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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
---------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 1997
[ ] 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)
<TABLE>
<S> <C>
NEW YORK 13-2595932
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201)-460-4800
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH
FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES [X] NO [ ]
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
AS OF MAY 29, 1997 THE REGISTRANT HAD 3,232,940 SHARES OF CLASS A COMMON
STOCK, PAR VALUE $0.01 PER SHARE, OUTSTANDING AND 4,313,135 SHARES OF COMMON
STOCK, PAR VALUE $0.01 PER SHARE, OUTSTANDING.
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MOVADO GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
APRIL 30, 1997
<TABLE>
<CAPTION>
Page
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<S> <C> <C> <C>
Part I Financial Information
Item 1. Consolidated Balance Sheets as of April 30, 1997, April 30, 1996 and
January 31, 1997 3
Consolidated Statements of Operations for the three months ended April 30,
1997 and 1996 4
Consolidated Statements of Cash Flows for the three months ended April 30,
1997 and 1996 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
Exhibit Index 13
</TABLE>
2
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31, APRIL 30,
1997 1997 1996
---- ---- ----
<S> <C> <C> <C>
ASSETS
Current assets:
Cash $ 5,330 $ 4,885 $ 3,306
Trade receivables, net 76,117 75,688 70,593
Inventories 95,637 87,177 98,880
Other 18,382 16,914 13,158
--------- --------- ---------
Total current assets 195,466 184,664 185,937
--------- --------- ---------
Plant, property and equipment, net 16,393 15,066 12,407
Other assets 9,429 8,713 8,822
--------- --------- ---------
$ 221,288 $ 208,443 $ 207,166
========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 31,439 $ 7,778 $ 23,987
Current portion of long-term debt 5,000 5,000
Accounts payable 15,616 25,297 16,085
Accrued liabilities 16,162 13,188 10,143
Deferred and current taxes payable 6,901 6,711 7,697
--------- --------- ---------
Total current liabilities 75,118 57,974 57,912
--------- --------- ---------
Long term debt 40,000 40,000 40,000
Deferred and non-current foreign income taxes 2,750 3,477 3,392
Other liabilities 3,016 3,122 3,372
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; 4,313,270, 4,306,508 and
4,272,892 shares issued, respectively 43 43 43
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,232,960, 3,234,268 and
3,236,636 shares issued and outstanding, respectively 32 32 32
Capital in excess of par value 34,488 34,488 34,248
Retained earnings 70,802 71,291 59,664
Cumulative translation adjustment (4,833) (1,856) 8,631
Treasury Stock, 11,501 shares, at cost (128) (128) (128)
--------- --------- ---------
100,404 103,870 102,490
--------- --------- ---------
$ 221,288 $ 208,443 $ 207,166
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------
1997 1996
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<S> <C> <C>
Net sales $ 34,918 $ 31,014
Costs and expenses:
Cost of sales 15,017 13,663
Selling, general and administrative 19,333 17,187
-------- --------
Operating income 568 164
Net interest expense 915 842
-------- --------
Loss before income taxes (347) (678)
Benefit from income taxes (87) (204)
-------- --------
Net loss ($ 260) ($ 474)
======== ========
Loss per share ($ 0.03) ($ 0.06)
======== ========
Shares used in per share computations 7,534 7,531
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
---------------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss ($ 260) ($ 474)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 816 951
Deferred and non-current foreign income taxes (592) (714)
Provision for losses on accounts receivable 218 51
Changes in current assets and liabilities:
Trade receivables (1,268) 4,464
Inventories (10,038) (10,676)
Other current assets (3,027) (3,451)
Accounts payable (9,475) (4,550)
Accrued liabilities 2,885 819
Deferred and current taxes payable 345 (97)
Increase in other non-current assets (1,673) (1,012)
Decrease in other non-current liabilities (44) (42)
-------- --------
Net cash used in operating activities (22,113) (14,731)
-------- --------
Cash flows used for investing activities:
Capital expenditures (1,021) (747)
Goodwill, trademarks and other intangibles (201) (126)
-------- --------
Net cash used in investing activities (1,222) (873)
-------- --------
Cash flows from financing activities:
Net proceeds from current borrowings under lines of credit 23,943 15,468
Principal payments under capital leases (51) (139)
Exercise of stock options -- 11
Dividends paid -- (181)
-------- --------
Net cash provided by financing activities 23,892 15,159
-------- --------
Effect of exchange rate changes on cash (112) (78)
Net increase (decrease) in cash 445 (523)
Cash at beginning of period 4,885 3,829
-------- --------
Cash at end of period $ 5,330 $ 3,306
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Movado Group, Inc. (the "Company") in a manner consistent with that used in
the preparation of the financial statements included in the Company's fiscal
1997 Annual Report filed on form 10-K. In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal and recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods presented. These
consolidated financial statements should be read in conjunction with the
aforementioned annual report.
