<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14(a)-11(c)
or Section 240.14a-12
Movado Group, Inc.
............................................................................
(Name of Registrant as Specified In Its Charter)
............................................................................
(Name of Person(s) Filing proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
......................................................................
2) Aggregate number of securities to which transaction applies:
......................................................................
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
......................................................................
4) Proposed maximum aggregate value of transaction:
......................................................................
5) Total fee paid:
......................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
......................................................................
2) Form, Schedule or Registration Statement No.:
......................................................................
3) Filing Party:
......................................................................
4) Date Filed:
......................................................................
<PAGE> 2
May 24, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of the
shareholders of Movado Group, Inc. to be held on Tuesday, June 15, 1999 at 10:00
a.m., Eastern Daylight Time, at the offices of Simpson, Thacher & Bartlett
located at 425 Lexington Avenue, New York, New York. The official Notice of
Meeting, Proxy Statement and form of proxy are enclosed with this letter. The
matters listed in the Notice of Meeting are described in the attached Proxy
Statement.
The vote of every shareholder is important and your cooperation in
completing, signing and returning your proxy promptly will be appreciated.
We hope to see you at the Annual Meeting.
Sincerely,
Gedalio Grinberg
CHAIRMAN OF THE BOARD
And Chief Executive Officer
- -------------------------------------------------------------------------------
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE,
SIGN AND RETURN YOUR PROXY CARD PROMPTLY IN THE ENCLOSED ENVELOPE
WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES.
- -------------------------------------------------------------------------------
<PAGE> 3
MOVADO GROUP, INC.
125 CHUBB AVENUE
LYNDHURST, NEW JERSEY 07071
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
June 15, 1999
Notice is hereby given that the Annual Meeting of Shareholders of Movado Group,
Inc. will be held on Tuesday, June 15, 1999 at 10:00 a.m., Eastern Daylight
Time, at the offices of Simpson, Thacher & Bartlett, 425 Lexington Avenue, New
York, New York for the following purposes:
1. To elect seven directors to serve until the next Annual
Meeting and until their successors are elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending
January 31, 2000;
3. To act upon a proposal to amend the Company's Certificate of
Incorporation to modify the definition of "Permitted
Transferee" in paragraph 4.1 (d) (i) with respect to the Class
A Common Stock; and
4. To transact such other business as may properly come before
the meeting or any postponement or adjournment thereof.
Holders of the Company's Common Stock and Class A Common Stock of record at the
close of business on May 12, 1999 are entitled to notice of and to vote at the
Annual Meeting of Shareholders or any postponements or adjournments thereof.
Dated: May 24, 1999 By order of The Board of Directors
Timothy F. Michno
Secretary and General Counsel
<PAGE> 4
MOVADO GROUP, INC.
125 CHUBB AVENUE
LYNDHURST, NJ 07071
PROXY STATEMENT
INFORMATION CONCERNING THE SOLICITATION
This proxy statement and the accompanying proxy are being furnished to
the shareholders of Movado Group, Inc. (the "Company") in connection with the
solicitation of proxies by the Board of Directors of the Company to be used for
voting at the Annual Meeting of Shareholders (the "Annual Meeting") to be held
on Tuesday, June 15, 1999 at 10:00 a.m., Eastern Daylight Time, at the offices
of Simpson, Thacher & Bartlett, 425 Lexington Avenue, New York, New York and at
any adjournments thereof. It is expected that this proxy statement and the form
of proxy will first be sent to shareholders on or about May 24, 1999.
At the Annual Meeting, the holders of the Company's Common Stock and
Class A Common Stock (together the "Capital Stock") will be asked to consider
and vote upon the following proposals:
1. To elect seven directors to serve until the next annual
meeting and until their successors are elected and qualified;
2. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending
January 31, 2000;
3. To amend the Company's Certificate of Incorporation to modify
the definition of "Permitted Transferee" in Paragraph 4.1 (d)
(i) with respect to the Class A Common Stock; and
4. To transact such other business as may properly come before
the Annual Meeting or any postponement or adjournment thereof.
The Board of Directors knows of no other business to be presented at
the Annual Meeting. If any other business is properly presented, the persons
named in the enclosed proxy will have the power to vote all proxies received,
and not theretofore revoked, in accordance with the recommendations of the Board
of Directors. If the enclosed proxy is properly executed, duly returned to the
Company in time for the Annual Meeting and not revoked, your shares will be
voted in accordance with the instructions contained thereon. Where a signed
proxy is returned, but no specific instructions are indicated, your shares will
be voted FOR the nominees for Directors identified below; FOR the ratification
of the appointment of PricewaterhouseCoopers LLP as the Company's independent
accountants for fiscal year 2000; and FOR the proposal to amend the Company's
Certificate of Incorporation.
Abstentions will be treated as present for purposes of determining a
quorum for the Annual Meeting. Proxies returned by brokers as "non-votes" will
not be treated as present for purposes of determining the presence of a quorum.
Any shareholder who executes and returns a proxy may revoke it in
writing at any time before it is voted at the Annual Meeting by: (i) filing with
the Secretary of the Company, at the above address, written notice of such
revocation bearing a later date than the proxy or a subsequent proxy relating to
the same shares or (ii) attending the Annual Meeting and voting in person
(although attendance at the Annual Meeting will not in and of itself constitute
revocation of a proxy).
The solicitation of proxies in the enclosed form is made on behalf of
the Board of Directors. The entire cost of soliciting these proxies will be
borne by the Company. In addition to use of the mails, proxies may be solicited
personally or by telephone by officers, directors and employees of the Company,
who will receive no additional compensation for such activities. Arrangements
will be made with brokerage houses and other custodians, nominees and
fiduciaries to forward solicitation materials to the beneficial owners of shares
held of record by such persons, who will be reimbursed for their reasonable
expenses incurred in such connection.
<PAGE> 5
OUTSTANDING VOTING SECURITIES
The Board of Directors has fixed the close of business on May 12, 1999
as the record date for the determination of shareholders entitled to notice of
and to vote at the Annual Meeting (the "Record Date"). Only holders of record of
the Capital Stock at the close of business on the Record Date are entitled to
notice of and to vote at the Annual Meeting or any and all adjournments thereof.
On May 5, 1999 there were 9,286,669 shares of Common Stock outstanding and
3,500,543 shares of Class A Common Stock outstanding. Each share of Common Stock
is entitled to one vote, and each share of Class A Common Stock is entitled to
10 votes. The holders of a majority in voting power of the outstanding shares of
Capital Stock entitled to vote at the Annual Meeting, present in person or
represented by proxy, constitute a quorum at the Annual Meeting. The affirmative
vote of the holders of a majority in voting power present in person or
represented by proxy and entitled to vote is required to ratify the selection of
PricewaterhouseCoopers LLP as the Company's independent accountants for fiscal
2000. The affirmative vote of the holders of at least sixty-six and two thirds
percent (66 2/3%) of the voting power of the outstanding shares of stock of the
Company entitled to vote at the Annual Meeting is required to approve the
proposal to amend the Company's Certificate of Incorporation; and the
affirmative vote of the holders of a plurality in voting power present in person
or represented by proxy and entitled to vote is sufficient for the election of
Directors.
SECURITY OWNERSHIP
OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Class A Common Stock and the Common Stock as of the
Record Date (except as otherwise noted in footnotes 5, 6, 7, 11 and 14) by (i)
each shareholder who is known by the Company to beneficially own in excess of 5%
of the outstanding shares of Class A Common Stock or of the outstanding shares
of Common Stock, (ii) each director, (iii) each Named Executive Officer (as
hereinafter defined) and (iv) all executive officers and directors as a group.
Unless otherwise noted, all shares are beneficially owned by the persons
indicated.
<TABLE>
<CAPTION>
PERCENT OF OUTSTANDING
SHARES OF CAPITAL STOCK
-----------------------
SHARES OF
CLASS A SHARES OF
COMMON COMMON PERCENT OF
STOCK STOCK CLASS A TOTAL
BENEFICIALLY BENEFICIALLY COMMON COMMON VOTING
NAME OF BENEFICIAL OWNER OWNED OWNED STOCK STOCK POWER (1)
- ------------------------------------------ ------------- ------------ -------- -------- ----------
<S> <C> <C> <C> <C> <C>
Margaret Hayes Adame (2) ...................... -- 3,875 -- * *
Kenneth J. Adams (3) .......................... -- 28,572 -- * *
Michael J. Bush (4) ........................... -- 143,812 -- 1.5% *
Capital Research and Management ............... -- 470,000 -- 5.1 1.0%
Co.(5)
Dimensional Fund Advisors Inc. (6) ............ -- 570,187 -- 6.1% 1.3%
FMR Corp. (7) ................................. -- 915,012 -- 9.9 2.1%
Alexander Grinberg(8) ......................... 1,581,667 3,000 45.2% * 35.7%
Efraim Grinberg (9) ........................... 833,273 246,365 25.2% 2.6 19.3%
Gedalio Grinberg (10) ......................... 2,035,573 60,115 58.2% * 46.1%
Alan H. Howard (2) ............................ -- 2,937 -- * *
Mellon Bank Corporation (11) .................. -- 627,050 -- 6.8 1.4%
Timothy F. Michno(12) ......................... -- 572 -- * *
Donald Oresman (2) ............................ 1,960 2,000 * * *
Miriam Phalen (13) ............................ 1,595,883 -- 45.6% -- 36.0%
PNC Bank Corp. (14) ........................... -- 471,975 -- 5.1 *
Leonard L. Silverstein (15) ................... 436,246 37,323 12.5% * 9.9%
All executive officers and directors as a group 2,870,806 486,090 82.0% 5.0 65.4%
(11 persons) (16)
</TABLE>
- ----------------
* DENOTES LESS THAN ONE PERCENT
The address for Messrs. Adams, Bush, G. Grinberg. E. Grinberg, Howard, Michno,
Oresman and Silverstein and Ms. Hayes-Adame is c/o Movado Group, Inc., 125 Chubb
Avenue, Lyndhurst, New Jersey 07071.
