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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JULY 31, 2002
[ ] 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 (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
650 FROM ROAD, PARAMUS, NEW JERSEY 07652
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(201) 267-8000
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 that past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes
of Common Stock, as of the latest practicable date.
As of September 11, 2002 the Registrant had 3,428,277 shares of Class A
Common Stock, par value $0.01 per share, outstanding and 10,026,616 shares of
Common Stock, par value $0.01 per share, outstanding.
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MOVADO GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
JULY 31, 2002
Page
----
Part I Financial Information
Item 1. Consolidated Balance Sheets at July 31, 2002, January 31, 2002 and July
31, 2001 3
Consolidated Statements of Income for the six months and three months
ended July 31, 2002 and 2001 4
Consolidated Statements of Cash Flows for the six months ended July 31,
2002 and 2001 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 9
Item 3. Quantitative and Qualitative Disclosure about Market Risks 14
Item 4. Controls and Procedures 14
Part II Other Information
Item 1. Legal Proceedings 15
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15-16
Signatures 17
Certifications 18-19
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
JULY 31, JANUARY 31, JULY 31,
2002 2002 2001
---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 29,355 $ 16,971 $ 13,636
Trade receivables, net 102,120 92,014 105,362
Inventories, net 119,858 98,589 106,732
Other 32,970 19,467 25,880
--------- --------- ---------
Total current assets 284,303 227,041 251,610
Property, plant and equipment, net 38,250 38,726 34,000
Other 26,171 24,909 23,006
--------- --------- ---------
Total assets $ 348,724 $ 290,676 $ 308,616
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 32,000 $ 6,500 $ 44,350
Current portion of long-term debt 5,000 5,000 5,000
Accounts payable 22,037 23,824 16,558
Accrued liabilities 24,639 25,417 22,690
Current taxes payable 8,538 8,646 8,228
Deferred taxes payable 4,313 3,722 2,962
--------- --------- ---------
Total current liabilities 96,527 73,109 99,788
Long-term debt 35,000 35,000 40,000
Deferred and non-current foreign income taxes 1,708 1,513 3,343
Other liabilities 7,844 8,584 6,692
--------- --------- ---------
Total liabilities 141,079 118,206 149,823
--------- --------- ---------
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; 9,999,947, 9,797,776 and
9,735,448 shares issued, respectively 99 98 98
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,473,123, 3,509,733 and
3,509,733 shares issued and outstanding, respectively 35 35 35
Capital in excess of par value 71,213 69,484 68,620
Retained earnings 162,031 153,830 142,366
Accumulated other comprehensive income (loss) 1,958 (23,286) (24,416)
Treasury stock, 1,544,487, 1,544,487 and 1,556,670
shares, respectively, at cost (27,691) (27,691) (27,910)
--------- --------- ---------
Total shareholders' equity 207,645 172,470 158,793
--------- --------- ---------
Total liabilities and shareholders' equity $ 348,724 $ 290,676 $ 308,616
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(Unaudited)
SIX MONTHS ENDED JULY 31, THREE MONTHS ENDED JULY 31,
------------------------- ---------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $ 129,515 $ 134,864 $ 72,244 $ 78,352
Cost of sales 49,963 51,932 27,871 30,364
--------- --------- --------- ---------
Gross Profit 79,552 82,932 44,373 47,988
Operating Expenses:
Selling, general and administrative 69,616 73,105 35,825 39,215
--------- --------- --------- ---------
Operating income 9,936 9,827 8,548 8,773
Net interest expense 2,014 2,887 1,087 1,655
--------- --------- --------- ---------
Income before income taxes and
cumulative effect of a change in
accounting principle 7,922 6,940 7,461 7,118
Provision for income taxes 2,218 1,943 2,089 1,993
--------- --------- --------- ---------
Income before cumulative effect of a
change in accounting principle 5,704 4,997 5,372 5,125
Cumulative effect of a change in accounting
principle, net of a tax benefit of $42 -- (109) -- --
--------- --------- --------- ---------
Net income $ 5,704 $ 4,888 $ 5,372 $ 5,125
========= ========= ========= =========
Basic income per share
