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UNITED STATES
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 APRIL 30, 2003
[ ] 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 by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [
]
The number of shares outstanding of the registrant's common stock and class
A common stock as of May 31, 2003 were 8,531,060 and 3,400,906, respectively.
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MOVADO GROUP, INC.
Index to Quarterly Report on Form 10-Q
April 30, 2003
Page
----
Part I Financial Information (Unaudited)
Item 1. Consolidated Balance Sheets at April 30, 2003, January 31, 2003 and April
30, 2002 3
Consolidated Statements of Income for the three months ended April 30,
2003 and 2002 4
Consolidated Statements of Cash Flows for the three months ended April 30,
2003 and 2002 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 10
Item 3. Quantitative and Qualitative Disclosure about Market Risks 14
Item 4. Controls and Procedures 15
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 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)
APRIL 30, JANUARY 31, APRIL 30,
2003 2003 2002
--------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 34,548 $ 38,365 $ 21,407
Trade receivables, net 97,362 94,438 94,223
Inventories, net 119,445 111,736 106,272
Other 34,440 36,646 26,063
-------- -------- --------
Total current assets 285,795 281,185 247,965
Property, plant and equipment, net 39,579 39,939 37,897
Other 25,055 24,030 24,304
-------- -------- --------
Total assets $350,429 $345,154 $310,166
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 18,750 $ - $ 31,000
Current portion of long-term debt 5,000 - 5,000
Accounts payable 14,436 22,712 15,951
Accrued liabilities 18,790 22,735 20,691
Current taxes payable 8,324 11,467 6,444
Deferred taxes payable 4,878 4,851 4,593
-------- -------- --------
Total current liabilities 70,178 61,765 83,679
Long-term debt 30,000 35,000 35,000
Deferred and non-current income taxes 3,823 4,229 1,591
Other liabilities 8,657 7,948 7,766
-------- -------- --------
Total liabilities 112,658 108,942 128,036
-------- -------- --------
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; 10,080,164 , 10,057,367 and
9,889,550 shares issued, respectively 101 101 98
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,400,906, 3,401,820 and
3,446,666 shares issued and outstanding, respectively 34 34 35
Capital in excess of par value 72,547 72,145 69,898
Retained earnings 172,785 172,287 157,539
Accumulated other comprehensive income (loss) 20,347 19,386 (17,749)
Treasury Stock, 1,553,198, 1,547,156 and 1,544,487
shares, respectively, at cost (28,043) (27,741) (27,691)
-------- -------- --------
Total shareholders' equity 237,771 236,212 182,130
-------- -------- --------
Total liabilities and shareholders' equity $350,429 $345,154 $310,166
======== ======== ========
See Notes to Consolidated Financial Statements
3
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months Ended April 30,
----------------------------
2003 2002
--------- ---------
Net sales $ 60,170 $ 57,271
Cost of sales 23,730 22,092
--------- ---------
Gross Profit 36,440 35,179
Operating Expenses:
Selling, general and administrative 34,468 33,791
--------- ---------
Operating income 1,972 1,388
Net interest expense 783 927
--------- ---------
Income before income taxes 1,189 461
Provision for income taxes 333 129
--------- ---------
Net income $ 856 $ 332
========= =========
Earnings per share:
Basic $ 0.07 $ 0.03
========= =========
Diluted $ 0.07 $ 0.03
========= =========
Weighted average shares outstanding:
Basic 11,948 11,762
========= =========
Diluted 12,348 12,146
========= =========
See Notes to Consolidated Financial Statements
4
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended April 30,
-------------------------------
2003 2002
--------- --------
Cash flows from operating activities:
Net income $ 856 $ 332
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 2,199 2,089
Provision for losses on accounts receivable 335 273
Provision for losses on inventory 200 312
Changes in assets and liabilities:
Trade receivables (2,939) (2,024)
Inventories (7,424) (5,793)
Other current assets 2,732 (708)
Accounts payable (8,328) (8,338)
Accrued liabilities (4,000) (5,018)
Deferred & current taxes payable (3,102) (1,655)
Other non-current assets (2,627) 1,463
Other non-current liabilities 286 (818)
--------- --------
Net cash used in operating activities (21,812) (19,885)
--------- --------
Cash flows from investing activities:
Capital expenditures (1,591) (306)
Trademarks and other intangibles - (102)
--------- --------
Net cash used in investing activities (1,591) (408)
--------- --------
Cash flows from financing activities:
Net proceeds from bank borrowings 18,750 24,500
Stock options exercised & other 402 414
Dividends paid (358) (354)
Repurchase of Common Stock (302) -
--------- --------
Net cash provided by financing activities 18,492 24,560
--------- --------
Effect of exchange rate changes on cash and cash equivalents 1,094 169
--------- --------
Net (decrease) increase in cash and cash equivalents (3,817) 4,436
Cash and cash equivalents at beginning of period 38,365 16,971
--------- --------
Cash and cash equivalents at end of period $ 34,548 $ 21,407
========= ========
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
2003 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 reclassifications were made to prior years' financial statement amounts
and related note disclosures to conform to the fiscal 2004 presentation.