2
<PAGE> 6
(1) In calculating the percent of total voting power, the voting power of
shares of Common Stock (one vote per share) and Class A Common Stock
(10 votes per share) has been aggregated.
(2) The total shares of Common Stock reported as beneficially owned by each
of Ms. Hayes Adame and Messrs. Howard, Oresman and Silverstein include
2,000 shares which each director has the right to acquire by the
exercise of options under the Company's 1996 Stock Incentive Plan.
(3) The total shares of Common Stock reported as beneficially owned by Mr.
Adams include 28,563 shares which he has the right to acquire by the
exercise of options under the Company's 1996 Stock Incentive Plan.
(4) The total shares of Common Stock reported as beneficially owned by Mr.
Bush include 133,500 shares which he has the right to acquire by the
exercise of options under the Company's 1996 Stock Incentive Plan.
(5) On February 8, 1999 in a filing on Schedule 13G under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), Capital Research
and Management Company ("CRMC") reported beneficial ownership of
470,000 shares of Common Stock as of December 31, 1998 as to all of
which it has sole investment power, no voting power and no shared
investment power. CRMC reported that all such shares were acquired in
the ordinary course of business and not for the purpose, or with the
effect, of changing or influencing the control of the Company or in
connection with any transaction having such purpose or effect. The
address of CRMC is 333 South Hope Street, Los Angeles, CA 90071.
(6) On February 11, 1999 in a filing on Schedule 13G under the Exchange
Act, Dimensional Fund Advisors, Inc. ("DFA") reported beneficial
ownership as of December 31, 1998 of 570,187 shares of Common Stock as
to all of which it has sole voting and investment power. DFA also
reported that all of the shares of Common Stock that it beneficially
owns were acquired in the ordinary course of business and not for the
purpose or with the effect of changing or influencing control of the
Company, or in connection with any transaction having such purpose or
effect. The address of DFA is 1299 Ocean Avenue, 11th Floor, Santa
Monica, CA 90401.
(7) In a joint filing on Schedule 13G dated February 1, 1999, under the
Exchange Act, FMR Corp., together with its wholly owned subsidiary,
Fidelity Management and Research Company, and Edward C. Johnson 3d and
Abigail P. Johnson each reported beneficial ownership as of December
31, 1998 of 915,012 shares of Common Stock as to which each such
reporting person has sole dispositive power. Each reporting person
reported having no shared dispositive power as to any of such shares
nor any voting power as to any such shares. Each such reporting person
also reported that all of the shares of Common Stock which it
beneficially owns were acquired in the ordinary course of business and
not for the purpose or with the effect of changing or influencing
control of the Company, or in connection with any transaction having
such purpose or effect. The address of each such reporting person is 82
Devonshire Street, Boston, Massachusetts 02109.
(8) The total number of shares of Class A Common Stock beneficially owned
by Mr. Alexander Grinberg includes 1,426,983 shares owned by Grinberg
Partners L.P. of which Mr. A. Grinberg is a limited partner, and 25,780
shares owned by trusts for the benefit of Mr. A. Grinberg's niece and
nephew, of which trusts he is a co-trustee with Mr. Mark Fishman. Mr.
A. Grinberg has sole voting and investment power with Grinberg Partners
L.P., Grinberg Group Partners (the general partner of Grinberg Partners
L.P.) and Miriam Phalen over the 1,426,983 shares owned by Grinberg
Partners L.P. and shared voting and investment power with Mr. Fishman
over the 25,780 shares owned by the trusts. The Common Stock owned by
Mr. A. Grinberg represents the number of shares he has the right to
acquire by the exercise of options under the Company's 1996 Stock
Incentive Plan.
(9) The total number of shares of Class A Common Stock beneficially owned
by Mr. Efraim Grinberg includes an aggregate of 281,653 shares held by
several trusts for the benefit of Mr. E. Grinberg's siblings and
himself, of which trusts Mr. E. Grinberg is sole trustee. As sole
trustee, Mr. E. Grinberg has sole
3
<PAGE> 7
investment and voting power with respect to the shares held by such
trusts. In addition, the amount of shares of Class A Common Stock
reported for Mr. E. Grinberg includes an aggregate of 431,468 shares of
Class A Common Stock held by several trusts for the benefit of Mr. E.
Grinberg's siblings and himself, of which trusts Mr. E. Grinberg is
co-trustee with Mr. Leonard L. Silverstein. As a co-trustee, Mr. E.
Grinberg has shared investment and voting power with Mr. Silverstein
with respect to the shares of Class A Common Stock held by such trusts.
The total number of shares of Common Stock owned by Mr. E. Grinberg
includes 54,490 shares of Common Stock held under the Company's
Employee Savings and Investment Plan ("401(k) Plan"), the trustees of
which are Messrs. Gedalio Grinberg and E. Grinberg, both of whom have
shared investment and voting power as to such shares. Mr. E. Grinberg
disclaims beneficial ownership as to the 477,107 shares of Class A
Common Stock held by the trusts for the benefit of his siblings of
which he is trustee or co-trustee and of the 54,490 shares of Common
Stock held under the Company's 401(k) Plan except to the extent of his
pecuniary interest therein. The total number of shares of Common Stock
owned by Mr. E. Grinberg also includes 190,000 shares of Common Stock
which he has the right to acquire by the exercise of options under the
Company's 1996 Incentive Stock Plan.
(10) The total number of shares of Class A Common Stock beneficially owned
by Mr. G. Grinberg includes 4,778 shares of Class A Common Stock owned
by The Grinberg Family Foundation, a non-profit corporation of which
Mr. G. Grinberg, Sonia Grinberg and Leonard L. Silverstein are the
directors and officers and as to which shares these three individuals
have shared investment and voting power. Also included in the total
number of shares of Class A Common Stock beneficially owned by Mr. G.
Grinberg are 1,426,983 shares owned by Grinberg Partners L.P., a
Delaware limited partnership, of which Grinberg Group Partners, a
Delaware general partnership ("GGP"), is the general partner. As the
managing partner of GGP, Mr. G. Grinberg has shared power to direct the
voting and disposition of the shares owned by Grinberg Partners L.P.
The total number of shares of Common Stock beneficially owned by Mr. G.
Grinberg includes 54,490 shares of Common Stock held under the
Company's 401(k) Plan, the trustees for which are Messrs. G. Grinberg
and E. Grinberg, both of whom have shared investment and voting power
as to such shares. Mr. G. Grinberg disclaims beneficial ownership as to
the 4,778 shares of Class A Common Stock owned by The Grinberg Family
Foundation and the 54,490 shares of Common Stock owned by the Company's
401(k) Plan except to the extent of his pecuniary interest therein.
(11) On January 26, 1999 in a joint filing on Schedule 13G under the
Exchange Act, The Dreyfus Corporation ("Dreyfus"), a subsidiary of
Mellon Bank Corporation ("MBC"), and Dreyfus Variable Investment Fund
Small Company Stock Portfolio ("DVIF"), a subsidiary of Dreyfus,
reported beneficial ownership, respectively, of 681,500 and 550,000
shares of Common Stock; and MBC and its subsidiary Mellon Bank, N.A.
reported beneficial ownership, respectively, of 772,813 and 759,313
shares of Common Stock, including the shares owned by Dreyfus and DVIF.
Dreyfus reported that it has sole voting and investment power as
to 642,500 shares and shared voting and investment power as to 39,000
shares. DVIF reported that it has sole voting and investment power as
to 550,000 shares and no shared voting or investment power. MBC and
Mellon Bank, N.A. each reported having shared voting and investment
power as to 39,000 shares. MBC reported having sole voting and
investment power as to 733,813 shares and Mellon Bank N.A. reported
having sole voting and investment power as to 720,313 shares. Each of
MBC, Mellon Bank, N.A. and Dreyfus reported that all such shares were
acquired in the ordinary course of business and not for the purpose, or
with the effect, of changing or influencing the control of the Company
or in connection with any transaction having such purpose or effect.
The address of Dreyfus, MBC, DVIF and Mellon Bank, N.A. is One Mellon
Bank Center, Pittsburgh, PA 15258.
(12) The total number of shares of Common Stock reported as beneficially
owned by Mr. Michno includes 563 shares which he has the right to
acquire by the exercise of options under the Company's 1996 Stock
Incentive Plan.
(13) The total number of shares of Class A Common Stock beneficially owned
by Ms. Miriam Phalen includes 1,426,983 shares owned by Grinberg
Partners L.P. of which Ms. Phalen is a limited partner, and 25,779
shares owned by trusts for the benefit of Ms. Phalen's children of
which trusts Ms. Phalen is the sole trustee. Ms. Phalen has the sole
voting and investment power over the 143,121 shares of Class A Common
Stock owned by her individually as well as over the 25,770 shares owned
by the trusts, and she has shared voting power with Grinberg Partners
L.P., Grinberg Partners (general partner of Grinberg Partners L.P.) and
Alexander Grinberg over the 1,426,983 shares owned by Grinberg Partners
L.P.
4
<PAGE> 8
(14) On February 12, 1999 in a joint filing on Schedule 13G under the
Exchange Act, PNC Bank Corp. and each of its wholly owned subsidiaries,
PNC Bancorp, Inc.; PNC Bank, National Association; Black Rock Advisors,
Inc. and Black Rock Financial Management, Inc. each reported beneficial
ownership as of December 31, 1998 of 471,975 shares of Common Stock, of
which each such reporting person has sole voting power as to 459,775
shares, sole dispositive power as to 470,775 shares and no shared
voting or investment power. Each such reporting person also reported
that all of the shares of Common Stock which it beneficially owns were
acquired in the ordinary course of business and not for the purpose or
with the effect of changing or influencing control of the Company, or
in connection with any transaction having such purpose or effect. The
address of each reporting is as follows: PNC Bank Corp., One PNC Plaza,
249 5th Avenue, Pittsburgh, PA 15222; PNC Bancorp, Inc., 222 Delaware
Avenue, Wilmington, DE 19899; PNC Bank, National Association, One PNC
Plaza, 249 Fifth Avenue, Pittsburgh, PA 15222; Black Rock Advisors,
Inc., and Black Rock Financial Management, Inc., 1600 Market Street,
Philadelphia, PA 19103.
