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EX-32.2 - EX-32.2 - MOVADO GROUP INCmov-ex322_7.htm
EX-32.1 - EX-32.1 - MOVADO GROUP INCmov-ex321_9.htm
EX-31.2 - EX-31.2 - MOVADO GROUP INCmov-ex312_8.htm
EX-31.1 - EX-31.1 - MOVADO GROUP INCmov-ex311_6.htm
EX-4.1 - EX-4.1 - MOVADO GROUP INCmov-ex41_367.htm
EX-2.1 - EX-2.1 - MOVADO GROUP INCmov-ex21_199.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended October 31, 2018

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: 1-16497

 

MOVADO GROUP, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

New York

 

13-2595932

(State or Other Jurisdiction

of Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

 

 

650 From Road, Ste. 375

Paramus, New Jersey

 

07652-3556

(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      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,’’ “accelerated filer,’’ “smaller reporting company,’’ and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer         

Accelerated filer                  

Non-accelerated filer 

Smaller reporting company

Emerging growth company

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

The number of shares outstanding of the registrant’s Common Stock and Class A Common Stock as of November 26, 2018 were 16,499,084 and 6,596,780 , respectively.

 

 

 

 


MOVADO GROUP, INC.

Index to Quarterly Report on Form 10-Q

October 31, 2018

 

 

 

 

 

Page

Part I

 

Financial Information (Unaudited)

 

 

 

 

 

Item 1.

 

 

Consolidated Balance Sheets at October 31, 2018, January 31, 2018 and October 31, 2017

 

3

 

 

 

 

 

Consolidated Statements of Operations for the three and nine months ended October 31, 2018 and October 31, 2017

 

4

 

 

 

 

 

Consolidated Statements of Comprehensive Income for the three and nine months ended October 31, 2018 and October 31, 2017

 

5

 

 

 

 

 

Consolidated Statements of Cash Flows for the nine months ended October 31, 2018 and October 31, 2017

 

6

 

 

 

 

 

Notes to Consolidated Financial Statements

 

7

 

 

 

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

25

 

 

 

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

 

35

 

 

 

Item 4.

 

 

Controls and Procedures

 

36

 

Part II

 

 

Other Information

 

 

 

 

 

Item 1.

 

 

Legal Proceedings

 

37

 

 

 

Item 1A.

 

 

Risk Factors

 

37

 

 

 

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

37

 

 

 

Item 6.

 

 

Exhibits

 

39

 

Signature

 

40

 

 

 

 

 


 

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

 

MOVADO GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)

 

 

October 31,

 

 

January 31,

 

 

October 31,

 

 

2018

 

 

2018

 

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

$

142,668

 

 

$

214,811

 

 

$

155,484

 

Trade receivables, net

 

126,106

 

 

 

83,098

 

 

 

132,941

 

Inventories

 

183,539

 

 

 

151,676

 

 

 

169,866

 

Other current assets

 

31,590

 

 

 

32,015

 

 

 

26,361

 

Total current assets

 

483,903

 

 

 

481,600

 

 

 

484,652

 

Property, plant and equipment, net

 

25,471

 

 

 

24,671

 

 

 

24,637

 

Deferred and non-current income taxes

 

17,400

 

 

 

6,443

 

 

 

23,610

 

Goodwill

 

131,756

 

 

 

60,269

 

 

 

56,316

 

Other intangibles, net

 

47,479

 

 

 

23,124

 

 

 

22,568

 

Other non-current assets

 

57,907

 

 

 

49,273

 

 

 

47,783

 

Total assets

$

763,916

 

 

$

645,380

 

 

$

659,566

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

Loans payable to bank, current

$

 

 

$

25,000

 

 

$

5,000

 

Accounts payable

 

47,164

 

 

 

24,364

 

 

 

28,014

 

Accrued liabilities

 

80,291

 

 

 

47,943

 

 

 

62,666

 

Income taxes payable

 

9,617

 

 

 

2,989

 

 

 

5,192

 

Total current liabilities

 

137,072

 

 

 

100,296

 

 

 

100,872

 

Loans payable to bank

 

49,590

 

 

 

 

 

 

25,000

 

Deferred and non-current income taxes payable

 

29,519

 

 

 

33,063

 

 

 

7,501

 

Other non-current liabilities

 

