stores
throughout the United States, through which it sells discontinued and sample
merchandise.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and balances have been eliminated.
Translation of foreign currency financial statements and foreign currency
transactions
The financial statements of the Company's international subsidiaries have been
translated into United States dollars by translating balance sheet accounts at
year-end exchange rates and statement of operations accounts at average exchange
rates for the year. Foreign currency transaction gains and losses are charged or
credited to income as incurred. Foreign currency translation gains and losses
are reflected in the equity section of the Company's consolidated balance sheet
in accumulated other comprehensive income.
Trade receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado and Concord watches are also marketed outside
the U.S. through a network of independent distributors. Accounts receivable are
stated net of allowances for doubtful accounts of $4,442,000 and $3,604,000 at
January 31, 2001 and 2000, respectively. The Zale Corporation accounted for 10%,
13% and 10% of the Company's consolidated net sales in fiscal 2001, 2000 and
1999, respectively. At January 31, 2001 and 2000, the same trade customer
accounted for 13% and 18% of consolidated trade receivables, respectively.
F-6
40
The Company's concentrations of credit risk arise primarily from accounts
receivable related to trade customers during the peak selling seasons. The
Company has significant accounts receivable balances due from major department
store chains. The Company's results of operations could be materially adversely
affected in the event any of these customers or a group of these customers
defaulted on all or a significant portion of their obligations to the Company as
a result of financial difficulties.
Inventories
Inventories are valued at the lower of cost or market. The cost of domestic
finished goods inventories is determined primarily using the first-in, first-out
(FIFO) method. The cost of finished goods inventories held by overseas
subsidiaries, and all component parts inventories are determined using average
cost.
Plant, property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation of furniture and equipment is provided using the straight-line
method based on the estimated useful lives of assets, which range from three to
ten years. Leasehold improvements are amortized using the straight-line method
over the lesser of the term of the lease or the estimated useful life of the
leasehold improvement. Computer software costs related to the development of
major systems are capitalized as incurred and are amortized over their useful
lives. Maintenance and repair costs are charged to earnings while expenditures
for major renewals and improvements are capitalized. Upon the disposition of
plant, property and equipment, the accumulated depreciation is deducted from the
original cost and any gain or loss is reflected in current earnings.
Goodwill and other intangibles
Other intangible assets consist primarily of trademarks and are recorded at
cost. Trademarks are generally amortized over ten years. Goodwill is amortized
over 40 years. The Company continually reviews goodwill and other intangible
assets to evaluate whether events or changes have occurred that would suggest an
impairment of carrying value. An impairment would be recognized when expected
undiscounted future operating cash flows are lower than the carrying value. At
January 31, 2001 and 2000, goodwill and other intangible assets at cost were
$5,251,000 and $4,358,000, respectively, and related accumulated amortization of
goodwill and other intangibles was $1,549,000 and $1,068,000, respectively.
Revenue Recognition
Sales are recognized upon transfer of title or, in the case of retail sales,
at the time of register receipt. Allowances for estimated returns and sales
discounts are provided when sales are recorded.
Pre-opening Costs
Costs associated with the opening of new retail and outlet stores is expensed in
the period incurred.
F-7
41
Advertising
The Company expenses the production costs of an advertising campaign at the
commencement date of the advertising campaign. Advertising expenses for fiscal
2001, 2000 and 1999, amounted to $62.3 million, $61.8 million and $53.8 million,
respectively.
Income taxes
The Company and its domestic subsidiaries file a consolidated federal income tax
return. Foreign income taxes have been provided based on the applicable tax
rates in each of the foreign countries in which the Company operates. Certain
Swiss income taxes are payable over several years; the portion of these taxes
not payable within one year is classified as noncurrent. Noncurrent foreign
income taxes included in the consolidated balance sheets at January 31, 2001 and
2000 were $1,812,000 and $1,905,000, respectively.
Earnings per share
The Company presents net income per share on a 'basic' and 'diluted' basis.
Basic earnings per share is computed using weighted average shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for dilutive common stock
equivalents.