(15) The total number of shares of Class A Common Stock beneficially owned
by Mr. Leonard L. Silverstein includes an aggregate of 431,468 shares
of Class A Common Stock held by several trusts for the benefit of Mr.
G. Grinberg's three children, of which trusts Mr. Silverstein is
co-trustee with Mr. E. Grinberg, with whom he has shared investment and
voting power as to the shares held by such trusts. The total number of
shares of Class A Common Stock reported for Mr. Silverstein also
includes 4,778 shares of Class A Common Stock owned by The Grinberg
Family Foundation, of which Mr. G. Grinberg, his wife and Mr.
Silverstein are the directors and officers and as to which shares these
three individuals have shared investment and voting power. The total
number of shares of Common Stock beneficially owned by Mr. Silverstein
includes 2,000 shares which he has the right to acquire by the exercise
of options under the Company's 1996 Stock Incentive Plan and 2,000
shares owned by the Leonard and Elaine Silverstein Family Foundation of
which Mr. Silverstein and his wife are the directors and officers and
as to which shares they have shared investment and voting power. Mr.
Silverstein disclaims beneficial ownership of the shares of Class A
Common Stock held by the trusts of which he is co-trustee with E.
Grinberg, The Grinberg Family Foundation and by The Leonard and Elaine
Silverstein Family Foundation.
(16) Excludes double counting of shares deemed to be beneficially owned by
more than one person. Unless otherwise indicated, the individuals named
have sole investment and voting power.
- ----------
ITEM 1 - ELECTION OF DIRECTORS
Directors hold office until the next annual meeting of shareholders and
until the election and qualification of their successors. The Company's By-laws
provide that the number of Directors constituting the Board may be changed by
action of the Board of Directors, so long as the number is not less than three.
The Board currently consists of seven directors. All of the nominees are members
of the present Board of Directors. If any nominee for election to the Board of
Directors of the Company should be unable to accept nomination or election as a
director, which is not expected, the proxies may be voted with discretionary
authority for a substitute or substitutes designated by the Board of Directors
or the number of Directors constituting the Board may be reduced in accordance
with the Company's By-Laws. Directors shall be elected by the holders of a
plurality of the voting power present in person or represented by proxy and
entitled to vote. Abstentions and broker "non-votes" shall not be counted for
purposes of the election of directors. THE BOARD OF DIRECTORS RECOMMENDS THE
ELECTION OF THE NOMINEES LISTED BELOW. THE BOARD RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE ELECTION OF THE NOMINEES. PROXIES SOLICITED BY THE BOARD WILL BE SO
VOTED EXCEPT WHERE AUTHORITY HAS BEEN WITHHELD.
5
<PAGE> 9
The following table lists information with respect to the nominees for
election as Directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Margaret Hayes Adame 59 Director
Michael J. Bush 38 Executive Vice President and Chief
Operating Officer; Director
Efraim Grinberg 41 President; Director
Gedalio Grinberg 67 Chief Executive Officer and Chairman of
the Board of Directors
Alan H. Howard 39 Director
Donald Oresman 73 Director
Leonard L. Silverstein 77 Director
</TABLE>
There are no family relationships between any of the Company's
directors with the exception of Efraim Grinberg, who is the son of Gedalio
Grinberg. There are no arrangements between any director and any other person
pursuant to which any of them was elected a director.
Ms. Hayes Adame was elected to the Board of Directors of the Company on
September 8, 1993. Ms. Hayes Adame is the President of the Fashion Group
International, Inc. which she joined in March 1993. From 1981 to March 1993, Ms.
Hayes Adame was a senior vice president and general merchandise manager at Saks
Fifth Avenue. She is also a member of the board of directors of International
Flavors & Fragrances, Inc.
Mr. Bush was elected to the Board of Directors in 1996. Mr. Bush joined
the Company in August 1995 as Executive Vice President and Chief Operating
Officer. From 1991 to 1995, Mr. Bush was the Senior Vice President, Marketing
and Strategic Planning for Ross Stores, Inc., a California based retailer. Prior
to assuming his position at Ross Stores, Mr. Bush was a Senior Consultant with
Bain & Company, Inc., a strategic consulting firm which he joined in 1985.
Mr. E. Grinberg joined the Company in June 1980 and served as the
Company's Vice President of Marketing from February 1985 until July 1986, at
which time he was elected to the position of Senior Vice President of Marketing.
In 1988, Mr. E. Grinberg was elected to the Board of Directors of the Company.
From June 1990 to October 1995, Mr. E. Grinberg served as the Company's
President and Chief Operating Officer and since October 1995 has served as the
Company's President. Mr. E. Grinberg also serves on the board of directors of
the American Watch Association and the Jeweler's Security Alliance.
Mr. G. Grinberg founded the Company in 1961 and, since then, has served
as the Company's Chairman and Chief Executive Officer.
Mr. Howard was elected to the Board of Directors of the Company in
September 1997. Mr. Howard was a Managing Director of Credit Suisse First Boston
Corporation, which he joined in 1986, until April 1999 at which time he became a
Managing Director of Donaldson Lufkin & Jenrette. Prior to 1986, Mr. Howard
worked with the James River Corporation and the Dixie Products Group of American
Can Company.
6
<PAGE> 10
Mr. Oresman has served on the Board of Directors of the Company since
1981. He was Executive Vice President and General Counsel of Paramount
Communications, Inc., a publishing and entertainment company, from December 1983
until his retirement in March 1994. Prior to December 1983, Mr. Oresman was
engaged in the practice of law as a partner of Simpson Thacher & Bartlett where
he is now Of Counsel.
Mr. Silverstein has served on the Board of Directors of the Company
since 1975. He has been engaged in the practice of law at Silverstein and
Mullens, Washington, D.C., for over 40 years. Mr. Silverstein also serves as
Vice President and Director of Tax Management, Inc., a wholly owned subsidiary
of BNA, Inc., and a director of Chevy Chase Federal Savings Bank. He is a former
Vice Chairman and currently honorary trustee of the John F. Kennedy Center for
the Performing Arts, Past President of the Alliance Francaise of Washington, a
director of the National Symphony Orchestra Association and a trustee of the
White House Historical Association.
INFORMATION REGARDING THE BOARD OF DIRECTORS
AND ITS COMMITTEES; DIRECTOR COMPENSATION
Messrs. G. Grinberg and E. Grinberg serve on the Executive Committee of
the Board of Directors. The Executive Committee of the Board of Directors has,
in the intervals between meetings of the Board of Directors, all the authority
of the Board of Directors except for those matters that the New York Business
Corporation Law reserves to the full Board of Directors. The Executive Committee
held one meeting in fiscal 1999.
Ms. Hayes Adame and Messrs. Howard, Oresman and Silverstein serve on
the Compensation Committee of the Board of Directors. The Compensation Committee
of the Board of Directors reviews remuneration levels for executive officers of
the Company, reviews significant employee benefits programs and establishes and
administers executive compensation programs, including bonus plans, stock option
and other equity-based programs, deferred compensation plans and any other cash
or stock incentive programs. The Compensation Committee is comprised solely of
non-employee directors. The Compensation Committee held four meetings in fiscal
1999.
Ms. Hayes Adame and Messrs. Howard, Oresman and Silverstein serve on
the Audit Committee of the Board of Directors. The Audit Committee of the Board
of Directors recommends to the Board of Directors the independent public
accountants to be selected to audit the Company's annual financial statements
and approves any special assignments given to such accountants. The Audit
Committee also reviews the planned scope of the annual audit and the independent
accountants' letter of comments and management's responses thereto, any
significant accounting changes made or contemplated and the effectiveness and
efficiency of the Company's internal accounting staff. In addition, the Audit
Committee meets periodically with the Company's Internal Audit staff with
respect to internal control issues generally. The Audit Committee is comprised
solely of non-employee Directors. The Audit Committee held one meeting in fiscal
1999.
The Board of Directors held six meetings during fiscal 1999. Each
director attended all meetings of the Board and of the Committees on which he or
she served.
No executive officer of the Company receives any additional
compensation for serving the Company as a member of the Board of Directors or
any of its committees. Directors who are not executive officers of the Company
receive a fee of $3,000 for each Board meeting attended and $1,000 for each
committee meeting attended.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of a registered class
of the Company's equity securities ( the "10% Stockholders"), to file reports of
ownership and changes of ownership with the Securities and Exchange Commission
and the NASDAQ National Market. Executive officers, directors and 10%
Stockholders of the Company are required by law to furnish the Company with
copies of all Section 16(a) forms so filed. Based solely on review of copies of
such forms received or written representations that no other reports were
required, the Company believes that, during the last fiscal year, its executive
officers, directors and 10% Stockholders complied with all filing requirements
under
7
<PAGE> 11
Section 16(a) applicable to them with respect to their beneficial ownership of
Capital Stock, except that one report covering one transaction was filed late by
Mr. Leonard L. Silverstein.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On July 10, 1998 the Company loaned $120,000, with interest at 6.5% per
annum, to Kenneth J. Adams, Senior Vice President and Chief Financial Officer,
in connection with the purchase by Mr. Adams of a primary residence. Interest
accrues on the unpaid principal balance and is payable together with the unpaid
principal balance on July 10, 2001 or on any date, if sooner, that Mr. Adams
ceases to be an employee of the Company (other than by reason of discharge
without cause, death or disability) unless Mr. Adams shall have remained
continuously an employee of the Company until July 10, 2001, in which event the
accrued interest only will then be forgiven. The total outstanding amount due on
the loan increases with accruing interest, and as of April 30, 1999 was an
aggregate of $126,277.
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. The insurance policy provides for a
death benefit of $27 million. The trustees of the trust are the three children
of the Chairman and his spouse, namely, Efraim Grinberg, Alexander Grinberg, and
Miriam Phalen. Under the 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 annually by the Company to the trust in amounts sufficient for
the trust to pay the premiums on the insurance policy (approximately $740,000
per annum). Under the agreement, the trust will repay the loans from the death
benefit proceeds of the policy. At January 31, 1999 the Company had loaned the
trust $2,361,000 under this agreement.