Income before cumulative effect of a
change in accounting principle $ 0.48 $ 0.43 $ 0.45 $ 0.44
Cumulative effect of an accounting change -- (0.01) -- --
--------- --------- --------- ---------
Net income per share $ 0.48 $ 0.42 $ 0.45 $ 0.44
========= ========= ========= =========
Weighted basic average shares outstanding 11,794 11,650 11,826 11,670
========= ========= ========= =========
Diluted income per share
Income before cumulative effect of a
change in accounting principle $ 0.47 $ 0.41 $ 0.44 $ 0.42
Cumulative effect of an accounting change -- (0.01) -- --
--------- --------- --------- ---------
Net income per share $ 0.47 $ 0.40 $ 0.44 $ 0.42
========= ========= ========= =========
Weighted diluted average shares outstanding 12,194 12,075 12,248 12,195
========= ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
SIX MONTHS ENDED JULY 31,
-------------------------
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 5,704 $ 4,888
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 3,872 3,412
Provision for losses on accounts receivable 920 839
Provision for losses on inventory 580 422
Changes in current assets and liabilities:
Trade receivables (9,834) (8,638)
Inventories (15,968) (13,198)
Other current assets 1,458 (6,349)
Accounts payable (3,253) (11,677)
Accrued liabilities (1,583) (5,113)
Deferred & current taxes payable (381) (4,010)
Other non-current assets 4,315 (5,563)
Other non-current liabilities (740) 5,858
-------- --------
Net cash used in operating activities (14,910) (39,129)
-------- --------
Cash flows from investing activities:
Capital expenditures (1,801) (4,930)
Trademarks and other intangibles (165) (426)
-------- --------
Net cash used in investing activities (1,966) (5,356)
-------- --------
Cash flows from financing activities:
Net proceeds from bank borrowings 25,500 35,550
Stock options exercised & other 1,886 1,379
Dividends paid (709) (698)
-------- --------
Net cash provided by financing activities 26,677 36,231
-------- --------
Effect of exchange rate changes on cash and cash equivalents 2,583 (1,169)
-------- --------
Net increase (decrease) in cash and cash equivalents 12,384 (9,423)
Cash and cash equivalents at beginning of period 16,971 23,059
-------- --------
Cash and cash equivalents at end of period $ 29,355 $ 13,636
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Movado Group, Inc. (the "Company") in a manner consistent with that used in
the preparation of the financial statements included in the Company's fiscal
2002 Annual Report filed on Form 10-K. In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal and recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods presented. These
consolidated financial statements should be read in conjunction with the
aforementioned annual report. Operating results for the interim periods
presented are not necessarily indicative of the results that may be expected for
the full year.
NOTE 1 - RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
JULY 31, JANUARY 31, JULY 31,
2002 2002 2001
---- ---- ----
Finished goods $ 75,690 $ 63,956 $ 66,806
Component parts 40,820 32,531 35,910
Work-in-process 3,348 2,102 4,016
-------- -------- --------
$119,858 $ 98,589 $106,732
======== ======== ========
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
SIX MONTHS
ENDED JULY 31,
2002 2001
------ ------
Cash paid during the period for:
Interest $1,668 $2,718
Income taxes $2,766 $6,062
6
NOTE 4 - OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the six and three months
ended July 31, 2002 and 2001 are as follows (in thousands):
SIX MONTHS ENDED THREE MONTHS ENDED
---------------- ------------------
JULY 31, JULY 31, JULY 31, JULY 31,
2002 2001 2002 2001
---- ---- ---- ----
Balance at beginning of period ($23,286) ($18,169) ($17,749) ($25,497)
Accounting change, net of tax -- 367 -- --
Net unrealized loss on investment,
net of tax (71) -- (60) --
Effective portion of unrealized income on hedging
contracts, net of tax 6,424 85 5,375 533
Foreign currency translation adjustment 18,891 (6,699) 14,392 548
-------- -------- -------- --------
Balance at end of period $ 1,958 ($24,416) $ 1,958 ($24,416)
======== ======== ======== ========
NOTE 5 - SEGMENT INFORMATION
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. Operating segment data for the six months and
three months ended July 31, 2002 and 2001 are as follows (in thousands):
FOR THE SIX MONTHS ENDED JULY 31,
---------------------------------