The weighted average number of shares outstanding for basic earnings per share
were 11,651,000, 12,527,000 and 12,842,000 for fiscal 2001, 2000 and 1999,
respectively. For diluted earnings per share, these amounts were increased by
215,000, 363,000 and 414,000 in fiscal 2001, 2000 and 1999, respectively, due to
potentially dilutive common stock equivalents issuable under the Company's stock
option plans. There were no anti-dilutive common stock equivalents in the years
presented.
Stock-based compensation
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per share are provided as
if the fair value method had been applied.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Stockholders' Equity
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program
throughout fiscal 2001. Share repurchases under the repurchase program amounted
to $7.3 million, $17.6 million and $0.6 million in fiscal 2001, 2000 and 1999,
respectively. As of January 31, 2001, the Company had authorization to
repurchase shares up to an additional $4.5 million against an aggregate
authorization of $30 million.
F-8
42
During fiscal 1999, the Company repurchased $2.3 million of stock under a
400,000 share repurchase program that had been authorized by the Board of
Directors in March 1998. This program had been put in place to mitigate the
dilutive impact of employee compensation programs.
New Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended, which is effective for the
Company as of February 1, 2001. SFAS 133 requires that an entity recognizes
all derivatives as either assets or liabilities measured at fair value. Changes
in derivative fair values will either be recognized in earnings as offsets to
the changes in fair value of related hedged assets, liabilities and firm
commitments or, for forecasted transactions, deferred and recorded as a
component of other stockholders' equity until the hedged transactions occur and
are recognized in earnings. The ineffective portion of a hedging derivative's
change in fair value will be immediately recognized in earnings. Adoption of
this statement is not expected to materially impact the Company's financial
statements.
In December 1999, the Securities and Exchange Commission, "SEC", issued Staff
Accounting Bulletin No. 101, "SAB 101", "Revenue Recognition in Financial
Statements." SAB 101 summarizes certain of the SEC's views in applying
accounting principles generally accepted in the United States to revenue
recognition in financial statements. The Company adopted the guidance of this
bulletin during fiscal 2001, which had no material impact on the Company's
revenue recognition policy.
Reclassification
Certain prior year amounts have been reclassified to conform to the fiscal 2001
presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
JANUARY 31,
-------------------
2001 2000
------- -------
Finished goods $60,909 $50,565
Component parts 30,942 25,473
Work-in-process 4,012 1,037
------- -------
$95,863 $77,075
======= =======
F-9
43
NOTE 3 - PLANT, PROPERTY AND EQUIPMENT
Plant, property and equipment at January 31, at cost, consisted of the following
(in thousands):
2001 2000
-------- --------
Furniture and equipment $44,705 $40,820
Leasehold improvements 15,579 11,026
-------- --------
60,284 51,846
Less: accumulated depreciation (27,378) (24,253)
-------- --------
$32,906 $27,593
======== ========
Depreciation and amortization for fiscal 2001, 2000 and 1999
was $5,732,000, $4,701,000 and $4,820,000, respectively.
NOTE 4 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
The Company's revolving credit facility with its domestic bank group was entered
into in June 2000 to provide for a three-year $100.0 million unsecured revolving
line of credit, which replaced a three-year $90.0 million unsecured facility
dated July 1997. In addition, certain members within the bank group provided for
$15.0 million and $31.6 million of uncommitted working capital lines of credit
at January 31, 2001 and 2000, respectively. The renewed bank credit agreement
provides for various rate options including the federal funds rate plus a fixed
rate, the prime rate or a fixed rate plus the LIBOR rate. The Company pays a
facility fee on the unused portion of the credit facility. The agreement also
contains certain financial covenants including an interest coverage ratio and
certain restrictions that limits the Company on the sale, transfer or
distribution of corporate assets, including dividends and limit the amount of
debt outstanding. The Company was in compliance with these restrictions and
covenants at January 31, 2001 and 2000. The domestic unused line of credit was
$106.2 million and $108.1 million at January 31, 2001 and 2000, respectively.
