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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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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, 2002,
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 23, 2001,
the aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $212,749,776. 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 23, 2001 were 9,797,776 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.
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PART I
Item 1. Business
CORPORATE ORGANIZATION
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. Unless the context indicates otherwise all references to the
"Company" or "MGI" include Movado Group, Inc. and its subsidiaries. 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. On February 22, 1999, the Company completed the sale of its Piaget
business to VLG North America, Inc. ("VLG") and on January 14, 2000, the Company
completed the sale of its Corum business to Corum Reis Bannwart & Co. SA ("Corum
Switzerland").
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. The Movado
brand was established in 1881 and has since become the flagship brand of the
Company.
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"). On October 21,
1997, the Company completed a secondary stock offering in which 1,500,000 shares
of Common Stock were issued. On May 21, 2001, the Company moved from the NASDAQ
National Market to The New York Stock Exchange ("NYSE"). The Common Stock is
traded on the NYSE under the trading symbol MOV.
The Company operates internationally through wholly owned subsidiaries in
Switzerland, Hong Kong, Japan and Singapore. Its executive offices are located
in Paramus, New Jersey with operations throughout the United States and Canada.
INDUSTRY OVERVIEW
The largest markets for watches are North America, Western Europe and the Far
East. According to the Federation of the Swiss Watch Industry, Swiss finished
watch production was 27.8 million units or approximately 10.5 billion Swiss
francs in 2001, an increase of 4% or 0.4 million Swiss francs above 2000
production. This increase was due to the average unit price increasing from 312
Swiss francs per unit in 2000 to 367 Swiss francs per unit in 2001 offset by an
11.5% decline in Swiss watch unit production. The Company's Swiss watch brands
include Movado, Concord, ESQ and Coach.
1
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 and Movado
Premium $500 to $999 Movado and Coach
Moderate $125 to $499 ESQ and Coach
Fashion Watch Market $55 to $124 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 category. The
Company's Movado watches compete primarily in the Premium category of the
market, although certain Movado watches compete in the Luxury category. 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 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.
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
2
majority of the Company's Movado and Coach 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. In addition to the Company's Tommy Hilfiger brand, well-known brands
of Fashion Watch Market watches include Anne Klein II, DKNY, Guess, Kenneth
Cole, Swatch and Fossil.
Mass Market Watches
Mass Market watches typically consist of digital watches and analog watches made
from stainless steel, brass and/or plastic and are manufactured in the Far East.
Well known brands include Casio, Citizen, Pulsar, Seiko and Timex.
PRODUCTS
During fiscal 2002, 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 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
North America and the Caribbean. Tommy Hilfiger watches are presently sold in
North America, the Caribbean, Latin America and South America. Coach watches
3
are assembled in Switzerland by independent suppliers and sold primarily in
North America, the Caribbean and the Far East.
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 movement 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 $395 and $5,000.
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.
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.
4
Retail Operations
The Company operates in two sectors of the retail industry the luxury boutique
market and the outlet market. During fiscal 2002, retail sales amounted to $47.2
million or 15.7% of consolidated net sales. At January 31, 2002, the Company's
retail operations consisted of 10 Movado Boutiques and 25 outlet stores. The
Movado Boutiques, the first of which opened in 1998, sell selected models of
Movado watches as well as proprietary jewelry, tabletop and personal accessory
lines. The jewelry, tabletop and personal accessory lines are sold exclusively
in the Movado Boutiques. The outlet stores sell discontinued models and factory
seconds of all of the Company's watch brands.
Other Revenue
Other revenue includes sales from the Company's after sales service, watch
repair operations and shipping income. During fiscal 2002, other revenue
amounted to $8.8 million or 3.0% of consolidated net sales.
WARRANTY AND REPAIR
The Company has service facilities around the world including seven
Company-owned service facilities and approximately 180 authorized independent
service centers worldwide. 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.
The Company retains adequate levels 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.
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 strategies. The Company utilizes the creative
development of advertising campaigns from outside agencies. Advertising
expenditures totaled approximately 19.0%, 19.4% and 21.0% of net sales in fiscal
2002, 2001 and 2000, respectively. Advertising is developed individually for
each of the Company's watch 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, outdoor and promotional materials.
5
SALES AND DISTRIBUTION
Overview
The Company divides its business into two business segments, wholesale and
retail. Within wholesale there are two major geographic segments: "Domestic,"
which includes the results of the Company's North American and Caribbean
operations and "International," which includes the results of all other Company
operations. The Company's international operations are principally conducted in
Europe, the Middle East and the Far East. The retail business segment operates
exclusively within the United States.
Domestic Wholesale
The Company sells all of its brands in the domestic market primarily through
major jewelry store chains such as Zales, Sterling, Helzberg and Fred Meyer;
department stores, such as Saks, Nieman-Marcus, Macy's and Finlay and
independent jewelers. Sales to trade customers in the United States and Canada
are made directly by the Company's sales organization of approximately 103
employees. The sales organization is comprised of a sales force who typically
specialize in a particular brand and whose compensation is predominantly on a
sales commission basis. The sales force is supported by account executives
and customers are serviced by multi-brand sales representatives who are
compensated based on salary and incentives. Zale Corporation accounted for 9%,
10% and 13% of the Company's consolidated net sales for fiscal 2002, 2001 and
2000, respectively. At January 31, 2002 and 2001, the same trade customer
accounted for 13% and 11% of consolidated trade receivables, respectively.
International Wholesale
The Company sells Movado, Concord and Coach watches internationally through its
own sales force of approximately 28 employees operating from the Company's sales
and distribution offices in Hong Kong, Singapore and Switzerland, and also
through a network of approximately 77 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
The Company operates in two retail sectors, the luxury boutique market and
the outlet market. The Company operates 10 Movado Boutiques in the luxury
boutique market where Movado watches are sold as well as Movado jewelry,
tabletop accessories and other product line extensions. In the outlet
market the Company operates 25 outlet stores, which sell the Company's
discontinued models and factory seconds, providing the Company with an organized
and efficient method of reducing inventory without competing directly with trade
customers.
6
BACKLOG
At March 31, 2002, the Company had unfilled customer orders of approximately
$42.7 million, compared to approximately $45.8 million at March 31, 2001. The
Company believes the backlog is affected by a variety of factors, including
seasonality and the scheduling of the manufacture and shipment of products.
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. 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 contract commitments 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., 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 LICENSE 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 and jewelry 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
7
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.
In June 1999, the Company entered into a license agreement with Tommy Hilfiger
Licensing, Inc. ("THLI"). The initial term expires December 31, 2005 but 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 North America, the Caribbean, duty free and U.S. military shops worldwide. In
addition, the Company has been granted the right to sell such watches in Latin
and South America.
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, sues 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, 2002, the Company has approximately 878 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.
8
FINANCIAL INFORMATION ABOUT OPERATING SEGMENTS, SEASONALITY, FOREIGN AND
DOMESTIC OPERATIONS
The Company divides its business into two business segments, wholesale and
retail. Within wholesale there are two major geographic segments: "Domestic,"
which includes the results of the Company's North American and Caribbean
operations, and "International," which includes the results of all other
Company operations. The Company's international operations are principally
conducted in Europe, the Middle East 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
the second half of its fiscal year. The second half of each year accounted for
approximately 55.0%, 59.6% and 60.3% of the Company's net sales for the fiscal
years ending January 31, 2002, 2001 and 2000, 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 Eastern and Far
Eastern markets.
The Company's wholesale segment includes the design, manufacture and
distribution of quality watches. The Company's retail segment which is operated
exclusively within the United States, includes the Company's Movado Boutiques
and outlet operations. See Note 14 to the Consolidated Financial Statements for
financial information regarding segment data.
