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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 10-K
(Mark one)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED JANUARY 31, 1997
OR
[ ] 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 OF (I.R.S. EMPLOYER
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
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
NONE NONE
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SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
(TITLE OF CLASS)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
Based on the closing sales price of the Common Stock as of April 15,
1997, the aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $91,526,194. For purposes of this computation,
each share of Class A Common Stock is assumed to have the same market value as
one share of Common Stock into which it is convertible and only shares of stock
held by directors, officers and principal shareholders were excluded.
The number of shares outstanding of the registrant's Common Stock and
Class A Common Stock as of April 15, 1997 were 3,450,616 and 2,586,368,
respectively.
DOCUMENTS INCORPORATED BY REFERENCE
-----------------------------------
Portions of the definitive proxy statement relating to Registrant's
1997 annual meeting of shareholders (the "Proxy Statement") are incorporated by
reference in Part III hereof.
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PART I
Item 1. Business
CORPORATE ORGANIZATION
The registrant, Movado Group, Inc., is a designer, manufacturer and distributor
of quality watches with prominent brands sold in almost every price category
comprising the watch industry. It was incorporated in New York in 1967 to
acquire Piaget Watch Corporation and Corum Watch Corporation, which had been,
respectively, the exclusive importers and distributors of Piaget and Corum
watches in the United States since the 1950's. The registrant and its
subsidiaries are referred to herein as "Movado Group, Inc." or the "Company"
unless the context otherwise requires.
In 1970, the Company acquired the Swiss manufacturer of Concord watches, which
had been manufacturing Concord watches since 1908, and in 1983, the Company
acquired the U.S. distributor of and substantially all the assets related to the
Movado watch brand from the Swiss manufacturer of Movado watches.
On October 7, 1993, the Company completed a public offering of 2,666,667 shares
of common stock, par value $.01 per share (the "Common Stock"). In connection
with the public offering, each share of old Class A Common Stock was
reclassified into 10.46 shares of Class A Common Stock, par value $.01 per share
(the "Class A Common Stock"). Each share of Common Stock is entitled to one vote
per share and each share of Class A Common Stock is entitled to 10 votes per
share on all matters submitted to a vote of the shareholders. Each holder of
shares of Class A Common Stock is entitled to convert, at any time, any and all
such shares into the same number of shares of Common Stock. Each share of Class
A Common Stock is converted automatically into Common Stock in the event that
the beneficial or record ownership of such share of Class A Common Stock is
transferred to any person, except to certain family members or affiliated
persons deemed "permitted transferees" pursuant to the Company's Amended
Restated Certificate of Incorporation. The Common Stock is quoted on the Nasdaq
National Market under the trading symbol "MOVA".
With executive offices in Lyndhurst, New Jersey, the Company operates
wholly-owned subsidiaries in Canada, Hong Kong, Japan, Singapore, Switzerland
and the United States.
INDUSTRY OVERVIEW
The Company believes that the watch market can be categorized into five
principal price categories as set forth in the following table:
<TABLE>
<CAPTION>
APPROXIMATE SUGGESTED RETAIL
PRICE CATEGORY PRICE RANGE
-------------- ----------------------------
<S> <C>
Luxury $5,000 and over
Expensive $1,000 to $4,999
Medium-priced $400 to $999
Moderately-priced $80 to $399
Mass-market less than $80
</TABLE>
Luxury Watches
Luxury watches are usually made of precious metals, including 18 karat gold or
platinum, and may be set with precious gems, including diamonds, emeralds,
rubies and sapphires. These watches are primarily mechanical or quartz-analog
watches. Mechanical watches keep time with intricate mechanical movements
consisting of an arrangement of wheels, jewels and winding and regulating
mechanisms. Quartz-analog watches have quartz
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movements in which time is precisely calibrated to the regular frequency of the
vibration of quartz crystal. Luxury watches are manufactured almost exclusively
in Switzerland. In addition to the Company's Piaget and Corum watches and
certain Movado and Concord watches, well-known brand names of luxury watches
include Audemars Piguet, Cartier, Patek Philippe, Rolex and Vacheron &
Constantin.
Expensive Watches
Most expensive watches are quartz-analog watches, although certain expensive
watches are mechanical watches. These watches are made with either 14 or 18
karat gold, stainless steel or a combination of gold and stainless steel and are
occasionally set with precious gems. Expensive watches are primarily
manufactured in Switzerland. In addition to a majority of the Company's Concord
watches and certain Movado watches, well-known brand names of expensive watches
include Baume & Mercier, Breitling, Cartier, Ebel, Omega and Rolex.
Medium-Priced Watches
The majority of medium-priced watches are quartz-analog watches. These watches
are made with either gold finish, stainless steel or a combination of gold
finish and stainless steel. Medium-priced watches are manufactured primarily in
Switzerland, as well as in the Far East. In addition to a majority of the
Company's Movado watches and certain Concord watches, well-known brand names of
medium-priced watches include Gucci, Raymond Weil and TAG-Heuer.
Moderately-Priced Watches
Most moderately-priced watches are quartz-analog watches. The Company believes
that the moderately-priced segment of the watch market includes two distinct
types of watches: (i) watches with more classical styles and features and (ii)
watches with less traditional designs that attempt to reflect fashion trends.
Moderately-priced watches are manufactured primarily in the Far East, as well as
in Switzerland. In addition to the Company's ESQ line and certain Movado
watches, well-known brand names of watches with more classical styles and
features in the moderately-priced segment include Bulova, Citizen and Seiko.
Although certain fashion watches compete in the mass-market segment, fashion
watches are generally priced at the lower end of the moderately-priced segment
of the watch market. Well-known brand names of fashion watches in the
moderately-priced segment include Anne Klein, Fossil, Gucci and Guess.
Mass-Market Watches
Mass-market watches consist of digital and quartz-analog watches that are made
with either stainless steel, brass or plastic. Digital watches, unlike
quartz-analog watches, have no moving parts. Instead, time is kept by electronic
microchips and is displayed as discrete arabic digits illuminated on the watch
face by light emitting diodes (LEDs) or liquid crystal displays (LCDs).
Mass-market watches are manufactured primarily in the Far East. Movado Group,
Inc. does not manufacture or distribute mass-market watches. Well-known brands
of mass-market watches include Casio, Citizen, Fossil, Seiko, Swatch and Timex.
PRODUCTS
The Company markets five distinctive brands of watches: Movado, Concord, ESQ,
Piaget and Corum. The Company designs and manufactures Movado and Concord
watches primarily in Switzerland, as well as in the United States, for sale
throughout the world. ESQ watches are manufactured to the Company's
specifications by independent contractors located in the Far East and are
presently sold in the United States, Canada and the Caribbean Islands. In
addition, Movado Group, Inc. is the exclusive distributor of Swiss-manufactured
Piaget
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and Corum watches in the United States, Canada, Central America and the
Caribbean Islands. Piaget and Corum watches are manufactured in Switzerland by
S.A. Ancienne Fabrique Georges Piaget et Cie. ("Piaget Swiss"), and Corum Ries,
Bannwart et Cie. ("Corum Swiss"), respectively.
Beginning in late fiscal 1998 or early fiscal 1999 the Company plans to
introduce Coach watches as a new sixth brand which will be manufactured on
behalf of and distributed by the Company in the United States and
internationally under a license agreement signed with Sara Lee Corporation.
Movado
Founded in 1881 in La Chaux-de-Fonds, Switzerland, the Movado brand today
includes a line of watches based on the design of the world famous Movado Museum
watch and a number of other watch collections, most with more traditional
designs. Distinguished by a solitary dot at the 12 o'clock position on a number
less dial, the design for the Movado Museum watch was the first watch design
chosen by the Museum of Modern Art for its permanent collection. It has since
been honored by 10 other museums throughout the world. Other Movado collections
include: Movado Gold, Movado 1881 Suisse and Gentry. Movado Gold consists of
classical gold bracelet and strap watches. Watch designs of Movado 1881 Suisse
are based on designs found in Movado's watch archives and the Company's
collection of antique Movado watches. Gentry includes more traditional looking
strap watches, which are designed and priced to appeal to younger consumers.
During fiscal 1997, the Company introduced a new line within the Movado brand
called Vizio. Vizio is a contemporary styled watch line composed primarily of
all steel bracelet and leather strap designs.
All Movado watches are made with 14 or 18 karat gold, 18 karat gold finish,
stainless steel or a combination of 18 karat gold finish and stainless steel.
The majority of Movado watches have suggested retail prices of between
approximately $195 and $4,000.
The Company has also periodically offered special limited edition watches as
part of its Artists Series in order to enhance the image of artistry and style
associated with the Movado brand. A number of internationally recognized artists
have created watch designs for this series.
Concord
Three principal collections of watches, Saratoga, Delirium and Royal Gold,
comprise the Concord line. Saratoga consists primarily of sport watches that
employ both quartz and mechanical movements. The Company uses ultra-thin quartz
movements in its Delirium watches, which are based on technology the Company
developed when it manufactured the world's thinnest watch in 1979. Royal Gold
includes both highly fashionable and classic lines of gold watches. Concord
watches are made with 14 or 18 karat gold, stainless steel or a combination of
18 karat gold and stainless steel, except for Royal Gold watches, which are made
with only 14 or 18 karat gold. In 1997, the Company introduced the Veneto line
of 18 karat gold watches which have a classic design. The majority of Concord
watches have suggested retail prices of between approximately $1,000 and
$15,000.
ESQ
Introduced in the second half of fiscal 1993, the ESQ brand consists of watches
with suggested retail prices from approximately $125 to $495 with features and
styles comparable to those found in more expensive watches. The ESQ line
currently includes two principal collections: Sport and Fashion. The Sport
collection includes the 9500 SLX, Submersible, Freedom, Rally and Aquasport
lines, all of which are water resistant to at least 330 feet. Fashion includes
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contemporary style bracelet watches, many of which include genuine mother-of-
pearl dials. All ESQ watches contain Swiss movements and are made with
stainless steel, gold finish or a combination of stainless steel and gold
finish, with leather straps, stainless steel bracelets or gold finish bracelets.
Piaget
Piaget watches are manufactured by Piaget Swiss in La Cotes-aux-Fees,
Switzerland. The Company believes that Piaget watches are among the most
expensive watches in the world. Tanagra, Piaget's flagship collection, consists
predominately of rounded link bracelet watches. Piaget Polo principally consists
of sportier watches, while Dancer watches are generally thinner, dressier
watches. Gouverneur watches are very traditional watches with mechanical
movements and leather straps. All Piaget watches are made of 18 karat gold and
most Piaget watches include either precious or semi-precious gems. In addition,
the Company distributes certain limited-edition high jewelry watches, including
the Aura and Galaxy series. Aura and Galaxy watches are typically made of 18
karat gold and set with precious gems, including diamonds, emeralds, rubies and
sapphires. The majority of Piaget watches have suggested retail prices of
between approximately $4,000 and $30,000.
Corum
Corum Swiss is a family owned company founded in 1955 in La Chaux-de-Fonds,
Switzerland. The Company's four principal Corum watch collections include: Gold
Coin, Symbiose, Quadratus and Admiral's Cup. Gold Coin features watches in which
the case and dial are manufactured from a genuine gold coin. The coin watches,
the most popular of which is the $20 American Eagle watch, are manufactured by
slicing a gold coin in half and inserting the watch movement between the halves.
Symbiose and Quadratus include larger art deco-styled watches with self-winding
mechanical movements. Admiral's Cup consists of stainless steel and 18 karat
gold watches with nautical themes on the watch dials. The majority of Corum
watches have suggested retail prices of between approximately $3,000 and
$30,000.
Other Products and Services
During fiscal 1997, sales of other products and services totaled approximately
$23.8 million, or approximately 11.1% of net sales. These sales include revenues
from the Company's service and watch repair operations, which historically have
represented a source of consistent revenues with profit margins comparable to
those generated from sales of the Company's watches. Other products and services
include sales derived from the Company's Movado Design Store, Piaget Boutique
and Movado Company Stores.
WARRANTY AND REPAIR
The Company has service facilities in each of its stores and offices around the
world in addition to four Company-owned regional service facilities and
approximately 100 authorized independent service centers. The Company conducts
training sessions for, and distributes technical information and updates to,
repair personnel in order to maintain consistency and quality at its service
facilities and authorized independent service centers. The Company's products
are covered by limited warranties against defects in materials and workmanship
for periods ranging from one to three years from the date of purchase for
movements and up to five years for Movado watch casings and bracelets. Products
that are returned under warranty to the Company are generally serviced by the
Company's employees at its service facilities.
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ADVERTISING
Advertising is important to the successful marketing of the Company's watches.
Movado Group, Inc. has maintained its own in-house advertising department since
1972 and devotes significant resources to advertising. Advertising expenditures
totaled approximately 18.0%, 17.8% and 15.1% of net sales in fiscal 1997, 1996
and 1995, respectively. Advertising is developed individually for each of the
Company's watch brands and is directed primarily to the ultimate consumer rather
than to trade customers. The Company also participates in cooperative
advertising programs with its trade customers. The Company develops the
advertising for each of its brands by targeting consumers with particular
demographic characteristics appropriate to the image and price range of the
brand. Advertisements are placed predominantly in magazines and other print
media, but are also created for television campaigns, catalogues and promotional
materials.
SALES AND DISTRIBUTION
General
The Company sells Movado and Concord watches throughout the world; ESQ watches
presently in the United States, Canada and the Caribbean Islands; and Piaget and
Corum watches in the United States, Canada, Central America and the Caribbean
Islands. All five brands are sold to trade customers by the Company's sales
personnel, who typically specialize in one particular brand. The Company also
sells Movado and Concord watches outside the United States, Canada, Central
America and the Caribbean Islands through independent international
distributors. In fiscal 1997 no single trade customer or international
distributor accounted for 10% or more of the Company's sales. The Company does
not believe it would be materially adversely affected by the loss of any single
trade customer or independent distributor. In addition to its sales to trade
customers and independent distributors, a portion of the Company's total sales
are made directly to consumers in the United States through the Movado Design
Store, Piaget Boutique and Movado Company Stores.
The Company divides its business into two major geographic markets; the
"domestic" market which includes the Company's United States and Canadian
operations, and the "international" market which includes the balance of the
Company's operations.
Domestic
The Company operates in the United States through its North American Watch
Company division and in Canada through its Canadian subsidiary. It sells its
products in the domestic market primarily through department stores, such as
Macy's, Neiman-Marcus and Saks Fifth Avenue, jewelry store chains, such as
Zales, Mayor's and Sterling, and independent jewelers. The Movado, Concord and
ESQ brands are sold through each of these retail channels; and the Piaget and
Corum brands are sold primarily to independent jewelers. Sales to trade
customers in the United States and Canada are made directly by the Company's
sales force consisting of approximately 82 employees. A majority of the sales
force is compensated solely on the basis of commissions, which are determined as
a percentage of sales.
International
The Company sells Movado and Concord watches internationally through its own
sales force of approximately 37 employees operating from the Company's sales and
distribution offices in Hong Kong, Singapore and Switzerland, and also through a
network of approximately 35 independent distributors operating in numerous
countries around the world. A majority of the Company's arrangements with its
international distributors are long-term, generally require certain minimum
purchases and restrict the distributor from selling competitive products.
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Alternative Methods of Distribution
In addition to its sales to trade customers and independent distributors, Movado
Group, Inc. sells Movado watches directly to consumers in its Company-operated
Movado Design Store on Fifth Avenue in New York City. The Company also sells
Piaget watches and jewelry directly to consumers in its Company-operated Piaget
Boutique on Fifth Avenue in New York City. The Company established the Piaget
Boutique pursuant to an agreement with Piaget Swiss entered into in fiscal
1997. The Company also operates thirteen Movado Company Stores, in Cabazon,
California; St. Helena, California; Solvang, California; Destin, Florida;
Tuscola, Illinois; Freeport, Maine; Lancaster, Pennsylvania; Hilton Head,
South Carolina; Myrtle Beach, South Carolina; San Marcos, Texas; Manchester,
Vermont; Dawsonville, Georgia and Williamsburg, Virginia. These Movado Company
Stores sell discontinued and sample merchandise and factory seconds of all five
brands, providing the Company with an organized and efficient method of
reducing its inventory without competing directly with trade customers.
BACKLOG
At March 31, 1997, the Company had unfilled customer orders of approximately
$19.2 million, compared to approximately $16.9 million at March 31, 1996 (based
on currency exchange rates in effect on March 31, 1997). The Company believes
that substantially all such orders are firm and will be filled during the
Company's current fiscal year. The Company's backlog is affected by a variety of
factors, including seasonality and the scheduling of the manufacture and
shipment of products. Accordingly, a period-to-period comparison of backlog is
not necessarily meaningful and may not be indicative of eventual shipments.
SOURCES AND AVAILABILITY OF SUPPLIES
Movado and Concord watches are generally assembled at the Company's
manufacturing facility in Bienne, Switzerland with some off-site assembly
performed principally by independent Swiss watch makers. Every Movado and
Concord watch is assembled using Swiss movements and other components obtained
from third-party suppliers. A number of cases and bracelets used in these
watches are also manufactured by the Company. The Movado Gold and Concord Royal
Gold collections are assembled by the Company at its facilities in Lyndhurst,
New Jersey using Swiss movements as well as bracelets and cases obtained from
third-party suppliers.
ESQ watches are manufactured by independent contractors in the Far East using
Swiss movements and other components purchased from third-party suppliers
principally located in the Far East.
Many of the watch movements used in the manufacture of Movado, Concord and ESQ
watches are purchased from ETA, the largest single supplier of Swiss movements
in the Swiss watch industry. ETA, a subsidiary of SMH (a principal competitor of
Movado Group, Inc.), has supplied the Company with watch movements for over 20
years. The Company obtains other watch components for all of its manufactured
brands including movements, cases, crystals, dials, bracelets and straps, from a
number of other suppliers. The Company believes that comparable Swiss movements
and other watch components are available from other suppliers on comparable
terms and does not believe that its business is materially dependent on any one
supplier. There can be no assurance, however, that the establishment of
additional or replacement suppliers would not result in a temporary interruption
in the manufacturing and assembly of the Company's products. Precious stones
used in the Company's watches are purchased from various suppliers and are set
in the United States, Canada and Switzerland. The Company believes that these
stones are readily available from alternative sources. Movado Group, Inc. does
not have long-term supply contracts with any of its component parts suppliers.
The Company purchases Piaget and Corum watches from Piaget Swiss and Corum
Swiss, respectively under long term distribution agreements expiring December
31, 2009. Pursuant to the Piaget distribution agreements, Piaget Swiss
undertakes, through its distribution affiliate Piaget (International) S.A., to
sell watches and jewelry to the Company on request, based on a formula that
allows for the most favorable prices and delivery
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terms at which the watches and jewelry are then being offered for sale to
wholesale distributors unrelated to Piaget Swiss. Under the terms of the Corum
distribution agreement, Corum Swiss undertakes to sell watches to the Company at
the lowest prices at which the watches are then being offered for sale to
others, and to use reasonable efforts to comply with all delivery dates
specified by the Company. Although Movado Group, Inc. has long-term distribution
agreements with Piaget Swiss and Corum Swiss for the supply of these watches, an
interruption in supply could have a material adverse effect on the Company's
results of operations.