NOTE 2 - STOCK OPTION PLAN
The Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plans. No compensation cost
has been recognized for any stock options granted under the Company's stock
option plan because the quoted market price of the Common Stock at the grant
date was not in excess of the amount an employee must pay to acquire the Common
Stock. Statement of Financial Accounting Standards ("SFAS") No. 123,
"Accounting for Stock-Based Compensation," issued by the Financial Accounting
Standards Board ("FASB") in 1995, prescribes a method to record compensation
cost for stock-based employee compensation plans at fair value. Pro forma
disclosures as if the Company had adopted the recognition requirements under
SFAS No. 123 for the three months ended April 30, 2003 and 2002, respectively,
are presented below.
Three Months Ended
April 30,
------------------------
(In thousands, except per share data) 2003 2002
------- --------
Net income as reported: $ 856 $ 332
Fair value based compensation expense,
net of taxes 687 794
------- ---------
Pro forma net income (loss) $ 169 ($ 462)
======= =========
Basic earnings per share:
As reported $ 0.07 $ 0.03
Pro forma under SFAS No. 123 $ 0.01 ($ 0.04)
Diluted earnings per share:
As reported $ 0.07 $ 0.03
Pro forma under SFAS No. 123 $ 0.01 ($ 0.04)
6
The following weighted-average assumptions were used for grants for the three
months ended April 30, 2003 and 2002: dividend yield of 0.62% and 0.71% for the
three months ended April 30, 2003 and 2002, respectively; expected volatility of
46% and 50% for the three months ended April 30, 2003 and 2002, respectively;
risk-free interest rates of 5.23% and 4.81% for the three months ended April 30,
2003 and 2002, respectively and expected lives of seven years for the three
months ended April 30, 2003 and 2002.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
Three Months Ended
April 30,
------------------------
2003 2002
------- --------
Cash paid during the period for:
Interest $ 945 $ 949
Income taxes $ 3,471 $ 2,433
NOTE 4 - COMPREHENSIVE INCOME
The components of comprehensive income for the three months ended April 30, 2003
and 2002 are as follows (in thousands):
Three Months Ended
April 30,
------------------------
2003 2002
------- --------
Net income $ 856 $ 332
Net unrealized gain (loss) on investment,
net of tax 42 (11)
Effective portion of unrealized (loss)
income on hedging contracts, net of tax (660) 1,002
Foreign currency translation adjustment 1,579 4,546
------- --------
Total comprehensive income $ 1,817 $ 5,869
======= ========
7
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 segment includes the Company's
service center operations and shipping.