9
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 and 100,000 May 2010
repair
Paramus, New Jersey New executive offices 63,600 June 2013
Lyndhurst, New Jersey Former watch assembly, distribution 56,600 May 2002
and repair
Bienne, Switzerland Corporate functions, watch sales, 53,600 January 2007
distribution, assembly and repair
Markham, Canada Office and distribution 11,200 June 2007
Hong Kong Watch sales, distribution and repair 8,800 June 2004
Hackensack, New Jersey Warehouse 6,600 July 2004
New York, New York Public Relations Office 4,900 April 2008
Los Angles, California Watch repair 3,000 December 2002
Grenchen, Switzerland Watch sales 2,800 December 2005
Coral Gables, Florida Caribbean Office 1,500 November 2006
Japan Watch sales 1,500 Month to month
Singapore Watch sales, distribution and repair 1,100 August 2004
The Company believes that its existing facilities are suitable and adequate for
its current operations. During fiscal 2002, the Company vacated and subleased
the Lyndhurst, New Jersey location. The Company expects no effect to its
operating expenses in fiscal 2003 with regards to the Lyndhurst, New Jersey
location. The Company leases retail space averaging 1,500 square feet per store
with leases expiring from June 2002 to June 2013 for the operation of the
Company's 25 outlet stores. The Company also leases retail space for the
operation of nine Movado Boutiques averaging 1,960 square feet per store and its
flagship Movado Boutique in New York City which is 4,700 square feet under
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 leasing out this facility.
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 2002.
10
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
As of April 9, 2002, there were 46 holders of record of Class A Common Stock
and, the Company estimates, approximately 2,346 beneficial owners of the Common
Stock represented by 436 holders of record. The Common Stock is traded on the
New York Stock Exchange under the symbol "MOV" and on April 9, 2002, the closing
price of the Common Stock was $21.97. The quarterly high and low closing prices
for the fiscal years ended January 31, 2002 and 2001 were as follows:
FISCAL 2002 FISCAL 2001
----------- -----------
QUARTER ENDED LOW HIGH LOW HIGH
------------- --- ---- --- ----
April 30 $12.75 $16.69 $8.57 $19.08
July 31 $15.46 $20.20 $7.70 $14.07
October 31 $14.45 $19.51 $13.20 $17.31
January 31 $16.30 $19.45 $11.50 $15.59
In connection with the October 7, 1993 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 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 Class A Common
Stock is not publicly traded and consequently, there is currently no
established public trading market for these shares.
During the fiscal year ended January 31, 2002, the Board of Directors approved
four $0.03 per share quarterly cash dividends to Common Stock and Class A Common
Stock shareholders. 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. 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
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,
------------------------------------------------------------------
2002 2001 2000 1999 1998
------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Net sales $ 299,725 $ 320,841 $ 295,067 $ 277,836 $ 237,005
--------- --------- --------- --------- ---------
Cost of sales 115,653 123,392 126,667 111,766 97,456
Selling, general and administrative 157,799 163,317 152,631 133,395 113,593
--------- --------- --------- --------- ---------
Total expenses 273,452 286,709 279,298 245,161 211,049
--------- --------- --------- --------- ---------
Operating income 26,273 34,132 15,769 32,675 25,956
Net interest expense 5,415 6,443 5,372 5,437 5,383
Gain on disposition of business -- -- 4,752 -- --
--------- --------- --------- --------- ---------
Income before taxes and cumulative
effect 20,858 27,689 15,149 27,238 20,573
Provision for income taxes (1) 3,735 6,922 1,428 6,265 4,731
--------- --------- --------- --------- ---------
Income before cumulative effect of a
change in accounting principle 17,123 20,767 13,721 20,973 15,842
Cumulative effect of a change in
accounting principle (109) -- -- -- --
--------- --------- --------- --------- ---------
Net income (2) $ 17,014 $ 20,767 $ 13,721 $ 20,973 $ 15,842
========= ========= ========= ========= =========
Net income per share-Basic $ 1.46 $ 1.78 $ 1.10 $ 1.63 $ 1.35
Net income per share-Diluted (3) $ 1.42 $ 1.75 $ 1.06 $ 1.58 $ 1.29
Basic shares outstanding 11,683 11,651 12,527 12,842 11,736
Diluted shares outstanding 12,007 11,866 12,890 13,256 12,236
Cash dividends declared per share $ 0.12 $ 0.105 $ 0.10 $ 0.08 $ 0.08
BALANCE SHEET DATA (END OF PERIOD):
Working capital $153,932 $ 154,637 $ 157,465 $ 191,033 $ 157,103
Total assets 290,676 290,405 259,649 296,375 249,069
Long-term debt 35,000 40,000 45,000 55,000 35,000
Shareholders' equity $172,470 $ 159,470 $ 147,815 $ 162,608 $ 145,533
(1) Reflects a lower estimated tax rate adjustment in fiscal 2002 due to a
shift in global sales mix.
(2) Fiscal 2000, includes a $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. Excluding these
items, net income would have been $15.9 million or $1.24 per share on a
diluted basis.
(3) Fiscal 2002, includes pre-tax expense of $2.7 million relating to a
one-time severance and early retirement charge. Excluding the one-time
severance and early retirement charge and income tax rate adjustment, net
income would have been $16.96 million or $1.41 per diluted share.
12
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 16% 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 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
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 10 Movado
Boutiques and 25 outlet stores located throughout the U.S. 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 selling prices. Gross margins from the sale
of watches in the Movado Boutiques exceed those of the wholesale business since
the Company earns full channel margins from manufacture to point of sale to the
consumer.
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.
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. Through aggressive
productivity improvement efforts, the Company has controlled the level of
overhead costs and maintained flexibility in its cost structure by outsourcing a
significant portion of its component and assembly requirements 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 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
gross margins despite exchange rate fluctuations.
14
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 salaries, 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,
occupancy costs, seasonal part-time help and shipping 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 dominant strategies include
the launch of the Tommy Hilfiger watch line and the Movado Boutique expansion.
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 to coincide 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.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company's consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States and those
significant policies are more fully described in Note 1 to MGI's consolidated
financial statements. The preparation of these financial statements and the
application of the most critical of those policies require management to make
judgements based on estimates and assumptions that affect the information
reported. On an on-going basis, management evaluates its estimates and
judgements, including those related to sales discounts and markdowns, product
returns, bad debt, inventories, income taxes, financing operations, warranty
obligations, and contingencies and litigation. Management bases its estimates
and judgements about the carrying values of assets and liabilities, that are not
readily apparent from other sources, on historical experience and contractual
commitments and on various other factors that are believed to be reasonable
under the circumstances. Actual results may differ from these estimates under
different assumptions or conditions. Management believes the following are the
critical accounting policies requiring significant judgements and estimates used
in the preparations of its consolidated financial statements.
REVENUE RECOGNITION AND RELATED ALLOWANCES
The Company recognizes its revenue upon transfer of title, or in the case of
retail sales, at the time of register receipt. The Company estimates returns and
sales and cash discount allowances in the same period the revenue is recorded.
These estimates are based upon historical analysis, customer agreements
15
and/or currently known factors that arise in the normal course of business. If
the allowances the Company calculates do not accurately reflect amounts
associated with current revenue, actual revenues could be higher or lower than
the level recognized.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are reduced by an allowance for amounts that may be
uncollectable in the future. Estimates are used in determining our allowance for
doubtful accounts and are based on the Company's on-going credit evaluations of
our customers and customer payment history and account aging. While the actual
bad debt losses have historically been within our expectations and the
allowances established, there can be no guarantee that the Company will continue
to experience the same bad debt loss rates. As of January 31, 2002, there were
no known situations with any of the Company's major customers which would
indicate the customer's inability to make the required payments.
INVENTORIES
The Company values its inventory at the lower of cost or market using the
first-in, first-out (FIFO) method. The cost of finished goods and component
inventories, held by overseas subsidiaries, are determined using average cost.
The Company's management regularly reviews its sales to customers and customers
sell through at retail to determine excess or obsolete inventory reserves.
Inventory with less than acceptable turn rates is classified as discontinued
and, together with the related component parts which can be assembled into
saleable finished goods, is sold through the Company's outlet stores. When
management deems finished product and components are unsalable in the Company's
outlet stores, a reserve is established for the cost of the product. These
estimates could vary significantly, either favorably or unfavorably, from actual
requirements depending on future economic conditions, customer inventory levels
or competitive conditions which may differ from our expectations.
WARRANTY
All watches sold by the Company are covered by limited warranties against
defects in material 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
cases and bracelets. The Company records an estimate for future warranty costs
based on historical repair costs. Warranty costs have historically been within
our expectations and the provisions established. If such costs were to
substantially exceed estimates, this could have an adverse affect on the
Company's operating results.
