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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 OCTOBER 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 December 4, 2002 the Registrant had 3,428,277 shares of Class A
Common Stock, par value $0.01 per share, outstanding and 10,030,421 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
OCTOBER 31, 2002
Page
----
Part I Financial Information
Item 1. Consolidated Balance Sheets at October 31, 2002, January
31, 2002 and October 31, 2001 3
Consolidated Statements of Income for the nine months and
three months ended October 31, 2002 and 2001 4
Consolidated Statements of Cash Flows for the nine months
ended October 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 8
Item 3. Quantitative and Qualitative Disclosure about Market Risks 13
Item 4. Controls and Procedures 13
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
Certifications 16 - 17
2
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
OCTOBER 31, JANUARY 31, OCTOBER 31,
2002 2002 2001
---- ---- ----
ASSETS
Current assets:
Cash and cash equivalents $ 36,930 $ 16,971 $ 20,259
Trade receivables, net 124,295 92,014 127,671
Inventories, net 113,215 98,589 106,603
Other 24,477 19,467 23,599
--------- --------- ---------
Total current assets 298,917 227,041 278,132
Property, plant and equipment, net 39,749 38,726 36,492
Other 24,011 24,909 23,368
--------- --------- ---------
Total assets $ 362,677 $ 290,676 $ 337,992
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 31,000 $ 6,500 $ 46,500
Current portion of long-term debt 5,000 5,000 5,000
Accounts payable 25,953 23,824 26,133
Accrued liabilities 25,473 25,417 27,671
Current taxes payable 11,048 8,646 5,975
Deferred taxes payable 4,336 3,722 3,128
--------- --------- ---------
Total current liabilities 102,810 73,109 114,407
Long-term debt 35,000 35,000 40,000
Deferred and non-current foreign income taxes 2,890 1,513 3,515
Other liabilities 7,598 8,584 6,668
--------- --------- ---------
Total liabilities 148,298 118,206 164,590
--------- --------- ---------
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; 10,027,366, 9,797,776 and
9,756,611 shares issued, respectively 100 98 98
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,428,277, 3,509,733 and 34 35 35
3,509,733 shares issued and outstanding, respectively
Capital in excess of par value 71,543 69,484 68,846
Retained earnings 170,471 153,830 149,539
Accumulated other comprehensive income (loss) (163) (23,286) (17,425)
Treasury stock, 1,539,761, 1,544,487 and 1,544,487
shares, respectively, at cost (27,606) (27,691) (27,691)
--------- --------- ---------
Total shareholders' equity 214,379 172,470 173,402
--------- --------- ---------
Total liabilities and shareholders' equity $ 362,677 $ 290,676 $ 337,992
========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(Unaudited)
NINE MONTHS ENDED OCTOBER 31, THREE MONTHS ENDED OCTOBER 31,
----------------------------- ------------------------------
2002 2001 2002 2001
---- ---- ---- ----
Net sales $220,538 $224,967 $91,023 $90,103
Cost of sales 85,211 86,154 35,248 34,224
-------- -------- ------- -------
Gross Profit 135,327 138,813 55,775 55,879
Operating Expenses:
Selling, general and administrative 112,126 119,475 42,510 46,369
-------- -------- ------- -------
Operating income 23,201 19,338 13,265 9,510
Net interest expense 3,045 4,092 1,031 1,204
-------- -------- ------- -------
Income before income taxes and
cumulative effect of a change in
accounting principle 20,156 15,246 12,234 8,306
Provision for income taxes 5,644 2,725 3,426 782
-------- -------- ------- -------
Income before cumulative effect of a
change in accounting principle 14,512 12,521 8,808 7,524
Cumulative effect of a change in accounting
principle, net of a tax benefit of $42 -- (109) -- --
-------- -------- ------- -------
Net income $ 14,512 $ 12,412 $ 8,808 $ 7,524
======== ======== ======= =======
Basic income per share
Income before cumulative effect of
a change in accounting principle $ 1.23 $ 1.07 $ 0.74 $ 0.64
Cumulative effect of an accounting change -- (0.01) -- --
-------- -------- ------- -------
Net income per share $ 1.23 $ 1.06 $ 0.74 $ 0.64
======== ======== ======= =======
Weighted basic average shares outstanding 11,821 11,668 11,874 11,704
======== ======== ======= =======
Diluted income per share
Income before cumulative effect of
a change in accounting principle $ 1.19 $ 1.05 $ 0.73 $ 0.63