COMPETITION
The markets for each of the Company's watch brands are highly competitive. With
the exception of SMH, a large Swiss-based competitor, no single company competes
with the Company across all of its brands. Certain companies, however, compete
with Movado Group, Inc. with respect to one or more of its watch brands. Certain
of these companies have, and other companies that may enter the Company's
markets in the future may have, substantially greater financial, distribution,
marketing and advertising resources than the Company. The Company's future
success will depend, to a significant degree, upon its ability to compete
effectively with regard to, among other things, the style, quality, price,
advertising, marketing and distribution of its watch brands.
TRADEMARKS AND LICENSING AGREEMENTS
Movado Group, Inc. owns the trademarks MOVADO(R), CONCORD(R), VIZIO(R) and
related trademarks for watches in the United States and in numerous other
countries. The Company license the trademarks ESQUIRE(R), ESQ(R) and related
trademarks for use in connection with the sale and advertisement of watches
pursuant to a license agreement with The Hearst Corporation ("Hearst").
Pursuant to earlier agreements with Hearst dating from 1988, the Company
previously used the ESQ name for one of its Movado watch collections. The
current term of the Hearst license agreement expires on December 31, 1997, and
the agreement is renewable at the Company's option through December 31, 2018.
The Company owns the trademark PIAGET(R) for watches and jewelry and a number of
related trademarks for watches in the United States. Pursuant to distribution
agreements and a trademark agreement entered into with Piaget Swiss in February
1992, the Company is required to assign the PIAGET(R) and related trademarks to
Piaget Swiss upon the expiration of those agreements on December 31, 2009.
The Company also owns the trademark CORUM(R) and a number of related trademarks
for watches in the United States. Pursuant to the Corum distribution agreement,
Movado Group, Inc. is required to assign these trademarks to Corum Swiss on
December 31, 2009, upon the expiration of the Company's distribution rights,
unless earlier terminated by either party as of December 30, 2002.
The Company actively seeks to protect and enforce its trademarks by working with
anti-counterfeiting organizations and law enforcement authorities, monitoring
the enforcement of certain exclusion orders received from U.S. Customs and, when
necessary, instituting legal action against infringers of its trademarks. As the
owner of the PIAGET(R) trademark for watches in the United States, the Company
has received an exclusion order, pursuant to U.S. Customs regulations, which
prohibits the importation of both counterfeit and gray-market PIAGET(R) watches
into the United States. A "gray-market" good is a foreign manufactured good that
bears a valid United States trademark and is imported without the consent of the
United States trademark owner. U.S. Customs enforces the exclusion order by
seizing any such goods at their point of entry into the United States. The
Company also has exclusion orders covering the trademark CORUM(R) and the
Admiral's Cup dial design trademark. With respect to the trademarks MOVADO(R)
and CONCORD(R), the Company has received exclusion orders that prohibit the
importation of counterfeit goods or goods bearing confusingly similar trademarks
into the United States. In accordance with U.S. Customs regulations, these
exclusion orders, however, do not cover the importation of gray-market MOVADO(R)
or CONCORD(R) watches because the Company is the manufacturer of such watches.
All of the Company's exclusion orders are renewable.
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EMPLOYEES
As of January 31, 1997, the Company had 718 full-time employees in its domestic
and international operations. No employee of the Company is represented by a
labor union or is subject to a collective bargaining agreement.
The Company has never experienced a work stoppage due to labor difficulties and
believes that its employee relations are good.
FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS AND SEASONALITY
The Company operates in one industry segment: the design, manufacture and
distribution of quality watches. The Company's sales in the United States and
Canada are traditionally greater during the Christmas and holiday season and are
significantly more seasonal than its international sales. Consequently, the
Company's net sales historically have been higher during the second half of its
fiscal year. The second half of each year accounted for approximately 62.0%,
61.2% and 62.6% of the Company's net sales for the fiscal years ending January
31, 1997, 1996 and 1995, respectively. The amount of net sales and operating
income generated during the second half of each fiscal year depends upon the
general level of retail sales during the Christmas and holiday season, as well
as economic conditions and other factors beyond the Company's control. The
Company does not expect any significant change in the seasonality of its
domestic business in the foreseeable future. International sales tend to be less
seasonal, particularly those derived from the Middle and Far Eastern markets.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS
See Note 13 to the Consolidated Financial Statements for information pertaining
to the Company's operations in different geographic areas.
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Item 2. Properties
The Company leases various facilities in the United States, Canada, Switzerland
and the Far East for its corporate, manufacturing, distribution and sales
operations. The Company believes that it will be able to renew its leases for
its facilities or obtain alternative space for such facilities upon the
expiration of such leases. The Company believes that its facilities are adequate
for the Company's current operations and to handle reasonably foreseeable sales
growth. The Company's leased facilities are as follows:
<TABLE>
<CAPTION>
SQUARE LEASE
LOCATION FUNCTION FOOTAGE EXPIRATION
-------- -------- ------- ----------
<S> <C> <C> <C>
Lyndhurst, New Jersey Executive offices, watch assembly, watch 75,100 May 2002
repair, distribution
Bienne, Switzerland Corporate functions, watch sales, 52,000 January 2007
distribution, watch assembly, watch repair
Hackensack, New Jersey Warehouse 6,600 July 1999
Toronto, Canada Watch sales, distribution, watch repair 5,300 May 1998
Hong Kong Watch sales, distribution, watch repair, 3,400 January 1999
ESQ quality control
Willowdale, Canada Distribution 3,300 January 2000
Los Angeles, California Watch repair 3,000 December 1997
Miami, Florida Watch repair 2,600 October 2001
Grenchen, Switzerland Watch sales 2,600 January 1998
New York, New York Watch repair 2,200 November 2005
Japan Watch sales 750 May 1998
Singapore Watch sales, distribution, watch 474 August 1998
repair
</TABLE>
The Company leases retail space with average square footage of approximately
1,500 square feet. for the operation of its New York City Movado Design Store,
Piaget Boutique and thirteen Movado Company Stores under leases expiring from
February 1998 to July 2004. The Company also leases approximately 3,700 square
feet of space at 730 Fifth Avenue in New York City under a lease expiring
May 31, 2006. The Company operates this location as a retail store devoted
exclusively to the sale of Piaget watches and jewelry.
Movado Group, Inc. owns 1.2 acres and the buildings located thereon in La
Chaux-de-Fonds, Switzerland, which the Company uses for watch component
manufacturing. The Company also owns approximately 2,400 square feet of office
space in Hanau, Germany, which it has used for sales, distribution and watch
repair functions.
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Item 3. Legal Proceedings
The Company is involved in certain legal proceedings arising in the normal
course of its business. The Company believes that none of these proceedings,
either individually or in the aggregate, will have a material adverse effect on
the Company's business or its consolidated financial position.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company in the fourth
quarter of fiscal 1997.
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PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters
As of February 28, 1997, there were 72 holders of record of the Class A Common
Stock and, the Company estimates, approximately 1,110 beneficial owners of the
Common Stock represented by 475 holders of record. The Common Stock is traded on
the Nasdaq National Market under the symbol "MOVA". The shares of Common Stock
were issued pursuant to a public offering in fiscal 1994 and trading commenced
September 30, 1993. The quarterly high and low closing prices for the fiscal
years ended January 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
QUARTER ENDED LOW HIGH LOW HIGH
--------------------------------- --------------------------------
<S> <C> <C> <C> <C>
April 30 17 19 1/8 13 3/4 14 3/8
July 31 17 22 1/2 13 1/8 14 3/4
October 31 17 1/4 26 3/4 13 3/4 18 1/4
January 31 22 1/4 28 1/2 18 1/8 19 3/4
</TABLE>
The Class A Common Stock is not publicly traded and is subject to certain
restrictions on transfer as provided under the Company's Amended Restated
Certificate of Incorporation and consequently there is currently no established
public trading market for these shares.
During the fiscal year ended January 31, 1997, the Board of Directors approved
four $0.03 per share quarterly cash dividends to shareholders of record of the
Common Stock and Class A Common Stock. The declaration and payment of future
dividends, if any, will be at the sole discretion of the Board of Directors and
will depend upon the Company's profitability, financial condition, capital and
surplus requirements, future prospects, terms of indebtedness and other factors
deemed relevant by the Board of Directors. See Note 4 to the consolidated
financial statements regarding contractual restrictions on the Company's ability
to pay dividends.
11
<PAGE> 13
Item 6. Selected Financial Data
The selected financial data presented below have been derived from the
Consolidated Financial Statements. This information should be read in
conjunction with, and is qualified in its entirety by, the Consolidated
Financial Statements included elsewhere in this report and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Item 7 of this report (in thousands except per share amounts).
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Statement of operations data:
Net sales $ 215,107 $ 185,867 $ 160,853 $ 142,237 $ 134,153
Cost of sales 95,031 83,502 75,871 70,973 68,294
Selling, general and administrative (1) 99,657 84,315 69,243 56,993 53,331
--------- --------- --------- --------- ---------
Total expenses 194,688 167,817 145,114 127,966 121,625
Operating income 20,419 18,050 15,739 14,271 12,528
Net interest expense 4,874 4,450 4,307 7,570 8,996
--------- --------- --------- --------- ---------
Income from continuing operations
before income taxes 15,545 13,600 11,432 6,701 3,532
Provision for (benefit from) income taxes 3,853 3,876 (2,512) (106) 207
--------- --------- --------- --------- ---------
Income from continuing operations $ 11,692 $ 9,724 $ 13,944 $ 6,807 $ 3,325
========= ========= ========= ========= =========
Net income (2) $ 11,692 $ 9,724 $ 13,944 $ 3,579 $ 3,325
========= ========= ========= ========= =========
Income from continuing operations per share $ 1.94 $ 1.62 $ 2.32 $ 1.61 $ 1.00
Net income per common share $ 1.94 $ 1.62 $ 2.32 $ 0.85 $ 1.00
Weighted average common shares outstanding 6,012 6,007 6,000 4,223 3,334
Cash dividends declared per common share $ 0.12 $ 0.10 $ 0.08 $ 0.048 --
Balance sheet data (end of period):
Working capital $ 126,690 $ 132,679 $ 121,357 $ 108,612 $ 97,958
Total assets 208,443 200,380 186,949 156,954 144,075
Long-term debt 40,000 40,000 40,000 40,000 64,494
Shareholders' equity 103,870 104,841 92,930 72,458 35,776
</TABLE>
(1) Includes in fiscal 1997 the effect of a one-time, pretax charge of
approximately $450,000 in connection with restructuring the Company's
German operations.
(2) Included in fiscal 1994 is an extraordinary charge of $3.2 million from
the early redemption of $45 million aggregate stated principal amount of
the Company's 12% subordinated Debentures.
12
<PAGE> 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
Statements included under Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations, in this annual report on Form
10-K, as well as statements in future filings by the Company with the Securities
and Exchange Commission ("SEC"), in the Company's press releases and oral
statements made by or with the approval of an authorized executive officer of
the Company, which are not historical in nature, are intended to be, and are
hereby identified as, "FORWARD LOOKING STATEMENTS" for purposes of the safe
harbor provided by Section 21E of the Securities Exchange Act of 1934. The
Company cautions readers that FORWARD LOOKING STATEMENTS, include without
limitation, those relating to the Company's future business prospects, revenues,
working capital, liquidity, capital needs, plans for future operations,
effective tax rates, margins, interest costs, and income, as well as assumptions
relating to the foregoing. FORWARD LOOKING STATEMENTS are subject to certain
risks and uncertainties, some of which cannot be predicted or quantified. Actual
results and future events could differ materially from those indicated in the
FORWARD LOOKING STATEMENTS, due to several important factors herein identified,
among others, and other risks and factors identified from time to time in the
Company's reports filed with the SEC including, without limitation, the
following: general economic and business conditions which may impact disposable
income of consumers, competitive products and pricing, ability to enforce
intellectual property rights, and success of hedging strategies in respect of
currency exchange rate fluctuations.
GENERAL
Net Sales. Among the more significant factors which influence annual sales are
general economic conditions in the Company's domestic and international markets,
new product introductions, the level of advertising expenditures, the
effectiveness of marketing and distribution programs and product pricing
decisions.
Reported sales are also affected by foreign exchange rates, primarily the U.S.
dollar/Swiss franc rate, because significant portions of the Company's
international sales are billed in Swiss francs and translated to U.S. dollars at
average exchange rates for financial reporting purposes.
The Company's business is very seasonal. There are two major selling seasons in
most of the Company's markets: the spring season which includes graduations and
several holidays and, most importantly, the Christmas and holiday season. Major
selling seasons in certain international markets center around significant local
holidays that occur in late winter or early spring; however, because these
markets are a less significant portion of the Company's business, their impact
is far less than that of the selling seasons in North America.
The Company is continuing its efforts, begun in fiscal 1995, to expand sales in
key international markets. These efforts have included the recruitment of a
number of key personnel with management level sales and marketing
responsibilities, the addition and replacement of selected independent
distributors, an increase in the number of sales representatives, retargeted and
increased advertising and coordinated marketing programs designed to build brand
awareness and consumer demand for the Company's watches at point of sale.
Gross Margins. The Company's overall gross margins are primarily affected by
four major factors: sales mix, product pricing strategy, component and labor
costs and the U.S. dollar/Swiss franc exchange rate. The Company's gross margins
on its manufactured brands are higher than those on its distributed brands and,
therefore, any shift in overall sales mix toward the Company's manufactured
brands will generally have a favorable impact on margins. In addition, margins
on sales of a particular brand vary from model to model and, therefore, changes
in the model sales mix within a brand will impact margins.
All of the Company's brands compete with a number of other brands on the basis
of not only styling but also wholesale and retail price. The Company's ability
to improve margins through price increases is, therefore, to some extent
constrained by competitor actions. The overall level of liquidation sales of
discontinued models in a particular fiscal year can also impact the Company's
gross margins.
Manufacturing costs of the Company's Movado and Concord brands consist primarily
of component costs, Company and subcontract assembly costs and unit overhead
costs.
The Company seeks to control and reduce component and subcontract labor costs
through a combination of negotiation with existing suppliers and alternative
sourcing. Overall wage and salary costs at the Company's manufacturing
operations in Switzerland are a function of production levels and local
inflation. These costs have remained fairly stable over the three previous
fiscal years.
Since a substantial amount of the Company's product costs are incurred in Swiss
francs, fluctuations in the U.S. dollar/Swiss franc exchange rate can impact the
Company's production costs and therefore its gross margins. The Company,
therefore, hedges its Swiss franc purchases using a combination of forward
contracts, purchased currency options and spot purchases. The Company's hedging
program has, in the recent past, been reasonably successful in stabilizing
product costs despite exchange rate fluctuations.
13
<PAGE> 15
Operating Expenses. The Company's operating expenses consist primarily of
advertising, selling, distribution and general and administrative expenses.
Annual advertising expenditures are based principally on overall strategic
considerations relative to maintaining or increasing market share in markets
that management considers to be crucial to the Company's continued success as
well as on general economic conditions in the various marketplaces around the
world in which the Company sells its products.
Selling expenses consist primarily of sales commissions, salesforce travel costs
and operating costs incurred in connection with the Company's retail business.
Sales commissions vary proportionally with overall sales levels. Retail
operating expenses consist primarily of salaries and store rent.
Distribution expenses consist primarily of salaries of distribution staff, the
cost of part-time help to meet seasonal needs, and shipping costs and supplies.
General and administrative expenses consist primarily of salaries, employee
benefit plan costs, office rent, management information systems costs and
various other corporate expenses such as insurance, legal, internal audit and
credit and collection costs.
Operating expenses over the last three fiscal years reflect the effect of the
implementation of the Company's growth strategy. The more significant expenses
associated with this strategy include advertising and marketing expenses
designed to increase market share for the Piaget, Corum, Concord and Movado
brands, advertising and marketing costs for the continuing expansion of the
Company's ESQ line which was introduced in 1993, additions to the Company's
domestic salesforce, salaries and rents associated with additional outlet stores
and the addition of staff to support distribution and inventory management
requirements coincident with growth of the Company's domestic business.
Income taxes. The Company's income tax provision for both fiscal 1997 and 1996
amounted to $3.9 million or 24.8% and 28.5% of pretax income, respectively. A
portion of the Company's consolidated operations are located in non-U.S.
jurisdictions and therefore the Company's effective rate differs from U.S.
statutory rates. The majority of the Company's non-U.S. operations are located
in jurisdictions with statutory rates below U.S. rates. The Company believes
that the future effective tax rate will range from 24% to 30%; 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 the Company's
ability to utilize carryforward net operating losses in certain jurisdictions.
RESULTS OF OPERATIONS
Net Sales. Comparative net sales by product class are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Piaget and Corum $ 22,386 $ 25,963 $ 22,296
Concord and Movado
Domestic 109,314 91,105 83,342
International 30,185 28,504 27,437
ESQ 29,496 19,350 11,293
Other 23,726 20,945 16,485
-------- -------- --------
$215,107 $185,867 $160,853
======== ======== ========
</TABLE>
Net sales increased 15.7% in fiscal 1997. The increase resulted primarily from
growth in unit sales in the U.S.
14
<PAGE> 16
and, to a lesser extent, unit sales gains in the Company's international
business.
Increases in unit sales in the U.S. were attributable primarily to the Concord,
Movado and ESQ brands offset somewhat by a decline in unit sales of Piaget. The
increase in international unit sales was offset somewhat by the negative impact
of a change in translation rates.
Net sales increased 15.6% in fiscal 1996. The increase resulted primarily from
growth in unit sales volumes in the U.S., Canada, the Caribbean and certain Far
East markets offset somewhat by decreased unit sales in the Company's other
international markets. Increases in unit sales in North America were
attributable primarily to the Movado and ESQ brands and, to a lesser extent,
increases in unit sales of Piaget in the United States, Canada and the
Caribbean.
The increase in net sales in fiscal 1996 also includes the effect of price
increases which were implemented in response to a significant decline in the
value of the dollar against the Swiss franc which increases the Company's
product costs. Net sales were also favorably impacted by changes in average
translation rates.
Gross Margins. The Company's gross margins increased from 55.1% to 55.8% in
fiscal 1997. Fiscal 1997 margins were favorably impacted by sales mix,
particularly an increase in the proportion of Concord, Movado and ESQ sales to
total sales as well as reduced per unit overhead costs due to higher unit
production levels in Switzerland. The Company's margin was also benefited by
increases in the U.S. dollar against the Swiss franc which occurred late in the
fiscal year.