INCOME TAXES
The Company's estimated income taxes are calculated in each of the jurisdictions
in which it operates. The process involves estimating actual current tax expense
along with assessing temporary differences resulting from differing treatment of
items for both book and tax purposes. These timing differences result in
deferred tax assets and liabilities, which are included in the Company's
Consolidated Balance Sheets. The Company has considered future taxable income
and on-going tax planning strategies in assessing the need for a valuation
allowance. As a result, the Company has determined a valuation allowance is
required for foreign net operating loss carryforwards. The Company will continue
to monitor and assess the recoverability of its deferred tax assets in the
future for changes to the tax code, change in statutory tax rates and the
projected level of taxable income.
16
OTHER POLICY
The Company has adopted Statement of Financial Accounting Standards ("SFAS") No.
133, "Accounting for Derivative Instruments and Hedging Activities," as amended
by SFAS No. 137 and SFAS No. 138. This standard is considered to be a critical
accounting policy, for further information concerning accounting policies, refer
to Note 1 of our Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following is a discussion of the results of operations for fiscal 2002
compared to fiscal 2001 and fiscal 2001 compared to fiscal 2000 along with a
discussion of the changes in financial conditions during fiscal 2002.
During fiscal 2002, Caribbean net sales were reclassified from International to
Domestic. Prior year net sales have been reclassified to conform to the fiscal
2002 presentation. The following are net sales by product class and business
segment (in thousands):
FISCAL YEARS ENDED JANUARY 31,
------------------------------
2002 2001 2000
-------- -------- --------
Concord, Movado, Coach, ESQ and Tommy Hilfiger:
Domestic $196,900 $231,121 $214,753
International 46,821 44,937 41,912
Retail 47,172 39,303 32,806
Other 8,832 5,480 5,596
-------- -------- --------
Net Sales $299,725 $320,841 $295,067
======== ======== ========
The following table presents the Company's results of operations expressed as a
percentage of net sales for the fiscal years indicated (in millions):
FISCAL YEARS ENDED
JANUARY 31, 2002 JANUARY 31, 2001 JANUARY 31, 2000
-------------------------------------------------------------------
% NET OF % NET OF % NET OF
$ SALES $ SALES $ SALES
-------------------------------------------------------------------
Net sales $299.7 100.0% $320.8 100.0% $295.1 100.0%
Cost of sales 115.7 38.6% 123.4 38.5% 126.7 42.9%
-------------------------------------------------------------------
Gross profit 184.0 61.4% 197.4 61.5% 168.4 57.1%
Selling, general and administrative expenses 157.8 52.6% 163.3 50.9% 152.6 51.7%
-------------------------------------------------------------------
Operating income 26.2 8.8% 34.1 10.6% 15.8 5.4%
Interest expense, net 5.4 1.8% 6.4 2.0% 5.4 1.8%
Gain on disposition of business -- -- -- -- 4.8 1.6%
-------------------------------------------------------------------
Income before taxes and cumulative effect 20.8 7.0% 27.7 8.6% 15.2 5.2%
Provision for income taxes 3.7 1.2% 6.9 2.1% 1.4 0.5%
-------------------------------------------------------------------
Income before cumulative effect 17.1 5.8% 20.8 6.5% 13.8 4.7%
Cumulative effect of a change in accounting
principle (0.1) (0.1%) -- -- -- --
-------------------------------------------------------------------
Net income $ 17.0 5.7% $ 20.8 6.5% $ 13.8 4.7%
===================================================================
17
FISCAL 2002 COMPARED TO FISCAL 2001
Net Sales
Total net sales decreased by 6.6% to $299.7 million in fiscal 2002 from $320.8
million in fiscal 2001. This decrease was the result of the U.S. recession and
the economic conditions resulting from the tragic events surrounding September
11, 2001. Domestic brand sales decreased by 14.8% or $34.2 million. The domestic
sales decline was the result of the economic uncertainty that surrounded the
second half of fiscal 2002, which resulted in our retailers delaying their
purchases so that they were much closer to their selling season and their
reluctance to build their inventory levels. These sales declines were partially
offset by the launch of the Tommy Hilfiger brand. International brand sales
increased by 4.2% with increases of 5.5% in the Concord brand and 4.3% in the
Movado brand.
Sales in the Company's retail segment increased by $7.9 million or 20.0% due
mainly to the Company opening three new outlets and three new Boutiques
including our flagship Movado Boutique in New York City. In addition, comparable
store sales increased by 7.1% and 4.7% in the Movado Boutiques and outlet
stores, respectively. At January 31, 2002, the Company owned and operated 10
Movado Boutiques, including the New York City flagship store and 25 outlets as
compared to seven Movado Boutiques and 23 outlets at January 31, 2001.
Other sales, which include domestic and international service and shipping
income, increased by 61.2% or $3.4 million due to an increase in service and
shipping revenue.
Gross Margin
Gross margin decreased slightly to 61.4% in fiscal 2002 from 61.5% in fiscal
2001. The decrease on gross margin reflects lower margins in our wholesale
segment, which decreased due to a change in the product sales mix offset by
higher margins in our retail operations due to higher margin products offered at
retail.
Operating Expenses
Operating expenses decreased 3.4% to $157.8 million in fiscal 2002 from $163.3
million in fiscal 2001. The decrease in operating expenses related to several
areas, including advertising and marketing expense decrease of $5.3 million or
8.6%; selling expense decrease of $0.1 million or 0.2%; general and
administrative expense decrease of $3.0 million or 6.3% and somewhat offset by
an increase in distribution expense of $2.9 million or 34.7%.
The decrease in advertising expense was the result of a headcount reduction and
a decrease in cooperative advertising programs offset by an increase in media
expenditures and costs related to the launch of Tommy Hilfiger.
Selling expense remained flat compared to fiscal 2001 even with an increase in
spending for our growth initiatives. During fiscal 2002, the Company opened two
Movado Boutiques and our flagship Movado Boutique in New York City, three new
outlet stores and costs associated with the Tommy Hilfiger
18
launch. These investments were offset by decreases in sales commissions and
bonuses which declined due to decreased sales.
The decrease in general and administrative expenses is the result of the
Company's cost reduction initiatives and a decrease in bonus expense due to the
Company not meeting corporate earnings targets. These savings were partially
offset by the severance accrual of $2.7 million recorded in the third quarter of
fiscal 2002.
Distribution expense reflects the costs associated with the relocation and
expansion to a new state of the art distribution center, which was occupied in
February 2001. These expenses include occupancy costs, security systems and
depreciation.
Interest Expense
Net interest expense in fiscal 2002 decreased by $1.0 million from $6.4 million
in fiscal 2001 to $5.4 million in fiscal 2002. The net decrease was due to a
lower average interest rate on the short-term bank borrowings from approximately
8.2% in fiscal 2001 to 4.8% in fiscal 2002, partially offset by an increase of
the weighted average short-term bank borrowings. In addition, a $5.0 million
payment on the long-term borrowings was made in January 2001. Interest for this
borrowing was reduced by approximately $0.3 million.
Income Taxes
The Company's income tax provision amounted to $3.7 million and $6.9 million in
fiscal 2002 and 2001, respectively, or 18% of pretax income for fiscal 2002 and
25% of pretax income for fiscal 2001. During fiscal 2002, the Company's
estimated effective annual tax rate changed from 28% to 18%, reflecting a
decrease in the Company's U.S. source earnings as a percentage of the overall
earnings mix. The tax expense for the third quarter of fiscal 2002 was adjusted
for the difference between the 18% annual tax rate versus the 28% tax rate used
to record tax expense for the six months ended July 31, 2001. The Company
believes that the near term future effective tax rate will stabilize in the 25%
to 30% range based on 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 mix of foreign to domestic earnings, local statutory tax
rates and the Company's ability to utilize net operating loss carryforwards in a
certain jurisdiction.
FISCAL 2001 COMPARED TO FISCAL 2000
Net Sales
Total net sales increased 8.7% to $320.8 million in fiscal 2001 from $295.1
million in fiscal 2000. Domestic brand sales increased 7.6% to $231.1 million in
fiscal 2001 from $214.8 million in fiscal 2000. 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 brands increased 7.2% 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.
Retail sales increased 19.8% to $39.3 million in fiscal 2001 from $32.8 million
in fiscal 2000. Retail sales increases were led by sales increases from four
outlet stores open a full year in fiscal 2001 versus a
19
part year in fiscal 2000, three new Movado Boutiques opened in Las Vegas, NV,
Riverside Square, NJ, and Boca Raton, FL and comparable store sales increased
26.9% in the Movado Boutiques. Outlet comparable store sales were relatively
flat with a 0.4% decrease. At January 31, 2001, the Company operated 23 outlet
stores and seven Movado Boutiques as compared to 22 outlets and five Movado
Boutiques at January 31, 2000.