Operating Segment Data for the Three Months Ended April 30, 2003 And 2002:
Net Sales Operating Income
----------------------------- -------------------------------
2003 2002 2003 2002
----------------------------- -------------------------------
Wholesale $ 88,500 $ 75,499 $ 3,495 $ 2,400
Retail 10,820 9,837 (2,062) (1,319)
Other 1,933 1,971 539 307
Elimination (1) (41,083) (30,036) - -
----------------------------- -------------------------------
Consolidated total $ 60,170 $ 57,271 $ 1,972 $ 1,388
============================= ===============================
Geographic Segment Data for the Three Months Ended April 30, 2003 And 2002:
Net Sales Income (Loss) Before Taxes
----------------------------- -------------------------------
2003 2002 2003 2002
----------------------------- -------------------------------
Domestic $ 52,335 $ 47,777 ($ 3,169) ($ 2,402)
International 48,918 39,530 4,358 2,863
Elimination (1) (41,083) (30,036) - -
----------------------------- -------------------------------
Consolidated total $ 60,170 $ 57,271 $ 1,189 $ 461
============================= ===============================
(1) Elimination of intercompany sales.
NOTE 6 - INVENTORIES
Inventories consist of the following (in thousands):
APRIL 30, JANUARY 31, APRIL 30,
2003 2003 2002
------------ ----------- -------------
Finished goods $ 78,396 $ 73,148 $ 72,174
Component parts 42,016 40,649 39,866
Work-in-process 2,445 2,262 3,141
------------ ----------- -------------
122,857 116,059 115,181
Less: inventories reserve (3,412) (4,323) (8,909)
------------ ----------- -------------
$ 119,445 $ 111,736 $ 106,272
============ =========== =============
8
NOTE 7 - 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 11,948,000 and 11,762,000 for the three months ended April 30, 2003 and
2002, respectively. For diluted earnings per share, these amounts were increased
by 400,000 and 384,000 for the three months ended April 30, 2003 and 2002,
respectively, due to potentially dilutive common stock equivalents issuable
under the Company's stock option plans.
NOTE 8 - RECENTLY ISSUED ACCOUNTING STANDARDS
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies accounting for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities under SFAS
No. 133. In particular, this Statement clarifies under what circumstances a
contract with an initial net investment meets the characteristic of a derivative
and when a derivative contains a financing component that warrants special
reporting in the statement of cash flows. This Statement is generally effective
for contracts entered into or modified after June 30, 2003. The adoption of SFAS
No. 149 is not expected to have a significant impact on the Company's
consolidated financial position, results of operations or cash flows.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." This Statement
requires certain financial instruments that embody obligations of the issuer and
have characteristics of both liabilities and equity to be classified as
liabilities (or an asset in some circumstances). SFAS No. 150 is effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective at the beginning of the first interim period beginning after June
15, 2003. The adoption of SFAS No. 150 is not expected to have an impact on the
Company's consolidated financial position, results of operations or cash flows.
9
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, 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 the
Private Securities Litigation Reform Act of 1995. These statements are based on
current expectations, estimates, forecasts and projections about the Company,
its future performance, the industry in which the Company operates and
management's assumptions. Words such as "expects," "anticipates," "targets,"
"goals," "projects," "intends," "plans," "believes," "seeks," "estimates,"
"may," "will," "should" and variations of such words and similar expressions are
also intended to identify such forward-looking statements. The Company cautions
readers that forward-looking statements include, without limitation, those
relating to the Company's future business prospects, projected operating or
financial results, revenues, working capital, liquidity, capital needs, plans
for future operations, expectations regarding capital expenditures and operating
expenses, 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 in the United States and the other
significant markets where the Company's products are sold, 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
employees and 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, disease, general risks associated with doing business outside the
United States including, without limitation, import duties, tariffs, quotas,
political and economic stability, and success of hedging strategies with respect
to 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, 2003.
10
Results of Operations for the Three Months Ended April 30, 2003 as Compared to
the Three Months Ended April 30, 2002.