NET SALES OPERATING INCOME
--------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Wholesale $103,159 $112,291 $ 11,138 $ 11,058
Retail 22,417 18,316 (1,186) (1,491)
Other 3,939 4,257 (16) 260
-------- -------- -------- --------
Consolidated total $129,515 $134,864 $ 9,936 $ 9,827
======== ======== ======== ========
FOR THE THREE MONTHS ENDED JULY 31,
-----------------------------------
NET SALES OPERATING INCOME
--------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Wholesale $57,702 $65,231 $ 8,738 $ 8,770
Retail 12,581 10,776 133 (123)
Other 1,961 2,345 (323) 126
------- ------- ------- -------
Consolidated total $72,244 $78,352 $ 8,548 $ 8,773
======= ======= ======= =======
7
NOTE 6 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On August 15, 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 is
effective for fiscal years beginning after June 15, 2002. This statement
requires that the fair value of a liability for an asset retirement obligation
be recognized in the period in which it is incurred if a reasonable estimate of
fair value can be made. In addition, the associated asset retirement costs are
capitalized as part of the carrying amount of the long-lived asset and
subsequently allocated to expense over the asset's useful life. The Company does
not expect that the adoption of this statement will have a material impact on
its financial position or results of operations.
In May 2002, FASB issued SFAS No. 145, "Rescission of SFAS Nos. 4, 44, and 64,
Amendment of FAS 13, and Technical Corrections as of April 2002," which relates
to the accounting for the extinguishment of debt, certain lease modifications
and other various technical corrections to other existing pronouncements. SFAS
No. 145 is effective for fiscal years after May 15, 2002 and is effective for
SFAS No. 13 transactions occurring after May 15, 2002. This statement rescinds
SFAS No. 4 and, thus, the exception to applying Accounting Principles Board
Opinion No. 30 ("APB No. 30") to all gains and losses related to extinguishment
of debt. As a result, gains and losses from extinguishment of debt should be
classified as extraordinary items only if they meet the criteria in APB No. 30.
SFAS No. 64 previously amended SFAS No. 4 and is no longer necessary because
SFAS No. 4 has been rescinded. This statement amends SFAS No. 13 to require
sale-leaseback accounting for certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This Statement also
rescinds SFAS No. 44 and makes various technical corrections to other existing
pronouncements. The Company does not expect the adoption of this statement will
have a material impact on its financial position or results of operations.
On July 29, 2002, FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 is effective for exit or
disposal activities that are initiated after December 31, 2002. This Statement
addresses financial accounting and reporting for costs associated with exit or
disposal activities and nullifies Emerging Issues Task Force ("EITF") Issue No.
94-3, "Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)." This Statement requires that a liability for a cost associated
with an exit or disposal activity be recognized when the liability is incurred.
Under Issue No. 94-3, a liability for an exit cost as defined in Issue No. 94-3
was recognized at the date of an entity's commitment to an exit plan. Therefore,
this statement eliminates the definition and requirements for recognition of
exit costs in Issue No. 94-3. This Company does not expect the adoption of this
statement will have a material impact on its financial position or results of
operations.
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS
Statements included under Management's Discussion and Analysis of Financial
Condition and Results of Operations and in any other part of 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 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, currency translation, political and economic stability
and success of hedging strategies in respect of currency exchange rate
fluctuations.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
There has been no material change in the Company's Critical Accounting Policies
and Estimates, as disclosed in its Annual Report on Form 10-K for the fiscal
year ended January 31, 2002.
9
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JULY 31, 2002 AS COMPARED TO THE
SIX MONTHS ENDED JULY 31, 2001.