Cumulative effect of an accounting change -- (0.01) -- --
-------- -------- ------- -------
Net income per share $ 1.19 $ 1.04 $ 0.73 $ 0.63
======== ======== ======= =======
Weighted diluted average shares outstanding 12,167 11,964 12,127 12,023
======== ======== ======= =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
NINE MONTHS ENDED OCTOBER 31,
-----------------------------
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 14,512 $ 12,412
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 6,319 5,861
Provision for losses on accounts receivable 1,287 840
Provision for losses on inventory 680 422
Changes in assets and liabilities:
Trade receivables (32,187) (30,324)
Inventories (9,576) (11,206)
Other current assets 10,662 (3,168)
Accounts payable 649 (2,821)
Accounts payable
Accrued liabilities (494) 3,610
Deferred & current taxes payable 2,108 (6,290)
Deferred and current taxes payable
Other non-current assets 3,136 (341)
Other non-current liabilities 189 118
-------- --------
Net cash used in operating activities (2,715) (30,887)
-------- --------
Cash flows from investing activities:
Capital expenditures (5,321) (9,069)
Trademarks and other intangibles (393) (620)
-------- --------
Net cash used in investing activities (5,714) (9,689)
-------- --------
Cash flows from financing activities:
Net proceeds from bank borrowings 24,500 37,700
Stock options exercised & other 2,215 1,604
Dividends paid (1,066) (1,048)
-------- --------
Net cash provided by financing activities 25,649 38,256
-------- --------
Effect of exchange rate changes on cash and cash equivalents 2,739 (480)
-------- --------
Net increase (decrease) in cash and cash equivalents 19,959 (2,800)
Cash and cash equivalents at beginning of period 16,971 23,059
-------- --------
Cash and cash equivalents at end of period $ 36,930 $ 20,259
======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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):
OCTOBER 31, JANUARY 31, OCTOBER 31,
2002 2002 2001
---- ---- ----
Finished goods $ 70,220 $ 63,956 $ 67,462
Component parts 39,861 32,531 33,062
Work-in-process 3,134 2,102 6,079
-------- -------- --------
$113,215 $ 98,589 $106,603
======== ======== ========
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
NINE MONTHS
ENDED OCTOBER 31,
-----------------
2002 2001
---- ----
Cash paid during the period for:
Interest $2,850 $3,843
Income taxes $4,427 $9,322
6
NOTE 4 - OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the nine and three
months ended October 31, 2002 and 2001 are as follows (in thousands):
NINE MONTHS ENDED THREE MONTHS ENDED
----------------- ------------------
OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31,
2002 2001 2002 2001
---- ---- ---- ----
Balance at beginning of period ($23,286) ($18,169) $ 1,958 ($24,416)
Accounting change, net of tax -- 367 -- --
Net unrealized gain (loss) on investment,
net of tax (91) 54 (20) 54
Effective portion of unrealized income on
hedging contracts, net of tax 2,692 537 3,732 452
Foreign currency translation adjustment 20,522 (214) (5,833) 6,485
-------- -------- ----- --------
Balance at end of period ($163) ($17,425) ($163) ($17,425)
======== ======== ===== ========
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 nine months and
three months ended October 31, 2002 and 2001 are as follows (in thousands):
FOR THE NINE MONTHS ENDED OCTOBER 31,
-------------------------------------
NET SALES OPERATING INCOME
--------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Wholesale $179,390 $189,597 $ 24,004 $ 21,024
Retail 34,990 28,835 (1,458) (2,489)
Other 6,158 6,535 655 803
-------- -------- -------- --------
Consolidated total $220,538 $224,967 $ 23,201 $ 19,338
======== ======== ======== ========
FOR THE THREE MONTHS ENDED OCTOBER 31,
--------------------------------------
NET SALES OPERATING INCOME
--------- ----------------
2002 2001 2002 2001
---- ---- ---- ----
Wholesale $ 76,226 $ 77,313 $ 13,064 $9,964
Retail 12,577 10,519 (272) (998)
Other 2,220 2,271 473 544
-------- -------- -------- ------
Consolidated total $ 91,023 $ 90,103 $ 13,265 $9,510
======== ======== ======== ======
7
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 these forward looking statements include, without
limitation, statements 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
limitation, 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.