Other sales decreased by $0.1 million or 2% due to a reduction in after sales
service revenues as a result of the sale of the Piaget and Corum businesses.
Gross Margins
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.
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 was the result 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.
Selling expenses increased in both the Company's wholesale and retail
businesses. Increases in selling expenses in the wholesale business primarily
reflect 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.
20
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, NJ 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.
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 $0.1 million or 2.4% due to a
decrease in the average short-term bank borrowings from $40.3 million in fiscal
2000 to $31.6 million in fiscal 2001, a 21% reduction of short-term bank
borrowings offset by an increase in average interest rates. In addition, a $5.0
million payment on the long-term borrowings was made in January 2000. Interest
for this borrowing was reduced by approximately $0.3 million.
Income Taxes
The Company's income tax provision amounted to $6.9 million and $1.4 million for
fiscal 2001 and 2000, respectively, or 25% of pretax income for fiscal 2001 and
9.4% for fiscal 2000. In addition, 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.
LIQUIDITY AND FINANCIAL POSITION
The Company's major source of funds has been cash generated from operations. In
fiscal 2002, 2001 and 2000 the Company generated from operations $16.5 million,
$25.3 million and $28.3 million, respectively, and in fiscal 2000 $28.4 million
was generated from the sale of the Piaget business. This positive cash flow has
been a source of funds for the Company's growth initiatives, including working
capital, capital expenditures, the Company's stock repurchase program and debt
repayment.
Cash flow from operating activities in fiscal 2002 was less than fiscal 2001
mainly due to the timing of the receipt of inventory and the subsequent
inventory payments made earlier in fiscal 2002 than fiscal 2001, as well as the
timing of tax payments and reduction of net income. Operating cash flow in
fiscal 2001 decreased from fiscal 2000 due to increased inventory positions.
The Company used cash of $14.7 million in fiscal 2002 and $11.7 million in
fiscal 2001 for investing activities, primarily for capital expenditures. In
fiscal 2000, the Company had a cash inflow of $17.5 million mainly as a result
of the sale of its Piaget business to VLG for $28.4 million in cash.
Capital expenditures amounting to $13.9 million in fiscal 2002 relate primarily
to the relocation of the Company's U.S. headquarters, opening two new Movado
Boutiques and the flagship Movado Boutique in New York City, various information
systems projects and expansion of the Company's network of outlet stores. The
Company's capital expenditures for fiscal 2001 and fiscal 2000 amounted to $10.8
million and $10.1 million, respectively. Expenditures in fiscal 2001 were
primarily for management
21
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. 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. The Company expects
that annual capital expenditures in the near term will approximate the levels
experienced in fiscal 2001 and 2000. These expenditures will relate primarily to
leasehold improvements, furniture and fixtures for up to five new Movado
Boutiques, implementation of the Company's world wide information system in the
Far East subsidiaries, store renovations and expansion of the distribution
facility to include an expanded Movado Boutique product offering.
Cash used in financing activities amounted to $6.9 million in fiscal 2002. This
compares to $17.4 million and $22.1 million of cash used in financing activities
in fiscal 2001 and 2000, respectively. Cash used in financing activities during
fiscal 2002 was primarily for repayment of bank debt and the annual repayment of
the Senior Notes. During fiscal 2001 and 2000, the Company used cash in
financing activities primarily for the stock repurchase program, repayment of
Senior Notes and in fiscal 2001 repayment of bank debt. In fiscal 2000, the
Company had net proceeds from bank borrowings.
At January 31, 2002 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 and bear interest of 6.56% per annum. The
Company repaid $5.0 million in principal amount of these notes in fiscal 2002
and in fiscal 2001, respectively. At January 31, 2002, $15.0 million in
principal amount of these notes remained outstanding.
During fiscal 1999, the Company issued $25.0 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. The
$25.0 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 $40.0 million with maturities up to 12 years from their original date of
issuance.
The components of long-term debt as of January 31 were as follows (in
thousands):
2002 2001
-------- --------
Senior Notes $ 15,000 $ 20,000
Series A Senior Notes 25,000 25,000
-------- --------
40,000 45,000
Less current portion 5,000 5,000
-------- --------
Long-term debt $ 35,000 $ 40,000
======== ========
22
On June 22, 2000, the Company completed the renewal of its revolving credit and
working capital lines with its bank group. The new agreement provides for a
three year $100.0 million unsecured revolving line of credit and $15.0 million
of uncommitted working capital lines. At January 31, 2002, the Company had $6.5
million of outstanding borrowings under its bank lines as compared to $8.8
million at January 31, 2001. The decrease in borrowings at the end of fiscal
2002 as compared fiscal 2001 was primarily to lower seasonal working capital
requirements due to the slowdown of inventory purchases in fiscal 2002 as
compared in fiscal 2001.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program. During
fiscal 2002 there were no shares repurchased under the repurchase program. The
Company repurchased $7.3 million and $17.6 million in fiscal 2001 and 2000,
respectively acquiring in the aggregate 1.4 million shares. As of January 31,
2002, the Company had authority to repurchase $4.5 million against an aggregate
authorization of $30.0 million.
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):
2003 $ 7,750
2004 6,789
2005 6,368
2006 6,039
2007 5,420
Thereafter 21,450
--------
$ 53,816
========
Cash dividends in fiscal 2002 amounted to $1.4 million compared to $1.2 million
in fiscal 2001 and $1.0 million in fiscal 2000.
Cash and cash equivalents at January 31, 2002 amounted to $17.0 million compared
to $23.1 million at January 31, 2001. Net debt to total capitalization at
January 31, 2002 was 17.1% as compared to 19.3% at January 31, 2001.
In summary, the Company made significant progress in fiscal 2002 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 2003.
RECENTLY ISSUED ACCOUNTING STANDARDS
In November 2001, the Emerging Issues Task Force (the "EITF") issued EITF
01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which is a codification of EITF's 00-14,
00-22 and 00-25. EITF 01-09 will require the Company to reclassify certain
selling expenses as a reduction of revenues. These reclassifications will take
place in the first quarter of 2002 and prior periods will be reclassified.
These reclassifications will not impact net income.
23
On June 20, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations." SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. This Statement addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." All business combinations within the
scope of this Statement are to be accounted for using one method, the purchase
method.
On June 20, 2001, FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 for all goodwill and other intangible assets recognized in an entity's
statement of financial position at the beginning of that fiscal year. This
Statement supersedes APB Opinion No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of other assets
should be accounted for in the financial statements upon their acquisition. The
Company will adopt SFAS No. 142 in the first quarter of 2002, as required and
does not expect that the adoption will have a material impact on its financial
position or the results of operations.
On October 4, 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." This Statement requires that one accounting model be
used for long-lived assets to be disposed of by sale, whether previously held
and used or newly acquired, and broadens the presentation of discontinued
operations. The Company does not expect that the adoption of this Statement will
have a material impact on its financial position or results of operations.
24
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 partially 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, 2002, the Company's forward contracts hedging portfolio
consisted of various dates ranging through May 30, 2003. The Company has a 10.0
million Swiss francs option contract with a maturity date of October 1, 2002 and
a $5.0 million option contract with a maturity date of May 27, 2003.
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, 2002 and the fixed rates were unfavorable.
25
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, 2002, 2001 and 2000 F-2
Consolidated Balance Sheets at January 31, 2002 and 2001 F-3
Consolidated Statements of Cash Flows for the fiscal years
Ended January 31, 2002, 2001 and 2000 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the fiscal years ended January 31, 2002, 2001 and 2000 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.
26
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 2002 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 2002 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 2002 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 2002 annual meeting of shareholders and is incorporated herein
by reference.
27
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 26 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 31 through 37 of this report.