The Company's gross margins increased from 52.8% to 55.1% in fiscal 1996. The
Company continued to experience a shift in its overall sales mix toward its
higher margin Concord, Movado and ESQ brands. Margins also benefited from
reduced levels of lower margin liquidation sales due to the success of the
Company's outlet stores and improved production planning. The Company was able
to offset the otherwise negative impact on gross margins of a significant
decline in the U.S. dollar against the Swiss franc with price increases on all
of its lines implemented at various points throughout the year.
Operating Expenses. Operating expenses in fiscal 1997 increased 18.2% to 46.3%
of sales from 45.4% of sales in 1996. The increase in fiscal 1997 operating
expenses occurred primarily in the advertising and selling, general and
administrative expense categories. Although increasing slightly in absolute
terms, product distribution costs declined as a percentage of sales.
The increase in advertising and marketing expenditures occurred primarily in
the U.S. This increase was planned and relates to the Company's ongoing efforts
to build identity and image for its brands. Fiscal 1997 advertising and
marketing costs were affected by higher levels of media spending for Concord,
Movado and, in particular, ESQ in the U.S., production costs for a new
advertising campaign for Concord and increased marketing and promotional
activities in the U.S. for all of the Company's brands including the
introduction of the new Vizio line.
The growth in consolidated advertising costs also included increased media
spending in certain international markets, primarily the Far East and Middle
East.
Selling expenses included an increase in sales commissions commensurate with
sales growth as well as the costs associated with an increase in the number of
employees involved in the Company's domestic sales function, particularly in the
ESQ brand and the growth of its retail division.
Fiscal 1997 general and administrative expenses included the cost of management
additions and increased employee benefit costs. Fiscal 1997 operating expenses
also included a non-recurring charge of $450,000 in connection with
restructuring the Company's German business.
15
<PAGE> 17
Operating expenses increased 21.8% in fiscal 1996 to 45.4% of net sales as
compared to 43.0% of net sales in the prior year. The increase in overall
operating expenses was attributable primarily to a planned 36% increase in
advertising costs, and increases in variable selling and distribution expenses.
The increase in fiscal 1996 advertising expenses related to domestic media costs
primarily for Movado and ESQ, targeted international campaigns, cooperative
advertising programs and domestic and international advertising production
costs. Fiscal 1996 advertising expenses also include a one time $600,000 charge
in connection with a change in the accounting standards for advertising
production costs. Non-advertising operating expenses as a percentage of sales
were consistent with the prior year.
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 and revolving lines of credit, was $4.9 million, $4.5 million
and $4.3 million for fiscal 1997, 1996 and 1995, respectively. The effect of
higher average outstanding borrowings against working capital lines in 1997 and
1996 was offset somewhat by lower average interest rates on these borrowings.
Income Taxes. The Company's income tax provision for both fiscal 1997 and 1996
amounted to $3.9 million or 24.8% and 28.5% of pretax income, respectively. A
portion of the Company's consolidated operations are located in non-U.S.
jurisdictions and therefore the Company's effective rate differs from U.S.
statutory rates. The majority of the Company's non-U.S. operations are located
in jurisdictions with statutory rates below U.S. rates. The Company believes
that the future effective tax rate will range from 24% to 30%; however, there
can be no assurance of this as it is dependent on a number of factors including:
mix of foreign to domestic earnings, possible charges in local statutory tax
rates and utilization of net operating losses.
In fiscal 1995, the Company recorded a tax benefit of $2.5 million. The benefit
resulted primarily from the reversal of valuation allowances on domestic
deferred tax assets related to net operating loss carryforwards, cumulative
temporary differences and alternative minimum tax credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs historically have been 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. (See Note 3 to the Consolidated Financial
Statements for details of the Company's borrowing arrangements with its banks).
The Company expects that its future requirements for capital will relate not
only to working capital requirements for the expected continued growth of its
existing brands, but also funding new lines of business including the Spring
1998 launch of the Company's new Coach watch line and possible product line
extensions and retail boutiques for the Movado brand. In addition, the Company
is required to make a $5 million sinking fund payment on February 2, 1998 in
connection with its $40 million 6.56% senior notes. The Company's existing bank
credit lines and planned operating cash flows will not be sufficient to fund the
combined capital commitments associated with internal growth, new business and
sinking fund requirements; however, management believes the Company's positive
operating performance of recent years and current financial position will afford
it sufficient access to capital to meet all existing financial commitments and
fully implement its business plans.
16
<PAGE> 18
At January 31, 1997, the Company's debt to total capitalization ratio had been
increased to 33.7% from 31.8% at January 31, 1996. The major factor in this
increase was a $12.2 million decline in the Company's cumulative translation
adjustment due to strengthening of the U.S. dollar. Excluding the cumulative
translation adjustment, the Company's debt to total capitalization ratio
declined from 34.0% to 33.3%.
The Company's working capital consisting primarily of trade receivables and
inventories amounted to $126.7 and $132.7 million at January 31, 1997 and 1996,
respectively. The decline in the Company's working capital in 1997 is primarily
attributable to the reclassification of $5.0 million of the Company's long-term
senior debt which is payable on January 31, 1998.
Accounts receivable at January 31, 1997 were $75.7 million compared to $75.3
million at January 31, 1996. Most of this increase related to growth in domestic
sales in the second half of fiscal 1997 as compared to the prior year period
partially offset by the translation effect due to strengthening of the U.S.
dollar. On a constant dollar basis the Company reduced its days sales
outstanding from 137 at January 31, 1996 to 130 at January 31, 1997.
Inventories at January 31, 1997 and 1996 were $87.2 million and $89.1 million,
respectively, a decrease of $1.9 million or 2.2%. On a constant dollar basis,
the Company's inventories increased approximately 5.0% in 1997; however,
consolidated inventory turns increased from 1.0 to 1.1 times on a constant
dollar basis.
The Company's capital expenditures amounted to $6,626,000, $2,025,000 and
$4,397,000 in fiscal 1997, 1996 and 1995, respectively. Fiscal 1997 expenditures
are principally related to the Company's Piaget Boutique, upgrades of the
Company's domestic distribution operations, the relocation of the Company's
Swiss operations and computer hardware and software investments to automate the
Company's domestic salesforce. Fiscal 1996 and 1995 expenditures were primarily
related to improvements in the Company's management information systems,
expansion and upgrades of the Company's domestic distribution operations and
leasehold improvements related to the expansion of the Company's Movado Company
Store network.
17
<PAGE> 19
Item 8. Financial Statements and Supplementary Data
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER NUMBER
------ ------
<S> <C> <C>
Report of Independent Accountants F-1
Consolidated Statements of Income for the fiscal years ended January 31, F-2
1997, 1996 and 1995
Consolidated Balance Sheets at January 31, 1997 and 1996 F-3
Consolidated Statements of Cash Flows for the fiscal years ended F-4
January 31, 1997, 1996 and 1995
Consolidated Statements of Changes in Shareholders' Equity for F-5
the fiscal years ended January 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements F-6 to F-17
Valuation and Qualifying Accounts and Reserves VIII S-1
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
18
<PAGE> 20
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this item is included in the Company's Proxy
Statement for the 1997 annual meeting of shareholders and is incorporated herein
by reference.
Item 11. Executive Compensation
The information required by this item is included in the Company's Proxy
Statement for the 1997 annual meeting of shareholders and is incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is included in the Company's Proxy
Statement for the 1997 annual meeting of shareholders and is incorporated herein
by reference.
Item 13. Certain Relationships and Related Transactions
The information required by this item is included in the Company's Proxy
Statement for the 1997 annual meeting of shareholders and is incorporated herein
by reference.
19
<PAGE> 21
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Documents filed as part of this report
1. Financial Statements:
See Financial Statements Index on page 18 included in Item 8 of part
II of this report.
2. Financial Statements Schedules:
Schedule VIII Valuation and Qualifying
Accounts and Reserves
All other schedules are omitted because they are not applicable, or
not required, or because the required information is included in the
Consolidated Financial Statements or notes thereto.
3. Exhibits:
Incorporated herein by reference is a list of the Exhibits contained
in the Exhibit Index on pages 40 through 43 of this report.
(b) Reports on Form 8-K
None.
20
<PAGE> 22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities 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: April 18, 1997 By: /s/ Gedalio Grinberg
-------------- Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the date indicated:
<TABLE>
<S> <C>
Dated: April 18, 1997 /s/ Gedalio Grinberg
-------------- Gedalio Grinberg
Chief Executive Officer and
Chairman of the Board of Directors
(Principal Executive Officer)
Dated: April 18, 1997 /s/ Efraim Grinberg
-------------- Efraim Grinberg
President
Dated: April 18, 1997 /s/ Michael J. Bush
-------------- Michael J. Bush
Executive Vice President and Chief Operating Officer
Dated: April 18, 1997 /s/ Kenneth J. Adams
-------------- Kenneth J. Adams
Senior Vice President and Chief Financial Officer
(Chief Financial Officer)
Dated: April 18, 1997 /s/ John J. Rooney
-------------- John J. Rooney
Corporate Controller
(Principal Accounting Officer)
Dated: April 18, 1997 /s/ Margaret Hayes Adame
-------------- Margaret Hayes Adame
Director
Dated: April 18, 1997 /s/ Donald Oresman
-------------- Donald Oresman
Director
Dated: April 18, 1997 /s/ Leonard L. Silverstein
-------------- Leonard L. Silverstein
Director
</TABLE>
21
<PAGE> 23
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of Movado Group, Inc.
In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(1) and (2) on page 20 present fairly, in all material
respects, the financial position of Movado Group, Inc. and its subsidiaries at
January 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the three years in the period ended January 31, 1997, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
March 24, 1997, except as to Note 16, which is as of April 3, 1997.
F-1
<PAGE> 24
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales $ 215,107 $ 185,867 $ 160,853
Costs and expenses:
Cost of sales 95,031 83,502 75,871
Selling, general and administrative 99,657 84,315 69,243
--------- --------- ---------
194,688 167,817 145,114
--------- --------- ---------
Operating income 20,419 18,050 15,739
Net interest expense 4,874 4,450 4,307
--------- --------- ---------
Income before income taxes 15,545 13,600 11,432
Provision for (benefit from) income taxes 3,853 3,876 (2,512)
--------- --------- ---------
Net income $ 11,692 $ 9,724 $ 13,944
========= ========= =========
Earnings per share $ 1.94 $ 1.62 $ 2.32
========= ========= =========
Shares used in per share computations 6,012 6,007 6,000
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-2
<PAGE> 25
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,885 $ 3,829
Trade receivables, net 75,688 75,335
Inventories 87,177 89,101
Other 16,914 12,521
--------- ---------
Total current assets 184,664 180,786
Plant, property and equipment, net 15,066 11,794
Other assets 8,713 7,800
--------- ---------
$ 208,443 $ 200,380
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 7,778 $ 8,782
Current portion of long-term debt 5,000 --
Accounts payable 25,297 22,042
Accrued liabilities 13,188 9,289
Deferred and current taxes payable 6,711 7,994
--------- ---------
Total current liabilities 57,974 48,107
--------- ---------
Long-term debt 40,000 40,000
Deferred and noncurrent foreign income taxes 3,477 3,860
Other liabilities 3,122 3,572
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; 3,445,206 and 3,426,610
shares issued, respectively 34 34
Class A Common Stock, $0.01 par value,
shares authorized; 2,585,322 and 2,588,891
shares issued and outstanding, respectively 26 26
Capital in excess of par value 34,503 34,252
Retained earnings 71,291 60,319
Cumulative translation adjustment (1,856) 10,338
Treasury stock, 9,201 shares, at cost (128) (128)
--------- ---------
103,870 104,841
--------- ---------
Commitments and contingencies (Note 11)
--------- ---------
$ 208,443 $ 200,380
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-3
<PAGE> 26
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 11,692 $ 9,724 $ 13,944
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 3,946 2,949 3,109
Deferred and noncurrent foreign income taxes 221 (373) (4,831)
Provision for losses on accounts receivable 1,917 1,115 867
Changes in current assets and liabilities:
Trade receivables (4,096) (10,607) (9,982)
Inventories (3,828) (2,836) (4,450)
Other current assets (14,163) (453) (4,484)
Accounts payable 5,174 1,318 10,392
Accrued liabilities 4,301 481 (601)
Deferred and current taxes payable (377) 2,299 4,174
Increase in other noncurrent assets (1,285) (153) (1,337)
Increase in other noncurrent liabilities 253 414 23
-------- -------- --------
Net cash provided by operating activities 3,755 3,878 6,824
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (6,626) (2,025) (4,397)
Goodwill, trademarks and other intangibles (294) (278) (717)
-------- -------- --------
Net cash used in investing activities (6,920) (2,303) (5,114)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from (payment of) current borrowings under lines of credit 5,335 (1,194) 1,235
Principal payments under capital leases (389) (996) (869)
Exercise of stock options 212 214 --
Dividends paid (720) (599) (480)
Purchase of treasury stock -- (128) --
-------- -------- --------
Net cash provided by (used in) financing activities 4,438 (2,703) (114)
-------- -------- --------
Effect of exchange rate changes on cash (217) 61 147
Net increase (decrease) in cash 1,056 (1,067) 1,743
Cash at beginning of year 3,829 4,896 3,153
-------- -------- --------
Cash at end of year $ 4,885 $ 3,829 $ 4,896
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-4
<PAGE> 27
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CAPITAL IN CUMULATIVE
PREFERRED COMMON COMMON EXCESS OF RETAINED TRANSLATION TREASURY
STOCK STOCK STOCK PAR VALUE EARNINGS ADJUSTMENT STOCK
----- ----- ----- --------- -------- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1994 $ -- $ 32 $ 28 $ 34,009 $ 37,730 $ 659 $ --
Net income 13,944
Dividends ($0.08 per share) (480)
Translation adjustment 7,008
Issuance of Common Stock
Conversion of 239,196 shares of
Class A Common Stock to 239,187
shares of Common Stock 2 (2)
-------- ------- ------ --------- --------- --------- ---------
Balance, January 31, 1995 -- 34 26 34,009 51,194 7,667 --
Net income 9,724
Dividends ($0.10 per share) (599)
Stock options exercised 214
Tax benefit from employees
exercising stock options 29
Purchase of Treasury stock (128)
Translation adjustment 2,671
-------- ------- ------ --------- --------- --------- ---------
Balance, January 31, 1996 -- 34 26 34,252 60,319 10,338 (128)
Net income 11,692
Dividends ($0.12 per share) (720)
Stock options exercised 212
Tax benefit from employees
exercising stock options 39
Translation adjustment (12,194)
-------- ------- ------ --------- --------- --------- ---------
Balance, January 31, 1997 $ -- $ 34 $ 26 $ 34,503 $ 71,291 $ (1,856) $ (128)
======== ======= ====== ========= ========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
F-5
<PAGE> 28
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Movado Group, Inc. (the "Company"), is a designer, manufacturer and distributor
of quality watches with prominent brands in almost every price category
comprising the watch industry. The Company markets five distinctive brands of
watches: Movado, Concord, ESQ, Piaget and Corum, which compete in most segments
of the watch market.
The Company designs and manufactures Concord and Movado watches primarily
through its subsidiaries in Switzerland and the United States. ESQ watches are
manufactured to the Company's specifications using Swiss movements by
independent contractors located in the Far East. The Company is also the
exclusive distributor of Swiss-manufactured Piaget and Corum watches in the
United States, Canada, Central America and the Caribbean Islands. The Company
distributes its watch brands through its United States operations as well as
through sales subsidiaries in Canada, Hong Kong, Singapore and Switzerland and
through a number of independent distributors located in various countries
throughout the world.
In addition to its sales to trade customers and independent distributors, Movado
Group, Inc. sells Movado watches and Piaget products directly to consumers in
its Company-operated Movado Design Store and its Piaget Boutique, respectively,
both of which are located on Fifth Avenue in New York City. Movado Group, Inc.
also operates a number of Movado Company Stores throughout the United States,
through which the Company sells discontinued and sample merchandise.
Principles of consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany transactions and balances have been eliminated.
Translation of foreign currency financial statements and foreign currency
transactions
The financial statements of the Company's international subsidiaries have been
translated into United States dollars by translating balance sheet accounts at
year end exchange rates and statement of operations accounts at average exchange
rates for the year. Foreign currency transaction gains and losses are charged or
credited to income as incurred. Foreign currency translation gains and losses
are reflected in the equity section of the Company's consolidated balance sheet
as cumulative translation adjustments.
Sales and trade receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado and Concord watches are also marketed through a
network of independent distributors. Sales are recognized upon shipment of
products to trade customers. Accounts receivable are stated net of allowances
for doubtful accounts of $3,876,000 and $3,323,000 at January 31, 1997 and 1996,
respectively. No individual trade customer, including trade customers under
common control, or international distributor accounts for 10% or more of the
Company's consolidated net sales.
F-6
<PAGE> 29
The Company's concentrations of credit risk arise primarily from accounts
receivable related to trade customers during the peak selling seasons. The
Company has significant accounts receivable balances due from major department
store chains. The Company's results of operations could be materially adversely
affected in the event any of these customers or a group of these customers
defaulted on all or a significant portion of their obligation to the Company as
a result of financial difficulties.
Inventories
Inventories are valued at the lower of cost or market. The cost of domestic
finished goods inventories is determined using the first-in, first-out (FIFO)
method. The costs of finished goods inventories held by overseas subsidiaries
and all component parts inventories are determined using average cost.
Plant, property and equipment
Plant, property and equipment at January 31, at cost, consists of the following
(in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Furniture and equipment $ 26,288 $ 23,195
Leasehold improvements 8,662 6,306
-------- --------
34,950 29,501
Less: accumulated depreciation and amortization (19,884) (17,707)
======== ========
$ 15,066 $ 11,794
======== ========
</TABLE>
Depreciation of furniture and equipment is provided using the straight-line
method based on the estimated useful lives of assets which range from three to
ten years. Leasehold improvements are amortized using the straight-line method
over the lesser of the term of the lease or the estimated useful life of the
leasehold improvement.
Goodwill and other intangibles
Other intangible assets consist primarily of trademarks and are recorded at
cost. Trademarks are amortized over ten years, except in the case of costs
associated with the Piaget and Corum trademarks, which are amortized over the
remaining terms of the Piaget and Corum distribution agreements. Goodwill is
amortized over 40 years. At January 31, 1997 and 1996, goodwill and other
intangible assets at cost were $5,065,000 and $5,043,000, respectively, and
related accumulated amortization of goodwill and other intangibles were
$2,385,000 and $2,188,000, respectively.
Advertising production costs
In fiscal 1996, the Company adopted a newly prescribed accounting guideline
which requires that production costs of an advertising campaign be expensed at
the commencement date of the advertising campaign. As a result of adopting this
new accounting pronouncement, the Company recorded at February 1, 1995 a one
time pre-tax charge of approximately $600,000 ($0.07 per share after tax) which
is included in selling, general and administrative expenses. Advertising
expenses for fiscal 1997, 1996 and 1995, amounted to $38.7 million, $33.0
million and $24.4 million, respectively.