See "Compensation Committee Interlocks and Insider Participation" for
information regarding certain business relationships between the Company and the
respective law firms of Messrs. Oresman and Silverstein.
EXECUTIVE OFFICERS
For detailed information concerning Michael Bush, Gedalio Grinberg and
Efraim Grinberg, see the listing for each under the heading "Election of
Directors" above. The names of the other executive officers of the Company (and
their respective ages as of the filing date of this report) are set forth below
together with the positions held by each during the past five years.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Kenneth J. Adams 41 Senior Vice President and Chief
Financial Officer
Timothy F. Michno 42 Secretary and General Counsel
Howard Regenbogen 69 Treasurer and Assistant Secretary
</TABLE>
Mr. Adams, who served as Corporate Controller since coming to the
Company in December 1992, was elected Senior Vice President and Chief Financial
Officer on April 14, 1995. Before joining the Company, Mr. Adams worked for 12
years at Pricewaterhouse Coopers LLP where he progressed to the position of
Senior Manager, serving clients in the international and middle market arenas.
Mr. Michno joined the Company in April 1992 and since then has served
as its Secretary and General Counsel. He has been engaged in the practice of law
for the past 16 years, immediately prior to joining the Company and since 1986,
as an associate at the New York firm of Chadbourne & Parke. From 1988 to 1991 he
served as a resident outside counsel to Fortune Brands, Inc. (formerly known as
American Brands, Inc.), a consumer products company.
Mr. Regenbogen joined the Company in 1972 as its Controller and has
served as Treasurer of the Company since 1987. From September 1994 until April
14, 1995 Mr. Regenbogen served, in addition, as the Company's Chief Financial
Officer.
8
<PAGE> 12
ITEM 2 - RATIFICATION OF APPOINTMENT OF ACCOUNTANTS
The Board of Directors has appointed PricewaterhouseCoopers LLP to be
the Company's independent accountants for the year ending January 31, 2000,
subject to ratification of such appointment by the Company's shareholders.
PricewaterhouseCoopers LLP has served as the Company's independent accountants
since fiscal year 1977. If the appointment of PricewaterhouseCoopers LLP is not
approved by the shareholders, or PricewaterhouseCoopers LLP ceases to act as the
Company's independent accountants, or the Board of Directors removes
PricewaterhouseCoopers LLP as the Company's independent accountants, the Board
will appoint other independent accountants. The engagement of new accountants
for periods following the 1999 Annual Meeting will be subject to ratification by
the shareholders at that meeting.
Representatives of PricewaterhouseCoopers LLP are expected to be
present at the Annual Meeting. Such representatives will have the opportunity to
make a statement if they desire to do so and will be available to respond to
appropriate questions. THE BOARD RECOMMENDS THAT THE SHAREHOLDERS VOTE FOR SUCH
RATIFICATION. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
ITEM 3 - PROPOSAL TO AMEND CERTIFICATE OF INCORPORATION
At the Annual Meeting, Shareholders will be asked to consider and, if
deemed advisable, to approve amendments to the Company's Certificate of
Incorporation ("Proposed Amendments"). The Proposed Amendments, if approved by
the Shareholders, would modify the definition of "Permitted Transferee" in
Paragraph 4.1 (d) (i) of the Company's Certificate of Incorporation with respect
to the Company's Class A Common Stock.
SUMMARY OF THE PROPOSED AMENDMENTS
Under the Company's Certificate of Incorporation, in the event that the
beneficial or record ownership of any shares of Class A Common Stock is
transferred to any person other than a Permitted Transferee, as defined in
Paragraph 4.1 (d) (i), each such share so transferred is converted automatically
into one share of Common Stock. As of May 5, 1999 there were 9,286,669 and
3,500,543 shares of the Company's Common Stock and Class A Common Stock,
respectively, outstanding. There are twenty million shares of Common Stock and
ten million shares of Class A Common Stock authorized. 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.
The Certificate of Incorporation provides that Permitted Transferees of
a holder of Class A Common Stock ("Class A Holder") who is a natural person
include the spouse and certain family members of such Class A Holder as well as:
trusts established principally for the benefit of such Class A Holders or their
family members or other Permitted Transferees; the executor, administrator or
personal representative of the estate of any Class A Holder; certain charitable
organizations established by a Class A Holder or such person's family members;
certain trust grantors and trust beneficiaries and any corporation or
partnership in which every beneficial owner or partner, respectively, is (or, at
the time of such owner's or partner's transfer of Class A Common Stock to such
corporation or partnership, was) a Class A Holder, or a family member or other
affiliated person of such Class A Holder or other Permitted Transferee.
The Proposed Amendments would modify Paragraph 4.1 (d) (i) of the
Certificate of Incorporation by permitting transfer of Class A Common Stock to
(1) any trustee of a trust established principally for the benefit of a Class A
Holder, in the trustee's capacity as such (2) any limited liability company in
which every member is (or, at the time of such member's transfer of Class A
Common Stock to such limited liability company, was) a Class A Holder, or a
family member or other affiliated person of such Class A Holder or other
Permitted Transferee and (3) any transferor of any Permitted Transferee and to
any Permitted Transferee of any such transferor. The reason for the Proposed
Amendments is to enable Class A Holders to transfer shares of Class A Common
Stock to such entities without such shares automatically converting to Common
Stock. Such transfers may be desirable for tax or estate planning purposes or
other purposes depending on the individual circumstances of each Class A Holder.
If adopted,
9
<PAGE> 13
the Proposed Amendments will have no effect on the rights of existing security
holders other than modifying the restrictions on transfer of the Class A Common
Stock as set forth and in the Proposed Amendments.
SHAREHOLDER APPROVAL
On May 7, 1999 the Board of Directors of the Company unanimously
approved the Proposed Amendments in the form annexed as Exhibit A to this Proxy
Statement.
Approval of the Proposed Amendments requires the affirmative vote of
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the voting
power of the outstanding shares of Capital Stock entitled to vote at the Annual
Meeting. Abstentions and broker non-votes will have the effect of negative
votes. THE BOARD RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE ADOPTION OF THE
PROPOSED AMENDMENTS. PROXIES SOLICITED BY THE BOARD WILL BE SO VOTED UNLESS
SHAREHOLDERS SPECIFY IN THEIR PROXIES A CONTRARY CHOICE.
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the compensation
awarded to, earned by or paid to the Chief Executive Officer and each of the
four other most highly compensated executive officers of the Company
(collectively, the "Named Executive Officers") during fiscal 1999, 1998 and 1997
(each fiscal year ending January 31) for services rendered in all capacities to
the Company and its subsidiaries.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE (1)
Long Term Compensation
Annual Compensation Awards
------------------------------ ----------------------------
Restricted Number of
Other Annual Stock Securities All Other
Name and Compensation Awards Underlying Compensation
Principal Position Year Salary ($) Bonus ($) ($) ($) (2) Options (#) ($)
- ----------------------------- ----- ---------- ----------- ----------- ----------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Gedalio Grinberg 1999 650,000 250,000 0 5,000 0 256,483(3)
Chairman and Chief 1998 650,000 175,000 0 1,000 0 257,262
Executive Officer 1997 650,000 175,000 0 13,500 0 257,870
Efraim Grinberg 1999 625,000 250,000 0 14,470 50,000 55,845(4)
President 1998 550,000 150,000 0 9,800 37,500 47,150
1997 450,000 150,000 0 8,000 150,000 40,950
Michael J. Bush 1999 435,000 200,000 0 89,983 30,000 38,493(5)
Executive Vice President 1998 400,000 125,000 0 6,585 37,500 113,740
and Chief Operating Officer 1997 350,000 115,000 159,128 7,269 0 119,486
Kenneth J. Adams 1999 215,000 55,000 0 28,049 5,000 11,332(6)
Senior Vice President 1998 185,000 55,000 0 1,592 5,625 8,695
And Chief Financial 1997 165,000 45,000 0 1,722 18,750 8,308
Officer
Timothy F. Michno 1999 185,000 44,400 0 15,334 2,500 9,930(7)
Secretary and 1998 175,000 20,000 0 1,535 1,875 7,799
General Counsel 1997 160,000 14,000 0 1,600 5,625 8,409
</TABLE>
(1) The column designated by the United States Securities and Exchange
Commission ("Commission") for the reporting of Long Term Incentive Plan
Payouts has been deleted as no such compensation of a type required to
be reported under such column was awarded to, earned by, or paid to any
of the Named Executive Officers during the period covered by the table.
10
<PAGE> 14
(2) At January 31, 1999, the aggregate number of share units of restricted
stock held by each of the Named Executive Officers and the aggregate
value thereof (based on the closing price of the Company's Common Stock
as of January 31, 1999) were as follows: Mr. G. Grinberg: 196.56 share
units, $5,000; Mr. E. Grinberg: 1,588.32 share units, $40,341; Mr.
Bush: 4005.45 share units, $101,859; Mr. Adams: 1218.12 share units,
$30,997; and Mr. Michno: 684.27 share units, $17,401. All of the share
units are phantom stock units granted under the Company's Deferred
Compensation Plan for Executives ("Deferred Compensation Plan") except
for 3,000, 1,000 and 500 held, respectively, by Messrs. Bush, Adams,
and Michno which are stock awards granted March 26, 1998 under the
Company's 1996 Stock Incentive Plan ("Stock Awards") and which vest
100% on March 26, 2001. The phantom stock units granted under the
Deferred Compensation Plan ("Stock Units") vest 20% at the end of each
calendar year beginning in the calendar year in which awarded, except
that for participants 65 years or older, vesting is 100% at the end of
the calendar year in which awarded. Mr. G. Grinberg, who is the only
Named Executive Officer 65 years or older, was awarded 196.56 Stock
Units through January 31, 1999. Mr. E. Grinberg was awarded 939.86,
770.84 and 545.91 Stock Units in calendar years 1996, 1997 and 1998
respectively, and 189.01 Stock Units through January 31, 1999. Mr. Bush
was awarded 656.38, 522.13 and 339.66 Stock Units in calendar years
1996, 1997 and 1998 respectively, and 157.88 Stock Units through
January 31, 1999. Mr. Adams was awarded 154.43, 121.83 and 91.57 Stock
Units in calendar years 1996, 1997, and 1998 respectively, and zero
Stock Units through January 31, 1999. Mr. Michno was awarded 126.09,
105.28 and 77.67 Stock Units in calendar years 1996, 1997 and 1998
respectively, and 27.99 Stock Units through January 31, 1999. No
dividends accrue in respect of the Stock Units or the Stock Awards.