(b) Current Reports on Form 8-K
None
28
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, 2002 By: /s/ Gedalio Grinberg
Gedalio Grinberg
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, 2002 /s/ Gedalio Grinberg
Gedalio Grinberg
Chairman of the Board of Directors
Dated: April 30, 2002 /s/ Efraim Grinberg
Efraim Grinberg
President and Chief Executive Officer
Dated: April 30, 2002 /s/ Richard J. Cote
Richard J. Cote
Executive Vice President and Chief
Operating Officer
Dated: April 30, 2002 /s/ Eugene J. Karpovich
Eugene J. Karpovich
Senior Vice President and Chief
Financial Officer
Dated: April 30, 2002 /s/ Margaret Hayes Adame
Margaret Hayes Adame
Director
Dated: April 30, 2002 /s/ Donald Oresman
Donald Oresman
Director
29
Dated: April 30, 2002 /s/ Leonard L. Silverstein
Leonard L. Silverstein
Director
Dated: April 30, 2002 /s/ Alan H. Howard
Alan H. Howard
Director
30
EXHIBIT INDEX
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
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. Incorporated herein by reference to Exhibit 4.4 to
the Registrant's Annual Report on Form 10-K for the year ended
January 31, 2001.
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
31
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
the Registrant's Quarterly Report on Form 10-Q for the quarter
ended July 31, 1998.
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, 1992. 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.**
32
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
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
33
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
Rockefeller Center Properties ("Landlord") and Movado Retail
Group, Inc., successor in 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 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.
10.18 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.
34
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.19 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. **
10.20 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. Incorporated
herein by reference to Exhibit 10.22 to the Registrants Annual
Report on Form 10-K for the year ended January 31, 2000.
10.21 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.
10.22 Lease agreement dated May 22, 2000 between Forsgate Industrial
Complex and the Registrant for premises located at 105 State
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.
35
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.23 Sublease Agreement entered into as October 1, 2001 by and between
Movado Group, Inc., as sub-landlord, and National Financial
Services LLC, as sub-tenant. Incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form 10-Q
filed for the quarter ended October 31, 2001.
10.24 Second Amendment of Lease dated July 26, 2001 between Mack-Cali
Reality, L.P., as landlord, and Movado Group, Inc., as tenant,
further amending lease dated as of December 21, 2000.
Incorporated herein by reference to Exhibit 10.2 to the
Registrant's Quarterly Report on Form 10-Q filed for the quarter
ended October 31, 2001.
10.25 First Amendment of Sublease Agreement dated October 10, 2001 by
and between Movado Group, Inc., as sub-landlord, and National
Financial Services LLC, as subtenant, further amending sublease
dated October 1, 2001. Incorporated herein by reference to
Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q
filed for the quarter ended October 31, 2001.
10.26 Third Amendment of Lease dated November 6, 2001 between Mack-Cali
Realty, L.P., as lessors and Movado Group, Inc., as lessee, for
additional space at Mack-Cali II, One Mack Drive, Paramus, NJ.
Incorporated herein by reference to Exhibit 10.4 to the
Registrant's Quarterly Report on Form 10-Q filed for the quarter
ended October 31, 2001.
36
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
- ------ ----------- -------------
10.27 Amendment Number 2 to Registrant's 1996 Stock Incentive Plan
dated March 16, 2001.**
10.28 Amendment Number 3 to Registrant's 1996 Stock Incentive Plan
approved June 19, 2001.**
10.29 Amendment Number 3 to License Agreement dated December 9, 1996,
as previously amended, between the Registrant, Movado Watch
Company S.A. and Coach, Inc. dated as of January 30, 2002.*
10.30 Amendment and Restated Master Promissory Note agreement dated
June 26, 2001 between the Registrant and Fleet National Bank.
10.31 Line of Credit Letter Agreement dated August 20, 2001 between
the Registrant and the Bank of New York.
21.1 Subsidiaries of the Registrant.
23.1 Consent of PricewaterhouseCoopers LLP.
* Confidential portions of Exhibit 10.29 have been omitted and filed
separately with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Exchange Act of 1934, as amended.
** Constitutes a compensatory plan or arrangement.
37
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 28 present fairly, in all material
respects, the financial position of Movado Group, Inc. and its subsidiaries at
January 31, 2002 and 2001, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 2002 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 28 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.
As discussed in Note 6 to the Financial Statements, the Company changed its
method of accounting for derivative instruments and hedging activities effective
February 1, 2002.
PricewaterhouseCoopers LLP
Florham Park, New Jersey
March 15, 2002
F-1
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FISCAL YEAR ENDED JANUARY 31,
------------------------------------
2002 2001 2000
--------- --------- ---------
Net sales $ 299,725 $ 320,841 $ 295,067
--------- --------- ---------
Costs and expenses:
Cost of sales 115,653 123,392 126,667
Selling, general and administrative 157,799 163,317 152,631
--------- --------- ---------
273,452 286,709 279,298
--------- --------- ---------
Operating income 26,273 34,132 15,769
Interest expense, net 5,415 6,443 5,372
Gain on disposition of business -- -- 4,752
--------- --------- ---------
Income before income taxes and cumulative effect of a
change in accounting principle 20,858 27,689 15,149
Provision for income taxes 3,735 6,922 1,428
--------- --------- ---------
Income before cumulative effect of a change in
accounting principle 17,123 20,767 13,721
Cumulative effect of a change in accounting
principle, net of a tax benefit of $42 (109) -- --
--------- --------- ---------
Net income $ 17,014 $ 20,767 $ 13,721
========= ========= =========
Basic income per share
Income before cumulative effect of a
change in accounting principle $ 1.47 $ 1.78 $ 1.10
Cumulative effect of a change in accounting
principle (0.01) -- --
--------- --------- ---------
Net income per share $ 1.46 $ 1.78 $ 1.10
========= ========= =========
Weighted basic average shares outstanding 11,683 11,651 12,527
========= ========= =========
Diluted income per share
Income before cumulative effect of a change in
accounting principle $ 1.43 $ 1.75 $ 1.06
Cumulative effect of a change in accounting
principle (0.01) -- --
--------- --------- ---------
Net income per share $ 1.42 $ 1.75 $ 1.06
========= ========= =========
Weighted diluted average shares outstanding 12,007 11,866 12,890
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
JANUARY 31,
-----------------------
2002 2001
--------- ---------
ASSETS
Current assets:
Cash $ 16,971 $ 23,059
Trade receivables, net 92,014 98,797
Inventories, net 98,589 95,863
Other 19,467 23,501
--------- ---------
Total current assets 227,041 241,220
Property, plant and equipment, net 38,726 32,906
Other assets 24,909 16,279
--------- ---------
Total assets $ 290,676 $ 290,405
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 6,500 $ 8,800
Current portion of long-term debt 5,000 5,000
Accounts payable 23,824 28,819
Accrued liabilities 25,417 28,157
Current taxes payable 8,646 12,677
Deferred taxes payable 3,722 3,130
--------- ---------
Total current liabilities 73,109 86,583
--------- ---------
Long-term debt 35,000 40,000
Deferred and noncurrent foreign income taxes 1,513 3,517
Other liabilities 8,584 835
--------- ---------
Total liabilities 118,206 130,935
--------- ---------
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; 9,797,776 and 9,600,435 shares issued, respectively 98 96
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 69,484 67,242
Retained earnings 153,830 138,176
Accumulated other comprehensive income (23,286) (18,169)
Treasury stock, 1,544,487 and 1,556,670 shares at cost, respectively (27,691) (27,910)
--------- ---------
Total shareholders' equity 172,470 159,470
--------- ---------
Total liabilities and shareholders' equity $ 290,676 $ 290,405
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
2002 2001 2000
-------- -------- --------
Cash flows from operating activities:
Net income $ 17,014 $ 20,767 $ 13,721
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 7,550 6,341 5,189
Deferred and noncurrent foreign income taxes (1,174) (1,342) (1,126)
Provision for losses on accounts receivable 1,384 2,083 1,077
Provision for losses on inventory 756 1,710 7,263
Loss on disposition of leasehold improvements, furniture
and fixtures 492 -- --
Gain on disposition of business -- -- (4,752)
Changes in current assets and liabilities:
Trade receivables 4,185 (4,831) 2,469
Inventories (5,372) (20,043) 14,609
Other current assets 64 (3,383) (6,269)
Accounts payable (4,443) 11,142 (7,004)
Accrued liabilities (2,375) 9,322 4,464
Deferred and current taxes payable (3,051) 9,800 (3,042)
Other noncurrent assets (6,234) (5,960) 2,305
Other noncurrent liabilities 7,750 (335) (629)
-------- -------- --------
Net cash provided by operating activities 16,546 25,271 28,275
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (13,902) (10,833) (10,125)
Proceeds from disposition of business -- -- 28,409
Goodwill, trademarks and other intangibles (807) (852) (755)
-------- -------- --------
Net cash (used in) provided by investing activities (14,709) (11,685) 17,529