F-7
<PAGE> 30
Income taxes
The Company and its domestic subsidiaries file a consolidated federal income tax
return. Foreign income taxes have been provided based on the applicable tax
rates in each of the foreign countries in which the Company operates. Certain
Swiss income taxes are payable over several years; the portion of these taxes
not payable within one year is classified as noncurrent. Noncurrent foreign
income taxes included in the consolidated balance sheets at January 31, 1997 and
1996 were $724,000 and $637,000, respectively.
Earnings per share
Earnings per share are based on the weighted average total number of shares of
Common Stock and Class A Common Stock outstanding during the periods presented.
Stock-based compensation
Stock-based compensation is recognized using the intrinsic value method. For
disclosure purposes, pro forma net income and earnings per share are provided
as if the fair value method had been applied.
Use of estimates in the preparation of financial statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------------
1997 1996
------- -------
<S> <C> <C>
Finished goods $53,497 $51,034
Work-in-process and component parts 33,680 38,067
------- -------
$87,177 $89,101
======= =======
</TABLE>
NOTE 3 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
In fiscal 1997, the Company entered into revised agreements with certain
domestic banks providing for $35,000,000 of unsecured demand borrowings, to be
used primarily for seasonal working capital requirements. Borrowings under these
lines bear interest at the prime commercial lending rate or LIBOR plus 1% or the
certificate of deposit rate plus 1.25%. Borrowings may be made in either U.S.
dollars or Swiss francs. These lines expire in the third quarter of fiscal
1998.
The Company's Swiss subsidiaries maintain secured and unsecured lines of credit
with Swiss banks, a majority of which have an unspecified duration. Available
credit under these lines totaled 20,500,000 Swiss francs, with dollar
equivalents of approximately $14,437,000 and $16,635,000 at January 31, 1997 and
1996, respectively. The Swiss franc credit lines included a line of 1,500,000
Swiss francs for the purchase of gold, borrowings which are secured by gold
inventory. As of January 31, 1997 and 1996, gold inventory valued at $0 and
$827,000, respectively, was pledged as collateral for borrowings under this line
of credit. One subsidiary's credit line contains a covenant requiring
maintenance of retained earnings above a specified minimum level. This
subsidiary was in compliance with this covenant at January 31, 1997 and 1996.
There are no other restrictions on transfers in the form of dividends, loans or
advances to the Company by its foreign subsidiaries.
Outstanding borrowings against the Company's aggregate demand lines of credit
were $7,746,000 and $8,782,000 at January 31, 1997 and 1996, respectively.
Aggregate maximum and average monthly outstanding borrowings against the
Company's lines of credit and
F-8
<PAGE> 31
related weighted average interest rates during fiscal 1997, 1996 and 1995 were
as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-------------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Maximum borrowings $56,143 $41,032 $31,300
Average monthly borrowings $34,302 $28,940 $22,139
Weighted average interest rate 5.9% 6.0% 6.2%
</TABLE>
Weighted average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
On January 31, 1996, the Company entered into a three year revolving credit
agreement with its domestic banks which provides the Company with a $20.0
million unsecured revolving line of credit. The agreement provides for various
rate options including the federal funds rate plus a fixed rate, the prime rate
or a fixed rate plus the LIBOR rate. The Company pays a facility fee on the
unused portion of the credit facility. The agreement also contains certain
financial covenants based on fixed coverage ratios, leverage ratios and
restrictions which limit the Company on the sale, transfer or distribution of
corporate assets, including dividends. The Company was in compliance with these
restrictions and covenants at January 31, 1997. The amount of $5.0 million
outstanding at January 31, 1997 is included in long-term debt. There were no
amounts outstanding at January 31, 1996.
NOTE 4 - LONG-TERM DEBT
Long-term senior debt outstanding at January 31, 1997 and 1996 consisted of
$35,000,000 and $40,000,000, respectively, of Senior Notes due January 31, 2005
(the "Senior Notes") which were issued in a private placement completed in
fiscal 1994. The Senior Notes bear interest at 6.56% per annum, payable
semiannually on July 31 and January 31, and are subject to mandatory annual
prepayments of $5,000,000 commencing January 31, 1998 and accordingly such
amount has been classified as a current liability in fiscal 1997. The Company
has the option to prepay amounts due to holders of the Senior Notes at 100% of
the principal plus a "make-whole" premium and accrued interest. The Senior Note
agreement contains certain restrictions and covenants which generally require
the maintenance of a minimum net worth, limit the amount of additional secured
debt the Company can incur and limit the sale, transfer or distribution of
corporate assets including dividends. The Company was in compliance with these
restrictions and covenants at January 31, 1997.
Included in long-term debt at January 31, 1997 was $5.0 million related to the
Company's revolving credit agreement as described in Note 3.
NOTE 5 - FOREIGN CURRENCY MANAGEMENT
A substantial portion of the Company's watches and watch components are sourced
from affiliated and nonaffiliated suppliers in Switzerland. A significant
strengthening of the Swiss franc against currencies of other countries in which
the Company conducts sales activities increases the Company's product cost. This
may adversely impact gross margins to the extent the Company is unsuccessful in
hedging against changes in the currency exchange rates or higher product costs
cannot be recovered through price increases in local markets. Significant
fluctuations in the Swiss franc - U.S. dollar exchange rate can also have a
material impact on the U.S. dollar value of the net assets of the Company's
wholly-owned Swiss subsidiaries.
The Company hedges against foreign currency exposure using only forward exchange
contracts, purchased foreign currency options and open market purchases to cover
identifiable inventory purchase commitments and equity invested in its
international subsidiaries. Due to production lead times, the Company hedges
identified inventory purchase commitments generally over a period of up to
eighteen months.
The Company has established strict counterparty credit guidelines and only
enters into foreign currency transactions with financial institutions of
investment grade or better. At January 31, 1997 and 1996, the
F-9
<PAGE> 32
Company had foreign currency trading lines totaling $200,000,000 with various
banks. To minimize the concentration of credit risk, the Company enters into
hedging transactions with each of these banks. As a result, the Company
considers the risk of counterparty default to be minimal.
The following table presents the aggregate contract amounts and fair values,
based on dealer quoted prices, of the Company's financial instruments
outstanding at January 31, 1997 and 1996. All financial instruments included
below mature within one year and were held for hedging purposes only. Foreign
currency forward amounts (in thousands) consist primarily of U.S. dollar - Swiss
franc contracts.
<TABLE>
<CAPTION>
AS OF JANUARY 31,
------------------------------------------------
1997 1996
-------------------- ---------------------
CONTRACT FAIR CONTRACT FAIR
AMOUNTS VALUES AMOUNTS VALUES
<S> <C> <C> <C> <C>
Foreign Currency Forward Amounts $56,176 $50,041 $78,528 $77,065
Purchased Options $ 7,450 $ 0 $40,751 $ 310
</TABLE>
The contract amounts of these foreign currency forward amounts and purchased
options do not necessarily represent amounts exchanged by the parties and,
therefore, are not a direct measure of the exposure of the Company through its
use of these financial instruments. The amounts exchanged are calculated on the
basis of the contract amounts and the other terms of the financial instruments,
which relate to exchange rates. As of January 31, 1997 and 1996, the receivable
from and payable to banks recorded in current assets and other current
liabilities, respectively, associated with closed contract positions was
$247,000 and $289,000, respectively.
The estimated fair values of these foreign currency forward amounts and
purchased options used to hedge the Company's risks will fluctuate over time.
These fair value amounts should not be viewed in isolation, but rather in
relation to the fair values of the underlying hedged transactions and
investments and the Company's overall exposure to fluctuations in foreign
exchange rates.
Gains and losses from and premiums paid for forward or option transactions that
hedge inventory purchase commitments are included in the carrying cost of
inventory and are recognized in cost of sales upon sale of the inventory. Net
deferred charges from hedging amounted to $640,000 and $403,000 at January 31,
1997 and 1996, respectively, and were included in other current assets on the
accompanying balance sheet.
Gains and losses on financial instruments that are designated and effective as
hedges of net investments in international operations are included in
shareholders' equity in the cumulative translation adjustment account.
NOTE 6 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The estimated fair value of the Company's Senior Notes at January 31, 1997
approximated the carrying value of the notes as the difference between
market-based interest rates at the balance sheet date and the 6.56% fixed rate
of the notes was minimal. The fair value of the Company's other monetary assets
and liabilities approximate carrying value due to the relatively short-term
nature of these items.
F-10
<PAGE> 33
NOTE 7 - INCOME TAXES
The provision for (benefit from) income taxes for the fiscal years ended January
31, 1997, 1996 and 1995 consist of the following components (in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Current:
U.S. Federal $ 1,667 $ 1,609 $ 270
U.S. State and Local 477 460 195
Non-U.S 860 1,430 (601)
------- ------- -------
3,004 3,499 (136)
------- ------- -------
Noncurrent:
U.S. Federal -- -- --
U.S. State and Local -- -- --
Non-U.S 845 800 64
------- ------- -------
845 800 64
------- ------- -------
Deferred:
U.S. Federal -- 450 (2,400)
U.S. State and Local -- (350) --
Non-U.S 4 (523) (40)
------- ------- -------
4 (423) (2,440)
------- ------- -------
Provision for (benefit from) income taxes $ 3,853 $ 3,876 ($2,512)
======= ======= =======
</TABLE>
During fiscal 1997, there were no material changes in the Company's deferred tax
asset and liability accounts. Taxes were provided for at a rate of 24.8% and
28.5% for fiscal 1997 and 1996, respectively. The reduction in the consolidated
tax rate is predominantly due to higher earnings in lower tax jurisdictions.
The Company's deferred federal U.S. tax charge for the year ended January 31,
1996, principally resulted from the utilization of federal domestic net
operating loss and Alternative Minimum Tax (AMT) credit carryforwards. The
Company's state and local deferred tax benefit results from the realization of
deferred state and local tax benefits. The Company's deferred U.S. federal tax
benefit for the year ended January 31, 1995 principally results from the
reversal of valuation allowances related to deferred tax assets for domestic net
operating loss carryforwards, AMT credit carryforwards and future domestic
income tax deductions. As required under Statement of Financial Accounting
Standards No. 109, these allowances are to be reversed when the Company believes
that the related tax benefits are more likely than not to be realized. The
reversal of the valuation allowances coincided with the return of U.S.
operations to profitability due not only to growth in the domestic business but
also to a substantial reduction in interest expense as a result of the Company's
refinancing completed in fiscal 1994. The Company's current benefit for foreign
taxes in fiscal 1995 was primarily attributable to a favorable impact from Swiss
Cantonal tax law changes.
The deferred U.S. federal tax benefit for the year ended January 31, 1995
represents a portion of the tax effect of U.S. net operating loss carryforwards
and future tax deductions which mainly arose in prior years and for which a 100%
valuation allowance had been recorded. The reduction in the valuation allowance
was primarily due to the fiscal 1995 refinancing which management believed would
result in the realization of at least a portion of its accumulated deferred tax
benefits due to expected interest savings in the U.S.
Deferred income taxes reflect the tax effect of temporary differences between
the amount of assets and liabilities recognized for financial reporting purposes
and such amounts recognized for tax purposes. Deferred income taxes have been
F-11
<PAGE> 34
classified as current or noncurrent on the consolidated balance sheets based
on the underlying temporary differences and the expected due dates of taxes
payable upon reversal. Significant components of the Company's deferred income
tax assets and liabilities for the fiscal year ended January 31, 1997 consist
of the following (in thousands):
<TABLE>
<CAPTION>
DEFERRED TAX
----------------------
ASSETS LIABILITIES
------- -----------
<S> <C> <C>
Operating loss carryforwards $ 2,357 $ --
Rent accrual 650 --
Inventory reserve 631 5,091
Receivable allowance 1,022 551
Depreciation/amortization 797 53
Other 523 308
------- -------
5,980 6,003
Valuation allowance (2,580) --
------- -------
Total $ 3,400 $ 6,003
======= =======
</TABLE>
As of January 31, 1997, the Company had foreign net operating loss carryforwards
of approximately $5,500,000 which are available to offset taxable income in
future years. Additionally, the Company has domestic capital loss carryforwards
of approximately $260,000 which expire in fiscal 1998. As of January 31, 1997,
the Company continued to maintain a 100% valuation allowance with respect to the
tax benefit of foreign net operating loss carryforwards. The Company has not
recorded a deferred tax asset related to its capital loss carryforwards due to
uncertainty as to its realization. Management is continuing to evaluate the
appropriate level of allowance based on future operating results and changes in
circumstances.
The provision for (benefit from) income taxes differs from the amount determined
by applying the U.S. federal statutory rate as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
---------------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Provision for income taxes at the U.S. statutory rate $ 5,441 $ 4,760 $ 3,887
Realization of capital and operating loss carryforwards -- (177) (1,561)
Recognition of deferred tax asset -- -- (2,400)
Lower effective foreign income tax rate (2,369) (1,215) (3,003)
Tax provided on repatriated earnings of foreign
subsidiaries 308 328 300
State and local taxes, net of federal benefit 315 73 195
Other 158 107 70
------- ------- -------
$ 3,853 $ 3,876 ($2,512)
======= ======= =======
</TABLE>
No provision has been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $84,000,000 at January 31, 1997, as those earnings are
intended to be reinvested. As a result of various tax planning alternatives
available to the Company, it is not practical to estimate the amount of tax, if
any, that might be payable on the eventual remittance of such earnings. On
remittance, certain withholding taxes would be imposed which might be available
to offset a U.S. tax liability, if any. In the event all undistributed earnings
as of January 31, 1997 were remitted, approximately $4,170,000 of withholding
taxes would be imposed.
F-12
<PAGE> 35
NOTE 8 - OTHER ASSETS
In fiscal 1996, the Company entered into an agreement with a trust which owns an
insurance policy issued on the lives of the Company's Chairman and Chief
Executive Officer and his spouse. Under that agreement the trust has assigned
the insurance policy to the Company as collateral to secure repayment by the
trust of interest free loans to be made by the Company in amounts sufficient for
the trust to pay the premiums on said insurance policy ($740,000 per annum).
Under the agreement, the trust will repay the loans from the proceeds of the
policy. The Company had loaned approximately $879,000 and $199,000 under this
agreement at January 31, 1997 and 1996, respectively.
NOTE 9 - OTHER LIABILITIES
Other liabilities include notes payable to employees of $414,000 as of January
31, 1997 and 1996, respectively, issued in connection with redemption of all
4,664 outstanding shares of the Company's former Class B (Non-Voting) Common
Stock. The redemption was effective July 31, 1993.
NOTE 10 - RESTRUCTURING CHARGE
During fiscal 1997, the Company signed a distribution agreement with Junghans
Uhren GmbH to distribute Movado watches in Germany. As a result of this
agreement, the Company closed its German sales office and recorded a charge of
approximately $450,000, included in selling, general and administrative
expenses, to cover severance and other costs to close the operation. Most of
these costs will be paid in the first quarter of fiscal 1998.
NOTE 11 - LEASES, COMMITMENTS AND CONTINGENCIES
Rent expense for equipment and distribution, factory and office facilities held
under operating leases was approximately $4,270,000, $3,274,000 and $3,384,000
in fiscal 1997, 1996 and 1995, respectively. Minimum annual rentals at January
31, 1997 under noncancelable operating leases which do not include escalations
that will be based on increases in real estate taxes and operating costs are as
follows:
<TABLE>
<CAPTION>
Year ending January 31,
(in thousands):
<S> <C>
1998 $ 4,807
1999 4,610
2000 4,177
2001 4,065
2002 3,925
2003 and thereafter 9,259
-------
$30,843
=======
</TABLE>
The Company has entered into capital leases to finance the cost of enhancing its
management information systems in the United States and Switzerland. The gross
value of computer equipment recorded under capital leases was $3,848,000 and
$3,631,000 as of January 31, 1997 and 1996, respectively. Accumulated
depreciation of computer equipment recorded under capital leases was $2,421,000
and $1,959,000 as of January 31, 1997 and 1996, respectively.
F-13
<PAGE> 36
Future minimum lease payments for equipment under capital leases at January 31,
1997 are as follows:
Year ending January 31,
(in thousands):
1998 $ 183
1999 230
-------
Total minimum lease obligations 413
Less interest (41)
-------
Present value of minimum lease obligations 372
Less current portion (156)
-------
Net amount due after one year $ 216
=======
Due to the nature of its business as a luxury consumer goods distributor, the
Company is exposed to various commercial losses. The Company believes it is
adequately insured against such losses.
NOTE 12 - EMPLOYEE BENEFIT PLANS
Prior to fiscal 1995, the Company maintained two primary benefit plans for its
domestic employees; a noncontributory Profit Sharing Plan and an Employee
Savings Plan under Section 401(k) of the Internal Revenue Code. Company
contributions to the Profit Sharing Plan were at the discretion of the Board of
Directors and no such contributions were made in fiscal 1997, 1996 and 1995.
Company contributions and expenses of administering the Employee Savings Plan
amounted to $127,000, $106,000 and $84,000 in fiscal 1997, 1996 and 1995,
respectively.
During fiscal 1995, the Company merged its Profit Sharing Plan with and into the
Employee Savings Plan and transferred participants' assets accumulated under the
Profit Sharing Plan to the Employee Savings Plan. The merged Plan retains the
characteristics of the former Employee Savings Plan.
Effective June 1, 1995, the Company adopted a defined contribution supplemental
executive retirement plan ("SERP"). The SERP provides eligible executives with
supplemental pension benefits in addition to amounts received under the
Company's other retirement plan. The Company makes a matching contribution which
vests equally over five years. During fiscal 1997 and 1996, the Company recorded
expenses related to the SERP of approximately $138,000 and $42,000,
respectively.
On September 23, 1994, the Company entered into a Death and Disability Benefit
Plan agreement with the Company's Chairman and Chief Executive Officer. Under
the terms of the agreement, in the event of the Chairman's death or disability,
the Company is required to make an annual benefit payment of approximately
$300,000 to his spouse for the lesser of ten years or her remaining lifetime.
Neither the agreement nor the benefits payable thereunder are assignable and no
benefits are payable to the estates or heirs of the Chairman or his spouse.
Results of operations include an actuarially determined charge related to this
plan of approximately $85,000 and $78,000 for fiscal 1997 and 1996,
respectively.