(3) Includes $90,783 in total annual premiums paid in respect of certain
life insurance policies and one travel accident policy purchased for
Mr. G. Grinberg by the Company. Under his arrangement with the Company,
Mr. G. Grinberg is entitled to the cash surrender value under these
life insurance policies and his beneficiary is entitled to the
applicable benefit without, in either event, reimbursement to the
Company of any premiums paid by the Company under such policies. Also
includes a $3,200 matching contribution made by the Company in respect
of fiscal 1999 for the account of Mr. G. Grinberg pursuant to the
Company's Employee Savings and Investment Plan ("401(k) Plan"). Also
includes $ 101,000 accrued by the Company in respect of a Death and
Disability Benefit Plan agreement with Mr. G. Grinberg. See "Contract
with Chief Executive Officer" below. Also includes a matching cash
contribution of $50,000 and a non-cash contribution of 521.90 Stock
Units valued at $ 11,500 (based on the closing prices of the Company's
Common Stock on the grant dates) made by the Company for fiscal 1999 to
Mr. G. Grinberg's account pursuant the Company's Deferred Compensation
Plan.
(4) Includes a $3,200 matching contribution made by the Company in respect
of fiscal 1999 for the account of Mr. E. Grinberg pursuant to the
Company's 401(k) Plan. Also includes a matching cash contribution of $
50,230 and a non-cash contribution of 99.88 Stock Units valued at $
2,415 (based on the closing prices of the Company's Common Stock on
the grant dates) for fiscal 1999 to his account under the Company's
Deferred Compensation Plan.
(5) Includes a $3,200 matching contribution made by the Company in respect
of fiscal 1999 for the account of Mr. Bush pursuant to the Company's
401(k) Plan. Also includes a matching cash contribution of $33,676 and
a non-cash contribution of 62.21 Stock Units valued at $1,617 (based
on the closing prices of the Company's Common Stock on the grant
dates) for fiscal 1999 to his account under the Company's Deferred
Compensation Plan.
(6) Includes a $3,200 matching contribution made by the Company in respect
of fiscal 1999 for the account of Mr. Adams pursuant to the Company's
401(k) Plan. Also includes a matching cash contribution of $ 7,745 and
a non-cash contribution of 16.32 Stock Units valued at $387 (based on
the closing prices of the Common Stock on the grant dates) made by the
Company in respect of fiscal 1999 for the account of Mr. Adams under
the Company's Deferred Compensation Plan.
11
<PAGE> 15
(7) Includes a $2,442 matching contribution made by the Company in respect
of fiscal 1999 for the account of Mr. Michno pursuant to the Company's
401(k) Plan. Also includes a matching cash contribution of $7,145 and
a non-cash contribution of 14.28 Stock Units valued at $343 (based on
the closing prices of the Company's Common Stock on the grant dates)
for fiscal 1999 to his account under the Company's Deferred
Compensation Plan.
FISCAL YEAR END OPTION VALUES
The following table shows the number of shares of Common Stock represented by
unexercised stock options held by each of the Named Executive Officers as of
January 31, 1999. No stock options were exercised in fiscal 1999 by any of the
Named Executive Officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
FISCAL YEAR END (#) AT FISCAL YEAR END ($)
------------------ ------------------ ---------------- ----------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C>
Gedalio Grinberg ........... 0 0 0 0
Efraim Grinberg ............ 142,500 170,000 2,369,100 1,764,900
Michael J. Bush ............ 120,000 135,000 2,113,200 1,717,800
Kenneth J. Adams ........... 22,688 20,750 382,651 229,882
Timothy F. Michno .......... 11,063 4,875 191,033 70,818
</TABLE>
CONTRACT WITH CHIEF EXECUTIVE OFFICER
Under a Death and Disability Benefit Plan Agreement with Mr. G.
Grinberg dated September 23, 1994, in the event of Mr. Grinberg's death or
disability while employed by the Company, the Company will pay to his spouse, if
she is then living, an annual benefit equal to $300,000 (increased each year
beginning October 1, 1995 by an amount equal to two percent of the benefit that
would have been payable in the prior year). Benefits are payable for the lesser
of 10 years or the life of Mr. Grinberg's spouse, and are payable only from the
general assets of the Company. Neither Mr. Grinberg nor his spouse may assign
the Agreement or any of the benefits payable thereunder and none of the benefits
are payable to the estates or any of the heirs of Mr. Grinberg or his spouse.
The Agreement provides that it automatically terminates in the event of
the termination of Mr. Grinberg's employment with the Company for any reason
other than his death or disability and further provides that it is not to be
considered a contract of employment. For purposes of the Agreement "disability"
means the inability of Mr. Grinberg to perform the duties pertaining to his job
because of accident, sickness or other illness as determined by a majority of
disinterested directors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was at all times during fiscal
year 1999 comprised entirely of Directors who at no time were executive officers
or employees of the Company. The Compensation Committee for fiscal year 1999
consisted of Margaret Hayes Adame, Alan H. Howard, Donald Oresman and Leonard L.
Silverstein. Mr. Silverstein is a partner at the law firm of Silverstein &
Mullens, and Mr. Oresman is Of-Counsel at the law firm of Simpson Thacher &
Bartlett, both of which firms rendered legal services to the Company during
fiscal 1999.
12
<PAGE> 16
FISCAL 1999 STOCK OPTION GRANTS
The following table provides certain information regarding grants of
stock options made during fiscal 1999 to the Named Executive Officers pursuant
to the Company's 1996 Stock Incentive Plan. All such options become exercisable
with respect to 20% of such options on each anniversary of the date of grant
thus becoming fully exercisable on the fifth such anniversary.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Grant
Individual Grants Date Value(1)
- ----------------------------------------------------------------------------------------------------------------------
% of Total Number
Number of of Securities
Securities Underlying
Underlying Options Granted
Options to Employees in Exercise or Base Grant Date
Granted Fiscal Year Price Expiration Present Value
Name (#) ($/Sh) Date ($)
- ------------------------ ------------ --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Gedalio Grinberg 0 0 -- -- 0
Efraim Grinberg 50,000 17.68 $ 29.75 May 19, 2008 776,125
Michael Bush 30,000 10.61 $ 26.50 March 26, 2008 414,804
Kenneth J. Adams 5,000 1.77 $ 26.50 March 26, 2008 69,134
Timothy F. Michno 2,500 0.88 $ 26.50 March 26, 2008 34,567
</TABLE>
(1) The grant date present values set forth in the foregoing table were
arrived at using the Black-Scholes option pricing model based on the following
assumptions: volatility of 45% based on weekly closing prices of the underlying
Common Stock for the period ending January 31, 1999; a risk free rate of return
equal to 4.7% based on the yield on a U.S. Government Zero Coupon Bond with a
maturity equal to the expected term of the option prior to exercise (i.e. 7
years); a dividend yield of 0.3%; grant dates of March 26, 1998 and May 19,
1998. This schedule does not take into account provisions of the options
providing for termination of the option following termination of employment,
nontransferability or vesting over a period of five years. The dollar amounts
under this column are the result of calculations using a certain option pricing
model based on the foregoing assumptions and, therefore, are not intended to
forecast possible future appreciation, if any, of the Company's Common Stock
price.
13
<PAGE> 17
COMPENSATION COMMITTEE REPORT
GENERAL
The Compensation Committee of the Board of Directors (the "Committee")
is comprised entirely of the four non-employee members of the Board. The
Committee is responsible for reviewing and approving the Company's compensation
policies affecting senior management, reviewing significant employee benefit
programs and reviewing and administering the Company's 1996 Stock Incentive
Plan.
COMPENSATION POLICIES AND COMPONENTS OF COMPENSATION
The compensation policies established by the Company and which were in
effect during fiscal year 1999 are designed to enable the Company to attract,
retain, motivate and appropriately reward an exceptional group of highly
qualified individuals who are expected to contribute to the Company's continued
success. The three primary components of executive compensation are salary, cash
bonuses and stock based awards, including stock grants and stock options. The
Committee reviews each component of executive compensation on an annual basis.
Base salary levels for members of the Company's senior management team
are reviewed by the Committee in light of the Committee's assessment of the
responsibilities relative to the position under consideration, as well as each
individual's background, training and experience. Annual increases in base
salary levels, if warranted, are reviewed with reference to the executive
officer's performance and the performance of the Company as a whole. Executive
performance is evaluated by the Committee by reference to the extent to which
specific individual and departmental goals and objectives are met. These goals
and objectives vary from department to department and, within any single
department, from individual to individual. Corporate performance is measured by
the Committee by reference to the Company's achievement of pre-tax profit goals
set at the beginning of the fiscal year.
Cash bonuses, the second key component of executive compensation, are
intended to provide incentives to senior management in the short term to achieve
certain operating results, which are generally determined at the beginning of
the fiscal year and, typically, tied to net income results. By thus placing a
significant percentage of each executive officer's compensation at risk, this
approach creates a direct incentive for executive officers to achieve desired
performance goals. Certain mid-level managers are also eligible to receive
bonuses, which are used as an additional, incentive-based element of
compensation dependent on corporate performance and individual merit.
Equity participation is the third key element of the Company's
executive compensation program and is afforded to executive officers and certain
employees primarily through stock options and/or other stock based awards
granted under the Company's 1996 Stock Incentive Plan (the "Incentive Plan"). In
addition to the Incentive Plan, however, equity participation is also afforded
to executives and certain key employees who are eligible to participate and who
do participate in the Company's Deferred Compensation Plan ("SERP") as well as
to all other employees, not eligible to participate in the SERP, through the
Company's Employee Stock Bonus Plan, adopted in fiscal 1999 ("Stock Bonus
Plan").