Net sales: Comparative net sales by product class were as follows:
Six Months Ended
July 31,
2002 2001
---- ----
Concord, Movado, Coach, ESQ and
Tommy Hilfiger
Domestic $ 85,828 $ 88,685
International 17,331 23,606
Retail 22,417 18,316
Other 3,939 4,257
-------- --------
Net Sales $129,515 $134,864
======== ========
Net sales decreased by $5.3 million or 4.0% for the six months ended July 31,
2002 as compared to the six months ended July 31, 2001. Domestic sales of our
watch brands decreased by $2.9 million or 3.2% due to softness in the luxury
segment of the retail market in addition to retailers more closely managing
their inventories. International watch brand sales decreased by $6.3 million or
26.6% due to a slowdown in the luxury goods markets in the Far East, Europe and
the Middle East.
Retail sales increased by $4.1 million or 22.4%. Growth in the retail sales
category was primarily attributable to new store openings and comparable store
sales increases in the outlets of 10.8% and the Movado Boutiques of 4.8%. As of
July 31, 2002, there were ten Movado Boutiques and 26 outlets as compared to
seven Movado Boutiques and 24 outlets open as of July 31, 2001. Other net sales,
which include sales from the Company's service center operations and shipping
income, decreased by $0.3 million or 7.5%.
Gross Margin. The gross profit for the six months ended July 31, 2002 was $79.6
million (61.4% of net sales) as compared to $82.9 million (61.5% of net sales)
for the six months ended July 31, 2001. The gross profit decrease of $3.4
million primarily relates to the decrease in sales.
Selling, General and Administrative. Selling, general and administrative
expenses for the six months ended July 31, 2002 were $69.6 million or 53.8% of
net sales as compared to $73.1 million or 54.2% for the six months ended July
31, 2001. The $3.5 million or 4.8% decrease was attributable to planned
reductions in marketing expenditures, lower expenses due to decreased sales
volume and decreases in expenses resulting from the Company's expense reduction
initiatives, offset by spending in support of the growth of the retail
businesses.
Interest Expense. Net interest expense for the six months ended July 31, 2002
was $2.0 million as compared to $2.9 million for six months ended July 31, 2001,
a 30.2% decrease. Interest decreased due to a decline in average short-term bank
borrowings and a reduction of interest rates.
10
Income Taxes. The Company recorded a tax expense of $2.2 million for the six
months ended July 31, 2002 as compared to a tax expense of $1.9 million for the
six months ended July 31, 2001. Taxes were recorded at a 28.0% rate for both
fiscal 2003 and fiscal 2002. The Company's effective tax rate reflects the
current expectation of the overall foreign to domestic earnings mix, local
statutory tax rates and the Company's ability to utilize net operating loss
carryforwards in certain jurisdictions.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JULY 31, 2002 AS COMPARED TO
THE THREE MONTHS ENDED JULY 31, 2001.
Net sales: Comparative net sales by product class were as follows:
Three Months Ended July 31,
2002 2001
------------ --------------
Concord, Movado, Coach, ESQ and
Tommy Hilfiger
Domestic $49,371 $52,264
International 8,331 12,967
Retail 12,581 10,776
Other 1,961 2,345
------- -------
Net Sales $72,244 $78,352
======= =======
Net sales decreased by $6.1 million or 7.8% for the three months ended July 31,
2002 as compared to the three months ended July 31, 2001. Domestic sales of our
watch brands decreased by $2.9 million or 5.5%, which reflects a combination of
our retailers more closely managing their inventories and the reduction in
retail activity in the U.S. luxury goods markets. International watch brand
sales decreased by $4.6 million or 35.7% due to adverse economic conditions in
the luxury markets in the Far East, Europe, and the Middle East.
Retail sales increased by $1.8 million or 16.8%. Growth in the retail sales
category was primarily attributable to new store openings and comparable store
sales increases in the outlets of 9.5% and the Movado Boutiques of 1.5%. As of
July 31, 2002, there were ten Movado Boutiques and 26 outlets as compared to
seven Movado Boutiques and 24 outlets open as of July 31, 2001. Other net sales,
which include sales from the Company's service center operations and shipping
income, decreased by $0.4 million or 16.4%.
Gross Margin. The gross profit for the three months ended July 31, 2002 was
$44.4 million (61.4% of net sales) as compared to $48.0 million (61.2% of net
sales) for the three months ended July 31, 2001. The gross profit decrease of
$3.6 million reflects the decrease in sales and the gross margin percentage
increase in fiscal 2003 is the result of the Company's success in its supply
chain productivity initiatives.