Effective concurrently with the consummation of the Company's public offering in
the fourth quarter of fiscal 1994, the Board of Directors and the shareholders
of the Company approved the adoption of the Movado Group, Inc. 1993 Employee
Stock Option Plan (the "Employee Stock Option Plan") for the benefit of certain
officers, directors and key employees of the Company. The Employee Stock Option
Plan was amended in fiscal 1997 and restated as the Movado Group, Inc. 1996
Stock Incentive Plan (the "Plan"). Under the Plan the Compensation Committee of
the Board of Directors, which is comprised of the Company's three outside
directors, has the authority to grant incentive stock options and nonqualified
stock options to purchase, as well as stock appreciation rights and stock award,
up to 800,000 shares of Common Stock. Options granted to participants under the
Plan become exercisable in equal installments on the first through fifth
anniversaries of the date of grant and remain exercisable until the tenth
anniversary of the date of grant. The option price may
F-14
<PAGE> 37
not be less than the fair market value of the stock at the time the options are
granted.
Transactions in stock options under the Plan since fiscal 1995 are summarized as
follows:
<TABLE>
<CAPTION>
WEIGHTED
OUTSTANDING AVERAGE PRICE EXERCISABLE
OPTIONS PER SHARE OPTIONS
----------- ------------- -----------
<S> <C> <C> <C>
January 31, 1994 266,000 $14.00
Options granted 15,000 12.79
Options that became exercisable 14.00 41,100
Options terminated (60,500) 14.00
----------- ------------- -----------
January 31, 1995 220,500 13.90 41,100
Options granted 107,000 13.99
Options that became exercisable 36,000
Options exercised (15,200) 14.00
Options terminated (4,000) 14.00
----------- ------------- -----------
January 31, 1996 308,300 13.93 77,100
Options granted 229,000 20.59
Options that became exercisable 62,020
Options exercised (19,600) 14.00
Options terminated (7,900) 14.00
----------- ------------- -----------
January 31, 1997 509,800 $16.92 139,120
</TABLE>
At January 31, 1997 and 1996, 273,798 and 176,500 options to purchase shares of
Common Stock were available for additional grants, respectively. Options
exercisable at January 31, 1997 had a weighted average price of $13.95 per
share.
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $6.51 and $4.71 per share
in fiscal 1997 and 1996, respectively. The following weighted-average
assumptions were used for grants in both 1997 and 1996: dividend yield of 2% for
all years; expected volatility of 26%, risk-free interest rates of 5.6% and 6.3%
for fiscal 1997 and 1996, respectively, and expected lives of 7 years.
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. Accordingly, no compensation cost has been recognized for the Plan.
Had compensation cost for the Company's fiscal 1997 and 1996 grants for
stock-based compensation plans been determined based on the fair value at the
grant dates and recognized ratably over the vesting period, the Company's net
income and net income per common share for fiscal 1997 and 1996 would
approximate the pro forma amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1997 1996
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Net income $ 11,692 $ 11,392 $ 9,724 $ 9,651
========= ========= ========= =========
Net income per common share $ 1.94 $ 1.89 $ 1.62 $ 1.61
========= ========= ========= =========
</TABLE>
The pro forma impact takes into account options granted since February 1, 1995
and is likely to increase in future years as additional options are granted and
amortized ratably over the vesting period.
F-15
<PAGE> 38
NOTE 13 - GEOGRAPHIC AREAS
The table below provides information pertaining to the Company's operations in
different geographic areas. For purposes of discussion, the Company divides its
business into two major geographic segments; "domestic", which includes the
results of the Company's United States and Canadian operations and
"international", which includes the results of all other Company operations. The
Company's international operations are principally conducted in Europe. The
Company's international assets are substantially located in Europe. Other
international operations contributed less than 10% of consolidated net sales and
constituted less than 10% of consolidated total assets for all periods presented
(in thousands).
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL ELIMINATIONS CONSOLIDATED
<S> <C> <C> <C> <C>
FISCAL YEAR 1997:
Revenue from sales to unaffiliated customers $175,404 $ 39,703 $ -- $215,107
Intercompany sales 1,635 84,103 (85,738)
-------- -------- --------- --------
Net sales $177,039 $123,806 $ (85,738) $215,107
======== ======== ========= ========
Income from continuing operations before
income taxes $ 3,102 $ 12,825 $ (382) $ 15,545
======== ======== ========= ========
Identifiable assets $108,606 $115,007 $ (15,170) $208,443
======== ======== ========= ========
FISCAL YEAR 1996:
Revenue from sales to unaffiliated customers $146,749 $ 39,118 $ -- $185,867
Intercompany sales 2,830 71,656 (74,486) --
-------- -------- --------- --------
Net sales $149,579 $110,774 $ (74,486) $185,867
======== ======== ========= ========
Income from continuing operations before
income taxes $ 5,103 $ 9,244 $ (747) $ 13,600
======== ======== ========= ========
Identifiable assets $104,770 $121,246 $ (25,636) $200,380
======== ======== ========= ========
FISCAL YEAR 1995:
Revenue from sales to unaffiliated customers $125,639 $ 35,214 $ -- $160,853
Intercompany sales 2,164 74,658 (76,822) --
-------- -------- --------- --------
Net sales $127,803 $109,872 $ (76,822) $160,853
======== ======== ========= ========
Income from continuing operations before
income taxes $ 4,728 $ 7,273 $ (569) $ 11,432
======== ======== ========= ========
Identifiable assets $ 99,566 $111,074 $ (23,691) $186,949
======== ======== ========= ========
</TABLE>
F-16
<PAGE> 39
NOTE 14 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 1997 and 1996 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
OCTOBER JANUARY
APRIL 30 JULY 31 31 31
------------------------------------------------------
<S> <C> <C> <C> <C>
1997
Net sales $ 31,014 $50,751 $76,864 $56,478
Gross profit $ 17,351 $27,630 $42,967 $32,128
Net (loss) income $ (474) $ 1,684 $ 7,350 $ 3,132
Per share:
Net (loss) income $ (0.08) $ 0.28 $ 1.22 $ 0.52
1996
Net sales $ 28,204 $43,986 $68,079 $45,598
Gross profit $ 14,917 $23,311 $36,132 $28,005
Net (loss) income $ (1,058) $ 1,444 $ 6,507 $ 2,831
Per share:
Net (loss) income $ (0.18) $ 0.24 $ 1.08 $ 0.47
</TABLE>
Net income for the quarter ended January 31, 1997 includes the effect of a
one-time, pre-tax charge of approximately $450,000 in connection with
restructuring the Company's German operation. (See Note 10 to Consolidated
Financial Statements).
NOTE 15 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
----------------------------------
1997 1996 1995
----------------------------------
<S> <C> <C> <C>
Cash paid during the year for:
Interest $5,141 $4,887 $4,464
Income taxes $4,321 $2,395 $1,217
Non-cash investing and financial activities:
Equipment acquired under capital lease $ 217 $ 422 $ 51
</TABLE>
NOTE 16 - SUBSEQUENT EVENT
On April 3, 1997 the Company's Board of Directors approved a five-for-four stock
split of the Company's common stock. The stock split will become effective April
21, 1997. Financial information contained in this report has not been adjusted
to reflect the impact of the common stock split.
F-17
<PAGE> 40
SCHEDULE VIII
MOVADO GROUP, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING CHARGED TO CURRENCY NET BALANCE AT
DESCRIPTION OF YEAR OPERATIONS REVALUATION WRITE-OFFS END OF YEAR
<S> <C> <C> <C> <C> <C>
Year ended January 31, 1997:
Allowance for doubtful accounts $3,323 $1,917 $(109) $(1,255) $3,876
Year ended January 31, 1996:
Allowance for doubtful accounts $2,792 $1,115 $ 40 $ (624) $3,323
Year ended January 31, 1995:
Allowance for doubtful accounts $2,784 $ 867 $ 106 $ (965) $2,792
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT PROVISION
BEGINNING OF (BENEFIT) BALANCE AT END
YEAR CHARGED ADJUSTMENTS OF YEAR
<S> <C> <C> <C> <C>
Year ended January 31, 1997:
Deferred tax assets valuation allowance $2,439 $ 141 $ 0 $2,580
Year ended January 31, 1996:
Deferred tax assets valuation allowance $1,726 $ 713 $ 0 $2,439
Year ended January 31, 1995:
Deferred tax assets valuation allowance $4,310 $(2,400) $(184) $1,726
</TABLE>
S-1
<PAGE> 41
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
<S> <C> <C>
3.1* Restated By-Laws of the Registrant
3.2 Restated Certificate of Incorporation of the Registrant as
amended. Incorporated herein by reference to Exhibit 3.2 to
the Registrant's Annual Report on Form 10-K filed for the
year ended January 31, 1996.
4.1 Specimen Common Stock Certificate.
4.2 Note Agreement, dated as of November 9, 1993, by and between
the Registrant and The Prudential Insurance Company of
America. Incorporated herein by reference to Exhibit 4.1 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended October 31, 1993.
10.1* Settlement Agreement, dated as of February 11, 1992, by and
among S.A. Ancienne Fabrique Georges Piaget et Cie. ("Piaget
Swiss"), PBM International Holding S.A., Piaget Watch
Corporation, the Registrant and Gedalio Grinberg.
10.2* Distributorship Agreement among Piaget Watch Corporation,
Piaget Swiss and Piaget (International) S.A., dated as of
February 11, 1992.
10.3* Distributorship Agreement among North American Watch of
Canada, Ltd., Piaget Swiss and Piaget (International) S.A.,
dated as of February 11, 1992.
10.4* Distributorship Agreement among the Registrant, Piaget Swiss
and Piaget (International) S.A., dated as of February 11,
1992.
10.5* Trademark Agreement, dated as of February 11, 1992, by and
among Piaget Swiss, Piaget Watch Corporation and the
Registrant.
10.6* Franchise Agreement between Corum Watch Corporation and
Corum, Ries, Bannwart & Co., dated February 27, 1969, as
amended on April 16, 1979, February 22, 1980, April 20,
1982, January 1988 and February 19, 1993.
10.7* Assignment Agreement, dated February 22, 1980, between
Corum, Ries, Bannwart & Co. and Corum Watch Corporation.
10.8* Agreement, dated January 1, 1992, between The Hearst
Corporation and the Registrant, as amended on January 17,
1992.
10.9 Letter Agreement between the Registrant and The Hearst
Corporation dated October 24, 1994 executed October 25, 1995
amending License Agreement dated as of January 1, 1992, as
amended. Incorporated herein by reference to Exhibit 10.1 to
Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995.
</TABLE>
40
<PAGE> 42
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
<S> <C> <C>
10.10* Lease Agreement between the Registrant and Meadowlands
Associates, dated October 31, 1986, for office space in
Lyndhurst, New Jersey, together with the Non-Disturbance and
Attornment Agreement, dated March 11, 1987.
10.11 Registrant's 1996 Stock Incentive Plan amending and
restating the 1993 Employee Stock Option Plan. Incorporated
herein by reference to Exhibit 10.5 to Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1996.**
10.12 Line of Credit Letter Agreement dated August 30, 1996
between the Registrant and The Chase Manhattan Bank, N.A.
Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1996.
10.13 Line of Credit Letter Agreement dated August 9, 1996
amending line of credit letter agreement dated May 31, 1995
between the Registrant and Fleet Bank, N.A. Incorporated
herein by reference to Exhibit 10.2 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October
31, 1996.
10.14 Line of Credit Letter Agreement dated November 13, 1996
between the Registrant and Marine Midland Bank, N.A.
Incorporated herein by reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1996.
10.15* Letter Agreement dated May 19, 1993 between Concord Watch
Company, S.A. and Bern Cantonal Bank (English translation).
10.16* Letter Agreement dated August 23, 1989 between Grandjean,
S.A. and Neuchatel Cantonal Bank, as amended by a Letter
Agreement dated March 2, 1990 between Grandjean, S.A. and
Neuchatel Cantonal Bank (English translation).
10.17* Letter Agreement dated June 18, 1992 between Grandjean, S.A.
and Neuchatel Cantonal Bank (English translation).
10.18* Letter Agreement dated June 5, 1992 between Grandjean, S.A.
and Popular Bank of Switzerland (English translation).
10.19* Letter Agreement dated November 25, 1992 between Concord
Watch Company, S.A. and Swiss Bank Corporation (English
translation).
10.20* Letter Agreement dated January 25, 1991 between Concord
Watch Company, S.A. and Union Bank of Switzerland (English
translation).
10.21* Letter Agreement dated May 15, 1991 between Grandjean, S.A.
and Union Bank of Switzerland (English translation).
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
<S> <C> <C>
10.22 Lease dated August 10, 1994 between Rockefeller Center
Properties, as landlord and SwissAm Inc., as tenant for
space at 630 Fifth Avenue, New York, New York. Incorporated
herein by reference to Exhibit 10.4 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31,
1994.
10.23 First Amendment of Lease dated May 31, 1994 between
Meadowlands Associates, as landlord and the Registrant, as
tenant for additional space at 125 Chubb Avenue, Lyndhurst,
New Jersey. Incorporated herein by reference to Exhibit 10.4
to the Registrant's Quarterly Report on Form 10-Q for the
quarter ended July 31, 1994.
10.24 Death and Disability Benefit Plan Agreement dated September
23, 1994 between the Registrant and Gedalio Grinberg.
Incorporated herein by reference to Exhibit 10.1 to the
Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1994.**
10.25 Registrant's amended and restated Deferred Compensation Plan
for Executives dated June 15, 1996. Incorporated herein by
reference to Exhibit 10.4 to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended October 31,
1996.**
10.26 Credit Agreement dated as of January 31, 1996 among the
Registrant, Chase Manhattan Bank (National Association)
("Chase"), NatWest Bank N.A. ("NatWest"), Marine Midland
Bank and Chase as Agent and NatWest as Co-Agent.
Incorporated herein by reference to Exhibit 10.26 to the
Registrant's Annual Report on Form 10-K for the year ended
January 31, 1996.
10.27 Agreement dated February 27, 1996 by and between the
Registrant and Piaget (International) S.A. Incorporated
herein by reference to Exhibit 10.27 to the Registrant's
Annual Report on Form 10-K for the year ended January 31,
1996.
10.28 Lease Agreement between the Registrant and Lexington
Building Co., L.P. dated February 18, 1996 for premises at
730 Fifth Avenue, New York, New York. Incorporated herein by
reference to Exhibit 10.28 to the Registrant's Annual Report
on Form 10-K for the year ended January 31, 1996.
10.29 Letter Agreement dated August 25, 1995 between the
Registrant and Michael Bush together with Promissory Note
dated October 25, 1995. Incorporated herein by reference to
Exhibit 10.29 to the Registrant's Annual Report on Form 10-K
for the year ended January 31, 1996.**
10.30 Policy Collateral Assignment and Split Dollar Agreement
dated December 5, 1995 by and between the Registrant and The
Grinberg Family Trust together with Demand Note dated
December 5, 1995. Incorporated herein by reference to
Exhibit 10.30 to the Registrant's Annual Report on Form 10-K
for the year ended January 31, 1996.**
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION NUMBERED PAGE
<S> <C> <C>
10.31 Lease dated April 15, 1996 between the Registrant and Belle
Mead Corporation for premises at 1200 Wall Street West,
Lyndhurst, New Jersey. Incorporated herein by reference to
Exhibit 10.1 to the Registrant's Quarterly Report on Form
10-Q for the quarter ended April 30, 1996.
10.32*** License Agreement dated December 9, 1996 between the
Registrant and Sara Lee Corporation.
11 Computation of net income per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Price Waterhouse LLP.
27 Financial Data Schedule.
</TABLE>
* INCORPORATED HEREIN BY REFERENCE TO THE CORRESPONDING EXHIBIT NUMBER FILED
WITH COMPANY'S REGISTRATION STATEMENT ON FORM S-1 (REGISTRATION NO.
33-66600).
** CONSTITUTES A COMPENSATORY PLAN OR ARRANGEMENT.
*** CONFIDENTIAL PORTIONS OF EXHIBIT 10.32 WERE OMITTED AND FILED SEPARATELY
WITH THE SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE
SECURITIES EXCHANGE ACT OF 1934.
43
<PAGE> 1
EXHIBIT 4.1
NUMBER SHARES
MGC [MOVADO LOGO]
COMMON STOCK SEE REVERSE FOR
CERTAIN DEFINITIONS
MOVADO GROUP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEW YORK
CUSIP 624580 10 6
THIS
CERTIFIES
THAT
IS THE
OWNER
OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK OF THE
PAR VALUE OF $.01 EACH OF
Movado Group, Inc., transferable on the books of the Corporation by the
registered owner hereof in person or by duly authorized attorney upon
surrender of this certificate properly endorsed. This certificate is not
valid unless countersigned and registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
Dated:
/s/ Illegible /s/ Illegible
TREASURER CHIEF EXECUTIVE OFFICER
[SEAL] COUNTERSIGNED AND REGISTERED:
THE BANK OF NEW YORK
NEW YORK
TRANSFER AGENT AND REGISTRAR
BY
AUTHORIZED SIGNATURE
[Official Seal]
<PAGE> 2
The Corporation is authorized to issue more than one class or series of
stock. The Corporation will furnish a copy of the powers, designations,
preferences and relative participating, optional or other special rights of each
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights to the holder of record of this
certificate without charge upon written request to the Corporation at its
principal place of business.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of
survivorship and not as tenants
in common
UNIF GIFT MIN ACT -- Custodian
---------------- -----------------
(Cust) (Minor)
under Uniform Gifts to Minors
Act
-----------------------------
(State)
Additional abbreviations may also be used though not in the above list.
For Value Received, hereby sell, assign and transfer unto
-------------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
----------------------------------------
----------------------------------------
- -------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
- ------------------------------------------------------------------------
of the capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
Attorney
- ----------------------------------------------------------------------
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated
---------------------------------
-----------------------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND
WITH THE NAME AS WRITTEN UPON THE FACE OF THE
CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION
OR ENLARGEMENT OR ANY CHANGE WHATEVER.
Signature(s) Guaranteed:
- -------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE> 1
EXHIBIT 10.32 **
LICENSE AGREEMENT
This Agreement is entered into this 9th day of December, 1996, by and
between Coach, a division of Sara Lee Corporation, a Maryland corporation having
offices at 516 West 34th Street, New York, New York 10001 (hereinafter referred
to as "Licensor") and Movado Group, Inc., a New York corporation with offices at
125 Chubb Avenue, Lyndhurst New Jersey 07071 (hereinafter referred to as
"Licensee").
WHEREAS, Licensor is the owner of the trade name Coach (hereinafter
referred to as "the Trade Name") and the trademarks COACH, COACH and Lozenge
Design, and COACH and Tag Design (hereinafter collectively referred to as "the
Licensed Marks"), which Licensed Marks are depicted in Schedule 1 attached
hereto and made a part hereof, the Licensed Marks having been used in connection
with a wide variety of leather goods and accessories and having been registered
on the Principal Register of the United States Patent and Trademark Office and
in numerous other countries throughout the world;
WHEREAS, Licensee manufactures, markets and sells watches and desires
to use the Trade Name and Licensed Marks in connection with the manufacture,
marketing and sale of watches; and
WHEREAS, Licensor is willing to grant Licensee the right to use the
Trade Name and Licensed Marks under the terms and conditions hereinafter set
forth;
NOW THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties agree as follows:
(** CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED FROM PAGES 9, 12-18,
20-22, 26 AND SCHEDULE 4 AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION ("SEC") PURSUANT TO RULE 24b-2 OF THE SECURITIES
EXCHANGE ACT OF 1934 ("1934 Act")).