The Company's Swiss subsidiaries maintain secured and unsecured lines of credit
with Swiss banks, a majority of which have an unspecified duration. Available
credit under these lines totaled 11.3 million Swiss francs and 10.0 million
Swiss francs, with dollar equivalents of approximately $6.9 million and $6.0
million at January 31, 2001 and 2000, of which a maximum of $5.0 million can be
drawn. One subsidiary's credit line contains a covenant requiring maintenance of
retained earnings above a specified minimum level. This subsidiary was in
compliance with this covenant at January 31, 2001 and 2000. There are no other
restrictions on transfers in the form of dividends, loans or advances to the
Company by its foreign subsidiaries.
F-10
44
Outstanding borrowings against the Company's aggregate demand lines of credit
were $8.8 million at January 31, 2001 and $13.5 million at January 31, 2000.
Aggregate maximum and average monthly outstanding borrowings against the
Company's lines of credit and related weighted average interest rates during
fiscal 2001, 2000 and 1999 were as follows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
2001 2000 1999
------- ------- -------
Maximum borrowings $51,850 $61,900 $70,900
Average monthly borrowings $31,622 $40,290 $41,229
Weighted average interest rate 8.2% 6.3% 6.9%
Weighted average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
NOTE 5 - LONG-TERM DEBT
The components of long-term debt as of January 31 were as follows (in
thousands):
2001 2000
------- -------
Senior Notes $20,000 $25,000
Series A Senior Notes 25,000 25,000
------- -------
45,000 50,000
Less current portion 5,000 5,000
------- -------
Long-term debt $40,000 $45,000
======= =======
Senior Notes due January 31, 2005 (the "Senior Notes") were issued in a private
placement completed in fiscal 1994 and bear interest at 6.56% per annum, payable
semiannually on July 31 and January 31, and are subject to annual payments of
$5.0 million commencing January 31, 1998. Accordingly, such amounts have been
classified as a current liability in fiscal 2001 and 2000. The Company has the
option to prepay amounts due to holders of the Senior Notes at 100% of the
principal plus a "make-whole" premium and accrued interest.
The Series A Senior Notes ("Series A Senior Notes") were issued on December 1,
1998 under a Note Purchase and Private Shelf Agreement and bear interest at
6.90% per annum. Interest is payable semiannually on April 30 and October 30.
These notes mature on October 30, 2010 and are subject to annual payments of
$5.0 million commencing on October 31, 2006.
F-11
45
On March 21, 2001 the Company entered into a new Note Purchase and Private Shelf
Agreement which allows for the issuance for up to three years after the date
thereof, of senior promissory notes in the aggregate principal amount of up to
$40.0 million with maturities up to 12 years from their original date of
issuance.
The agreements governing the Senior Notes and Series A Senior Notes contain
certain restrictions and covenants which generally require the maintenance of a
minimum net worth, limit the amount of additional secured debt the Company can
incur and limit the sale, transfer or distribution of corporate assets including
dividends. The Company was in compliance with these restrictions and covenants
at January 31, 2001 and 2000.
NOTE 6 - FOREIGN CURRENCY MANAGEMENT
A substantial portion of the Company's watches and watch components are sourced
from affiliated and nonaffiliated suppliers in Switzerland. A significant
strengthening of the Swiss franc against currencies of other countries in which
the Company conducts sales activities increases the Company's product cost. This
may adversely impact gross margins to the extent the Company is unsuccessful in
hedging against changes in the currency exchange rates or higher product costs
cannot be recovered through price increases in local markets. Significant
fluctuations in the Swiss franc - U.S. dollar exchange rate can also have a
material impact on the U.S. dollar value of the net assets of the Company's
wholly-owned Swiss subsidiaries.
The Company hedges against foreign currency exposure using only forward exchange
contracts, purchased foreign currency options and open market purchases to cover
identifiable inventory purchase commitments and, occasionally, equity invested
in its international subsidiaries.
