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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended July 31, 1996
/ / 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
125 Chubb Avenue, Lyndhurst, New Jersey 07071
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (201) 460-4800
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
As of August 14, 1996, the registrant had 2,588,368 shares of Class A
Common Stock, par value $0.01 per share, outstanding and 3,428,332 shares of
Common Stock, par value $0.01 per share, outstanding.
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<PAGE>
MOVADO GROUP, INC.
Index to Quarterly Report on Form 10-Q
July 31, 1996
Page
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Part I Financial Information
Item 1. Consolidated Balance Sheets as of July 31,
1996, January 31, 1996 and July 31, 1995 3
Consolidated Statements of Income for the
six months ended July 31, 1996 and 1995 and
the three months ended July 31, 1996 and 4
1995
Consolidated Statements of Cash Flows for
the six months ended July 31, 1996 and 1995 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of 7
Operations
Part II Other Information
Item 4. Submission of Matters to a Vote of 10
Security Holders
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
2
<PAGE>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE><CAPTION>
July 31, January 31, July 31,
1996 1996 1995
------------- --------------- ------------
ASSETS
------
<S> <C> <C> <C>
Current assets:
Cash $1,603 $3,829 $2,035
Trade receivables, net 79,299 75,335 70,077
Inventories 108,563 89,101 100,689
Other 16,364 12,521 18,802
------------- --------------- -------------
Total current assets 205,829 180,786 191,603
------------- --------------- -------------
Plant, property and equipment, net 13,230 11,794 12,065
Other assets 8,531 7,800 7,753
------------- --------------- -------------
$227,590 $200,380 $211,421
============= =============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Loans payable to banks $34,754 $8,782 $29,032
Accounts payable 19,243 22,042 18,489
Accrued liabilities 11,737 9,289 8,503
Deferred and current taxes payable 7,517 7,994 6,588
------------- --------------- -------------
Total current liabilities 73,251 48,107 62,612
------------- --------------- -------------
Senior notes payable 40,000 40,000 40,000
Deferred and non-current foreign income taxes 3,424 3,860 4,040
Other liabilities 3,145 3,572 3,796
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; 3,428,332, 3,426,610 and
3,409,318 shares issued, respectively 34 34 34
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 2,588,368, 2,588,891 and
2,590,983 shares issued and outstanding, respectively 26 26 26
Capital in excess of par value 34,268 34,252 34,009
Retained earnings 61,164 60,319 51,281
Cumulative translation adjustment 12,406 10,338 15,751
Treasury Stock, 9,201 shares, at cost (128) (128) (128)
------------- --------------- -------------
107,770 104,841 100,973
------------- --------------- -------------
$227,590 $200,380 $211,421
============= =============== =============
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
(Unaudited)
<TABLE><CAPTION>
Six Months Ended July 31, Three Months Ended July 31,
--------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $81,764 $72,190 $50,751 $43,986
Costs and expenses:
Cost of sales 36,784 33,962 23,121 20,675
Selling, general and administrative 41,128 35,395 23,944 19,937
------------- ------------- -------------- -------------
Operating income 3,852 2,833 3,686 3,374
------------- ------------- -------------- -------------
Net interest expense 2,123 2,281 1,281 1,303
------------- ------------- -------------- -------------
Income before income taxes 1,729 552 2,405 2,071
Provision for income taxes 519 166 722 627
------------- ------------- -------------- -------------
Net income $1,210 $386 $1,683 $1,444
============= ============= ============== ==============
Income per share: $0.20 $0.06 $0.28 $0.24
============= ============= ============== ==============
Shares used in per share computations: 6,007 5,997 6,007 5,993
============= ============= ============== ==============
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE>
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended July 31,
------------------------------
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Net income $1,210 $386
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization 1,885 1,602
Deferred and non-current foreign income taxes (485) (908)
Provision for losses on accounts receivable 358 352
Changes in current assets and liabilities:
Trade receivables (4,189) (2,253)
Inventories (18,951) (13,336)
Other current assets (4,292) (2,695)
Accounts payable (1,706) (4,077)
Accrued liabilities 2,409 (661)
Deferred and current taxes payable (555) 813
(Increase) decrease in other non-current assets (584) 935