66,721

 

 

 

41,686

 

 

 

38,752

 

Total liabilities

 

282,902

 

 

 

175,045

 

 

 

172,125

 

Commitments and contingencies (Note 9)

 

 

 

 

 

 

 

 

 

 

 

Equity:

 

 

 

 

 

 

 

 

 

 

 

Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares

   issued

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value, 100,000,000 shares authorized;

   27,676,495, 27,342,802 and 27,324,319 shares issued and outstanding,

   respectively

 

276

 

 

 

273

 

 

 

273

 

Class A Common Stock, $0.01 par value, 30,000,000 shares authorized;

   6,596,780,  6,641,950 and 6,641,950 shares issued and outstanding,

   respectively

 

66

 

 

 

66

 

 

 

66

 

Capital in excess of par value

 

199,822

 

 

 

189,808

 

 

 

189,332

 

Retained earnings

 

418,337

 

 

 

388,739

 

 

 

425,649

 

Accumulated other comprehensive income

 

76,110

 

 

 

100,343

 

 

 

80,388

 

Treasury Stock, 11,164,865, 11,046,671 and 11,026,671 shares,

   respectively, at cost

 

(213,597

)

 

 

(208,894

)

 

 

(208,267

)

Total Movado Group, Inc. shareholders' equity

 

481,014

 

 

 

470,335

 

 

 

487,441

 

Total liabilities and equity

$

763,916

 

 

$

645,380

 

 

$

659,566

 

 

See Notes to Consolidated Financial Statements

 

3


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

(Unaudited)

 

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Net sales

$

208,949

 

 

$

190,693

 

 

$

480,191

 

 

$

418,739

 

Cost of sales

 

95,585

 

 

 

86,623

 

 

 

221,469

 

 

 

199,406

 

Gross profit

 

113,364

 

 

 

104,070

 

 

 

258,722

 

 

 

219,333

 

Selling, general, and administrative

 

89,257

 

 

 

78,885

 

 

 

213,616

 

 

 

189,479

 

Operating income

 

24,107

 

 

 

25,185

 

 

 

45,106

 

 

 

29,854

 

Interest expense

 

(146

)

 

 

(445

)

 

 

(530

)

 

 

(1,191

)

Interest income

 

144

 

 

 

110

 

 

 

258

 

 

 

361

 

Income before income taxes

 

24,105

 

 

 

24,850

 

 

 

44,834

 

 

 

29,024

 

(Benefit)/provision for income taxes (Note 10)

 

(2,817

)

 

 

7,490

 

 

 

657

 

 

 

10,341

 

Net income attributed to Movado Group, Inc.

$

26,922

 

 

$

17,360

 

 

$

44,177

 

 

$

18,683

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted basic average shares outstanding

 

23,254

 

 

 

23,079

 

 

 

23,200

 

 

 

23,080

 

Net income per share attributed to Movado Group, Inc.

$

1.16

 

 

$

0.75

 

 

$

1.90

 

 

$

0.81

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted diluted average shares outstanding

 

23,698

 

 

 

23,273

 

 

 

23,624

 

 

 

23,261

 

Net income per share attributed to Movado Group, Inc.

$

1.14

 

 

$

0.75

 

 

$

1.87

 

 

$

0.80

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends declared per share

$

0.20

 

 

$

0.13

 

 

$

0.60

 

 

$

0.39

 

 

See Notes to Consolidated Financial Statements

 

 

4


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Comprehensive income, net of taxes:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

$

26,922

 

 

$

17,360

 

 

$

44,177

 

 

$

18,683

 

Net unrealized (loss) on investments, net of tax (benefit) of $(5),

   $(6), $(24) and $(6), respectively

 

(16

)

 

 

(13

)

 

 

(80

)

 

 

(12

)

Net change in effective portion of hedging contracts, net of tax

   (benefit) of $(13), $88, $7 and $9, respectively

 

(66

)

 

 

448

 

 

 

38

 

 

 

37

 

Foreign currency translation adjustments

 

(4,210

)

 

 

(5,525

)

 

 

(24,191

)

 

 

3,583

 

Total other comprehensive (loss) / income, net of taxes

 

(4,292

)

 

 

(5,090

)

 

 

(24,233

)

 

 

3,608

 

Total comprehensive income attributed to

   Movado Group, Inc.