-------- -------- --------
Cash flows from financing activities:
Repayment of Senior Notes (5,000) (5,000) (10,000)
Net (payment of) proceeds from current bank borrowings (2,300) (4,700) 6,300
Principal payments under capital leases -- -- (69)
Stock options exercised and other changes 1,780 840 499
Dividends paid (1,360) (1,206) (1,247)
Purchase of treasury stock -- (7,329) (17,593)
-------- -------- --------
Net cash (used in) financing activities (6,880) (17,395) (22,110)
-------- -------- --------
Effect of exchange rate changes on cash (1,045) 253 (2,705)
-------- -------- --------
Net (decrease) increase in cash (6,088) (3,556) 20,989
Cash at beginning of year 23,059 26,615 5,626
-------- -------- --------
Cash at end of year $ 16,971 $ 23,059 $ 26,615
======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Accumulated
Class A Capital in Other Comp-
Preferred Common Common Excess of Retained rehensive Treasury
Stock Stock Stock Par Value Earnings Loss Stock
--------- --------- --------- --------- --------- ------------ ---------
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 (17,593)
Foreign currency translation
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 1,129
Common stock repurchased (7,329)
Foreign currency translation
adjustment (1,707)
--------- --------- --------- --------- --------- ------------ ---------
Balance, January 31, 2001 -- 96 35 67,242 138,176 (18,169) (27,910)
Net income 17,014
Dividends ($0.12 per share) (1,360)
Stock options exercised,
net of tax benefit 2 1,863
Supplemental executive
retirement plan 379
Employee stock bonus plan 219
Accounting change, net of tax 367
Net unrealized gain on investments,
net of tax 199
Effective portion of unrealized
loss on hedging contracts, net of tax (449)
Foreign currency translation
adjustment (15,234)
--------- --------- --------- --------- --------- ------------ ---------
Balance, January 31, 2002 -- $ 98 $ 35 $ 69,484 $153,830 ($23,286) ($27,691)
========= ========= --------- --------- --------- ------------ ---------
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
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 2002, the Company marketed five
distinctive brands of watches: Movado, Concord, ESQ, Coach and Tommy Hilfiger,
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 by independent contractors located
in the Far East using Swiss movements. Coach watches are assembled in
Switzerland by independent suppliers. Tommy Hilfiger watches are assembled in
the Far East 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 second
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 $4.1 million and $4.4 million
at January 31, 2002 and 2001, respectively. The Zale Corporation accounted for
9%, 10% and 13% of the Company's consolidated net sales in fiscal 2002, 2001 and
2000, respectively.
F-6
At January 31, 2002 and 2001, the same trade customer accounted for 13% and 11%
of consolidated trade receivables, respectively.
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 and component parts inventories, held
by overseas subsidiaries, are determined using average cost.
Property, plant 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
property, plant and equipment, the accumulated depreciation is deducted from
the original cost and any gain or loss is reflected in current earnings.
Intangibles
Intangible assets consist primarily of trademarks and are recorded at cost.
Trademarks are generally amortized over ten years. The Company continually
reviews 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, 2002 and 2001, intangible assets at cost were
$5.7 million and $5.3 million, respectively, and related accumulated
amortization of intangibles were $2.0 million and $1.5 million, respectively.
Revenue Recognition
The Company recognizes its revenue upon transfer of title or, in the case of
retail sales, at the time of register receipt. Allowances for estimated returns
and sales and cash discounts are provided when sales are recorded.
Preopening Costs
Costs associated with the opening of new retail and outlet stores are expensed
in the period incurred.
F-7
Advertising
The Company expenses the production costs of an advertising campaign at the
commencement date of the advertising campaign. Advertising expenses for fiscal
2002, 2001 and 2000, amounted to $56.9 million, $62.3 million and $61.8 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, 2002 and
2001 were $1.2 million and $1.8 million, 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 11,683,000, 11,651,000 and 12,527,000 for fiscal 2002, 2001 and 2000,
respectively. For diluted earnings per share, these amounts were increased by
324,000, 215,000 and 363,000 in fiscal 2002, 2001 and 2000, 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 2002. There were no shares repurchased under the repurchase
program during fiscal 2002 and $7.3 million and $17.6 million in fiscal 2001 and
2000, respectively. As of January 31, 2002, the Company had authorization to
repurchase shares up to an additional $4.5 million against an aggregate
authorization of $30.0 million.
F-8
Recently Accounting Standards
In November 2001, the Emerging Issues Task Force (the "EITF") issued EITF
01-09, "Accounting for Consideration Given by a Vendor to a Customer or a
Reseller of the Vendor's Products," which is a codification of EITF's 00-14,
00-22 and 00-25. EITF 01-09 will require the company to reclassify certain
selling expenses as a reduction of revenues. These reclassifications will take
place in the first quarter of 2002 and prior periods will be reclassified.
These reclassifications will not impact net income.
On June 20, 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 141, "Business Combinations," SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001. This Statement addresses financial
accounting and reporting for business combinations and supersedes APB Opinion
No. 16, "Business Combinations," and SFAS No. 38, "Accounting for Preacquisition
Contingencies of Purchased Enterprises." All business combinations within the
scope of this Statement are to be accounted for using one method, the purchase
method.
On June 20, 2001, FASB also issued SFAS No. 142, "Goodwill and Other Intangible
Assets." SFAS No. 142 is effective for fiscal years beginning after December 15,
2001 for all goodwill and other intangible assets recognized in an entity's
statement of financial position at the beginning of that fiscal year. This
Statement supersedes APB Opinion No. 17, "Intangible Assets." It addresses how
intangible assets that are acquired individually or with a group of other assets
should be accounted for in the financial statements upon their acquisition. The
Company will adopt SFAS No. 142 in the first quarter of 2002, as required, and
does not expect that the adoption will have a material impact on its financial
position or the results of operations.
On October 4, 2001, FASB issued SFAS No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets." SFAS No. 144 is effective for fiscal years
beginning after December 15, 2001. This Statement supersedes SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," and the accounting and reporting provisions of APB Opinion No.
30, "Reporting the Results of Operations - Reporting the Effects of Disposal of
a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." This Statement requires that one accounting model be
used for long-lived assets to be disposed of by sale,
F-9
whether previously held and used or newly acquired, and broadens the
presentation of discontinued operations to include more disposal transactions.
The Company does not expect that the adoption of this Statement will have a
material impact on its financial position or results of operations.
Reclassification
Certain prior year amounts have been reclassified to conform to the fiscal 2002
presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
JANUARY 31,
-------------------------
2002 2001
------- -------
Finished goods $63,956 $60,909
Component parts 32,531 30,942
Work-in-process 2,102 4,012
------- -------
$98,589 $95,863
======= =======
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at January 31, at cost, consisted of the following
(in thousands):
2002 2001
------- -------
Furniture and equipment $26,657 $25,427
Leasehold improvements 20,334 15,579
Computer Software 20,235 19,278
------- -------
67,226 60,284
Less: accumulated depreciation (28,500) (27,378)
------- -------
$38,726 $32,906
======= =======
Depreciation for fiscal 2002, 2001 and 2000 was $6.8 million, $5.7 million and
$4.7 million, 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 of uncommitted working capital lines of credit at each year end
January 31, 2002 and 2001, respectively. As of January 31, 2002, one bank in the
domestic bank group issued five irrevocable standby letters of credit for retail
and operating facility leases and Canadian payroll to various landlords and the
Royal Bank of Canada totaling $0.5 million with expiration dates through May 15,
2003. 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
F-10
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, 2002 and 2001. The domestic unused
line of credit was $108.5 million and $106.2 million at January 31, 2002 and
2001, respectively.
A Swiss subsidiary of the Company maintains un-secured lines of credit for an
unspecified length of time with a Swiss bank. Available credit under these lines
totaled 8.8 million Swiss francs and 11.3 million Swiss francs, with dollar
equivalents of approximately $5.1 million and $6.9 million at January 31, 2002
and 2001, of which a maximum of $5.0 million can be drawn. As of January 31,
2002, the Swiss bank has made guarantees to certain Swiss vendors of
approximately 0.7 million Swiss francs. There are no other restrictions on
transfers in the form of dividends, loans or advances to the Company by its
foreign subsidiaries.