(Decrease) increase in other non-current liabilities (48) 669
------------ -----------
Net cash used in operating activities (24,948) (19,173)
------------ -----------
Cash flows used for investing activities:
Capital expenditures (2,332) (1,401)
Goodwill, trademarks and other intangibles (76) (103)
------------ -----------
Net cash used in investing activities (2,408) (1,504)
------------ -----------
Cash flows from financing activities:
Net proceeds from current borrowings under lines of credit 25,750 18,726
Principal payments under capital leases (269) (619)
Exercise of stock options 16 6
Purchase of treasury stock 0 (128)
Dividends paid (360) (298)
------------ -----------
Net cash provided by financing activities 25,137 17,687
------------ -----------
Effect of exchange rate changes on cash (7) 129
Net decrease in cash (2,226) (2,861)
Cash at beginning of period 3,829 4,896
------------ -----------
Cash at end of period $1,603 $2,035
============ ===========
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Movado Group, Inc. (the "Company") in a manner consistent with that used in
the preparation of the financial statements included in the Company's fiscal
1996 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.
NOTE 1 - RECLASSIFICATION
Certain amounts from prior years have been reclassified to conform to the fiscal
1997 presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
July 31, January 31,
1996 1996
----------- --------------
Finished goods $63,187 $51,034
Work-in-process and component parts 45,376 38,067
----------- --------------
$108,563 $89,101
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NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
Six Months
Ended July 31,
--------------------
1996 1995
---- ----
Cash paid during the period for:
Interest $2,234 $2,439
Income taxes 1,755 397
Non-cash investing and financing activities:
Equipment acquired under capital leases $21 $66
6
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
RESULTS OF OPERATIONS
Six months ended July 31, 1996 compared to six months ended July 31, 1995.
Net Sales. Net sales increased 13.3% to $81.8 million from $72.2 million for
the six months ended July 31, 1996 and July 31, 1995, respectively. The
increase was attributable to a 22.0% increase in domestic sales reflecting both
unit sales increases in Concord, Movado and Esquire brands and higher average
selling prices due to price increases in the second half of last year. The
increase in domestic sales was offset by a 12.6% decrease in international sales
due to a shift in sales to the third quarter because of timing of new product
introductions.
Gross Margins. Gross profit for the six months ended July 31, 1996 was $45.0
million (55.0% of net sales) as compared to $38.2 million (53.0% of net sales)
for the comparable prior year period. The increase in margin is mainly
attributable to the Company continuing to experience a shift in overall sales
mix toward its higher margin Movado, Concord and Esquire brands and price
increases instituted in the second half of last year.
Operating Expenses. Operating expenses increased 16.2% for the six months ended
July 31, 1996 to 50.3% of net sales from 49.0% of net sales for the comparable
prior year period. Excluding the effect of a one-time, pre-tax charge of
$600,000 included in last year's quarter, operating expenses increased
approximately $6.3 million. The increase in operating expenses is mainly
attributable to increases in advertising, marketing and other variable costs
related to higher sales volumes.
Interest Expense. Net interest expense, which consists primarily of interest on
the Company's $40,000,000 of 6.56% Senior Notes and borrowings against its
working capital lines of credit, was $2.1 million for the six months ended July
31, 1996 as compared to $2.3 million for the comparable prior year period. The
lower interest expense is mainly due to a reduction in average interest rates
partially offset by increased average amounts outstanding, as compared to the
period ended July 31, 1995.
Income Taxes. The Company recorded a provision for income taxes of $519,000 for
six months ended July 31, 1996 as compared to a provision of $166,000 for the
comparable prior year period. Taxes were provided at a 30% effective rate which
the Company believes will approximate the effective annual rate for fiscal 1997;
however, there can be no assurance of this as it is dependent on a number of
factors including: mix of foreign to domestic earnings, local statutory tax
rates and utilization of net operating losses. The 30% effective rate differs
from the United States statutory rate due to the mix of earnings between the
Company's U.S. and international operations, the most significant of which are
located in Switzerland. The Company's international operations are generally
subject to tax rates that are significantly lower than U.S. statutory rates.