Options, and to a lesser extent stock awards, have been awarded under
the Incentive Plan on the basis of the position held by the grantee,
contributions already made by the person meriting recognition and, more
importantly, the Company's expectations of the contribution the person will make
over the long term to the Company's growth. All options granted under the
Incentive Plan have an exercise price equal to the market value of the stock on
the date of grant, generally vest cumulatively in five annual installments of
20% and expire ten years from the date of grant. In addition, all shares of
Common Stock granted under the Incentive Plan are, in each case, subject to
vesting requirements. Thus, option and stock grants are designed to retain
executive officers and enhance shareholder value by aligning the financial
interests of each executive officer or other key employee with the interests of
the Company's shareholders over the long term.
Under the SERP, participants' salary deferrals, up to either five or
ten percent of base salary, are fully matched by the Company. Eighty percent of
the match is in the form of cash and twenty percent is in the form of rights to
Common Stock representing the number of shares (including fractional shares) of
Common Stock that such twenty percent portion of the matching contribution could
purchase based on the closing price of the Common Stock at the
14
<PAGE> 18
end of the month in which the contribution is made. Vesting in Company matching
contributions is 20% per year. Distributions are made beginning in January
following termination of the participant's employment and are in ten annual
installments unless the Company determines to make them in a lump sum.
Under the terms of the Stock Bonus Plan, the Company determines after the end of
each fiscal year whether to contribute a discretionary amount towards the plan
and if so how much. For fiscal 1999 the Company recorded an expense of $209,000
for this plan. Each participant vests in 100% of their pro-rata portion (based
on salary) of such contribution after five years or upon attaining retirement
age if sooner. All distributions to plan participants are in the form of shares
of Common Stock of the Company, with cash payments for any fractional share
amounts.
COMPENSATION OF CHIEF EXECUTIVE OFFICER FOR FISCAL 1999
The compensation paid to the Company's Chief Executive Officer ("CEO") in
fiscal 1999 consisted primarily of salary and bonus.
The CEO's salary for fiscal 1999 was approved by the Committee on the basis
of its subjective evaluation of the CEO's performance for the year and the
profitable performance of the Company. The performance measures used by the
Committee in making its determination were the continued growth in pre-tax
earnings and net sales and increases in operating income and gross margins.
The bonus paid to the CEO for fiscal 1999 was approved by the Committee
based upon its assessment of the CEO's individual performance in achieving
certain strategic goals, specifically, the successful launch of the new Coach
brand; the extension of the Movado brand into new product categories, together
with the opening of the Company's Movado Boutiques; the continued growth in
sales domestically of the Company's manufactured brands and the expansion of the
international distribution of Concord and Movado. The Committee believes that a
substantial portion of the CEO's bonus should be tied to the financial
performance of the Company. Therefore, the CEO's bonus for fiscal 1999 was
approved, in addition, on the basis of the Company's attainment of certain
performance targets, specifically the achievement of earnings per share results,
that were determined by the Committee at the beginning of the fiscal year.
POLICY REGARDING DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Internal Revenue Code limits the tax deduction to
$1 million for compensation paid to the CEO and the four other most highly
compensated executive officers of the Company. No policy determination by the
Committee regarding this matter has yet been made.
COMPENSATION COMMITTEE
Margaret Hayes Adame
Alan H. Howard
Donald Oresman
Leonard L. Silverstein
15
<PAGE> 19
PERFORMANCE GRAPH
The performance graph set forth below compares the cumulative total
shareholder return of the Company's Common Stock for the last five fiscal years
through the fiscal year ended January 31, 1999 with that of the Broad Market
(CRSP Total Return Index for the NASDAQ Stock Market) and a peer group index
comprised of the following five companies: Swiss Army Brands, Inc., Fossil Inc.,
Jostens Inc., Tiffany & Co. and Tag Heuer International S.A. (the "peer group").
The returns of each company in the peer group index have been weighted according
to the respective issuer's stock market capitalization. Each graph assumes an
initial investment of $100 on January 31, 1994, and the reinvestment of
dividends (where applicable).
FISCAL 1999 COMPARATIVE TOTAL RETURNS
MOVADO GROUP, INC., NASDAQ
STOCK MARKET AND INDUSTRY PEER GROUP
(PERFORMANCE RESULTS FROM 1/31/94 THROUGH 1/31/99)
<TABLE>
<CAPTION>
MOVADO GROUP, INC. MARKET INDEX PEER INDEX
------------------ ------------ ----------
<S> <C> <C> <C>
Jan 94 100.00 100.00 100.00
Jan 95 105.146 95.414 104.418
Jan 96 135.906 134.843 138.875
Jan 97 164.186 176.735 159.165
Jan 98 297.027 208.582 176.036
Jan 99 352.62 326.274 242.284
</TABLE>
Legend
<TABLE>
<CAPTION>
Symbol CRSP Total Returns Index for: 01/1994 01/1995 01/1996 01/1997 01/1998 01/1999
- ------ ----------------------------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
_______o Movada Group, Inc. 100.0 105.1 135.9 164.2 297.0 352.6
.. _ ..* Nasdaq Stock Market (US Companies) 100.0 95.4 134.8 176.7 208.6 326.3
- - - - -# Self-Determined Peer Group 100.0 104.4 138.9 159.2 176.0 242.3
</TABLE>
16
<PAGE> 20
DATE FOR RECEIPT OF SHAREHOLDER PROPOSALS
Shareholders' proposals intended to be presented at the 2000 Annual
Meeting of Shareholders must be received by the Company no later than January
20, 2000 for inclusion in the Company's proxy statement and form of proxy
relating to that meeting.
OTHER MATTERS
The Board of Directors, at the time of the preparation of this Proxy
Statement, knows of no business to come before the Annual Meeting other than
that referred to herein. If any other business should come before the Annual
Meeting, the persons named in the enclosed proxy will have discretionary
authority to vote all proxies received and not theretofore revoked in accordance
with their best judgment.
Upon the written request of any record holder or beneficial owner of
Common Stock or Class A Common Stock entitled to vote at the Annual Meeting, the
Company, without charge, will provide a copy of its Annual Report on Form 10-K
for the year ended January 31, 1999, as filed with the Securities and Exchange
Commission. Requests should be directed to Howard Regenbogen, Treasurer, Movado
Group, Inc., 125 Chubb Avenue, Lyndhurst, New Jersey 07071.
The Company's consolidated balance sheets, and the related consolidated
statements of income and comprehensive income, cash flows, and changes in
shareholders' equity and the notes thereto, and management's discussion and
analysis of financial condition and results of operations including quantitative
and qualitative disclosures about market risk as set forth on pages 17 through
37 of the Company's 1999 Annual Report to Shareholders, a complete copy of which
is being delivered to shareholders together with this Proxy Statement, are
hereby incorporated herein by reference.
BY ORDER OF THE BOARD OF DIRECTORS
Timothy F. Michno
Secretary and General Counsel
Lyndhurst, New Jersey
May 24, 1999
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. SHAREHOLDERS WHO DO NOT
EXPECT TO ATTEND THE ANNUAL MEETING AND WISH THEIR STOCK TO BE VOTED ARE URGED
TO DATE, SIGN AND RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED
ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES.
<PAGE> 21
[MOVADO GROUP, INC. LETTERHEAD] NOTICE OF ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD JUNE 15, 1999
Dear Shareholder:
The Annual Meeting of Shareholders of Movado Group, Inc. will be held at 10:00
a.m. on Tuesday, June 15, 1999 at the offices of Simpson, Thacher & Bartlett,
425 Lexington Avenue, New York City, for the following purposes:
1. To elect seven directors to the Board of Directors.
2. To ratify selection of independent public accounts.
3. To amend the Company's Certificate of Incorporation.
Only holders of Common Stock and Class A Commons Stock of Movado Group, Inc. of
record at the close of business on May 12, 1999 will be entitled to vote at the
meeting or any adjournment thereof.
TO BE SURE THAT YOUR VOTE IS COUNTED, WE URGE YOU TO COMPLETE AND SIGN THE
PROXY/VOTING INSTRUCTION CARD BELOW, DETACH IT FROM THIS LETTER AND RETURN IT IN
THE POSTAGE PAID ENVELOPE ENCLOSED IN THIS PACKAGE. The giving of such proxy
does not affect your right to vote in person if you attend the meeting. The
prompt return of your signed proxy will aid the Company in reducing the expense
of additional proxy solicitation.
BY ORDER OF THE BOARD OF DIRECTORS
May 24, 1999 TIMOTHY F. MICHNO
General Counsel and Secretary
DETACH PROXY CARD HERE
- -------------------------------------------------------------------------------
[ ]
---------------
1. Election of Directors
FOR all nominees listed below [ ]
WITHHOLD AUTHORITY to vote for all nominees [ ]
Listed below.
*Exceptions [ ]
Nominees: Gedalio Grinberg, Efraim Grinberg, Margaret Hayes-Adame, Michael Bush,
Alan H. Howard, Donald Oresman and Leonard L. Silverstein
*Exceptions
- -------------------------------------------------------------------------------
<PAGE> 22
INSTRUCTIONS: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, MARK THE
"EXCEPTIONS" BOX AND WRITE THAT NOMINEE"S NAME IN THE SPACE PROVIDED.
2. To ratify and approve the selection by the Board of Directors of
Pricewaterhouse Coopers LLP as independent public accountants for the Company
for the fiscal year ending January 31, 2000.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
3. To approve amendments to the Company's Certificate of Incorporation modifying
the definition of "Permitted Transferee" in Paragraph 4.1 (d) (i) with respect
to the Class A Common Stock.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
In their discretion the Proxies are authorized to vote upon such other matters
as may properly come before the meeting or any adjournment or postponement
thereof.