<PAGE> 2
1. DEFINITIONS
As used herein the term(s):
1.1 "Licensed Products" shall mean watches and component parts thereof
and only watches and component parts thereof marketed or sold under the Trade
Name and/or the Licensed Marks, provided, however, that nothing in this
Agreement shall be construed to allow Licensee to establish a separate business
in watch components that bear the Trade Name and/or Licensed Marks.
1.2 "Licensor Channels" shall mean retail outlets controlled by
Licensor, including without limitation Licensor's catalog, Licensor's stand
alone retail stores, Licensor's factory outlet stores, Licensor Special Accounts
(as hereinafter defined) and Licensor's retail stores that are situated within
department stores located outside the United States.
1.3 "Non-Licensor Channels" shall mean retail outlets not controlled by
Licensor, including without limitation department stores, jewelry store chains,
Licensee's factory outlet stores and Licensee Special Accounts (as hereinafter
defined).
1.4 "Market Roll-Out" shall mean Licensee's initial distribution of
Licensed Products to Non-Licensor Channels.
1.5 "Contract Year" shall mean each twelve (12) month period following
the Market Roll-Out of the Licensed Products.
1.6 "Wholesale Price" shall mean the regular published wholesale price
charged by Licensee for Licensed Products.
1.7 "Authorized COACH Retailer" shall mean any retail outlet not
controlled by Licensor but authorized by Licensor to sell products bearing the
COACH, COACH and Lozenge Design or COACH and Tag Design trademarks.
2
<PAGE> 3
1.8 "Licensee Special Accounts" shall mean those accounts identified in
Schedule 2 and made a part hereof.
1.9 "Licensor Special Accounts" shall mean those accounts identified in
Schedule 3 and made a part hereof.
1.10 "United States" shall mean the United States of America, its
territories and possessions, including without limitation Puerto Rico.
2. GRANT OF LICENSE
2.1 Upon the terms and conditions hereinafter set forth, Licensor
grants to Licensee a license to use the Trade Name and Licensed Marks on or in
connection with the manufacture, packaging, sale, marketing and distribution of
the Licensed Products. This license shall be exclusive to Licensee and shall
extend to all countries where Licensor has the right to use the Licensed Marks,
provided, however, that Licensor shall retain the right, and Licensee shall have
no right, to use the Trade Name and Licensed Marks on or in connection with the
sale, marketing and/or distribution of the Licensed Products to Licensor Special
Accounts.
2.2 In the event Licensee shall notify Licensor that Licensee intends
to make substantial preparations to market the Licensed Products in a country or
countries where Licensor does not have exclusive rights to use the Licensed
Marks as evidenced by one or more registrations for the Licensed Marks, Licensor
will promptly, at its sole expense, file such applications or take such other
actions as may be reasonably necessary to secure such rights; provided, however,
that in the event Licensor is not able reasonably to secure such rights and
Licensee does not sell the Licensed Products in such country or countries then
the parties will mutually agree upon an appropriate reduction in the Minimum and
Target Non-Licensor Channel Sales (non-U.S.).
3
<PAGE> 4
3. OWNERSHIP OF LICENSED MARKS
3.1 Licensee hereby acknowledges that Licensor is the owner of all
right, title, and interest in and to the Trade Name and Licensed Marks, and
agrees that it will not, during the term of this Agreement or thereafter,
challenge Licensor's rights in and to same. Licensee further agrees that it will
not attack the validity of this License.
3.2 Licensee recognizes the great value of the goodwill associated
with the Trade Name and Licensed Marks and acknowledges that the Trade Name and
Licensed Marks and all rights therein, and goodwill pertaining thereto, belong
exclusively to Licensor. Licensee further acknowledges that all use of the Trade
Name and Licensed Marks by Licensee, shall insure to the benefit of Licensor.
4. RELATIONSHIP OF PARTIES
Licensee is a "related company" pursuant to 15 U.S.C. Sec. 1127.
Neither party is an agent or employee of the other, nor shall either party in
any event be liable for the other's acts or omissions. This Agreement does not,
and shall not, be deemed to make any party hereto the agent, partner, joint
venturer or legal representative of any other party for any purpose whatsoever.
Neither Licensor nor Licensee shall have the right or authority to assume or
create any obligations or responsibility whatsoever, express or implied, on
behalf of, or in the name of, the other, or to bind the other in any respect
whatsoever, except as may be herein provided.
5. USE OF THE LICENSED MARKS AND TRADE NAME
5.1 Licensee agrees to use the Licensed Marks only in the form approved
by Licensor. All use of the Licensed Marks on the Licensed Products and on
labels, packaging, in advertising
4
<PAGE> 5
and otherwise must faithfully reproduce the form approved by Licensor. Approval
of the form of use of the Licensed Marks, once given, shall be continuing until
Licensee receives written notice to the contrary from Licensor. In the event
Licensee receives such written notice, all uses of the Licensed Marks to which
such notice applies shall cease not later than six (6) months after receipt of
such notice provided, however, that for up to two (2) years following such
notice Licensee shall have the right to sell and distribute Licensed Products in
inventory at the time of such notice that bear Licensed Marks in a form which is
no longer approved by Licensor.
5.2 Licensee shall comply with all notice and marking requirements of
any law or regulation applicable or necessary for the protection of the Licensed
Marks, including those which Licensor, in its legal judgment, may deem
appropriate. Licensor shall use its best efforts to communicate such
requirements to Licensee as soon as practicable. Licensee shall not, at any
time, do or permit any third party within its control or with whom Licensee has
a contractual relationship to do any act or thing that will, in any way, impair
the rights of Licensor in and to the Licensed Marks or which will affect the
validity thereof.
5.3 Any use of the Trade Name by Licensee shall be solely in connection
with the manufacture, marketing, sale and/or distribution of the Licensed
Products. Licensee shall not, at any time, do or permit any third party within
its control or with whom Licensee has a contractual relationship to do any act
or thing that will, in any way, impair the rights of Licensor in and to the
Trade Name or which will affect the validity thereof.
6. QUALITY CONTROL
6.1 Licensee acknowledges that the Licensed Marks have established
prestige and goodwill and are well recognized in the minds of the public, and
that it is of great importance to each
5
<PAGE> 6
party that in the manufacture and sale of the Licensed Products, the high
standards and reputation that Licensor has established be maintained.
6.2 Licensor shall have the right to exercise quality control over
Licensee's use of the Licensed Marks on and in connection with the Licensed
Products to a degree reasonably necessary to maintain the validity thereof and
to protect the goodwill associated therewith. Licensor is familiar with the
quality of Licensee's watches sold under the trademark ESQ, and hereby affirms
that that level of quality and workmanship generally conforms with the standards
of quality and workmanship prescribed by Licensor. The parties acknowledge that
Licensor has examined the General Acceptance Requirements pertaining to the ESQ
watches. Licensee agrees that the Licensed Products it will market and sell
under the Trade Name and Licensed Marks will be of a quality at least as good as
the ESQ watches and will be manufactured substantially in accordance with
General Acceptance Requirements that meet or exceed the General Acceptance
Requirements pertaining to the ESQ watches. Licensee shall develop General
Acceptance Requirements specifically pertaining to the Licensed Products and
provide said General Acceptance Requirements to Licensor. Said General
Acceptance Requirements shall be followed during the term of this Agreement,
unless modification thereof is approved by Licensor. Licensor will verify
compliance with this paragraph by examining the Licensed Products, from time to
time, as it receives them from Licensee for sale in Licensor's retail stores.
6.3 Licensor shall have the right to inspect Licensee's manufacturing
facilities for the Licensed Products, including without limitation the
facilities of third-party manufacturers with whom Licensee contracts, up to four
times per Contract Year. Any such inspection will occur during business hours
and only after giving Licensee at least five (5) days written notice of such
inspection.
6
<PAGE> 7
6.4 Licensee shall handle all customer inquiries and complaints
relating to the Licensed Products in a manner consistent with the manner in
which it handles customer inquiries and complaints relating to the products it
sells under the ESQ trademark. Licensee shall provide the same service,
warranties, and repair and replacement rights to wholesale purchasers and
consumers of the Licensed Products as Licensee provides to purchasers of its ESQ
watches. Licensee shall be solely responsible for all costs associated with (a)
the handling of customer inquiries and complaints relating to the Licensed
Products, and (b) the provision of service, warranties, repair and replacement
relating to the Licensed Products.
7. PRODUCT DEVELOPMENT
7.1 Licensee shall prepare and submit to Licensor for approval all
product designs for the Licensed Products. All product designs, prototypes,
patterns, stylings and copyrightable material used on or as a part of the
Licensed Products are and will be owned exclusively by Licensor. Licensor,
however, shall not have exclusive rights to any designs, prototypes, patterns,
stylings and/or copyrightable material that were previously used by Licensee or
by any third party on or as a part of watches other than the Licensed Products;
provided, however, that any newly developed product designs, prototypes,
patterns, stylings or copyrightable material used on or as a part of the
Licensed Products which are unique combinations of design elements and/or
components, regardless of whether any independent or separate such design
elements and/or components were previously used by Licensee or others, shall be
owned exclusively by Licensor. Licensee shall not proceed with the manufacture
of a new product design for any Licensed Product, nor shall Licensee discontinue
an existing product design for any Licensed Product, without the written
approval of Licensor, which approval shall not be unreasonably withheld or
delayed.
7
<PAGE> 8
Licensee, at its own cost and expense, is responsible for developing all
prototypes relating to the Licensed Products and for the sourcing of all
Licensed Products.
7.2 Licensee shall prepare and submit to Licensor for approval specific
suggested retail prices for the Licensed Goods in both Licensor and Non-Licensor
Channels. All initial suggested retail prices, and any subsequent changes
thereto, must be approved, in writing, by Licensor, such approval not to be
unreasonably withheld or delayed. Licensee acknowledges that in order to
preserve the goodwill attached to the Licensed Marks, the Licensed Products are
to be sold at prices and terms reflecting the prestigious nature of the Licensed
Marks, it being understood, however, that Licensor is not empowered to fix or
regulate the prices at which the Licensed Products are to be sold. Nothing
contained in this Agreement is intended or will be construed as giving either
party any right of approval with respect to any of the prices at which the other
party sells or offers to sell any of the Licensed Products.
7.3 Licensee shall prepare and submit to Licensor for approval,
specific, written plans for the Market Roll-Out of the Licensed Products, such
approval not to be unreasonably withheld or delayed. The parties further agree
to work together to develop specific, written plans for the roll-out of the
Licensed Products to Licensor Channels.
8. PRODUCT SALES AND DISTRIBUTION
8.1 Licensee shall sell to Licensor Licensed Products to be sold
through Licensor Channels in accordance with Licensee's standard terms and
conditions of sale except to the extent any such terms and conditions conflict
with any provision expressly contained herein. Licensee shall also sell Licensed
Products through Non-Licensor Channels including, without limitation, Authorized
COACH Retailers.
8
<PAGE> 9
8.2 All Licensed Products for retail sale in Licensor Channels shall be
sold to Licensor at a price equal to *
. Within thirty (30) days following the end of each Contract
Year quarter, Licensor will deliver to Licensee a statement signed by an
authorized officer of Licensor reporting Licensor's sales of Licensed Products
made in the immediately preceding quarter through Licensor's factory outlet
stores, breaking out such sales in dollar amounts and units sold by SKU
designation.
8.3 Any liquidation by either Licensee or Licensor of any Licensed
Products which are excess inventory, discontinued product or quality imperfect
product, through either Licensor or Non-Licensor Channels, shall be done on such
terms and conditions that the parties hereto will agree upon with the exception
of any terms or conditions relating to price.
8.4 Subject to Paragraphs 8.6, 10.2 and 10.3, Licensee, working closely
with Licensor, shall be responsible for the world-wide manufacture and
distribution of Licensed Products, provided, however, that Licensee shall not,
without prior written approval of Licensor, which approval shall not be
unreasonably withheld or delayed, sell or distribute Licensed Products to any
Non-Licensor Channels that are not Authorized COACH Retailers. The parties
acknowledge that from time to time Licensor may approach Licensee to discuss
whether particular approved retail outlets and/or Authorized COACH Retailers
should remain as approved retail outlets and/or Authorized COACH Retailers.
8.5 Licensee shall use reasonable efforts to prevent and/or stop any
diversion of Licensed Products from Licensor approved retail outlets or
Authorized COACH Retailers to any retail outlet which is neither Licensor
approved nor an Authorized COACH Retailer. Licensee acknowledges that its
standard terms of sale shall be to require all retail outlets to whom it sells
Licensed Products to agree to only sell such Licensed Products to the end-using
consumer. Should
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
9
<PAGE> 10
Licensor notify Licensee of any diversion of Licensed Products, or should
Licensee become aware of any such diversion, Licensee shall take all reasonable
steps necessary to end such diversion, including without limitation tracking
down the source of the diverted Licensed Products and discontinuing all sales of
Licensed Products to said source. Licensee shall keep Licensor appraised of any
such efforts.
8.6 Licensor shall be responsible for order fulfillment relating to the
sale of Licensed Products through Licensor's catalog. Licensor shall maintain
sufficient inventories of Licensed Products in its factory outlet stores and
retail stores and in connection with the fulfillment of its catalog sales and
Licensor Special Accounts to adequately service its customers. Licensee shall
maintain appropriate inventories of both finished Licensed Goods and components
thereof as necessary to service Licensor's ongoing business.
8.7 Licensee shall have the sole right to sell to those accounts
designated herein as Licensee Special Accounts. With respect to such Licensee
Special Accounts, Licensor shall provide such marketing and other assistance as
Licensee shall reasonably request, recognizing that Licensee has primary
responsibility for serving each such Licensee Special Account, and Licensee
shall pay Licensor a royalty "premium" on all sales of Licensed Products to such
Licensee Special Accounts as set forth in Paragraphs 11.1 and 11.2. In the event
that there is a material change in Licensor's ability to provide such marketing
and other assistance as Licensee shall reasonably request in connection with
Licensee Special Accounts, Licensor and Licensee will negotiate in good faith
with respect to the royalty "premium" to reflect the changed circumstances.
8.8 Licensee and Licensor anticipate that the account lists designated
as Licensee Special Accounts and Licensor Special Accounts (see Schedules 2 and
3) may be modified during the term of this Agreement. Any such modifications
shall be agreed to by the parties, in a writing
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<PAGE> 11
signed by both parties, but in no event shall such modifications occur more than
once per Contract Year.
8.9 Licensee shall take the lead, with active support of Licensor, to
introduce the Licensed Products to Licensor's retail management and staff and,
at Licensee's expense, will regularly train such persons on sales, display and
security techniques related thereto according to a schedule to be mutually
agreed upon by the parties.
8.10 Should this Agreement be terminated pursuant to either Paragraph
10.2 or 10.3, Licensor agrees that, to the extent it continues to offer for sale
Licensed Products with the same or substantially identical designs as any
Licensed Products at any time previously sold by Licensee to Licensor hereunder,
Licensor will source all such Licensed Products exclusively from Licensee
pursuant to terms and conditions of sale as are negotiated in good faith and
without unreasonable delay by the parties at the time of such termination; in
the event the parties cannot in good faith agree on such terms and conditions of
sale, Licensor will source such Licensed Products pursuant to the same terms and
conditions of sale as provided hereunder, subject to any cost based price
increases implemented from time to time by Licensee. Notwithstanding the
foregoing, Licensor shall have the right to source any such Licensed Products
from any third party other than Licensee provided that Licensor first pays
Licensee the present fair market value of Licensee's right to be the exclusive
source for such Licensed Products for a period equal to ten (10) years from and
after the date each design for such Licensed Products was first approved by
Licensor hereunder. In the event Licensee elects not to supply such Licensed
Products to Licensor, then Licensor's obligation to source such Licensed
Products from Licensee shall cease. It is explicitly understood that this
Paragraph 8.10 shall apply only if this Agreement is terminated pursuant to
either Paragraph 10.2 or 10.3, and in no event shall Licensor's obligation to
source Licensed Products from Licensee
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pursuant to this paragraph continue for more than ten (10) years from and after
the Market Roll-Out of the Licensed Products.
9. MARKET ROLL-OUT
It is the intention of the parties that the Market Roll-Out of the
Licensed Products will commence on or about March 1, 1998. If by October 1, 1998
the Market Roll-Out has not occurred, and if such delay is not due to the act or
acts of Licensor or Licensor's failure to act or if such delay is not due to
reasons of force majeure, Licensee shall be in breach of this Agreement. If by
October 1, 1998 Licensee has not begun distribution of Licensed Products to
Licensor Channels, and if such failure to distribute is not due to the act or
acts of Licensor or Licensor's failure to act or if such delay is not due to
reasons of force majeure, Licensee shall be in breach of this Agreement.
10. SALES TARGETS AND MINIMUMS
10.1 The parties have established certain sales targets and minimums
pertaining to Licensee's sale of Licensed Products to Non-Licensor Channels.
These targets and minimums are set forth below:
<TABLE>
<CAPTION>
<S> <C> <C>
*
</TABLE>
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
12
<PAGE> 13
<TABLE>
<S> <C> <C>
*
<CAPTION>
<S> <C> <C>
*
</TABLE>
<TABLE>
<S> <C> <C> <C>
*
</TABLE>
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
13
<PAGE> 14
<TABLE>
<S> <C> <C> <C>
*
</TABLE>
10.2 If Licensee's sales to Non-Licensor Channels in the United States
during Contract Year 3 are not at least *
, Licensor shall have the right to
terminate this Agreement, such termination to become effective upon the
conclusion of Contract Year 4. Should Licensor choose to exercise this
termination option, it must give written notice of such termination to Licensee
within sixty (60) days following Licensor's receipt of the annual sales report
Licensee is required to provide pursuant to Paragraph 13.2 below. Upon
termination of this Agreement at the conclusion of Contract Year 4, Licensee's
right to use the Licensed Marks pursuant to this Agreement shall immediately
cease and any remaining inventory of Licensed Products shall be delivered to
Licensor. The transfer of remaining inventory from Licensee to Licensor shall be
done on terms and conditions that the parties hereto will agree upon; provided,
however, that in the event the parties are unable to agree on such terms and
conditions on or before sixty (60) days prior to the conclusion of Contract Year
4, then Licensee shall have the right to transfer all or any part of the
remaining inventory to one or more third parties to whom any Licensed Product
was at any time previously sold under Paragraph 8.3 hereof on such terms and
conditions as Licensee in its sole and absolute discretion shall deem
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
14
<PAGE> 15
appropriate. If Licensee's sales to Non-Licensor Channels outside the United
States during Contract Year 3 are not at least *
for Contract Year 3), Licensor shall have
the right to itself distribute or appoint one or more third parties to
distribute Licensed Products outside of the United States. Should Licensor
choose to either itself distribute or to appoint one or more distributors
outside of the United States it must give written notice of such to Licensee
within sixty (60) days following Licensor's receipt of the annual sales report
Licensee is required to provide pursuant to Paragraph 13.2 below. Upon such
written notice, Licensee shall no longer sell or distribute Licensed Products
outside the United States. Should Licensor choose to either itself distribute
Licensed Products outside the United States or appoint one or more distributors
outside the United States, Licensor or its appointed distributor(s) shall source
Licensed Products from Licensee pursuant to the same terms and conditions,
including without limitation price, applicable to the sale of Licensed Products
to Licensor, as provided hereunder.