8
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 2002 AS COMPARED TO
THE NINE MONTHS ENDED OCTOBER 31, 2001.
Net sales: Comparative net sales by product class were as follows
(in thousands):
Nine Months Ended
October 31,
2002 2001
---- ----
Concord, Movado, Coach, ESQ and
Tommy Hilfiger
Domestic $150,884 $152,212
International 28,506 37,385
Retail 34,990 28,835
Other 6,158 6,535
-------- --------
Net Sales $220,538 $224,967
======== ========
Net sales decreased by $4.4 million or 2.0% for the nine months ended October
31, 2002 as compared to the nine months ended October 31, 2001. Net wholesale
watch sales decreased by $10.2 million or 5.4% with domestic wholesale sales
decreasing by $1.3 million or 0.9% due to the continued softness in the luxury
segment of the retail market. Domestically, Concord and ESQ brand sales declined
and Movado sales remained flat as compared to the prior year. These declines
were partially offset by increases in Coach brand sales and the sales generated
from the continued rollout of the Tommy Hilfiger brand. International wholesale
watch sales decreased by $8.9 million or 23.8% due to a slowdown in the luxury
goods markets in Europe and Asia partially offset by higher sales of our Coach
brand in Japan.
Retail sales increased by $6.2 million or 21.3% primarily due to new store
openings and comparable store sales increases in the Movado Boutiques of 4.2%
and outlets of 10.6%. As of October 31, 2002, there were 10 Movado Boutiques and
26 outlets as compared to 8 Movado Boutiques and 25 outlets open as of October
31, 2001. Other net sales, which include sales from the Company's service center
operations and shipping income, decreased by $0.4 million or 5.8%.
Gross Margin. The gross profit for the nine months ended October 31, 2002 was
$135.3 million (61.4% of net sales) as compared to $138.8 million (61.7% of net
sales) for the nine months ended October 31, 2001. The gross profit decrease of
$3.5 million primarily relates to the decrease in sales.
Selling, General and Administrative. Selling, general and administrative
expenses for the nine months ended October 31, 2002 were $112.1 million or 50.8%
of net sales as compared to $119.5 million or 53.1% for the nine months ended
October 31, 2001. Excluding the one time severance and early retirement charge
recorded in October 2001 of $2.7 million, selling, general and administrative
expenses decreased by $4.7 million or 4.0%. The decrease was attributable to
planned reductions in marketing expenditures and decreases in expenses resulting
from the Company's expense reduction initiatives, offset by spending in support
of the growth of the Company's new businesses.
9
Interest Expense. Net interest expense for the nine months ended October 31,
2002 was $3.0 million as compared to $4.1 million for nine months ended October
31, 2001, a 25.6% decrease. The net interest expense decrease was due to a
decline in average short-term bank borrowings and a reduction of short-term
interest rates.
Income Taxes. The Company recorded a tax expense of $5.6 million for the nine
months ended October 31, 2002 as compared to a tax expense of $2.7 million for
the nine months ended October 31, 2001. Taxes were recorded at a 28.0% and 18.0%
rate for fiscal 2003 and fiscal 2002, respectively. The Company's effective tax
rate for fiscal 2003 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. The fiscal
2002 tax rate reflects a decrease in the Company's U.S. source earnings as a
percentage of the overall earnings mix as compared to the current year.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2002 AS COMPARED TO
THE THREE MONTHS ENDED OCTOBER 31, 2001.