Change of Address and
Or Comments Mark Here [ ]
The signature on this Proxy should correspond exactly with stockholder's name as
printed to the left. In the case of joint tenancies, co-executors, or
co-trustees, both should sign. Persons signing as Attorney, Executor,
Administrator, Trustee or Guardian should give their full title.
Dated: ,1999
---------------------------------
Signature
-----------------------------------------------------
Signature
----------------------------------------------------
Please Sign, Date and Return the Proxy Promptly Using the Enclosed Envelope.
VOTES MUST BE INDICATED (X) IN BLACK OR BLUE INK. [X]
<PAGE> 23
This proxy is solicited on behalf of the Board of Directors of
MOVADO GROUP, INC. for the Annual Meeting on June 15, 1999.
The undersigned appoints Timothy F. Michno and Howard Regenbogen,
and each of them, with full power of substitution in each, the proxies of the
undersigned, to represent the undersigned and vote all shares of Movado Group,
Inc., which the undersigned may be entitled to vote at the Annual Meeting of
Shareholders to be held on June 15, 1999, and at any adjournment or postponement
thereof, as indicated on the reverse side.
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is given, this
proxy will be voted FOR proposals 1, 2 and 3.
MOVADO GROUP, INC.
P.O. BOX 11346
NEW YORK, NY 10203-0346
(Continue, and to be signed and dated on reverse side.)
<PAGE> 24
Exhibit A
CERTIFICATE OF AMENDMENT
OF THE CERTIFICATE OF INCORPORATION
OF
MOVADO GROUP, INC.
UNDER SECTION 805 OF THE BUSINESS CORPORATION LAW
Movado Group, Inc., a corporation organized and existing under the
Business Corporation Law of the State of New York (the "Corporation"), hereby
certifies as follows:
FIRST: The name of the Corporation is Movado Group, Inc. The name under
which the Corporation was formed was North American Watch Corporation.
SECOND: The Certificate of Incorporation of the Corporation was filed
by the Department of State on November 2, 1967. A Restated Certificate of
Incorporation was filed by the Department of State on May 5, 1969. A Certificate
of Amendment of the Restated Certificate of Incorporation was filed by the
Department of State on July 24, 1979. A Restated Certificate of Incorporation
was filed by the Department of State on September 27, 1993. A Certificate of
Amendment to the Certificate of Incorporation was filed by the Department of
State on April 26, 1996. A Certificate of Amendment to the Certificate of
Incorporation was filed by the Department of State on June 26, 1997.
THIRD: The Certificate of Incorporation of the Corporation is hereby
amended by deleting Paragraph 4.1(d) (i) (A) (3) and substituting in lieu
thereof the following new Paragraph 4.1 (d) (i) (A) (3): "A trust established
principally for the benefit of such Class A Holder, one or more of such Class A
Holder's family members and/or Permitted Transferees and each trustee thereof,
in such trustee's capacity as such".
FOURTH: The Certificate of Incorporation of the Corporation is hereby
further amended by adding to Paragraph 4.1(d) (i), which restricts the
transferability of shares of Class A Common Stock only to those defined as
"Permitted Transferees", the following category of Permitted Transferees under
Paragraph 4.1(d) (i) (A) as new sub-clause (8):
<PAGE> 25
"(8) a limited liability company, every member of which is, or was at
the time of such member's transfer of Class A Common Stock to such limited
liability company, a Class A Holder, any of such Class A Holder's family
members, or any Permitted Transferee of any of the foregoing".
FIFTH: The Certificate of Incorporation is hereby further amended by
adding to Paragraph 4.1 (d) (i), the following new clause (F):
"(F) With respect to any Permitted Transferee of any Class A Holder
determined pursuant to clauses (A) through (E) of Paragraph 4.1 (d) (i) above
("Primary Permitted Transferee"), "Permitted Transferee": means (I) any
transferor from whom such Primary Permitted Transferee acquired any Class A
Common Stock and (II) any Permitted Transferee of any such transferor".
SIXTH: Resolutions setting forth the proposed amendments to the
Certificate of Incorporation of the Corporation were duly adopted by the
unanimous written consent of the Board of Directors of the Corporation dated May
7, 1999. Thereafter, pursuant to the Certificate of Incorporation and By-laws of
the Corporation, at the annual meeting of shareholders of the Corporation which
was duly held on June 15, 1999, at least sixty-six and two-thirds percent (66
2/3) of the voting power of all the outstanding shares of stock of the
Corporation entitled to vote in the election of Directors of the Corporation
were voted in favor of said amendments.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to be
affixed hereto and this certificate to be subscribed by its President and its
Secretary and affirmed by them as true under the penalties of perjury this
day of June, 1999.
------------------------------
Efraim Grinberg
President
------------------------------
Timothy F. Michno
Secretary
<PAGE> 26
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, seasonality, availability of alternative sources
of supply in the case of loss of any significant supplier, the Company's
dependence on key officers, ability to enforce intellectual property rights,
continued availability to the Company of financing and credit on favorable terms
and success of hedging strategies with respect to currency exchange rate
fluctuations.
GENERAL
Net Sales. Among the more significant factors that 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
the Company's North American markets: the Spring season, which includes school
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 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 subcontractor assembly costs and unit overhead
costs.
The Company seeks to control and reduce component and subcontractor labor costs
through a combination of negotiations 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.
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
17
<PAGE> 27
various marketplaces around the world in which the Company sells its products.
Selling expenses consist primarily of sales commissions, sales force 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 included: advertising and marketing expenses
designed to increase market share for the Corum, Concord and Movado brands;
advertising and marketing costs for the continuing expansion of the Company's
ESQ line; additions to the Company's sales force; salaries and rents associated
with additional outlet stores; and the addition of staff to support
distribution, inventory management and customer service requirements coincident
with growth of the Company's business.
RESULTS OF OPERATIONS FOR THE FISCAL YEARS ENDED JANUARY 31, 1999, 1998 AND 1997
Net Sales. Comparative net sales by product class were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Concord, Movado, Coach and ESQ:
Domestic $180,909 $153,835 $138,810
International 50,940 40,028 30,185
Piaget and Corum 13,934 17,045 22,386
Other 32,053 26,097 23,726
-------- -------- --------
$277,836 $237,005 $215,107
======== ======== ========
</TABLE>
Net sales increased 17.2% for the year ended January 31, 1999. The increase in
net sales for fiscal 1999 was predominately due to growth in the Company's
established manufactured brands (Concord, Movado and ESQ) and expansion of the
Company's retail network, which consists of 19 outlet stores and four Movado
Boutiques and the Piaget Boutique partially offset by reductions in the
Company's distributed brands, due in part to the announced sale of the Piaget
brand in December 1998 (see Note 14 to the consolidated financial statements).
In addition, the Company introduced the Coach watch brand, its fourth
manufactured brand, during the first quarter of fiscal 1999 which contributed
significantly to sales growth. Domestic sales increases were predominantly due
to the introduction of the Coach watch line and growth in Concord, Movado and
ESQ brand sales offset somewhat by reductions in sales of the Piaget and Corum
brands. Growth in the international business was predominantly due to growth of
Movado in the Far East, Middle East and the Caribbean.
Net sales increased 10.2% in fiscal 1998. The increase resulted primarily from
growth in sales in the U.S. and unit sales gains in the Company's international
business. Sales increases in the U.S were primarily in the Movado and Concord
brands. These increases were partially offset by sales declines in the Company's
ESQ, Piaget and Corum brands. ESQ sales declined in fiscal 1998 in comparison to
fiscal 1997 principally because of the significant expansion of the brand's
retail network, which occurred during fiscal 1997. Piaget sales declines were
due primarily to planned reductions in the distribution channels for the brand.
The increase in the Company's international business was due predominantly to
sales increases of the Concord and Movado brands in the Middle East, Far East
and Caribbean offset somewhat by the negative impact of a change in translation
rates.
Gross Margins. The gross margin for fiscal 1999 was 59.8% as compared to 58.9%
for fiscal 1998. The increase in margin was predominately due to a favorable
sales mix, particularly an increase in the proportion of sales of Concord,
Movado, Coach and ESQ to our other brands. The Company's gross margin also
benefited slightly from increases in the U.S. dollar against the Swiss franc.
The Company's gross margin increased from 55.8% to 58.9% in fiscal 1998,
principally as a result of sales mix, particularly an increase in the proportion
of Concord, Movado and ESQ sales to net sales. The Company's gross margin also
benefited by increases in the U.S. dollar against the Swiss franc.
Operating Expenses. Operating expenses for fiscal 1999 were $133.4 million or
48.0% of net sales as compared to $113.6 million or 47.9% of net sales in fiscal
1998. The increase in operating expenses was largely the result of planned
increases in both advertising and selling costs in the United States which were
necessary to launch the Coach brand and to develop and introduce new product
line extensions within the Movado brand through the Movado Boutiques. In
addition, increases in general and administrative costs were due to personnel
increases which were necessary for the support of our Movado Boutiques as well
as cost increases for information systems and employee benefit programs.
Operating expenses increased 14.0% in fiscal 1998 to 47.9% of net sales from
46.3% of net sales in fiscal 1997. The increase in fiscal 1998 operating
expenses occurred primarily in the advertising, selling and general and
administrative expense categories. Distribution costs declined as a percentage
of net sales.
The increase in advertising and marketing expenditures in fiscal 1998 which
occurred primarily in the U.S., was planned, and related to the Company's
ongoing efforts to build identity and image for its brands. Fiscal 1998
advertising and marketing costs were affected by higher levels of media spending
for Concord, Movado and, in particular, ESQ in the U.S and
18
<PAGE> 28
increased marketing and promotional activities in the U.S. for all of the
Company's brands. The growth in consolidated advertising costs included
increased media spending in certain international markets, primarily the Far
East and Middle East and certain European markets. Fiscal 1998 general and
administrative expenses included increased employee benefit costs and rents due
to the expansion of office space necessitated by the Company's growth and head
count increases.
Interest Expense. Net interest expense for fiscal 1999, 1998 and 1997 was $5.4
million, $5.4 million and $4.9 million, respectively, and consisted primarily of
interest on the Company's 6.56% Senior Notes, 6.90% Series A Senior Notes,
revolving lines of credit under the July 1997 Restated Credit Agreement, as
amended, and borrowings against working capital lines.