Outstanding borrowings against the Company's aggregate demand lines of credit
were $6.5 million at January 31, 2002 and $8.8 million at January 31, 2001.
Aggregate maximum and average monthly outstanding borrowings against the
Company's lines of credit and related weighted average interest rates during
fiscal 2002, 2001 and 2000 were as follows (in thousands):
FISCAL YEAR ENDED JANUARY 31,
--------------------------------
2002 2001 2000
------- ------- -------
Maximum borrowings $52,250 $51,850 $61,900
Average monthly borrowings $37,494 $31,622 $40,290
Weighted average interest rate 4.8% 8.2% 6.3%
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):
2002 2001
------- -------
Senior Notes $15,000 $20,000
Series A Senior Notes 25,000 25,000
------- -------
40,000 45,000
Less current portion 5,000 5,000
------- -------
Long-term debt $35,000 $40,000
======= =======
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 2002 and 2001. The Company has the
option
F-11
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.
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. As of January 31, 2002 the Company had no borrowings under this
agreement.
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, 2002 and 2001.
NOTE 6 - HEDGING TRANSACTIONS AND DERIVATIVE FINANCIAL INVESTMENTS
The Company's policy is to enter into forward exchange contracts and purchase
foreign currency options to reduce our exposure to adverse fluctuations in
foreign exchange rates and, to a lesser extent, in commodity prices. When
entered into, the Company formally documents these derivative instruments as a
hedge of a specific underlying exposure, as well as the risk management
objectives and strategies for undertaking the hedge transactions. The Company
formally assesses, both at the inception and at each financial quarter
thereafter, the effectiveness of the derivative instrument hedging the
underlying cash flow transaction which, is being hedged. Any ineffectiveness
related to the derivative financial instruments change in fair value will be
recognized in the period in which the ineffectiveness was calculated. All of our
derivative instruments have liquid markets to assess fair value. The Company
does not enter into any derivative instruments for trading purpose.
On February 1, 2002, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and
SFAS No. 138. These Statements require that an entity recognizes all derivative
instruments 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.
The adoption of SFAS No. 133 resulted in the Company recording a transition
adjustment to recognize its derivative instruments at fair value. This
transition adjustment was an after-tax reduction to net income of approximately
$0.1 million and an after-tax increase to accumulated other comprehensive loss
("AOCL") of approximately $0.4 million.
As of January 31, 2002, the balance of deferred net losses on derivative
instruments included in AOCL was $0.1 million, net of tax. The Company expects
that nearly all the deferred net losses will be realized
F-12
into earnings over the next 12 months as a result of transactions that are
expected to occur over that period. The primary underlying transaction which
will cause the amount in AOCL to affect net earnings consists of the Company's
inventory sell through of inventory purchased predominantly in Swiss francs. The
maximum length of time the Company is hedging its exposure to the fluctuation in
future cash flows for forecasted transactions is 24 months.
During fiscal 2002, the Company recorded no charge related to its assessment of
the effectiveness of its derivative hedge portfolio. However, the Company
incurred a $2.2 million loss for the amounts excluded in this assessment of the
derivative hedge portfolio effectiveness. The Company also recorded a $0.2
million gain resulting from a discontinued cash flow hedge because the original
forecasted transaction did not occur by the end of the original specified time
period. The Company records these transactions in the cost of sales of the
consolidated financial statements.
The following presents fair value and maturities of the Company's derivative
instruments outstanding as of January 31, 2002 (in millions):
January 31, 2002 Fair Value Maturities
- ---------------- ---------- ----------
Foreign currency contracts $105.5 2002-2003
Commodity contracts $ 3.0 2002
Purchased contracts $ 0.3 2002-2003
The Company estimates the fair value of its derivative instruments using quoted
market prices. Fair value is included in other assets or current liabilities.
NOTE 7 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The fair value of the Company's 6.56% Senior Notes and 5.9% Series A Senior
Notes approximate 103% and 100% of the carrying value of the notes,
respectively, as of January 31, 2002. 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.
NOTE 8 - INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 2002, 2001
and 2000 consists of the following components (in thousands):
2002 2001 2000
----- ------ -----
Current:
U.S. Federal $480 $3,124 $ -
U.S. State and Local (165) 498 11
Non-U.S. 1,221 2,607 1,043
----- ------ -----
1,536 6,229 1,054
===== ===== =====
Noncurrent:
U.S. Federal - - -
U.S. State and Local - - -
Non-U.S. 1,109 1,674 1,785
----- ------ -----
1,109 1,674 1,785
===== ===== =====
Deferred:
U.S. Federal 1,057 (1,948) (1,518)
U.S. State and Local 26 (385) -
Non-U.S. 7 1,352 107
----- ------ -----
1,090 (981) (1,411)
===== ==== ======
Provision for income taxes $3,735 $6,922 $1,428
====== ====== ======
F-13
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, 2002 and 2001
consist of the following (in thousands):
2002 DEFERRED TAX 2001 DEFERRED TAX
----------------- -----------------
ASSETS LIABILITIES ASSETS LIABILITIES
------ ----------- ------ -----------
Operating loss carry forwards $1,480 $ - $1,596 $ -
Rent accrual 195 - 143 -
Inventory reserve 2,554 4,058 2,225 3,502
Receivable allowance 2,181 895 2,183 2,862
Depreciation/amortization 597 - 1,628 -
Other 4,233 - 2,352 -
------ ------ ------ ------
11,240 4,953 10,127 6,364
Valuation allowance (1,480) - (1,383) -
------ ------ ------ ------
Total $9,760 $4,953 $8,744 $6,364
====== ====== ====== ======
As of January 31, 2002, the Company had foreign net operating loss carryforwards
of approximately $3.1 million, which are available to offset taxable income in
future years. As of January 31, 2002, 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,
-----------------------------
2002 2001 2000
------- ------- ------
Provision for income taxes at the U.S. statutory rate $7,262 $9,691 $5,311
Lower effective foreign income tax rate (4,332) (3,621) (3,362)
Change in valuation allowance 97 (56) (1,221)
Tax provided on repatriated earnings of foreign subsidiaries 1,377 265 238
State and local taxes, net of federal benefit (139) 113 8
Other, net (530) 530 454
------ ------ -----
$3,735 $6,922 $1,428
====== ====== ======
F-14
In fiscal 2002, the Company recognized a tax benefit of $116 from realization of
domestic and of certain foreign net operating loss carryforwards.
Provision has not been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $171 million at January 31, 2002, as those earnings
are considered to be reinvested for an indefinite period. As a result of various
tax planning strategies available to the Company, it is not practical to
estimate the amount of tax, if any, that may be payable on the eventual
distribution of such earnings.
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 his spouse.
Under this 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. At January 31, 2001
and 2000, the Company had outstanding loans from the trust of $4.6 million and
$3.8 million, respectively.
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
June 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 $7.7 million, $8.2 million and $6.6 million in fiscal 2002,
2001 and 2000, 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):
2003 $7,750
2004 6,789
2005 6,368
2006 6,039
2007 5,420
Thereafter 21,450
-------
$53,816
=======
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.
F-15
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 $0.6 million, $0.5 million and $0.6 million in
fiscal 2002, 2001 and 2000, 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 $0.5 million, $0.4
million and $0.6 million, 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 prorata portion
of such contribution. For fiscal 2002, 2001 and 2000 the Company recorded an
expense of $0.2 million, $0.1 million and $0.2 million, respectively, related to
this plan.
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman. 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 $0.1 million
in each of the fiscal years 2002, 2001 and 2000.
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 3,500,000 shares of Common Stock. Options granted to participants
under the plan generally become exercisable in equal installments over three or
five years 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.
F-16
Transactions in stock options under the Plan since fiscal 1999 are summarized as
follows:
OUTSTANDING WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
----------- ----------------
January 31, 1999 1,283,610 13.23
Options granted 436,550 25.53
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 granted 911,700 17.26
Options exercised (231,301) 8.29
Options forfeited (118,028) 19.70
--------- -----
January 31, 2002 2,176,672 16.47
--------- -----
Options exercisable at January 31, 2002, 2001 and 2000 were 796,015, 813,587 and
701,814, respectively.