Net sales: Comparative net sales by product class were as follows
(in thousands):
Three Months Ended
October 31,
2002 2001
---- ----
Concord, Movado, Coach, ESQ and
Tommy Hilfiger
Domestic $65,052 $63,523
International 11,174 13,790
Retail 12,577 10,519
Other 2,220 2,271
------- -------
Net Sales $91,023 $90,103
======= =======
Net sales increased by $0.9 million or 1.0% for the three months ended October
31, 2002 as compared to the three months ended October 31, 2001. Net wholesale
watch sales decreased by $1.1 million or 1.4% with domestic wholesale sales
increasing by $1.5 million or 2.4%. The domestic wholesale sales increase was
driven by sales increases in our Movado and Coach watch brands and the continued
rollout of our Tommy Hilfiger watch brand, partially offset by a sales decline
in the ESQ brand. Concord domestic sales were relatively flat for the period.
International wholesale watch sales which are predominantly sales of the Company
Concord and Movado brands, decreased by $2.6 million or 19.0% reflecting a weak
global watch market in Europe and Asia.
Retail sales increased by $2.1 million or 19.6%. Growth in the retail sales
category was primarily attributable to new store openings and comparable store
sales increases in the Movado Boutiques of 3.0% and outlets of 10.4%. As of
October 31, 2002, there were 10 Movado Boutiques and 26 outlets as compared to 8
Movado Boutiques and 25 outlets open as of October 31, 2001. Other net sales,
which include sales from the Company's service center operations and shipping
income, decreased by $0.1 million or 2.2%.
Gross Margin. The gross profit for the three months ended October 31, 2002 was
$55.8 million (61.3% of net sales) as compared to $55.9 million (62.0% of net
sales) for the three months ended October 31, 2001. The gross margin percentage
decrease of 70 basis points is the result of a change in the Company's product
and operating segment mix.
10
Selling, General and Administrative. Selling, general and administrative
expenses for the quarter were $42.5 million or 46.7% of net sales as compared to
$46.4 million or 51.5% of net sales in the third quarter of last year. Excluding
the one time severance and early retirement charge taken in the third quarter of
fiscal 2002 of $2.7 million, selling, general and administrative expenses
decreased by $1.2 million or 2.7%. This decrease was attributable to planned
reductions in marketing expenditures and the cost savings resulting from the
Company's cost reduction initiatives, offset by increased spending in support of
the growth of the Company's new businesses.
Interest Expense. Net interest expense for the three months ended October 31,
2002 was $1.0 million as compared to $1.2 million for the three months ended
October 31, 2001, a 14.4% reduction. The net interest expense decrease was due
to a decline in average short-term bank borrowings and a reduction of short-term
interest rates.
Income Taxes. The Company recorded a tax expense of $3.4 million for the three
months ended October 31, 2002 as compared to a tax expense of $0.8 million for
the three months ended October 31, 2001. Taxes were recorded at a 28.0% rate for
the third quarter of fiscal 2003. 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. The tax expense for the third quarter of
fiscal 2002 reflected a tax adjustment for a change in the tax rate from 28% to
18%. This change in rate reflected a decrease in the Company's U.S. source
earnings as a percentage of the overall earnings mix. The prior year's third
quarter tax expense includes an adjustment of taxes 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.
LIQUIDITY AND FINANCIAL POSITION
Cash used in operating activities amounted to $2.7 million and $30.9 million for
the nine months ended October 31, 2002 and 2001, respectively. The reduction in
cash used in operating activities for the comparative nine months ended October
31, 2002 and 2001 was impacted by the timing of inventory purchases and related
payments, reductions in operating expenses and an increase in net income in
fiscal 2003 as compared to fiscal 2002.
Cash used in investing activities amounted to $5.7 million and $9.7 million for
the nine months ended October 31, 2002 and 2001, respectively, and was primarily
for capital expenditures. For the nine months ended October 31, 2002, capital
expenditures were mainly for various information systems projects, trade show
booths used at the Basel Fair and general corporate and retail capital
improvements. Expenditures for the nine months ended October 31, 2001 relate
primarily to the build-out of the Paramus, N.J. corporate offices, construction
costs for three new Movado Boutiques and one new outlet and information systems
enhancements.