The Company has established strict counterparty credit guidelines and only
enters into foreign currency transactions with financial institutions of
investment grade or better. To minimize the concentration of credit risk, the
Company enters into hedging transactions with each of these financial
institutions. As a result, the Company considers the risk of counterparty
default to be minimal.
The following table presents the aggregate contract amounts and fair values,
based on dealer quoted prices, of the Company's financial instruments
outstanding at January 31, 2001 and 2000. Foreign currency forward contracts
included below mature within one year. Currency option contracts at January 31,
2001 generally mature after one year. All financial instruments included below
were held for hedging purposes only. Contract amounts (in thousands) consist
primarily of U.S. dollar - Swiss franc contracts.
AS OF JANUARY 31,
-------------------------------------------
2001 2000
------------------- -------------------
CONTRACT FAIR CONTRACT FAIR
AMOUNTS VALUES AMOUNTS VALUES
-------- ------- -------- -------
Foreign Currency Forward Contracts $67,477 $67,602 $47,287 $42,732
Purchased Options $27,202 $1,340 $94,105 $1,638
The contract amounts of these foreign currency forward contracts and purchased
options do not necessarily represent amounts exchanged by the parties and,
therefore, are not a direct measure of the exposure of the Company through its
use of these financial instruments. The amounts exchanged are calculated on the
basis of
F-12
46
the contract amounts and the other terms of the financial instruments, which
relate to exchange rates. As of January 31, 2001 and 2000, the payable to banks
recorded in current liabilities associated with closed contract positions was
$681,000 and $1,795,000, respectively.
The estimated fair values of these foreign currency forward amounts and
purchased options used to hedge the Company's risks will fluctuate over time.
These fair value amounts should not be viewed in isolation, but rather in
relation to the fair values of the underlying hedged transactions and
investments and the Company's overall exposure to fluctuations in foreign
exchange rates.
Gains and losses from and premiums paid for forward or option transactions that
hedge inventory purchase commitments are included in the carrying cost of
inventory and are recognized in cost of sales upon sale of the inventory. Net
deferred charges from hedging amounted to $0.6 million and $2.7 million at
January 31, 2001 and 2000, respectively. These amounts were included in other
current assets on the accompanying balance sheets.
NOTE 7 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value of the Company's 6.56% Senior Notes and 6.9% Series A Senior
Notes approximate 99% and 95% of the carrying value of the notes, respectively,
as of January 31, 2001. The fair value was calculated based upon the present
value of future cash flows discounted at estimated borrowing rates for similar
debt instruments or upon estimated prices based on current yields for debt
issues of similar quality and terms.
F-13
47
NOTE 8 - INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 2001, 2000
and 1999 consists of the following components (in thousands):
2001 2000 1999
------- ------- -------
Current:
U.S. Federal $ 3,124 $ -- $ 1,500
U.S. State and Local 498 11 444
Non-U.S. 2,607 1,043 1,888
------- ------- -------
6,229 1,054 3,832
======= ======= =======
Noncurrent:
U.S. Federal -- -- --
U.S. State and Local -- -- --
Non-U.S. 1,674 1,785 1,924
------- ------- -------
1,674 1,785 1,924
======= ======= =======
Deferred:
U.S. Federal (1,948) (1,518) (750)
U.S. State and Local (385) -- --
Non-U.S. 1,352 107 1,259
------- ------- -------
(981) (1,411) 509
======= ======= =======
Provision for income taxes $ 6,922 $ 1,428 $ 6,265
======= ======= =======
Deferred income taxes reflect the tax effect of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred income taxes have been
classified as current or noncurrent on the consolidated balance sheets based on
the underlying temporary differences and the expected due dates of taxes payable
upon reversal. Significant components of the Company's deferred income tax
assets and liabilities for the fiscal year ended January 31, 2001 and 2000
consist of the following (in thousands):
2001 DEFERRED TAX 2000 DEFERRED TAX
----------------------- ------------------------
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
Operating loss carry forwards $ 1,596 $ -- $ 2,706 $ --
Rent accrual 143 -- 291 --
Inventory reserve 2,225 3,502 894 5,340
Receivable allowance 2,183 2,862 1,054 1,278
Depreciation/amortization 1,628 -- 1,089 --
Other 2,352 -- 1,355 --
-------- -------- -------- --------
10,127 6,364 7,389 6,618
Valuation allowance (1,383) -- (1,439) --
-------- -------- -------- --------
Total $ 8,744 $ 6,364 $ 5,950 $ 6,618
======== ======== ======== ========
F-14
48
As of January 31, 2001, the Company had foreign net operating loss
carryforwards of approximately $3.5 million, which are available to offset
taxable income in future years. As of January 31, 2001, the Company maintained a
valuation allowance with respect to the tax benefit of certain foreign net
operating loss carryforwards. Since the Company's foreign deferred tax assets
relate primarily to its former sales office in Germany, which is currently
operated by an independent distributor, the Company's assessment is that a
portion of the foreign deferred tax assets will not likely be utilized in the
foreseeable future. Management is continuing to evaluate the appropriate level
of allowance based on future operating results and changes in circumstances.