Net sales: Comparative net sales by business segment were as follows (in
thousands):
Three Months Ended
April 30,
--------------------------
2003 2002
--------- --------
Wholesale:
Domestic $ 39,139 $ 36,460
International 8,278 9,003
Retail 10,820 9,837
Other 1,933 1,971
--------- --------
Net Sales $ 60,170 $ 57,271
========= ========
Net sales increased by $2.9 million or 5.1% for the three months ended April 30,
2003 as compared to the three months ended April 30, 2002. Sales in the
wholesale segment increased 4.3% to $47.4 million versus $45.5 million in the
prior year. The domestic wholesale business was $39.1 million or 7.3% above
prior year sales of $36.5 million. Increases were recorded in the Movado and ESQ
brands as a result of the continued development of the chain store distribution
channel. In addition, increased sales were recorded in the Tommy Hilfiger brand
reflecting the result of positive sell through at retail. Sales in the Concord
brand which were impacted by the weak luxury segment of the market were lower
than prior year, while sales in the Coach brand were relatively flat year on
year.
Sales in the international wholesale business were $8.3 million or 8.1% below
prior year. The Concord and Movado brands were down 27.8% and were below prior
year in all international markets. The decline in sales was impacted by the
outbreak of Severe Acute Respiratory Syndrome or SARS in Asia, the war in Iraq
and a general sluggish economy in Europe and South America. Sales increases were
recorded in Coach duty free and Coach Japan and also in the Tommy Hilfiger brand
as a result of the launch in five European countries in the second half of
fiscal 2003 and the first quarter of fiscal 2004.
During the quarter, sales in the retail segment rose 10.0% to $10.8 million. The
increase was driven by a 24.7% comparable store sales increase in the Movado
Boutiques. In addition, sales increases were recorded in the Movado Boutiques as
a result of the new stores opened in Dadeland and Aventura in South Florida. The
outlet business was 1.1% above last year for the quarter.
Sales in the other segment, which represents service and shipping income, were
slightly below prior year with lower shipping income in the quarter.
Gross Profit. The gross profit for the three months ended April 30, 2003 was
$36.4 million or 60.6% of net sales as compared to $35.2 million or 61.4% of net
sales for the three months ended April 30, 2002. The increase in gross profit of
$1.3 million is the result of the higher sales volume. The decrease in the gross
profit as a percentage of sales is the result of sales and product mix and the
negative effect of the weaker dollar on product costs. These were somewhat
offset by selected price increases in the brands.
11
Selling, General and Administrative. Selling, general and administrative
expenses for the three months ended April 30, 2003 were $34.5 million or 57.3%
of net sales as compared to $33.8 million or 59.0% of net sales for the three
months ended April 30, 2002. Increased expenses were recorded as a result of the
weak U.S. dollar and the translation effect of the Swiss and Canadian costs,
higher marketing expense, increased costs in the retail segment primarily the
result of opening two new Movado Boutiques, and higher costs in payroll, health
care, travel and insurance. These were somewhat offset by reduced bonus, legal
and bad debt expense.
Interest Expense. Net interest expense for the three months ended April 30, 2003
declined by 15.5% to $0.8 million as compared to $0.9 million for the three
months ended April 30, 2002. The decrease is due to significantly reduced
average borrowings for the quarter. The average debt for the quarter decreased
26.5% from prior year to $44.4 million reflecting the prior years' favorable
results of cash flow and working capital management.
Income Taxes. The Company recorded a tax expense of $0.3 million for the three
months ended April 30, 2003 as compared to a tax expense of $0.1 million for the
three months ended April 30, 2002. Taxes were recorded at a 28.0% rate for both
fiscal 2004 and fiscal 2003.
LIQUIDITY AND FINANCIAL POSITION
Cash used in operating activities amounted to $21.8 million and $19.9 million
for the three months ended April 30, 2003 and 2002, respectively. The increase
in cash used in operating activities for the comparative three months ended
April 30, 2003 and 2002 was impacted by increased accounts receivable as a
result of the higher sales volume and increased inventory to stock the new
Movado Boutiques, and the purchase of new products introduced at the Basel Watch
and Jewelry Fair. This was partially offset by higher cash provided from the
increased net income.