NOTE 1 - STOCK SPLIT
On April 3, 1997, the Company's Board of Directors approved a five-for-four
stock split of the Company's Common and Class A Common Stock. The stock split
became effective April 21, 1997. The accompanying financial statements
contained in this report have been retroactively adjusted to reflect the
impact of the stock split.
NOTE 2 - RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings Per Share, which specifies the computation,
presentation and disclosure requirements for earnings per share. Management of
the Company believes that adoption of Statement No. 128 which is required for
the fiscal year ending January 31, 1998, will not have a material impact on the
Company's earnings per share calculation.
NOTE 3- INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31, April 30,
1997 1997 1996
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<S> <C> <C>
Finished goods $57,948 $53,497 $57,719
Work-in-process and component parts 37,689 33,680 41,161
------- ------- -------
$95,637 $87,177 $98,880
======= ======= =======
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NOTE 4- SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
---------------
1997 1996
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $378 $261
Income taxes 216 705
Non-cash investing and financing activities:
Dividend declared $229 --
</TABLE>
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS
Statements included under Management's Discussion and Analysis of Financial
Condition and Results of Operations, in this report, as well as statements in
future filings by the Company with the Securities and Exchange Commission
("SEC"), in the Company's press releases and oral statements made by or with the
approval of an authorized executive officer of the Company, which are not
historical in nature, are intended to be, and are hereby identified as, "forward
looking statements" for purposes of the safe harbor provided by 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.
RESULTS OF OPERATIONS
Three months ended April 30, 1997 compared to three months ended April 30, 1996.
Net Sales. Net sales increased 12.6% to $34.9 million from $31.0 million for the
three months ended April 30, 1997 and April 30, 1996, respectively. The increase
was attributable to a 12.2% increase in domestic sales reflecting growth in the
Company's Concord and Movado (including Vizio) brands. International sales
increased 13.9%. The growth in international sales relates to growth in unit
sales volumes for Concord and Movado in the Far East and the Middle East and for
Movado in the Caribbean.
Gross Margins. Gross profit for the three months ended April 30, 1997 was $19.9
million (57.0% of net sales) as compared to $17.4 million (55.9% of net sales)
for the comparable prior year period. 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
previous year.
Operating Expenses. Operating expenses increased 12.5% for the three months
ended April 30, 1997 to 55.3% of net sales from 55.4% of net sales for the
comparable prior year period. The increase in operating expenses occurred
primarily in advertising, selling and general and administrative expense
categories. Although increasing in absolute terms, product distribution costs
declined as a percentage of sales. The increase in advertising and marketing is
predominantly due to increases in planned media spending for the Company's
Concord, Movado and ESQ brands and especially the introduction of the new Vizio
lines which occurred during the second quarter of fiscal 1997.
8
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Interest Expenses. 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 $915,000 for the three months
ended April 30, 1997 as compared to $842,000 for the three months ended April
30, 1996. The higher interest expense is predominately due to higher borrowings
for the three months ended April 30, 1997 as compared to the comparable prior
year period.
Income Taxes. The Company recorded a benefit from income taxes of $87,000 for
the three months ended April 30, 1997 as compared to a benefit of $204,000 for
the comparative prior year period. Taxes were provided at a 25% effective rate
which the Company believes will approximate the effective annual rate for fiscal
1998; however, there can be no assurance of this as it is dependent on a number
of factors including: mix of foreign to domestic earnings, local statutory tax
rates and utilization of net operating losses. The 25% effective rate differs
from the United States statutory rate due to the mix of earnings between the
Company's U.S. and international operations, the most significant of which are
located in Switzerland. The Company's international operations are generally
subject to tax rates that are significantly lower than U.S. statutory rates.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements which have increased due
to significant growth in domestic sales over the three previous years. The
Company's business is not capital intensive and liquidity needs for capital
investments have not been significant in relation to the Company's overall
financing requirements.
The Company has met its liquidity needs primarily through funds from operations
and bank borrowings under working capital lines of credit with domestic and
Swiss banks. The Company has also entered into a revolving credit agreement with
its domestic banks. Funds available under this agreement are in addition to the
Company's working capital lines.
The Company 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. The Company is currently negotiating with its banking
group to increase its credit facilities from $85 million to $100 million. The
Company believes that this will be completed prior to July 31, 1997.
As of April 30, 1997, the Company's debt to total capitalization ratio increased
to 43.2% as compared to 38.4% at April 30, 1996 and 34.0% at January 31, 1997.
The increase in the debt to total capitalization ratio is due to a $13.5 million
dollar decline in the cumulative translation adjustment due to the strength of
the U.S. Dollar. Excluding the effect of the cumulative translation adjustment
the debt to total capitalization would have increased to 42.1% at April 30, 1997
as compared to 40.5% at April 30, 1996. The increase in the debt to total
capitalization from January 31, 1997 is predominately due to an increase in
loans payable to banks partially offset by a reduction in accounts payable.