The provision for income taxes differs from the amount determined by applying
the U.S. federal statutory rate as follows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
2001 2000 1999
------- ------- -------
Provision for income taxes at the U.S. statutory rate $9,691 $5,311 $9,533
Lower effective foreign income tax rate (3,621) (3,362) (3,685)
Change in valuation allowance (56) (1,221) --
Tax provided on repatriated earnings of foreign
subsidiaries 265 238 252
State and local taxes, net of federal benefit 113 8 134
Other, net 530 454 31
------- ------- -------
$6,922 $1,428 $6,265
======= ======= =======
In fiscal 2001, the Company recognized a tax benefit of $1,083 from realization
of domestic and certain foreign net operating loss carryforwards.
No provision has been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $155 million at January 31, 2001, as those earnings
are considered to be reinvested for an indefinite period.
NOTE 9 - OTHER ASSETS
In fiscal 1996, the Company entered into an agreement with a trust which owns an
insurance policy issued on the lives of the Company's Chairman and Chief
Executive Officer and his spouse. Under that agreement, the trust has assigned
the insurance policy to the Company as collateral to secure repayment by the
trust of interest-free loans to be made by the Company in amounts sufficient for
the trust to pay the premiums on said insurance policy (approximately $741,000
per annum). Under the agreement, the trust will repay the loans from the
proceeds of the policy. The Company had loaned approximately $3.8 million and
$3.1 million under this agreement at January 31, 2001 and 2000, respectively.
F-15
49
NOTE 10 - LEASES, COMMITMENTS AND CONTINGENCIES
The Company leases office, distribution, retail and manufacturing facilities and
office equipment under operating leases, which expire at various dates through
July 2013. Certain of the leases provide for renewal options and escalation
clauses for real estate taxes and other occupancy costs. Rent expense for
equipment and distribution, factory and office facilities under operating leases
was approximately $9.4 million, $6.6 million and $5.5 million in fiscal 2001,
2000 and 1999, respectively. Minimum annual rentals at January 31, 2001 under
noncancelable operating leases which do not include escalations that will be
based on increases in real estate taxes and operating costs are as follows:
YEAR ENDING JANUARY 31,
(IN THOUSANDS):
2002 $8,488
2003 5,856
2004 4,874
2005 4,436
2006 3,268
Thereafter 11,883
------------
$38,805
============
Due to the nature of its business as a luxury consumer goods distributor, the
Company is exposed to various commercial losses. The Company believes it is
adequately insured against such losses.
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Savings Plan under Section 401(k) of the
Internal Revenue Code. Company contributions and expenses of administering the
Employee Savings Plan amounted to $528,000, $556,000 and $430,000 in fiscal
2001, 2000 and 1999, respectively.