Three months ended July 31, 1996 compared to three months ended July 31, 1995.
Net Sales. Net sales increased 15.4% to $50.8 million from $44.0 million for
the three months ended July 31, 1996 and July 31, 1995, respectively. The
increase was attributable to a 25.3% increase in domestic sales reflecting both
unit sales increases in the Company's Concord, Movado and Esquire brands and
higher average selling prices due to price increases in the second half of last
year. Although certain international markets have shown slight improvement over
the comparable period last year, international sales as a whole declined 15.5%
for the three months ended July 31, 1996 due to a shift in sales to the third
quarter because of timing of new product introductions.
7
<PAGE>
Gross Margins. Gross profit for the three months ended July 31, 1996 was $27.6
million (54.4% of net sales) as compared to $23.3 million (53.0% of net sales)
for the comparable prior year period. The increase in margin is mainly
attributable to the Company continuing to experience a shift in overall sales
mix toward its higher margin Movado, Concord and Esquire brands and price
increases instituted in the second half of last year.
Operating Expenses. Operating expenses increased 20.1% for the three months
ended July 31, 1996 to 47.2% of net sales from 45.3% of net sales for the
comparable prior year period. Operating expenses increased approximately $4.0
million. The increase in operating expenses is mainly attributable to increases
in advertising, marketing and other variable costs related to higher sales
volumes.
Interest Expense. Net interest expense, which consists primarily of interest on
the Company's $40,000,000 of 6.56% Senior Notes and borrowings against its
working capital lines of credit, was $1.3 million for the three months ended
July 31, 1996 and 1995, respectively. Interest expense remained flat as
compared with the prior year period as a result of a slight decrease in interest
rates on the working capital lines.
Income Taxes. The Company recorded a provision for income taxes of $722,000 for
three months ended July 31, 1996 as compared to a provision of $627,000 for the
comparable prior year period. Taxes were provided at a 30% effective rate which
the Company believes will approximate the effective annual rate for fiscal 1997;
however, there can be no assurance of this as it is dependent on a number of
factors including: mix of foreign to domestic earnings, local statutory tax
rates and utilization of net operating losses. The 30% effective rate differs
from the United States statutory rate due to the mix of earnings between the
Company's U.S. and international operations, the most significant of which are
located in Switzerland. The Company's international operations are generally
subject to tax rates that are significantly lower than U.S. statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements which have increased due
to significant growth in domestic sales over the two previous years. The
Company's business is not capital intensive and liquidity needs for capital
investments have not been significant in relation to the Company's overall
financing requirements.
The Company has met its liquidity needs primarily through funds from operations
and bank borrowings under working capital lines of credit with domestic and
Swiss banks. The Company has also entered into a revolving credit agreement
with its domestic banks. Funds available under this agreement are in addition
to the Company's working capital lines. The Company's debt to total
capitalization ratio was 41.2% at July 31, 1996, 40.6% at July 31, 1995 and
31.8% at January 31, 1996. The increase from January 31, 1996 was primarily the
result of the Company financing seasonal working capital requirements under its
working capital lines of credit.
The Company's net working capital consisting primarily of trade receivables and
inventories amounted to $132.6 million at July 31, 1996, $129.0 million at July
31, 1995 and $132.7 million at January 31, 1996.
8
<PAGE>
Accounts receivable at July 31, 1996 were $79.3 million as compared to $70.1
million at July 31, 1995 and $75.3 million at January 31, 1996. The increase in
the receivables was primarily the result of the Company's increased domestic
sales volume and the timing of shipments during the second quarter of fiscal
1997.