10.3 If Licensee's sales to Non-Licensor Channels in the United States
during Contract Year 5 are not at least *
Year 5), both Licensor and Licensee shall each
have the option to terminate this Agreement, such termination to become
effective upon the conclusion of Contract Year 6. Should either party choose to
exercise this termination option, the party so doing must give written notice to
the other party within sixty (60) days following Licensor's receipt of the
annual sales report Licensee is required to provide pursuant to Paragraph 13.2
below. Upon termination of this Agreement at the conclusion of Contract Year 6,
Licensee's right to use the Licensed Marks pursuant to this Agreement shall
immediately cease and any remaining inventory of Licensed Products shall be
delivered to Licensor. The transfer of remaining inventory from Licensee to
Licensor shall be done
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
15
<PAGE> 16
on terms and conditions that the parties hereto will agree upon; provided,
however, that in the event the parties are unable to agree on such terms and
conditions on or before sixty (60) days prior to the conclusion of Contract Year
6, then Licensee shall have the right to transfer all or any part of the
remaining inventory to one or more third parties to whom any Licensed Product
was at any time previously sold under Paragraph 8.3 hereof on such terms and
conditions as Licensee in its sole and absolute discretion shall deem
appropriate. If Licensee's sales to Non-Licensor Channels outside the United
States during the Contract Year 5 are not at least *
Channel Sales (non-U.S.) for Contract Year 5), Licensor shall have
the same right to itself distribute or appoint one or more third parties to
distribute the Licensed Products outside the United States as provided in
Paragraph 10.2, upon the same notice and conditions set forth therein.
10.4 All sales figures and sales calculations referred to in this
paragraph shall be based on Wholesale Price, and are represented in U.S. Dollar
amounts.
11. ROYALTY
11.1 Licensee shall pay to Licensor a royalty based on Licensee's sales
of the Licensed Products to all Non-Licensor Channels (Combined U.S. and
non-U.S.). The sales to which the royalty rates will be applied, except for
sales to Licensee Special Accounts, shall be based on Wholesale Price, and no
reduction in the royalty shall be allowed for discounts given off Wholesale
Price. With respect to sales to Licensee Special Accounts, the sales to which
the royalty rates will be applied shall be based on actual invoice price net of
all taxes, duties, freight, insurance and credits for returns actually made, but
no deduction shall be made for discounts for cash or
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
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prompt payment or for uncollectible accounts. The base royalty rates to be
applied to Licensee's sales are as follows:
*
With respect to all sales to Licensee Special Accounts, Licensee shall pay, in
addition to the base royalty, * .
11.2 Starting in Contract Year 3 and continuing throughout the term of
this Agreement, once Licensee's actual sales of the Licensed Products to
Non-Licensor Channels in a particular Contract Year reach the established target
sales figure for that Contract Year as set forth in Paragraph 10.1 above under
the heading * , a
royalty rate of * shall be applied to all sales in that Contract Year over and
above the established target sales figure, and Licensee shall make its royalty
payments on such sales in such year to Licensor based upon that * royalty
rate, except that with respect to all such sales to Licensee Special Accounts,
royalties shall be calculated as described in Schedule 4 attached hereto, and
Licensee shall make its royalty payments on such sales in such year to Licensor
based on such calculations. Starting in Contract Year 6 and continuing
throughout the term of this Agreement, once Licensee's actual sales of the
Licensed Products to Non-Licensor Channels in a particular Contract Year reach
the established "super" target sales figure for that Contract Year as set forth
in Paragraph 10.1 above under the heading *
* , a royalty rate of * shall be applied to
all sales in that Contract Year over and above the established "super" target
sales figure, and Licensee shall make its royalty payments on
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
17
<PAGE> 18
such sales in such year to Licensor based on that * royalty rate, except that
with respect to all such sales to Licensee Special Accounts, royalties shall be
calculated as described in Schedule 4 attached hereto and Licensee shall make
its royalty payments on such sales in such year to Licensor based on such
calculations.
11.3 If during a particular Contract Year Licensee's actual sales never
reach the established minimum sales figure for that Contract Year as set forth
in Paragraph 10.1 above under the heading *
, Licensee shall pay to Licensor, within ninety (90)
days following the conclusion of the Contract Year, an additional sum equal to
the difference between the royalties actually paid by Licensee that Contract
Year and the royalties that would have been paid by Licensee that Contract Year
had Licensee's sales of the Licensed Products to Non-Licensor Channels been
equal to the established minimum sales figure.
11.4 Licensee shall also pay to Licensor a royalty based on Licensee's
sales of *
. The sales to which
the royalty rate will be applied shall be based on the Wholesale Price. The
royalty rate to be applied to such sales shall be * . Said royalty is in
addition to any royalty factor included in other sales by Licensee to Licensor.
11.5 Licensee shall make its royalty payments to Licensor on a
quarterly basis, together with a statement setting forth the quarterly sales of
the Licensed Products to Non-Licensor Channels, said payments and statements
being due no later than thirty (30) days following the end of each Contract Year
quarter. All royalty payments shall be made in U.S. Dollars. Except as provided
in Paragraph 11.4, Licensee shall not pay royalties on its sale of Licensed
Products to Licensor Channels.
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
18
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12. MARKETING AND ADVERTISING
12.1 Licensee shall prepare and submit to Licensor for approval all
proposed advertising, promotional materials, product displays and product
display policies for the Licensed Products. Licensor shall have final approval
on all such advertising, promotion, product displays and product display
policies, which approval shall not to be unreasonably withheld or delayed.
Approval of any submission shall be deemed given in any event absent notice of
disapproval within thirty (30) days after such submission.
12.2 No later than March 1 of each calendar year during the term of
this Agreement, Licensee shall prepare and present to Licensor for feedback and
input an annual operating plan setting forth the information described below
(the "Plan"). The Plan shall set forth in reasonable detail, Licensee's plans
for conducting the Licensed Products business during the next Contract Year and
during the next three Contract Years, with particular emphasis on the marketing,
promotion and sales of the Licensed Products. The Plan shall include, without
limitation, (a) a description (including timing) of the types and numbers of
designs intended to be developed or manufactured (including any new products);
(b) sales volume projections by model type, in units and dollars; (c) price
marketing strategies, including wholesale and suggested retail pricing by model
type and market; (d) assessment of customer base and customers; (e)
distribution, including distribution outlets and breakdown by geographic area;
(f) advertising plans, number and cost of advertisements already ordered, where
advertisements will be published, the fees paid to advertising agents, the
proposed schedule and costs of any and all major advertising campaigns and the
format for all advertising not already approved by Licensor; (g) media plan and
budget, including breakdown by geographic area; (h) packaging, point of sale and
trade exhibitions; and (i) the results of market research relating to the
Licensed Products and similar products, and market
19
<PAGE> 20
trends, and a detailed sales forecast by category, product group and market for
the Licensed Products.
12.3 As soon as possible upon the execution hereof, and thereafter at
all times during the term hereof, Licensee shall employ a Marketing Manager who
shall be responsible for the day-to-day operation of the Licensed Products
business, and who shall be mutually agreed upon by the parties. Licensee shall
hire a sales manager for the Licensed Products business at least six months
prior to March 1, 1998, the date intended for the Market Roll-Out of the
Licensed Products. Licensee shall assign all needed designers to develop the
Licensed Products.
12.4 Licensee agrees that at a minimum it will make the following
annual advertising expenditures in connection with the Licensed Products:
*
In the event Licensee fails to make the foregoing minimum advertising
expenditures in connection with the Licensed Products in any given Contract
Year, Licensee shall have the first six months of the following Contract Year to
make advertising expenditures sufficient to cover the shortfall. Any such
advertising expenditures made to cover a previous Contract Year's shortfall
shall not be credited toward Licensee's minimum required advertising
expenditures for the Contract Year in which such shortfall expenditures are
made. "Sales" as used in this paragraph shall mean all sales, based on Wholesale
Price or based on actual invoice price in the specific case of sales to Licensee
Special Accounts, of Licensed Products made by Licensee to Non-Licensor Channels
anywhere in
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
20
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the world. All amounts are shown in U.S. Dollars. Licensee further agrees that
in Contract Years 3 through 10, at least *
.
12.5 Licensee shall exercise reasonable efforts to maintain and
safeguard the established image and good will represented by and embodied in the
Trade Name and Licensed Marks. "Image" as used herein refers primarily to
quality and style of packaging, advertising and promotion, creation and
introduction of new product designs and styles, type of outlets with reference
to the quality of service provided for and the quality of presentation of the
Licensed Products. Licensee shall take all reasonable and necessary steps, and
all steps reasonably requested by Licensor, to prevent or avoid any misuse of
the Trade Name or Licensed Marks by any of Licensee's customers or contractors.
12.6 Licensor shall use reasonable efforts to assure that the
established value associated with the Trade Name and Licensed Marks does not
materially and substantially diminish.
12.7 Licensor agrees that its total retail advertising expenditures,
including catalog expenditures, relating to the Licensed Products shall be
*
. If Licensor fails to spend this additional amount on
advertising, the difference between the amount actually spent and the royalties
actually received shall be credited against Licensee's future royalties. Within
ninety (90) days following the end of each Contract Year of this Agreement, and
within ninety (90) days
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
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<PAGE> 22
after the termination of this Agreement, Licensor shall deliver to Licensee a
statement signed by an authorized officer of Licensor reporting Licensor's
actual advertising expenditures relating to the Licensed Products, Licensor's
actual retail sales of Licensed Products, and Licensor's actual percentage rate
of spending on advertising for COACH products other than the Licensed Products
during the previous Contract Year.
12.8 The parties shall mutually agree upon and establish a minimum
amount of space in Licensor's catalog to be devoted to the Licensed Products
each Contract Year. Licensor agrees that the catalog space devoted to the
Licensed Products shall not be less than that which Licensor devotes to its
other product classifications having similar profit contribution, *
12.9 The parties agree that each party shall make no public statements,
including without limitation any statements or comments to the press, regarding
this Agreement, the relationship between the parties or the Licensed Products
business, except with the prior consent of the other party; provided, however,
that the foregoing shall not apply to any disclosure either party is required to
make by law, including without limitation, disclosure required by the federal
securities laws.
12.10 Licensor shall hire or assign a person at Licensor's business to
coordinate Licensor's efforts relating to the marketing and sale of the Licensed
Products.
13. BOOKS AND RECORDS
13.1 Licensee shall keep and maintain at its regular place of business,
or at such off-site documents storage facility as Licensee shall use from time
to time for the retention of its business records generally, complete and
accurate records and accounts in accordance with Generally
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
22
<PAGE> 23
Accepted Accounting Principles showing the business transacted in connection
with the Licensed Products manufactured and sold pursuant to this Agreement,
including without limitation records and accounts relating to sales, shipments
and orders for Licensed Products and expenditures on advertising for at least
six (6) years following the creation of the record or account. Licensor shall
keep and maintain at its regular place of business, or at such off-site document
storage facility as Licensor shall use from time to time for the retention of
business records generally, complete and accurate records and accounts in
accordance with Generally Accepted Accounting Principles substantiating the
information required to be reported by Licensor under Paragraphs 8.2 and 12.7
hereof, for at least six (6) years following the creation of such record or
account or for such other period of time as specified in Licensor's written
record retention policy.
13.2 Within ninety (90) days following the end of each Contract Year of
this Agreement, and within ninety (90) days after the termination of this
Agreement, Licensee shall deliver to Licensor a statement signed by an
authorized officer of Licensee reporting actual sales of the Licensed Products
to Non-Licensor Channels (based on Wholesale Price), royalties due, royalties
paid and advertising expenditures during the preceding Contract Year. Sales of
Licensed Products to Non-Licensor Channels shall be broken out to accurately
reflect sales to U.S. Non-Licensor Channels, sales to Non-U.S. Non-Licensor
Channels, sales to Licensee Special Accounts and sales by model type in units
and dollars. Said statement shall also report actual sales of the Licensed
Products to Licensor Channels. In the case of termination of this Agreement,
such information shall be provided for the period ending at termination.
13.3 Both Licensor and Licensee, or either party's duly authorized
agents or representatives, shall each have access to and the right to examine
all records and accounts that the other party is required to maintain pursuant
to Paragraph 13.1 at such party's premises, provided that any such
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examination (a) shall be at the examining party's expense, (b) shall be during
normal business hours upon reasonable prior notice which shall be no less than
five (5) business days, and (c) shall not unreasonably interfere with the other
party's operations and activities. Should an audit disclose that Licensee
underpaid royalties for any given year, Licensee shall forthwith and upon
written demand pay Licensor the amount owed, together with interest thereon, at
a rate of ten percent (10%) per annum calculated from the due date of such
royalties unless Licensee shall, by written notice sent to Licensor within
twenty (20) days after notice to Licensee of such audit results, reasonably
dispute the same in which event the parties shall each name an independent
auditor who shall together appoint a third auditor to make a determination as to
the matter, which determination shall be binding on the parties. Should an audit
disclose that Licensee's annual advertising expenditures in any given year
failed to meet the minimum required hereunder, Licensee shall forthwith upon
written demand pay Licensor the difference, unless Licensee shall, by written
notice sent to Licensor within twenty (20) days after notice to Licensee of such
audit results, reasonably dispute the same in which event the parties shall each
name an independent auditor who shall together appoint a third auditor to make a
determination as to the matter, which determination shall be binding on the
parties; or unless Licensee still has time to make up the shortfall pursuant to
Paragraph 12.4. Further, should an undisputed audit or the binding
determination made by any auditor appointed as hereinabove provided disclose
that Licensee underpaid royalties by a margin exceeding five percent (5%) in any
given year, or that Licensee's annual advertising expenditures failed to meet
the minimum required hereunder by a margin exceeding five percent (5%), Licensee
shall pay for all costs relating to the audit, including without limitation, all
costs relating to any subsequent binding determinations made by any appointed
auditor.
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14. TERM AND TERMINATION
14.1 This Agreement shall remain in full force and effect from the date
this Agreement is entered into by the parties until ten (10) years following the
Market Roll-Out of the Licensed Products, subject to the termination provisions
of Paragraphs 10.2 and 10.3 above or as provided below.
14.2 In the event either party commits a material breach of this
Agreement, the other party may, upon ninety (90) days prior written notice,
terminate the Agreement, provided, however, that the Agreement shall not be
terminated if the breaching party cures the breach within said ninety (90) days
after receipt of said notice.
14.3 Notwithstanding anything to the contrary in Paragraph 14.2,
Licensor shall have the right to terminate this Agreement immediately upon
notice to Licensee if any of the following events occur:
(a) More than once during any Contract Year, any installment of royalty
payments is not paid when due and such default continues for more than
fifteen (15) days after written notice thereof to Licensee;
(b) Licensee knowingly fails to manufacture the Licensed Products in
accordance with the General Acceptance Requirements and quality
standards prescribed in Paragraph 6 of this Agreement;
(c) Licensee repeatedly fails to secure Licensor's approval as required
herein;
(d) Licensee intentionally uses the Trade Name or any of the Licensed
Marks in a manner for which rights therein have not been granted and
which use impacts materially and adversely upon the Trade Name or
Licensed Marks;
(e) Licensee commits any material fraud upon Licensor in connection
with the performance of Licensee's obligations hereunder;
(f) Licensee makes an intentional written material misrepresentation
pertaining to sales of the Licensed Products;
25
<PAGE> 26
(g) Licensee intentionally participates in the diversion of Licensed
Products or knowingly permits a third party to do so.
Upon termination of this Agreement pursuant to this Paragraph 14.3, Licensor
shall have the option to purchase Licensee's inventory of Licensed Products as
provided below. If Licensor does not exercise its right to purchase Licensee's
inventory of Licensed Products as provided below, Licensee shall, for a period
of five (5) months from the date Licensor elects not to exercise its right to
purchase Licensee's inventory of Licensed Products, have the right to sell its
then-existing inventory of Licensed Products, provided such sales are made to
one or more third parties to whom any Licensed Product was at any time
previously sold under Paragraph 8.3 hereof on such terms and conditions as
Licensee in its sole and absolute discretion shall deem appropriate, and further
provided that Licensee otherwise complies with the terms herein, including the
payment of royalties. Notwithstanding the foregoing, Licensee shall not dispose
of its inventory as provided above without first providing to Licensor a
detailed list of its existing inventory of Licensed Products, including
Licensee's costs to manufacture or purchase such items and the date of purchase
or manufacture; Licensee shall use its best efforts to provide such detailed
list to Licensor as quickly as possible. Licensor shall have the right to
conduct a physical inventory to verify such list. At any time within thirty (30)
days of Licensor's receipt of Licensee's inventory list, Licensor shall have the
option to purchase any or all of Licensee's inventory of Licensed Products
* . In the event Licensor
elects to purchase part or all of said inventory, Licensor shall at its own
expense remove said inventory from Licensee's premises not more than sixty (60)
days after notice to Licensee of Licensor's election to purchase. Payment for
such inventory shall be made by Licensor within thirty (30) days after the
removal of the last of Licensee's Licensed Products.
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY WITH
THE SEC PURSUANT TO RULE 24b-2 OF THE 1934 Act.)
26
<PAGE> 27
14.4 Notwithstanding anything to the contrary in Paragraph 14.2, if
Licensee files a petition in bankruptcy, or by an equivalent proceeding is
adjudicated a bankrupt, or if a petition in bankruptcy is filed against Licensee
and is not dismissed within sixty (60) days, or if Licensee becomes insolvent or
makes an assignment for the benefit of creditors or any arrangement pursuant to
any bankruptcy law, or if Licensee discontinues its business or if a receiver is
appointed for Licensee, this Agreement shall automatically terminate without any
notice whatsoever being necessary, to the full extent allowed by applicable law.
All royalties on sales made prior to such act shall become immediately due and
payable. In the event this Agreement is terminated pursuant to this paragraph,
Licensee, its receivers, representatives, trustees, agents, administrators,
successors and/or assigns, shall have no right to sell any of the Licensed
Products covered by this Agreement or use the Trade Name in any manner
whatsoever, except with the special consent and written instructions of
Licensor, which instructions shall be followed. The non-assumption of this
Agreement by a trustee presiding over a bankruptcy proceeding pursuant to any
bankruptcy law where the Licensee is named as a debtor, shall operate to
automatically terminate this Agreement, without any notice whatsoever being
necessary, effective as of the date of the commencement of the bankruptcy
proceedings.