Effective June 1, 1995, the Company adopted a defined contribution supplemental
executive retirement plan ("SERP"). The SERP provides eligible executives with
supplemental pension benefits in addition to amounts received under the
Company's other retirement plan. The Company makes a matching contribution which
vests equally over five years. During fiscal 2001, 2000 and 1999, the Company
recorded an expense related to the SERP of approximately $381,000, $640,000 and
$338,000, respectively.
During fiscal 1999, the Company adopted a Stock Bonus Plan for all employees not
in the SERP. Under the terms of this Stock Bonus Plan, the Company contributes a
discretionary amount to the trust established under the plan. Each plan
participant vests after five years in 100% of their respective pro rata portion
of such contribution. For fiscal 2001, 2000 and 1999 the Company recorded an
expense of $80,000, $159,000 and $209,000 respectively, related to this plan.
F-16
50
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman and Chief Executive Officer. Under
the terms of the agreement, in the event of the Chairman's death or disability,
the Company is required to make an annual benefit payment of approximately
$300,000 to his spouse for the lesser of ten years or her remaining lifetime.
Neither the agreement nor the benefits payable thereunder are assignable and no
benefits are payable to the estates or heirs of the Chairman or his spouse.
Results of operations include an actuarially determined charge related to this
plan of approximately $120,000, $110,000 and $101,000 for fiscal 2001, 2000 and
1999, respectively.
Effective concurrently with the consummation of the Company's public offering in
the fourth quarter of fiscal 1994, the Board of Directors and the shareholders
of the Company approved the adoption of the Movado Group, Inc. 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan") for the benefit of certain
officers, directors and key employees of the Company. The Employee Stock Option
Plan was amended in fiscal 1997 and restated as the Movado Group, Inc. 1996
Stock Incentive Plan (the "Plan"). Under the Plan, the Compensation Committee of
the Board of Directors, which is comprised of the Company's four outside
directors, has the authority to grant incentive stock options and nonqualified
stock options, to purchase, as well as stock appreciation rights and stock
awards, up to 2,000,000 shares of Common Stock. Options granted to participants
under the Plan become exercisable in equal installments on the first through
fifth anniversaries of the date of grant and remain exercisable until the tenth
anniversary of the date of grant. The option price may not be less than the fair
market value of the stock at the time the options are granted.
Transactions in stock options under the Plan since fiscal 1998 are summarized as
follows:
OUTSTANDING WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------- ----------------
January 31, 1998 1,126,400 9.91
Options granted 282,749 25.53
Options exercised (63,250) 9.02
Options forfeited (62,289) 13.39
---------- ------
January 31, 1999 1,283,610 13.23
Options granted 436,550 21.56
Options exercised (54,266) 9.21
Options forfeited (109,477) 16.51
---------- ------
January 31, 2000 1,556,417 15.65
Options granted 244,050 8.72
Options exercised (103,387) 8.15
Options forfeited (82,779) 18.86
---------- ------
January 31, 2001 1,614,301 $15.09
========== ======
Options exercisable at January 31, 2001, 2000 and 1999 were 813,587, 701,814 and
538,216, respectively.
F-17
51
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $4.72, $11.18 and $13.34
per share in fiscal 2001, 2000 and 1999, respectively. The following
weighted-average assumptions were used for grants in 2001, 2000 and 1999:
dividend yield of 0.86% for fiscal 2001, 0.45% for fiscal 2000 and 0.3% for
fiscal 1999; expected volatility of 48% for fiscal 2001, 40% for fiscal 2000 and
45% for fiscal 1999, risk-free interest rates of 6.67% for fiscal 2001, 6.75%
for fiscal 2000 and 4.7% for fiscal 1999 and expected lives of seven years for
fiscal 2001, 2000 and 1999.