$

22,630

 

 

$

12,270

 

 

$

19,944

 

 

$

22,291

 

 

See Notes to Consolidated Financial Statements

 

 

5


 

MOVADO GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

Nine Months Ended October 31,

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

$

44,177

 

 

$

18,683

 

Adjustments to reconcile net income to net cash provided by / (used in) operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

9,907

 

 

 

9,842

 

Transactional losses / (gains)

 

133

 

 

 

(859

)

Write-down of inventories

 

2,233

 

 

 

1,930

 

Deferred income taxes

 

(7,538

)

 

 

719

 

Stock-based compensation

 

4,287

 

 

 

3,644

 

(Benefit) for 2017 tax act

 

(3,929

)

 

 

 

Cost savings initiative

 

 

 

 

13,437

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

(47,754

)

 

 

(62,175

)

Inventories

 

(25,884

)

 

 

(14,562

)

Other current assets

 

2,154

 

 

 

1,647

 

Accounts payable

 

17,973

 

 

 

334

 

Accrued liabilities

 

23,238

 

 

 

18,296

 

Income taxes payable

 

5,513

 

 

 

373

 

Other non-current assets

 

900

 

 

 

(5,399

)

Other non-current liabilities

 

1,436

 

 

 

4,664

 

Net cash provided by / (used in) operating activities

 

26,846

 

 

 

(9,426

)

Cash flows from investing activities:

 

 

 

 

 

 

 

Capital expenditures

 

(8,206

)

 

 

(3,575

)

Restricted cash deposits

 

 

 

 

1,018

 

Trademarks and other intangibles

 

(130

)

 

 

(500

)

Acquisition, net of cash acquired

 

(93,040

)

 

 

(78,991

)

Net cash (used in) investing activities

 

(101,376

)

 

 

(82,048

)

Cash flows from financing activities:

 

 

 

 

 

 

 

Proceeds from bank borrowings

 

50,296

 

 

 

 

Repayments of bank borrowings

 

(25,000

)

 

 

 

Stock options exercised and other changes

 

4,863

 

 

 

(626

)

Dividends paid

 

(13,855

)

 

 

(8,953

)

Stock repurchase

 

(3,931

)

 

 

(3,004

)

Net cash provided by / (used in) financing activities

 

12,373

 

 

 

(12,583

)

Effect of exchange rate changes on cash , cash equivalents, and restricted cash

 

(9,986

)

 

 

3,262

 

Net (decrease) in cash, cash equivalents and restricted cash

 

(72,143

)

 

 

(100,795

)

Cash, cash equivalents, and restricted cash  at beginning of period

 

215,411

 

 

 

256,879

 

Cash, cash equivalents, and restricted cash at end of period

$

143,268

 

 

$

156,084

 

 

 

 

 

 

 

 

 

Reconciliation of cash, cash equivalents, and restricted cash:

 

 

 

 

 

 

 

Cash and cash equivalents

$

142,668

 

 

$

155,484

 

Restricted cash included in other non-current assets

 

600

 

 

 

600

 

Cash, cash equivalents, and restricted cash

$

143,268

 

 

$

156,084

 

 

 

See Notes to Consolidated Financial Statements

 

 

6


 

MOVADO GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

BASIS OF PRESENTATION

The accompanying interim 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 annual audited consolidated financial statements included in the Company’s Annual Report on Form 10-K for the fiscal year ended January 31, 2018 (the “2018 Annual Report on Form 10-K”). The unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, which require the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the dates of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the periods reported. Actual results could differ from those estimates. In the opinion of management, the accompanying unaudited consolidated financial statements reflect all adjustments, consisting of only normal and recurring adjustments, necessary for a fair statement of the financial position and results of operations for the periods presented. The consolidated balance sheet data at January 31, 2018 is derived from the audited annual financial statements, which are included in the Company’s 2018 Annual Report on Form 10-K and should be read in connection with these interim unaudited financial statements. Operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the full year.

 

 

NOTE 1 – RECLASSIFICATIONS

As discussed below in Note 2 Accounting Pronouncements Recently Adopted, certain reclassifications were made to prior years’ financial statement amounts and related note disclosures to conform to fiscal 2019 presentation.