Cash used in investing activities amounted to $1.6 million and $0.4 million for
the three months ended April 30, 2003 and 2002, respectively, and was primarily
for capital expenditures. For the three months ended April 30, 2003, capital
expenditures were mainly for the build out of the new Movado Boutiques and
various information systems projects. Expenditures for the three months ended
April 30, 2002 relate primarily to various information systems projects and
construction of the trade show booth used at the Basel Watch and Jewelry Fair.
Cash provided by financing activities amounted to $18.5 million and $24.6
million for the three months ended April 30, 2003 and 2002, respectively, which
was due to seasonal short-term bank borrowings. In fiscal 2004, the Company's
seasonal borrowing decreased due mainly to improved cash flows from operations.
At April 30, 2003, the Company had two series of Senior Notes outstanding.
Senior Notes due January 31, 2005, with a remaining principal amount due of
$10.0 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.
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
12
amount of up to $40.0 million with maturities up to 12 years from their original
date of issuance. As of April 30, 2003, 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. The line of credit expires on June 22, 2003.
The Company is in the process of renewing a new multi-year revolving line of
credit that is expected to be completed prior to June 22, 2003. In addition, the
Company has $15.0 million in uncommitted working capital lines with its bank
group. At April 30, 2003, the Company had $18.8 million of outstanding
borrowings under its bank lines as compared to $31.0 million at April 30, 2002.
In addition, one bank in the domestic bank group issued five irrevocable standby
letters of credit for retail and operating facility leases to various landlords
and Canadian payroll to the Royal Bank of Canada totaling $0.6 million with
expiration dates through May 31, 2004.
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, with dollar equivalents of approximately $5.9
million and $4.9 million at April 30, 2003 and 2002, respectively, of which a
maximum of $5.0 million can be drawn. As of April 30, 2003, the Swiss bank has
made guarantees to certain Swiss third party obligations of approximately 0.9
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 2003 under the repurchase program and
there have been no repurchases for the three months ended April 30, 2003.
The Company paid dividends of $0.03 per share or approximately $0.4 million for
the three months ended April 30, 2003 and 2002.
Cash and cash equivalents at April 30, 2003 amounted to $34.5 million compared
to $21.4 million at April 30, 2002. 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 improvements
and expense reduction initiatives.
13
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, predominantly 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. 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.
The following presents fair value and maturities of the Company's foreign
currency derivatives outstanding as of April 30, 2003 (in millions):
APRIL 30, 2003
Fair Value Maturities
---------- ----------
Forward exchange contracts $ 10.7 2003
Commodity future contracts $ 0.1 2003
Purchased foreign currency options $ 3.7 2003-2006
--------
$ 14.5
========
The Company's international trade business accounts for approximately 14.1% 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 the Company's sales, cost of sales, operating expenses and net
income. During the three months ended April 30, 2003 and 2002, 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 April 30, 2003, the Company had $18.8 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 $35.0 million Senior Note debt bearing fixed interest rates per annum. The
difference between the market based interest rates at April 30, 2003 and the
fixed rates were unfavorable.
14
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 the Chief Executive Officer and Chief Financial Officer,
of the effectiveness of the design and operation of the Company's 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 the Company's
internal controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation.
It should be noted that any system of controls, however well designed and
operated, can provide only reasonable, and not absolute, assurance that the
objectives of the systems are met. In addition, the design of any control system
is based in part upon certain assumptions about the likelihood of future events.
Because of these and other inherent limitations of control systems, there can be
no assurance that any design will succeed in achieving its stated goals under
all future conditions, regardless of how remote.
15
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.
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: June 12, 2003 By: /s/ Eugene J. Karpovich
------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer and
Principal Accounting Officer)
17
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 (the "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
performing 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; and
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: June 12, 2003
/s/ Efraim Grinberg
-------------------------------------
Efraim Grinberg
President and Chief Executive Officer
18
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 (the "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
performing 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; and
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: June 12, 2003
/s/ Eugene J. Karpovich
-------------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
19