The Company applies APB Opinion 25 and related interpretations in accounting
for its plans. Accordingly, no compensation cost has been recognized for the
Plan. Had compensation cost for the Company grants for stock-based compensation
plans been determined based on the fair value at the grant dates and recognized
ratably over the vesting period, the Company's net income and net income per
share for fiscal 2001, 2000 and 1999 would approximate the pro forma amounts
below (in thousands, except per share data):
2001 2000 1999
---- ---- ----
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
---------- ---------- ---------- ---------- ---------- ----------
Net Income $20,767 $19,135 $13,721 $12,216 $20,973 $19,856
Net Income per share-Basic $1.78 $1.64 $1.10 $0.98 $1.63 $1.55
Net Income per share-Diluted $1.75 $1.61 $1.06 $0.95 $1.58 $1.50
The pro forma impact takes into account options granted since February 1, 1995
and is likely to increase in future years as additional options are granted and
amortized ratably over the vesting period.
The following table summarizes outstanding and exercisable stock options as of
January 31, 2001:
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING WEIGHTED-AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
------------------------------------------------------------------------------------------------------------
$5.00 - $9.99 765,545 5.2 $8.53 486,906 $8.39
$10.00 - $14.99 207,756 5.7 $13.16 140,871 $13.17
$15.00 - $19.99 24,500 7.9 $15.87 8,800 $16.16
$20.00 - $24.99 439,950 8.5 $22.41 99,090 $22.49
$25.00 - $29.75 176,550 6.9 $27.44 77,920 $27.39
------------ ---- ----------- --------------- ----------------- --------------- --------------- ------------
$5.00 - $29.75 1,614,301 6.4 $15.09 813,587 $12.84
------------ ---- ----------- --------------- ----------------- --------------- --------------- ------------
F-18
52
NOTE 12 - SEGMENT INFORMATION
In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which requires reporting certain
financial information according to the "management approach." This approach
requires reporting information regarding operating segments on the basis used
internally by management to evaluate segment performance. SFAS 131 also
requires disclosures about products and services, geographic areas and major
customers.
The Company divides its business into two major geographic segments: "Domestic",
which includes the result of the Company's United States and Canadian
operations, and "International", which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe. The Company's international assets are substantially located in Europe.
F-19
53
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the designing,
manufacturing and distribution of quality watches. Other includes the Company's
retail and service center operations. The accounting policies of the segments
are the same as those described in "Significant Accounting Policies". The
Company evaluates segment performance based on operating profit.
OPERATING SEGMENT DATA AS OF AND FOR THE FISCAL YEAR ENDED JANUARY 31 (IN
THOUSANDS):
NET SALES OPERATING PROFIT (LOSS)
--------------------------------------- ------------------------------------
2001 2000 1999 2001 2000 1999
---------- ---------- ----------- ---------- ---------- ---------
Wholesale $275,865 $256,081 $245,783 $38,238 $14,187 $34,631
Other 44,976 38,986 32,053 (1,735) 127 (1,597)
Elimination (1) - - - (2,371) 1,455 (359)
---------- ---------- ----------- ---------- ---------- ---------
Consolidated total $320,841 $295,067 $277,836 $34,132 $15,769 $32,675
========== ========== =========== ========== ========== =========
TOTAL ASSETS CAPITAL EXPENDITURES
--------------------------------------- ------------------------------------
2001 2000 1999 2001 2000 1999
----------- ---------- ----------- ---------- ---------- ---------
Wholesale $238,278 $207,232 $261,395 $8,167 $7,917 $6,368
Other 29,068 25,802 29,354 2,191 1,520 5,226
Corporate (2) 23,059 26,615 5,626 475 688 113
----------- ---------- ----------- ---------- ---------- ---------
Consolidated total $290,405 $259,649 $296,375 $10,833 $10,125 $11,707
=========== ========== =========== ========== ========== =========
DEPRECIATION AND AMORTIZATION
---------------------------------------
2001 2000 1999
----------- ---------- -----------
Wholesale $4,460 $3,396 $4,515
Other 1,198 966 298
Corporate 683 827 567
----------- ---------- -----------
Consolidated total $6,341 $5,189 $5,380
=========== ========== ===========
GEOGRAPHIC SEGMENT DATA AS OF AND FOR THE FISCAL YEAR ENDED JANUARY 31 (IN
THOUSANDS):
NET SALES LONG-LIVED ASSETS
-------------------------------------- -----------------------------------------
2001 2000 1999 2001 2000 1999
---------- ----------- ---------- ----------- ---------- ------------
Domestic $288,443 $267,160 $245,865 $18,483 $16,534 $17,222
International 218,379 209,217 199,060 14,423 11,059 5,776
Elimination (3) (185,981) (181,310) (167,089) - - -
---------- ----------- ---------- ----------- ---------- ------------
Consolidated total $320,841 $295,067 $277,836 $32,906 $27,593 $22,998
========== =========== ========== =========== ========== ============
INCOME (LOSS) BEFORE TAXES
----------------------------------------
2001 2000 1999
----------- ----------- ----------
Domestic $4,647 $(8,987) $2,096
International 26,399 23,780 25,501
Elimination (3) (3,357) 356 (359)
----------- ----------- ----------
Consolidated total $27,689 $15,149 $27,238
=========== =========== ==========
(1) Elimination of inter-segment management fees.