 

 

NOTE 2 – ACCOUNTING PRONOUNCEMENTS RECENTLY ADOPTED

Revenue

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) which supersedes nearly all existing revenue recognition guidance. Subsequent to the issuance of Topic 606, the FASB clarified the guidance through several Accounting Standard Updates; hereinafter, the collection of revenue guidance is referred to as “ASC 606”.

 

On February 1, 2018, the Company adopted ASC 606 using the modified retrospective method and the Company recognized a reduction of $0.7 million to opening retained earnings as the cumulative effect of adopting the new revenue standard. This adjustment did not have a material impact on the Company’s Consolidated Financial Statements. (See Note 17 - Revenue for additional disclosures required by ASC 606).

Statement of Cash Flows

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) — Restricted Cash,” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash and restricted cash equivalents. With this standard, amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning of period and end of period total amounts shown on the statement of cash flows. The Company adopted this guidance on February 1, 2018, and the guidance has been retrospectively applied to all periods presented. The changes to the beginning of period balances presented in the consolidated statement of cash flows are as follows (in thousands): 

 

 

 

January 31, 2018

 

January 31, 2017

 

 

 

 

 

 

 

As previously

 

 

 

 

 

As previously

 

 

 

 

As adjusted

 

 

reported

 

 

As adjusted

 

 

reported

 

Cash and cash equivalents

 

$

214,811

 

$

214,811

 

$

256,279

 

$

256,279

 

Restricted funds included in other non-current

   assets

 

 

600

 

 

 

 

600

 

 

 

Beginning of period balance presented in the

   statement of cash flows

 

$

215,411

 

$

214,811

 

$

256,879

 

$

256,279

 

 

 

 

7


 

NOTE 3 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting guidance establishes a fair value hierarchy which prioritizes the inputs used in measuring fair value into three broad levels as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

 

Level 3 – Unobservable inputs based on the Company’s assumptions.

The following tables present the fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis (in thousands) as of October 31, 2018 and 2017 and January 31, 2018:

 

 

 

 

 

Fair Value at October 31, 2018

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

166

 

 

$

 

 

$

 

 

$

166

 

Short-term investment

 

Other current assets

 

 

154

 

 

 

 

 

 

 

 

 

154

 

SERP assets - employer

 

Other non-current assets

 

 

1,270

 

 

 

 

 

 

 

 

 

1,270

 

SERP assets - employee

 

Other non-current assets

 

 

37,440

 

 

 

 

 

 

 

 

 

37,440

 

Total

 

 

 

$

39,030

 

 

$

 

 

$

 

 

$

39,030

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

37,440

 

 

$

 

 

$

 

 

$

37,440

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

463

 

 

 

 

 

 

463

 

Contingent purchase price liability

 

Other non-current liabilities

 

 

 

 

 

 

 

 

16,600

 

 

 

16,600

 

Total

 

 

 

$

37,440

 

 

$

463

 

 

$

16,600

 

 

$

54,503

 

 

 

 

 

 

Fair Value at January 31, 2018

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

275

 

 

$

 

 

$

 

 

$

275

 

Short-term investment

 

Other current assets

 

 

164

 

 

 

 

 

 

 

 

 

164

 

SERP assets - employer

 

Other non-current assets

 

 

994

 

 

 

 

 

 

 

 

 

994

 

SERP assets - employee

 

Other non-current assets

 

 

38,577

 

 

 

 

 

 

 

 

 

38,577

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

544

 

 

 

 

 

 

544

 

Total

 

 

 

$

40,010

 

 

$

544

 

 

$

 

 

$

40,554

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

38,577

 

 

$

 

 

$

 

 

$

38,577

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

46

 

 

 

 

 

$

46

 

Total

 

 

 

$

38,577

 

 

$

46

 

 

$

 

 

$

38,623

 

 

 

 

 

 

Fair Value at October 31, 2017

 

 

 

Balance Sheet Location

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Available-for-sale securities

 

Other current assets

 

$

291

 

 

$

 

 

$

 

 

$

291

 

Short-term investment

 

Other current assets

 

 

156

 

 

 

 

 

 

 

 

 

156

 

SERP assets - employer

 

Other non-current assets

 

 

1,538

 

 

 

 

 

 

 

 

 

1,538

 

SERP assets - employee

 

Other non-current assets

 

 