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter were $35.8 million or 49.6% of net sales as compared to
$39.2 million or 50.0% of net sales in the second quarter of last year. The $3.4
million or 8.6% decrease was attributable to planned reductions in marketing
expenditures, lower
11
expenses due to decreased sales volume and the cost savings resulting from the
Company's cost reduction initiatives, offset by increased spending in support of
the Movado Boutiques.
Interest Expense. Net interest expense for the three months ended July 31, 2002
was $1.1 million as compared to $1.7 million for the three months ended July 31,
2001, a 34.3% reduction. Interest decreased due to a decline in average
short-term bank borrowings and a reduction of interest rates.
Income Taxes. The Company recorded a tax expense of $2.1 million for the three
months ended July 31, 2002 as compared to a tax expense of $2.0 million for the
three months ended July 31, 2001. Taxes were recorded at a 28.0% rate for both
the second quarter of fiscal 2003 and fiscal 2002. The Company's effective tax
rate reflects the current expectation of the overall foreign to domestic
earnings mix, local statutory tax rates and the Company's ability to utilize net
operating loss carryforwards in certain jurisdictions.
LIQUIDITY AND FINANCIAL POSITION
Cash used in operating activities amounted to $14.9 million and $39.1 million
for the six months ended July 31, 2002 and 2001, respectively. The reduction in
cash flow used in operating activities for the comparative six months ended July
31, 2002 and 2001 was mainly due to the timing of inventory purchases and
related payments, reductions in operating expenses and an increase of net income
in fiscal 2003 as compared to fiscal 2002.
Cash used in investing activities amounted to $2.0 million and $5.4 million for
the six months ended July 31, 2002 and 2001, respectively, and was primarily for
capital expenditures. For the six months ended July 31, 2002, capital
expenditures were mainly for various information systems projects and general
corporate and retail capital improvements. Expenditures for the six months ended
July 31, 2001 relate primarily to the build-out of the Paramus, N.J. corporate
offices, information systems enhancements and pre-construction costs for three
new Movado Boutiques opened in the third quarter of fiscal 2002.
Cash provided by financing activities amounted to $26.7 million and $36.2
million for the six months ended July 31, 2002 and 2001, respectively, which
were due to seasonal short-term bank borrowings. In fiscal 2003, the Company's
seasonal borrowing decreased due mainly to a reduction in capital expenditures
and the results of the Company's productivity improvements and cost reductions.
At July 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. 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. These 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.
On June 22, 2000, the Company completed the renewal of its revolving credit line
with its bank group. The new agreement provides for a three year $100.0 million
unsecured revolving line of credit. In addition, the Company has a $15.0 million
uncommitted working capital line with its bank group which is renewed annually.
In July 2002 and August 2002, the Company renewed its $15.0 million of
uncommitted working capital lines. At July 31, 2002, the Company had $32.0
million of outstanding borrowings under its bank lines as compared
12
to $44.4 million at July 31, 2001. In addition, 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.
A Swiss subsidiary of the Company maintains unsecured lines of credit with 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 $5.9 million and $7.6 million at July 31, 2002 and
2001, respectively, of which a maximum of $5.0 million can be drawn. As of July
31, 2002, the Swiss bank has made guarantees to certain Swiss vendors on behalf
of the Swiss subsidiary of approximately 1.3 million Swiss francs.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary share buy-back program.
There were no purchases during fiscal 2002 under the repurchase program and
there have been no repurchases for the six months ended July 31, 2002.
The Company paid dividends of approximately $709,000 and $698,000 for the six
months ended July 31, 2002 and 2001, respectively.
Cash and cash equivalents at July 31, 2002 amounted to $29.4 million compared to
$13.6 million at July 31, 2001. The increase in cash relates to the timing of
payments for inventory, translation of Swiss entities' cash balances and the
reduction in cash requirements due to the Company's productivity improvement and
expense reduction initiatives. Net debt to total capitalization at July 31, 2002
was 20.5% as compared to 47.7% at July 31, 2001.