(2) Corporate assets include cash.
(3) Elimination of intercompany sales between domestic and international units.
F-20
54
NOTE 13 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 2001 and 2000 (in thousands, except per share amounts):
QUARTER ENDED
--------------------------------------------------------
1ST 2ND 3RD 4TH
---------- ----------- ------------ -----------
FISCAL 2001
Net sales $53,339 $76,173 $105,122 $86,207
Gross profit $32,041 $45,786 $65,195 $54,429
Net income $(173) $4,730 $12,557 $3,653
PER SHARE:
Net income (loss):
Basic $(0.01) $0.41 $1.09 $0.32
Diluted $(0.01) $0.40 $1.07 $0.31
FISCAL 2000
Net sales $47,653 $69,538 $99,032 $78,844
Gross profit $29,035 $41,221 $61,641 $36,503
Net income (loss) $4,312 $4,422 $13,767 ($8,780)
PER SHARE:
Net income:
Basic $0.34 $0.35 $1.10 ($0.70)
Diluted $0.33 $0.34 $1.07 ($0.68)
As each quarter is calculated as a discrete period, the sum of the four quarters
may not equal the calculated full year amount. This is in accordance with
prescribed reporting requirements.
NOTE 14 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
2001 2000 1999
------------- ------------- -------------
Cash paid during the year for:
Interest $6,634 $7,559 $5,274
Income taxes $2,992 $7,079 $4,585
F-21
55
SCHEDULE II
MOVADO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY NET BALANCE AT
DESCRIPTION OF YEAR OPERATIONS REVALUATION WRITE-OFFS END OF YEAR
----------- ------- ---------- ----------- ---------- -----------
Year ended January 31, 2001:
Allowance for doubtful accounts $3,604 $2,386 $3 ($1,551) $4,442
Year ended January 31, 2000:
Allowance for doubtful accounts $2,567 $2,553 ($21) ($1,495) $3,604
Year ended January 31, 1999 $2,187 $1,304 $7 ($931) $2,567
Allowance for doubtful accounts
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY BALANCE AT
OF YEAR OPERATIONS REVALUATION ADJUSTMENTS END OF YEAR
------------ ------------ ------------- ------------- --------------
Year ended January 31, 2001:
Inventory reserve $7,035 $3,550 $46 ($1,024) $9,607
Year ended January 31, 2000:
Inventory reserve $3,308 $5,113 ($436) ($950) $7,035
Year ended January 31, 1999:
Inventory reserve $2,853 $400 $55 $0 $3,308
BALANCE AT PROVISION
BEGINNING (BENEFIT) BALANCE AT
OF YEAR CHARGED ADJUSTMENTS END OF YEAR
----------- -------------- ------------- --------------
Year ended January 31, 2001:
Deferred tax assets valuation
allowance $1,439 ($56) $0 $1,383
Year ended January 31, 2000:
Deferred tax assets valuation
allowance $2,660 ($1,221) $0 $1,439
Year ended January 31, 1999:
Deferred tax assets valuation
allowance $2,370 $290 $0 $2,660
S-1