14.5 Notwithstanding anything to the contrary in Paragraph 14.2, if
Licensor files a petition in bankruptcy, or by an equivalent proceeding is
adjudicated a bankrupt, or if a petition in bankruptcy is filed against Licensor
and is not dismissed within sixty (60) days, or if Licensor becomes insolvent or
makes an assignment for the benefit of creditors or any arrangement pursuant to
any bankruptcy law, or if Licensor discontinues its business or if a receiver is
appointed for Licensor, Licensee shall have the right to terminate this
Agreement by giving written notice to Licensor within 30 days of such event.
27
<PAGE> 28
14.6 Upon expiration or termination of this Agreement, Licensee shall
cease using the Trade Name and Licensed Marks, provided, however, that unless
such termination is pursuant to Paragraphs 10.2, 10.3, 14.3, 14.4 or 14.5,
Licensee may, for a period of no more than six (6) months after expiration or
termination, sell and distribute Licensed Products existing in inventory on the
date of expiration or termination. Licensee remains liable for the payment of
all royalties based on those sales and must otherwise comply with the terms
herein. If at the end of six months Licensee still possesses inventory of
Licensed Products, Licensee shall deliver to Licensor the remaining inventory,
and Licensee's right to use the Licensed Marks pursuant to this Agreement shall
cease. The transfer of remaining inventory from Licensee to Licensor shall be
done on terms and conditions that the parties hereto will agree upon; provided,
however, that in the event the parties are unable to agree on such terms and
conditions on or before thirty (30) days prior to the conclusion of such six (6)
month period, then Licensee shall have the right to transfer all or any part of
such remaining inventory to one or more third parties to whom any Licensed
Product was at any time previously sold under Paragraph 8.3 hereof on such terms
and conditions as Licensee in its sole and absolute discretion shall deem
appropriate. Upon expiration or termination of this Agreement for any reason,
Licensee shall relinquish to Licensor all newly developed product design
materials, prototypes, patterns, stylings and copyrightable material relating to
the Licensed Products owned exclusively by Licensor, as provided in Paragraph
7.1 herein, along with all tools, dies and molds used to make Licensed Products
from such product design materials, prototypes, patterns, stylings and
copyrightable material, immediately upon expiration or termination of this
Agreement.
28
<PAGE> 29
15. INDEMNIFICATION
Except as provided in Paragraph 16 below, Licensee hereby agrees to pay
on behalf of Licensor and to defend it against any and all claims, suits,
liabilities, causes of action, settlements, costs, damages, or expenses,
including reasonable attorneys' fees, arising out of Licensee's manufacture,
packaging, sale, marketing or distribution of the Licensed Goods. This
indemnification provision shall survive the termination of this Agreement.
16. TRADEMARK ENFORCEMENT
16.1 Licensee agrees to notify Licensor of any unauthorized use of the
Licensed Name and Marks by others, promptly as it comes to Licensee's attention.
Except as provided in Paragraph 16.2, Licensor shall have the sole right and
discretion to bring infringement actions involving the Licensed Marks, and any
award received by Licensor in any such actions shall belong solely to Licensor.
16.2 Licensor and Licensee shall cooperate in stopping, by any and all
legal means available, the manufacture, sale or distribution of counterfeit
watches or timepieces bearing marks which are identical to or indistinguishable
from the Licensed Marks (hereinafter referred to as "Counterfeit Merchandise").
Licensee, in consultation with and after receiving approval from Licensor, shall
have the right to bring counterfeiting actions against parties manufacturing,
holding, selling or distributing Counterfeit Merchandise as information about
such Counterfeit Merchandise is brought to Licensee's attention in the normal
course of Licensee's anti-counterfeiting efforts. Licensee shall bear all costs
associated with any such actions, and any award received by Licensee in any such
actions shall belong solely to Licensee.
29
<PAGE> 30
16.3 Licensor shall have the right to bring counterfeiting actions
against parties manufacturing, holding, selling or distributing Counterfeit
Merchandise as information about such Counterfeit Merchandise is brought to
Licensor's attention in the normal course of Licensor's anti-counterfeiting
efforts. Licensor shall bear all costs associated with any such actions, and any
award received by Licensor in any such actions shall belong solely to Licensor.
16.4 In the event that a third party institutes a trademark
infringement action against Licensee arising from Licensee's use of the Licensed
Name and Marks, Licensee shall promptly notify Licensor. Licensor shall defend,
at its own expense, any such action, and Licensee shall cooperate in such
defense as reasonably requested by Licensor, at Licensor's expense. Licensor
shall pay any settlements, costs, damages, or expenses, including reasonable
attorneys' fees, resulting from any such action. Any award received by Licensor
in such action shall belong solely to Licensor.
17. INSURANCE
17.1 Licensee shall obtain and maintain, at its own cost and expense,
Commercial General Liability insurance and Umbrella liability insurance written
on an occurrence basis with the following coverage and limits:
<TABLE>
<CAPTION>
Limits
------
<S> <C>
General Aggregate Limit $5,000,000
Products/Completed
Operations Aggregate Limit $3,000,000
Personal and Advertising
Injury - Per Injury $3,000,000
</TABLE>
30
<PAGE> 31
17.2 Licensor shall be named as an additional insured on the Commercial
General Liability policy. Licensee shall provide Licensor with a certificate of
insurance evidencing all of the required coverage. The certificate shall also
provide evidence that the policy has been amended to afford at least thirty (30)
days advance written notice to Licensor of cancellation, nonrenewal or material
change of any of the required coverages.
18. NO ASSIGNMENT OR SUBLICENSE BY LICENSEE
This Agreement and all its rights and duties hereunder are personal to
the Licensee and shall not, without the written consent of Licensor, be
assigned, sublicensed or otherwise encumbered by Licensee or by operation of
law; provided, however, that notwithstanding anything to the contrary contained
herein Licensee shall have the right (a) to have the Licensed Products
manufactured by one or more third party manufacturers and, (b) to assign any or
all of its rights and duties hereunder to any other corporation which is wholly
owned, directly or indirectly, by Licensee provided that Licensee,
simultaneously with such assignment, enters into an agreement with Licensor in a
form reasonably satisfactory to Licensor by which Licensee guarantees all of the
obligations, including without limitation, all financial and performance
obligations, of such assignee.
19. CONDITION PRECEDENT
The effectiveness of this Agreement and each of the respective
obligations of the parties hereunder is subject to satisfaction on or prior to
June 1, 1997 of the following conditions:
(a) Licensor and Licensee shall have filed any and all notification and
report forms required under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "Act") in connection with this Agreement and the required
waiting period (including any extensions
31
<PAGE> 32
thereof) under the Act and the regulations promulgated thereunder shall have
expired or notice of early termination shall have been received; and
(b) No investigation, action or proceeding by or before any court or
other governmental body shall have been commenced or threatened, and no inquiry
shall have been received that, in the opinion of either counsel to either
Licensor or Licensee may lead to an action or proceeding to restrain or
otherwise challenge the transaction contemplated under this Agreement.
20. MISCELLANEOUS
20.1 In the event that either party shall, at any time, waive any of
its rights under this Agreement, or the performance by the other party of any of
its obligations hereunder, such waiver shall not be construed as a continuing
waiver of the same rights or obligations or a waiver of any other rights or
obligations.
20.2 This Agreement constitutes the entire agreement between the
parties as to the Licensed Marks and no modifications or revisions thereof shall
be of any force or effect unless the same are in writing and executed by the
parties hereto.
20.3 Any provisions of this Agreement which are, or shall be determined
to be, invalid shall be ineffective, but such invalidity shall not affect the
remaining provisions hereof. The titles to the paragraphs herein are for
convenience only and have no substantive effect.
20.4 This Agreement is binding upon the parties hereto, any parent,
subsidiary and affiliated companies and their successors and assigns.
20.5 Licensee shall be responsible for compliance with the requirements
of all local laws in the countries where it manufactures, markets, distributes
or sells the Licensed Products, except for obligations with respect to filing as
registered user or similar obligations where required under
32
<PAGE> 33
applicable trademark law. It is understood that Licensor is responsible for the
costs and fees for, or incidental to, obtaining trademark registrations.
20.6 This Agreement shall be construed in accordance with and governed
by the laws of the State of New York, applicable to contracts made and to be
wholly performed therein without regard to its conflicts of law rules. Any
action or proceeding arising out of or relating in any way to this Agreement,
shall be brought and enforced in the courts of the United States for the
Southern District of New York, or, if such courts do not have, or do not accept,
subject matter jurisdiction over the action or proceeding, in the courts of the
state of New York and each party hereby consents to the personal jurisdiction of
each such court in respect of any such action or proceeding. Each of the parties
hereby consents to service of process in any such action or proceeding by the
mailing of copies thereof by Registered or Certified Mail, postage prepaid,
return receipt requested, to it at its address provided for notices hereunder.
The foregoing shall not limit the right of any of the parties to serve process
in any other manner permitted by law or to obtain execution or enforcement of
any judgment in any other jurisdiction. Each of the parties hereby waives (a)
any objection that may now or hereafter have to the laying of venue of any
action or proceeding arising under or related to the Agreement in the court
located in the Borough of Manhattan, City and State of New York, (b) any claim
that a court located in the Borough of Manhattan, City and State of New York is
not a convenient forum for any such action or proceeding, and (c) any claim that
is not subject to the personal jurisdiction of the courts of the United States
of the Southern District of New York or of the courts of the State of New York
located in the Borough of Manhattan, City and State of New York. Notwithstanding
the foregoing, any matter as to which the parties are unable to agree as
provided under Paragraph 2.2 shall be settled and determined by arbitration in
New York, New
33
<PAGE> 34
York, in accordance with and pursuant to the then existing rules
of the American Bar Association. The arbitrator's decision shall be final and
binding on the parties.
20.7 Licensee acknowledges that it has received a copy of the Sara Lee
Corporation Supplier Selection Guidelines and Sara Lee Corporation Global
Operating Principles (the "Guidelines"). Licensee hereby represents and warrants
that it has reviewed and understands the Guidelines, and Licensee and any
approved third-party manufacturer are presently in compliance and will remain in
compliance with the Guidelines for the term of this Agreement. Furthermore,
Licensee agrees to notify Licensor immediately if Licensee becomes aware that a
violation by Licensee or any approved third-party manufacturer of the standards
set forth in the Guidelines has occurred during the term of this Agreement. The
Guidelines are hereby incorporated herein by reference.
20.8 This Agreement may be executed in any number of counterparts, each
of which shall be deemed to be an original, but all such counterparts shall
together constitute one and the same Agreement.
34
<PAGE> 35
20.9 All notices required hereunder shall be in writing and dispatched
by overnight courier addressed to Licensee or Licensor as set forth below, and
shall be effective upon receipt:
Licensor: Chairman and CEO
Coach
516 West 34th Street
New York, New York 10001
Copies to: Director of Intellectual Property
Coach
516 West 34th Street
New York, New York 10001
Chief Counsel - Intellectual Property
Sara Lee Corporation
470 Hanes Mill Road
Winston-Salem, North Carolina 27105
Licensee: President
Movado Group, Inc.
125 Chubb Avenue
Lyndhurst, New Jersey 07071
Copies to: Executive Vice President
Movado Group, Inc.
125 Chubb Avenue
Lyndhurst, New Jersey 07071
General Counsel
Movado Group, Inc.
125 Chubb Avenue
Lyndhurst, New Jersey 07071
35
<PAGE> 36
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
Date: 12/9/96 COACH
A Division of Sara Lee Corporation
By: /s/ Lew Frankfurt
------------------------------
Name: Lew Frankfurt
Title: Chairman & CEO
Date:12/9/96 MOVADO GROUP, INC.
By: /s/ Efraim Grinberg
------------------------------
Name: Efraim Grinberg
Title: President
36
<PAGE> 37
SCHEDULE 1
COACH
[COACH LOGO]
[GRAPHIC OF COACH KEY CHAIN]
<PAGE> 38
SCHEDULE 2
Licensee Special Account
DFS
<PAGE> 39
SCHEDULE 3
Licensor Special Accounts
<TABLE>
<S> <C> <C>
3M Goldman Sachs Nomura Securities
Abbott Laboratories Hachette Filipacchi Oldsmobile
All State Insurance HBO Ono Pharmaceutical
Amer. Nat'l. Bank & Trust Heublein Ore-Ida Foods
Ameritech Hewlett-Packard Paddington Industries
Amoco Hilton Hotels Corp. Paine Webber
Anheuser-Busch House of Seagram Parade Publications
Apple Computer Hyatt Hotels Corp. Paychex
AT&T IBM PC Week
BioGen Intel Corp. Pennzoil
Boeing Portland ISL Marketing (worldwide) Pepsi Cola
Buick John Hancock Pepsico
Cadbury Beverages JVC of America Pfizer
Cadillac Kendall Phillips Petroleum
Capital Cities ABC Kitz, Inc. Pontiac
Chartwell Home Therapies Kobrand Price Waterhouse
Chase Manhattan Kodak Procter & Gamble
Cheesebrough-Ponds USA KPMG Peat Marwick Prudential, The
Chevrolet Kraft Purdue Fredrick Co.
Chrysler Lerner & Co. Rainbow Programming
Citibank Levi Strauss & Co. Raystark Productions
Club De La Tour Lexus Robert Fleming Inc.
CNA-ContinentalInsurance Liberty Mutual RR Donnelley & Sons
Conde Nast Publications Lifetime Salomon Brothers
Coopers & Lybrand Lockheed Corp. Sandoz Corp.
Coors Brewing Co. Lotus Sara Lee Companies
CS First Boston Lucent Technologies Schering-Plough
Dean Witter Mattel Corporation Schweppes USA
Digital Equipment MCI Shell Oil Co.
Disney Mead World Headquarters Smith Barney
Dole Food Co. Merck & Co., Inc. Sony
Dow Chemical Co. Merrill Lynch State Farm Insurance Co.
Dreamworks Met Life Texaco
Dun & Bradstreet Miles Pharmaceutical Texas Instruments
Duracell USA Microsoft Time Warner
Eisai USA Mitsui Precious Metals Towers Perrin
Eli Lilly Mitskoshi, Inc. Travelers Insurance
Elle Mobil Oil TWA
Ernst & Young Morgan Stanley United Airlines
ESPN Moss Dynamic Engines Universal Studios
Estee Lauder Motorola Vanity Fair
Exxon MTV Viacom
E.B. Harvey M&M Bars Wal*Mart
Ford Motor Co. Nabisco Brands Westinghouse Electric Corp.
Fortune NBA Whirlpool
Gap, The NBC Young & Rubicam
General Motors NCR
Gillette
</TABLE>
<PAGE> 40
EXAMPLES OF ROYALTY PAYMENTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
*
</TABLE>
Schedule 4
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
<PAGE> 41
EXAMPLES OF ROYALTY PAYMENTS
*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
*
</TABLE>
- ---------------------
<TABLE>
<S> <C> <C>
*
</TABLE>
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
<PAGE> 42
EXAMPLES OF ROYALTY PAYMENTS
*
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
*
</TABLE>
- ---------------------
*
<TABLE>
<S> <C> <C>
*
</TABLE>
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
<PAGE> 43
EXAMPLES OF ROYALTY PAYMENTS
*
(Thousands of US$)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
*
</TABLE>
*
<TABLE>
<S> <C> <C>
*
</TABLE>
* (CONFIDENTIAL PORTION OF THIS EXHIBIT OMITTED AND FILED SEPARATELY
WITH THE SEC PURSUANT TO RULE 24B-2 OF THE 1934 ACT.)
<PAGE> 1
Exhibit 11
MOVADO GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED TWELVE MONTHS ENDED
JANUARY 31, 1997 JANUARY 31, 1996
------------------- -------------------
<S> <C> <C>
PRIMARY
Net income $11,692 $ 9,724
======= =======
Weighted average number of common shares
outstanding 6,012 6,007
Add common equivalent shares
(determined using the "Treasury Stock"
Method) representing shares issuable upon exercise
of employee stock options 116 33
------- -------
Weighted average number of shares used in
primary net income per share 6,128 6,040
======= =======
Primary net income per share $ 1.91 $ 1.61
======= =======
FULLY DILUTED
Net income $11,692 $ 9,724
======= =======
Weighted average number of common shares
outstanding
6,012 6,007
Add common equivalent shares
(determined using the "Treasury Stock"
Method) representing shares issuable upon
exercise of employee stock options 171 71
------- -------
Weighted average number of shares used in
fully diluted net income per share 6,183 6,078
======= =======
Fully diluted net income $ 1.89 $ 1.60
======= =======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
All issued and outstanding shares of each of the following subsidiaries are
wholly owned, directly or indirectly, by the Registrant except for statutorily
required nominee shares in the case of the Hong Kong subsidiaries.
CALIFORNIA:
North American Watch Service Corporation
DELAWARE:
Movado International, Ltd.
NEW JERSEY:
EWC Marketing Corp.
SwissAm, Inc.
SWITZERLAND:
Concord Watch Company, S.A.
Movado Watch Company, S.A.
N.A. Trading, Ltd.
Montres Movado Bienne, S.A.
Grandjean, S.A.
CANADA:
North American Watch of Canada, Ltd.
GERMANY:
Movado Deutschland GmbH
Concord Deutschland GmbH
SINGAPORE:
SwissAm Pte., Ltd.
HONG KONG:
SwissAm, Ltd.
SwissAm Products, Ltd.
JAPAN:
Concord Movado Japan Co., Ltd.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Nos. 33-72232 and 333-13927) of Movado Group, Inc. of
our report dated March 24, 1997, except as to note 16, which is as of April 3,
1997, appearing on page F-1 of this Form 10-K.
PRICE WATERHOUSE LLP
New York, New York
April 15, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statement for the year ended January 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> JAN-31-1997
<CASH> 4,885
<SECURITIES> 0
<RECEIVABLES> 75,688
<ALLOWANCES> 0
<INVENTORY> 87,177
<CURRENT-ASSETS> 184,664
<PP&E> 15,066
<DEPRECIATION> 0
<TOTAL-ASSETS> 208,443
<CURRENT-LIABILITIES> 57,974
<BONDS> 35,000
0
0
<COMMON> 60
<OTHER-SE> 103,810
<TOTAL-LIABILITY-AND-EQUITY> 208,443
<SALES> 215,107
<TOTAL-REVENUES> 215,107
<CGS> 95,031
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,874
<INCOME-PRETAX> 15,545
<INCOME-TAX> 3,853
<INCOME-CONTINUING> 11,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,692
<EPS-PRIMARY> 1.91
<EPS-DILUTED> 1.89
</TABLE>