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $7.74, $4.72 and $11.18
per share in fiscal 2002, 2001 and 2000, respectively. The following
weighted-average assumptions were used for grants in 2002, 2001 and 2000:
dividend yield of 0.71% for fiscal 2002, dividend yield of 0.86% for fiscal 2001
and 0.45% for fiscal 2000; expected volatility of 50% for fiscal 2002, 48% for
fiscal 2001 and 40% for fiscal 2000, risk-free interest rates of 4.81% for
fiscal 2002, 6.67% for fiscal 2001 and 6.75% for fiscal 2000 and expected lives
of seven years for fiscal 2002, 2001 and 2000.
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 2002, 2001 and 2000 would approximate the pro forma amounts
below (in thousands, except per share data):
2002 2001 2000
---- ---- ----
AS REPORTED PRO FORMA AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- --------- ----------- ---------
Net Income $17,014 $14,249 $20,767 $19,135 $13,721 $12,216
Net Income per share-Basic $1.46 $1.22 $1.78 $1.64 $1.10 $0.98
Net Income per share-Diluted $1.42 $1.19 $1.75 $1.61 $1.06 $0.95
F-17
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, 2002:
WEIGHTED-
AVERAGE WEIGHTED-AVERAGE WEIGHTED-
REMAINING EXERCISE AVERAGE
RANGE OF NUMBER CONTRACTUAL PRICE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) EXERCISABLE PRICE
------------------- ----------- ------------ ---------------- ----------- ---------
$5.00 - $9.99 547,153 5.2 $8.89 378,873 $9.07
$10.00 - $14.99 572,019 7.8 $14.00 153,652 $13.18
$15.00 - $19.99 201,000 8.9 $17.26 9,700 $16.17
$20.00 - $24.99 697,050 8.3 $21.68 155,520 $22.39
$25.00 - $29.75 159,450 6.2 $27.54 98,270 $27.53
------------------- --------- --- ------ ------- ------
$5.00 - $29.75 2,176,672 7.3 $16.47 796,015 $14.83
------------------- --------- --- ------ ------- ------
NOTE 12 - OTHER COMPREHENSIVE LOSS
The components of other comprehensive loss for the twelve months ended January
31, 2002 and 2001 are as follows (in thousands):
2002 2001 2000
-------- -------- -------
Balance at beginning of Fiscal Year ($18,169) ($16,462) ($6,006)
Accounting change, net of tax 367 - -
Net unrealized gain on investment, net of tax 199 - -
Effective portion of unrealized gain on
hedging contracts, net of tax (449) - -
Foreign currency translation adjustment (5,234) (1,707) ($10,456)
-------- -------- -------
Balance at end of Fiscal Year ($23,286) ($18,169) ($16,462)
======== ======== ========
NOTE 13- OTHER CHANGES
During the quarter ended October 31, 2001, the Company recorded a severance and
early retirement charge associated with a head count reduction of 38 U.S.
corporate and operations workforce spread across employee classes. The charge
associated with the reduction was $2.7 million pre-tax. At January 31, 2002,
$2.2 million was included in accrued liabilities.
F-18
NOTE 14 - 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 North American and Caribbean
operations, and "International," which includes the results of all other
Company operations. The Company's international operations are conducted in
Europe, the Middle East and the Far East. The Company's international assets are
substantially located in Europe.
The Company conducts its business primarily in three operating segments:
"Wholesale," "Retail" and "Other." The Company's wholesale segment includes the
designing, manufacturing and distribution of quality watches. Retail includes
the Movado Boutiques and outlet stores. Other includes the Company's service
center operations and shipping. 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)
-------------------------------- ----------------------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- -------- -------- --------
Wholesale $243,721 $276,058 $256,665 $ 26,248 $ 38,238 $ 14,187
Retail 47,172 39,303 32,806 (719) (1,183) (1,362)
Other 8,832 5,480 5,596 1,179 (552) 1,489
Elimination (1) -- -- -- (479) (2,371) 1,455
-------- -------- -------- -------- -------- --------
Consolidated total $299,725 $320,841 $295,067 $ 26,229 $ 34,132 $ 15,769
======== ======== ======== ======== ======== ========
TOTAL ASSETS CAPITAL EXPENDITURES
-------------------------------- --------------------------------
2002 2001 2000 2002 2001 2000
-------- -------- -------- -------- -------- --------
Wholesale 242,528 $238,278 $207,232 $ 8,029 $ 8,311 $ 7,916
Retail 31,177 29,068 25,802 5,271 2,184 1,516
Other -- -- -- 7 7 4
Corporate (2) 16,971 23,059 26,615 597 331 689
-------- -------- -------- -------- -------- --------
Consolidated total $290,676 $290,405 $259,649 $ 13,904 $ 10,833 $ 10,125
======== ======== ======== ======== ======== ========
DEPRECIATION AND AMORTIZATION
-----------------------------
2002 2001 2000
------ ------ ------
Wholesale $5,319 $4,460 $3,396
Retail 1,507 1,157 925
Other 41 41 41
Corporate 683 683 827
------ ------ ------
Consolidated total $7,550 $6,341 $5,189
====== ====== ======
F-19
GEOGRAPHIC SEGMENT DATA AS OF AND FOR THE FISCAL YEAR ENDED JANUARY 31 (IN
THOUSANDS):
NET SALES LONG-LIVED ASSETS
------------------------------------- -----------------------------------
2002 2001 2000 2002 2001 2000
--------- --------- --------- --------- --------- ---------
Domestic $ 263,869 $ 304,265 $ 281,433 $ 26,770 $ 18,483 $ 16,534
International 186,331 202,557 194,944 11,956 14,423 11,059
Elimination (3) (150,475) (185,981) (181,310) -- -- --
--------- --------- --------- --------- --------- ---------
Consolidated total $ 299,725 $ 320,841 $ 295,067 $ 38,726 $ 32,906 $ 27,593
========= ========= ========= ========= ========= =========
INCOME (LOSS) BEFORE TAXES
-----------------------------------
2002 2001 2000
------- -------- -------
Domestic ($ 280) $ 8,826 ($ 3,294)
International 21,617 22,220 18,087
Elimination (3) (479) (3,357) 356
------- -------- -------
Consolidated total $20,858 $ 27,689 $15,149
======= ======== =======
(1) Elimination of inter-segment management fees.
(2) Corporate assets include cash.
(3) Elimination of intercompany sales between domestic and international
units.
F-20
NOTE 15 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 2002 and 2001 (in thousands, except per share amounts):
QUARTER ENDED
----------------------------------------------------------
1ST 2ND 3RD 4TH
------- ------- ------- -------
FISCAL 2002
Net sales $56,512 $78,352 $90,103 $74,758
Gross profit $34,944 $47,988 $55,879 $45,259
Net income $(237) $5,125 $7,524 $4,602
PER SHARE:
Net income (loss):
Basic $(0.02) $0.44 $0.64 $0.39
Diluted $(0.02) $0.42 $0.63 $0.38
FISCAL 2001
Net sales $53,339 $76,173 $105,122 $86,207
Gross profit $32,041 $45,786 $65,195 $54,429
Net income (loss) $(173) $4,730 $12,557 $3,653
PER SHARE:
Net income:
Basic $(0.01) $0.41 $1.09 $0.32
Diluted $(0.01) $0.40 $1.07 $0.31
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 16 - 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,
2002 2001 2000
------ ------ ------
Cash paid during the year for:
Interest $4,963 $6,634 $7,559
Income taxes $2,824 $2,992 $7,079
F-21
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, 2002:
Allowance for doubtful accounts $4,442 $1,384 ($16) ($1,740) $4,070
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
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY NET BALANCE AT
OF YEAR OPERATIONS REVALUATION WRITE-OFFS END OF YEAR
------- ---------- ----------- ---------- -----------
Year ended January 31, 2002:
Inventory reserve $9,607 $756 ($220) ($4,086) $6,057
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
BALANCE AT PROVISION/
BEGINNING OF (BENEFIT) CURRENCY BALANCE AT
YEAR TO OPERATION REVALUATION ADJUSTMENTS END OF YEAR
---- ------------ ----------- ----------- -----------
Year ended January 31, 2002:
Deferred tax assets valuation $1,383 $97 $- $- $1,480
Year ended January 31, 2001:
Deferred tax assets valuation $1,439 ($56) $- $- $1,383
Year ended January 31, 2000:
Deferred tax assets valuation $2,660 ($1,221) $- $- $1,439
S-1