The Company's net working capital consisting primarily of trade receivables and
inventories amounted to $120.3 million at April 30, 1997, $128.0 million at
April 30, 1996 and $126.7 million at January 31, 1997. The decrease in the
working capital from April 30, 1996 is primarily the result of the
reclassification of $5.0 million of the Company's long-term senior debt which is
payable February 2, 1998. The decrease in working capital from January 31, 1997
9
<PAGE> 10
is primarily the result of an increase in liabilities, especially loans payable
to banks, proceeds of which were used to purchase inventories, which increased
in anticipation of the upcoming selling season. Loan proceeds were also used to
pay other operating expenses.
Accounts receivable at April 30, 1997 were $76.1 million as compared to $70.6
million at April 30, 1996 and $75.7 million at January 31, 1997. The growth in
accounts receivable from April 1996 is primarily the result of growth in the
business.
Inventories at April 30, 1997 were $95.7 million as compared to $98.9 million at
April 30, 1996 and $87.2 million at January 31, 1997. The inventory balance at
April 30, 1997 was relatively flat as compared to April 30, 1996. The increase
in inventories from January 31, 1997 reflects the seasonal build, as well as the
expansion of the Company's sales base and product line.
The Company's fiscal 1998 year-to-date capital expenditures approximate $1.0
million as of April 30, 1997 and $750,000 as of April 30, 1996. Expenditures are
principally related to upgrades in the Company's Management Information System
and the relocation of the Company's Swiss operations. The Company expects its
annual capital expenditures in fiscal year 1998 will exceed the average levels
experienced over the last three fiscal years due to planned improvements in
management information systems, expansion of its retail store network and the
expansion of distribution operations to support continued sales growth.
10
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment number 1 to promissory note dated October
25, 1995 between Michael Bush and the Company.
11 Computation of net income per share.
27 Financial schedules.
(b) Reports on Form 8-K
None
11
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: June 13, 1997 By: /s/ Kenneth J. Adams
-----------------------------
Kenneth J. Adams
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer)
Dated: June 13, 1997 By: /s/ John J. Rooney
-----------------------------
John J. Rooney
Corporate Controller
(Principal Accounting Officer)
12
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Amendment number 1 to promissory note dated October
25, 1995 between Michael Bush and the Company. *
11 Computation of net income per share.
27 Financial schedules.
* CONSTITUTES A COMPENSATORY PLAN OR ARRANGEMENT.
13
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Exhibit 10.1
Amendment Number 1 to
Promissory Note dated October 25, 1995
In consideration of the mutual premises and covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which is hereby mutually acknowledged, Michael Bush ("Payor") and Movado Group,
Inc. (formerly North American Watch Corporation, hereinafter referred to as
"Payee") hereby agree as follows:
That certain Promissory Note dated October 25, 1995 in the amount of
$150,000 duly executed by Payor and delivered to Payee is hereby amended by
deleting the reference to "August 28, 1996" and substituting in lieu thereof
"January 31, 1997"; and by deleting the references to "August 28, 1997" and
"August 29, 1997" and substituting in lieu thereof "January 31, 1998".
I witness whereof Payor and Payee have duly executed this Amendment
Number 1 as of this 24th day of January 1997.
Payor:
/s/ Michael Bush
----------------
Michael Bush
Payee:
MOVADO GROUP,INC.
By /s/ Kenneth J. Adams
--------------------
Kenneth J. Adams
Chief Financial Officer
<PAGE> 1
EXHIBIT 11
MOVADO GROUP, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
PRIMARY APRIL 30, 1997
- ------- --------------
<S> <C>
Net income ($ 260)
Weighted average number of common shares outstanding 7,534
Add common equivalent shares
(determined using the "Treasury Stock" Method) representing shares issuable upon
exercise of employee stock options 202
-------
Weighted average number of shares used in primary net income per share
7,736
=======
Primary net income per share ($ 0.03)
=======
FULLY DILUTED
Net income ($ 260)
Weighted average number of common shares outstanding 7,534
Add common equivalent shares (determined using the "Treasury Stock" Method)
representing shares issuable upon exercise of employee stock options
202
-------
Weighted average number of shares used in fully diluted net income per share
7,736
=======
Fully diluted net income ($ 0.03)
=======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED APRIL 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<CASH> 5,330
<SECURITIES> 0
<RECEIVABLES> 76,117
<ALLOWANCES> 0
<INVENTORY> 95,637
<CURRENT-ASSETS> 195,466
<PP&E> 16,393
<DEPRECIATION> 0
<TOTAL-ASSETS> 221,288
<CURRENT-LIABILITIES> 75,118
<BONDS> 40,000
0
0
<COMMON> 75
<OTHER-SE> 100,329
<TOTAL-LIABILITY-AND-EQUITY> 221,288
<SALES> 34,918
<TOTAL-REVENUES> 34,918
<CGS> 15,017
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 915
<INCOME-PRETAX> (347)
<INCOME-TAX> (87)
<INCOME-CONTINUING> (260)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (260)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