Inventories at July 31, 1996 were $108.6 million as compared to $100.7 million
at July 31, 1995 and $89.1 million at January 31, 1996. The increase in
inventories reflects both the seasonal build in inventories as well as the
expansion of the company's sales base and product line.
The Company's fiscal 1997 year-to-date capital expenditures approximate $2.3
million compared to $1.4 million through July 31, 1995. Expenditures were
primarily related to improvements in the Company's management and sales
management information systems and costs incurred in connection with the
expansion of domestic distribution operations. Additionally, costs related to
the company's new Piaget flagship store in New York City are included in fiscal
1997. The Company expects its annual capital expenditures in fiscal year 1997
will exceed the average levels experienced over the last three fiscal years due
to planned improvements in management information systems, expansion of its
retail store network, including the Piaget store, and the expansion of
distribution operations to support continued sales growth.
9
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On June 14, 1996 the Company held its annual meeting of shareholders at
the offices of Simpson, Thacher & Bartlett located at 425 Lexington
Avenue, New York, New York.
The following matters were voted upon at the meeting:
(i) The election of the following directors, constituting the entire
board of directors:
Margaret Hayes Adame
Michael Bush
Efraim Grinberg
Gedalio Grinberg
Donald Oresman
Leonard L. Silverstein
(ii) A proposal to ratify the selection of Price Waterhouse LLP as
the Company's independent public accountants for the fiscal year
ending January 31, 1997;
(iii) Approval of the Company's 1996 Stock Incentive Plan to amend the
Company's 1993 Employee Stock Option Plan; and
(iv) Approval of the Company's Amended and Restated Deferred
Compensation Plan for Executives.
With respect to the above referenced proposals that were voted on at the
annual shareholders meeting, the following votes were tabulated. There
were no broker nonvotes.
Proposal (i) on election of directors:
<TABLE>
<CAPTION>
Nominee For Against Withheld
------- --- ------- --------
<S> <C> <C> <C>
Margaret Hayes Adame......................................... 25,947,720 128,683 0
Michael Bush................................................. 25,941,820 134,583 0
Efraim Grinberg.............................................. 25,941,820 134,583 0
Gedalio Grinberg............................................. 25,941,820 134,583 0
Donald Oresman............................................... 25,941,820 134,583 0
Leonard L. Silverstein....................................... 25,941,820 134,583 0
Proposal (ii) on ratification of appointment of auditors:... 26,031,143 2,005 43,255
Proposal (iii) on approval of Stock Incentive Plan: ........ 25,552,414 88,919 48,460
Proposal (iv) on approval of Deferred Compensation Plan:.... 25,258,961 765,968 48,520
</TABLE>
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
11. Computation of net income per share.
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: September 13, 1996 By: /s/ Kenneth J. Adams
----------------------------
Kenneth J. Adams
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer)
Dated: September 13, 1996 By: /s/ John J. Rooney
----------------------------
John J. Rooney
Corporate Controller
(Principal Accounting Officer)
12
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
------ -----------
11 Computation of Net Income Per Share
13
Exhibit 11
MOVADO GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
July 31, 1996 July 31, 1996
-------------------- --------------------
Primary
-------
<S> <C> <C>
Net income $1,210 $1,683
==================== ====================
Weighted average number of common shares
outstanding 6,007 6,007
Add common equivalent shares
(determined using the "Treasury Stock" Method)
representing shares issuable upon exercise of
employee stock options 20 22
-------------------- --------------------
Weighted average number of shares used in
primary net income per share 6,027 6,029
==================== ====================
Primary net income per share $0.20 $0.28
==================== ====================
Fully Diluted
-------------
Net income $1,210 $1,683
==================== ====================
Weighted average number of common shares
outstanding 6,007 6,007
Add common equivalent shares
(determined using the "Treasury Stock" Method)
representing shares issuable upon exercise of
employee stock options 22 22
-------------------- --------------------
Weighted average number of shares used in fully
diluted net income per share 6,029 6,029
==================== ====================
Fully diluted net income $0.20 $0.28
==================== ====================
</TABLE>