Cash provided by financing activities amounted to $25.6 million and $38.3
million for the nine months ended October 31, 2002 and 2001, respectively, which
was due to seasonal short-term bank borrowings. In fiscal 2003, the Company's
seasonal borrowing decreased due mainly to improved cash flows from operations.
At October 31, 2002, the Company had two series of Senior Notes outstanding.
Senior Notes due January 31, 2005, with a remaining principal amount due of
$15.0 million 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 of
6.90% per annum, mature on October 30, 2010 and are subject to annual repayments
of $5.0 million commencing October 31, 2006.
11
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 October 31, 2002, no such notes were issued.
On June 22, 2000, the Company completed the renewal of its revolving credit line
with its bank group. The agreement provides for a three year $100.0 million
unsecured revolving line of credit. In addition, the Company has $15.0 million
in uncommitted working capital line with its bank group, which is renewed
annually. These lines were most recently renewed in July 2002 and August 2002.
At October 31, 2002, the Company had $31.0 million of outstanding borrowings
under its bank lines as compared to $46.5 million at October 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 8.0 million Swiss francs and 11.3 million Swiss francs, with dollar
equivalents of approximately $5.4 million and $6.9 million at October 31, 2002
and 2001, respectively, of which a maximum of $5.0 million can be drawn. As of
October 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 nine months ended October 31, 2002.
The Company paid dividends of approximately $1.1 million and $1.0 million for
the nine months ended October 31, 2002 and 2001, respectively.
Cash and cash equivalents at October 31, 2002 amounted to $36.9 million compared
to $20.3 million at October 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 October 31,
2002 was 14.1% as compared to 32.6% at October 31, 2001.
12
Item 3. Quantitative and Qualitative Disclosure about Market Risks
FOREIGN CURRENCY AND COMMODITY PRICE RISKS
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
derivatives, predominately forward and option contracts. 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
shareholders' 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. 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 October 31, 2002, the Company has a
Swiss forward contract hedging portfolio of 183.0 million Swiss francs with
contracts maturing at various dates ranging through October 28, 2003. In
addition, the Company has 30.0 million in Swiss franc option contracts of which
5.0 million Swiss francs mature on July 31, 2003, 10.0 million Swiss francs
mature on December 15, 2003 and 15.0 million Swiss francs mature on January 30,
2004.
The Company purchases gold for the production of certain watches. The Company
purchases gold derivatives under its hedging program and treats the changes in
fair value on these derivatives in the same manner as the changes in fair value
in its Swiss franc derivatives. As of October 31, 2002, the Company had two
contracts for a total of 6,000 ounces of gold with expiry dates of January 15,
2003 and March 17, 2003.
The Company's international trade business accounts for approximately 13.2% 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 nine months ended October 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 October 31, 2002, the Company had $31.0 million in short-term bank debt
obligations with variable interest rates based on LIBOR plus an applicable 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 October 31, 2002 and the
fixed rates were unfavorable.
Item 4. Controls and Procedures
Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Company's
management, including our Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act of
1934). Based upon that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that these disclosure controls and procedures are
effective. No significant changes were made in our internal controls or in other
factors that could significantly affect these controls subsequent to the date of
their evaluation.
13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
99.1 Certification of Principal Executive Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification of Principal Financial Officer 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
No reports on Form 8-K were filed during the period covered by
this Report.
14
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: December 16, 2002 By: /s/ Eugene J. Karpovich
-----------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer and
Principal Accounting Officer)
15
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Efraim Grinberg, certify that:
1) I have reviewed this quarterly report on Form 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;
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;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
fulfilling the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 16, 2002
/s/ Efraim Grinberg
-------------------------------------
Efraim Grinberg
President and Chief Executive Officer
16
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Eugene J. Karpovich, certify that:
1) I have reviewed this quarterly report on Form 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;
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;
4) The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act rules 13a-14 and 15d-14) for the registrant and
have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report ("Evaluation Date");
and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5) The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
fulfilling the equivalent functions):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls;
6) The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: December 16, 2002
/s/ Eugene J. Karpovich
----------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
17