13
Item 3. Quantitative and Qualitative Disclosure about Market Risks
FOREIGN CURRENCY RISK
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 currency rate would have an equal effect
on the entities' cost of sales. As of July 31, 2002, the Company has a Swiss
forward contract hedging portfolio of 177.0 million Swiss francs with contracts
maturing at various dates ranging through June 10, 2003. In addition, the
Company has six Swiss franc option contracts of which 15.0 million Swiss francs
mature on July 31, 2003, 15.0 million Swiss francs mature on February 12, 2004
and 5.0 million Swiss francs mature on February 25, 2004.
The Company's international trade business accounts for approximately 14.0% of
the Company's sales in various currencies. The international trade operations
are denominated in local currency and fluctuations in these currency rates may
have an impact on our sales, cost of sales, operating expenses and net income.
During the six months ended July 31, 2002 and 2001, there was no material effect
to the results of operations due to foreign currency rate fluctuations. There
can be no assurance that this trend will continue.
INTEREST RATE RISK
As of July 31, 2002, the Company has $32.0 million in short-term bank debt
obligations with variable interest rates, which are based on LIBOR plus a
applicable LIBOR loan spread. The Company does not hedge these interest rate
risks. The Company also has $40.0 million Senior Note debt bearing fixed
interest rates per annum. The difference between the market based interest rates
at July 31, 2002 and the fixed rates were unfavorable.
Item 4. Controls and Procedures
Not applicable.
14
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 18, 2002, the Company held its annual meeting of shareholders
at its corporate office in Paramus, New Jersey.
The following matters were voted upon at the meeting:
(i) Margaret Hayes Adame, Richard Cote, Efraim Grinberg, Gedalio
Grinberg, Alan H. Howard, Donald Oresman, Leonard L.
Silverstein were elected directors of the Company. The results
of the vote were as follows:
Withheld/
Nominee For Against
------- --- -------
Margaret Hayes Adame ...... 35,623,879 235,660
Richard Cote .............. 34,976,587 882,952
Efraim Grinberg ........... 34,977,987 881,552
Gedalio Grinberg .......... 34,977,987 881,552
Alan H Howard ............ 35,623,879 235,660
Donald Oresman ............ 35,623,429 236,110
Leonard L Silverstein .... 35,579,629 279,910
(ii) A proposal to ratify the selection of PricewaterhouseCoopers
LLP as the Company's independent public accountants for the
fiscal year ending January 31, 2003 was approved. The results
of the vote were as follows:
Withheld/ Exception/
For Against Abstain
--- -------- ----------
35,639,785 218,886 868
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to the License Agreement dated June 3,
1999 between Tommy Hilfiger Licensing, Inc., Registrant
and Movado Watch Company S.A. entered into January 16,
2002.*
15
10.2 Second Amendment to the License Agreement dated June 3,
1999 between Tommy Hilfiger Licensing, Inc., Registrant
and Movado Watch Company S.A. entered into August 1,
2002.*
10.3 Letter Agreement dated August 14, 2002 amending Line of
Credit Agreement between the Registrant and the Bank of
New York dated August 20, 2001.
10.4 Line of Credit Letter Agreement dated June 20, 2002
between the Registrant and Fleet National Bank.
99.1 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
99.2 Certification pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002
(b) Reports on Form 8-K
None
*Confidential portions of Exhibits 10.1 and 10.2 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.
16
SIGNATURES
Pursuant to the requirements of the Securities and 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: September 16, 2002 By: /s/ Eugene J. Karpovich
--------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer and
Principal Accounting Officer)
17
CERTIFICATIONS
I, Efraim Grinberg, certify that:
1. I have reviewed this quarterly report on From 10-Q of Movado Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 16, 2002
/s/ Efraim Grinberg
-------------------------------------
Efraim Grinberg
President and Chief Executive Officer
18
CERTIFICATIONS
I, Eugene J. Karpovich, certify that:
1. I have reviewed this quarterly report on From 10-Q of Movado Group, Inc.;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report; and
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report.
Date: September 16, 2002
/s/ Eugene J. Karpovich
-------------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
19