35,532

 

 

 

 

 

 

 

 

 

35,532

 

Hedge derivatives

 

Other current assets

 

 

 

 

 

67

 

 

 

 

 

 

67

 

Total

 

 

 

$

37,517

 

 

$

67

 

 

$

 

 

$

37,584

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SERP liabilities - employee

 

Other non-current liabilities

 

$

35,532

 

 

$

 

 

$

 

 

$

35,532

 

Hedge derivatives

 

Accrued liabilities

 

 

 

 

 

685

 

 

 

 

 

 

685

 

Total

 

 

 

$

35,532

 

 

$

685

 

 

$

 

 

$

36,217

 

 

8


 

The fair values of the Company’s available-for-sale securities are based on quoted prices. The fair value of the short-term investment, which is a guaranteed investment certificate, is based on its purchase price plus one half of a percent calculated annually. The assets related to the Company’s defined contribution supplemental executive retirement plan (“SERP”) consist of both employer (employee unvested) and employee assets which are invested in investment funds with fair values calculated based on quoted market prices. The SERP liability represents the Company’s liability to the employees in the plan for their vested balances. The hedge derivatives are entered into by the Company principally to reduce its exposure to Swiss franc and Euro exchange rate risks. Fair values of the Company’s hedge derivatives are calculated based on quoted foreign exchange rates and quoted interest rates.

 

The fair value of the Level 3 contingent purchase price liability related to the acquisition of MVMT Watches, Inc. owner of MVMT, a global aspirational lifestyle brand, is measured using a Monte Carlo simulation with key assumptions that include revenue and brand EBITDA, (as defined in the acquisition agreement) of the acquired business during the earn-out period, volatilities, estimated discount rates, risk-free rate, and correlation. The liability is revalued each reporting period after the acquisition and increases or decreases in the fair value of the liability are recorded in the Consolidated Statements of Operations. Changes in fair value can result from the estimated achievement of the revenue and brand EBITDA performance hurdles, and movements in discount rates, volatilities, and the other key assumptions. The inputs and assumptions are not observable in the market but reflect the assumptions we believe would be made by a market participant.

 

The following table presents the change in the Level 3 contingent purchase price liability during the three and nine months ended October 31, 2018:

 

 

 

Three Months Ended October 31,

 

 

Nine Months Ended October 31,

 

(In thousands)

 

2018

 

 

2018

 

Beginning Balance

 

$

 

 

$

 

Acquisition of MVMT

 

$

16,500

 

 

$

16,500

 

Payments

 

 

 

 

 

 

Adjustments included in earnings

 

 

100

 

 

 

100

 

Ending Balance

 

$

16,600

 

 

$

16,600

 

 

There were no transfers between any levels of the fair value hierarchy for any of the Company’s fair value measurements.  

 

9


 

NOTE 4 – EQUITY

The components of equity for the nine months ended October 31, 2018 and 2017 are as follows (in thousands):

 

 

 

Movado Group, Inc. Shareholders' Equity

 

 

 

 

 

 

 

Common

Stock (1)

 

 

Class A

Common

Stock (2)

 

 

Capital in

Excess of

Par Value

 

 

Retained

Earnings

 

 

Treasury

Stock

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

 

Balance, January 31, 2018

 

$

273

 

 

$

66

 

 

$

189,808

 

 

$

388,739

 

 

$

(208,894

)

 

$

100,343

 

 

$

470,335

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

44,177

 

 

 

 

 

 

 

 

 

 

 

44,177

 

Dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(13,855

)

 

 

 

 

 

 

 

 

 

 

(13,855

)

Adoption of new revenue recognition

   Standard (Topic 606)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(724

)

 

 

 

 

 

 

 

 

 

 

(724

)

Stock repurchase

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,931

)

 

 

 

 

 

 

(3,931

)

Stock options exercised

 

 

3

 

 

 

 

 

 

 

5,632

 

 

 

 

 

 

 

(772

)

 

 

 

 

 

 

4,863

 

Supplemental executive

   retirement plan

 

 

 

 

 

 

 

 

 

 

95

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

95

 

Stock-based compensation

   expense

 

 

 

 

 

 

 

 

 

 

4,287

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,287

 

Net unrealized loss on

   investments, net of tax benefit

   of $24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(80

)

 

 

(80

)