Income Taxes. The Company's income tax provision amounted to $6.3 million, $4.7
million, and $3.9 million for fiscal 1999, 1998 and 1997, respectively, or 23.0%
of pretax income for fiscal 1999 and 1998 and, 24.8% for fiscal 1997. 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 20% to 30%; however, there can be no
assurance of this as it is dependent on a number of factors, including the mix
of foreign to domestic earnings, local statutory tax rates and the Company's
ability to utilize net operating loss carryforwards in certain jurisdictions.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity needs have been, and are expected to remain, primarily a
function of its seasonal working capital requirements, which have increased due
to significant growth in domestic sales over the two previous years. The
Company's business is not capital intensive and liquidity needs for capital
investments have not been significant in relation to the Company's overall
financing requirements.
The Company has met its liquidity needs primarily through funds from operations
and bank borrowings with domestic and Swiss banks. The Company's future
requirements for capital will relate not only to working capital requirements
for the expected continued growth of its existing brands, domestically and
internationally, but also to funding new product lines. In addition, the Company
made a $5 million sinking fund payment on February 1, 1999 and is required to
make another on January 31, 2000 in connection with its 6.56% Senior Notes which
were issued in the original principal amount of $40 million.
The Company's revolving credit and working capital lines with its domestic bank
group provide for a three year $90.0 million unsecured revolving line of credit,
pursuant to an Amended and Restated Credit Agreement, dated as of July 23, 1997,
among the Company, the Chase Manhattan Bank, as agent, Fleet Bank N.A., as
co-agent, and other banks signatory thereto, ("Restated Bank Credit Agreement"),
and $31.6 million of uncommitted working capital lines of credit. At January 31,
1999, the Company had $5.0 million in outstanding balances under the Restated
Bank Credit Agreement, which is included in Long-term debt.
On November 30, 1998, the Company entered into a Note Purchase and Private Shelf
Agreement which allows for the issuance up to two years after the date of the
agreement of Senior promissory notes in the aggregate principal amount of up to
$50 million with maturities up to 12 years from their date of issuance. On
December 1, 1998, the Company brought down $25 million of 6.90% Series A Senior
Notes maturing on October 30, 2010 which are subject to annual prepayments of
$5.0 million commencing October 31, 2006.
In March 1998, the Company's Board of Directors authorized the repurchase of up
to 400,000 shares of the Company's Common Stock. As of January 31, 1999, the
Company had purchased 142,200 shares at an aggregate cost of $2.9 million. In
March 1999, the Board approved a revised stock repurchase program for the
repurchase of shares of the Company's Common Stock up to an aggregate repurchase
price of $10.0 million, in addition to the shares previously purchased.
The Company's debt-to-total capitalization ratio was 28.8% at January 31, 1999,
as compared to 23.6% at January 31, 1998. The increase in the debt to total
capitalization was due to the Company borrowing $25.0 million of 6.90% Series A
Senior Notes.
The Company's net working capital, consisting primarily of trade receivables and
inventories, amounted to $194.9 million and $157.1 million at January 31, 1999
and January 31, 1998, respectively. Accounts receivable at January 31, 1999 were
$109.1 million as compared to $92.4 million at January 31, 1998. The increase in
receivables was primarily the result of growth in the Company's business and the
addition of the Coach brand, which has been offset by Piaget receivables
classified as assets held for sale. Inventories at January 31, 1999 were $104.0
million as compared to $98.2 million at January 31, 1998. The increase in
inventories from January 31, 1999 to January 31, 1998 reflected the expansion of
the Company's product line, in particular the introduction of the Coach brand
and the opening of the Movado Boutiques which has been offset by Piaget
inventory classified as assets held for sale.
The Company's capital expenditures for the year ended January 31, 1999 were
approximately $11.7 million compared to $7.6 million for the year ended January
31, 1998. Expenditures in fiscal 1999 were primarily related to planned
expenditures in the Company's information systems, including retail information
systems, expansion of the Company's Movado boutiques and further expansion of
the Company's network of outlet stores. The Company's capital expenditures for
the year ended January 31, 1998 were approximately $7.6 million compared to
19
<PAGE> 29
$6.6 million for the year ended January 31, 1997. Expenditures in fiscal 1998
were primarily related to improvements in the Company's management and sales
management information systems and costs incurred in connection with the
expansion of domestic distribution operations. The Company expects that capital
expenditures in the future will approximate the average of fiscal 1999 and 1998
levels.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133) in June 1998. SFAS 133 requires all derivatives be
recorded on the balance sheet at fair value and establishes new accounting
practices for hedge instruments. SFAS 133 is required for the fiscal years
beginning after June 15, 1999. Management of the Company is currently analyzing
the effect SFAS 133 will have on the Company's statement of position and results
of operations.
MARKET RISKS
The Company's primary market risk exposure relates to foreign currency exchange
risk (see Note 5 to the consolidated financial statements). The majority of the
Company's purchases are denominated in Swiss francs. The Company reduces its
exposure to the Swiss franc exchange rate risk through a hedging program.
Under the hedging program, the Company purchases various financial instruments,
predominantly forward and option contracts. Gains and losses on financial
instruments resulting from this hedging activity are offset by the effects of
the currency movements on respective underlying hedged transactions. If the
Company did not engage in a hedging program, any change in the Swiss franc to
local currency would have an equal effect on the entities' cost of sales. As of
January 31, 1999, the Company's hedging portfolio consisted of various Swiss
Franc forward contracts and Swiss franc option contracts. The forward contracts
have various maturity dates through June 17, 1999 with an average forward rate
of 1.4352 Swiss franc per dollar. The Company has $55.0 million of option
contracts with a maturity date of May 24, 2000. The option contracts have an
average strike price of 1.4239. As of January 31, 1999 the carrying value of the
options amounted to approximately $2.3 million, which represents the unamortized
premium of the option and a fair market value of approximately $2.8 million.
In addition, the Company has certain debt obligations with variable interest
rates, which are based on market interest. The Company does not hedge these
interest rate risks. The Company also has certain debt obligations with fixed
interest rates. The difference between the market based interest rates at the
balance sheet date and the fixed rates was minimal.
EURO CONVERSION
On January 1, 1999, 11 of the 15 member countries of the European Union
established permanent, fixed conversion rates between their existing currencies
and the European Union's common currency called the "euro".
The transition period for the introduction of the euro is scheduled to phase in
over a period ending January 1, 2002, with the existing currency being
completely removed from circulation on July 1, 2002. The Company has been
preparing for the use of the euro. The timing of the Company's phasing out all
uses of the existing currencies will comply with applicable legal requirements
and also will be scheduled to facilitate optimal coordination with the plans of
our vendors.
The Company does not currently have significant transactions denominated in euro
related currencies. This is not expected to change in the foreseeable future.
Therefore, the Company believes the introduction of the euro and the phasing out
of the other currencies will not have a material impact on the Company's
consolidated financial statements.
YEAR 2000
General
Many older computer software programs and other equipment with embedded chips or
processors (collectively "systems") refer to years in terms of their last two
digits only. Such systems may incorrectly interpret the year 2000 to mean the
year 1900. If not corrected, those systems could cause date related transaction
failures.
Project
The Company initiated a project in 1997 (the "Project") to improve and
standardize data and computer technology. The Project is designed to replace all
obsolete hardware and software with systems that are Year 2000 compliant and in
addition, to replace most business software systems. The project calls for the
replacement or upgrade of all PCs, servers, network components, desktop
software, core business software which support manufacturing, distribution,
sales, accounting, after sales service, retail point of sale, and electronic
data interchange (EDI). The new global technical network infrastructure
(hardware, software, and communication technology) has been implemented in all
U.S. locations, Switzerland and Canada. The remaining technical network
infrastructure for the Far East was implemented in February 1999. A new retail
point-of-sale and merchandise system that is Year 2000 compliant was implemented
in fiscal 1999 for all store and headquarters locations. As part of the project,
new client/server core business applications software (BPCS 6.0 which is
designed to be Year 2000 compliant) supporting manufacturing, distribution,
sales, accounting and after sales service was implemented in the U.S. in March
1999. The Company has been working with System Software Associates, Inc. ("SSA")
to complete such implementation and testing as well as implementation and
testing of the same BPCS 6.0 applications software at the Company's Canadian,
Far East and Swiss facilities. Such implementation is expected to be completed
in Switzerland during the Summer of 1999 and in Canada and the
20
<PAGE> 30
Far East by the end of the calendar year. Existing business applications
software systems operating in Canada and the Far East, however, have been made
Year 2000 compliant in any event by the implementation of upgrades, which were
completed in February 1999. Minor program and procedural changes were previously
implemented to support fiscal year 2000 processing for our existing Swiss
business systems. The Company has tested the BPCS 6.0 applications software by
reviewing the database and program definitions to confirm that the date formats
are four digit year specific. After completion of the quarter end processing
related to the end of the first quarter of fiscal 2000, the Company plans to
conduct further testing by simulating the date change to January 1, 2000. The
Company has developed a contingency plan with the goal of insuring that the
Company's Swiss business systems are Year 2000 compliant in the event
implementation of the BPCS 6.0 core business applications software is not
completed before the end of calendar year 1999. This plan calls for the
implementation of certain upgrades and the remediation of applications software
that is not Year 2000 compliant. As a result of the Project and its contingency
planning, the Company expects that it will be Year 2000 compliant, on a global
basis, by the end of calendar year 1999.
By the use of questionnaires, the Company is monitoring the Year 2000 system
status of customers and vendors involved with electronic interchange of data
with our systems. This monitoring will continue throughout 1999. Non-electronic
data exchange contingency approaches including reliance on communications by fax
will be used, if required, with those customers or vendors which fail to reach
Year 2000 system compliance by January 1, 2000.
Costs
Costs associated with systems replacement and modification to become Year 2000
compliant under the contingency plan (outside of the Project) are expected to be
approximately $400,000 and will be funded through the Company's working capital
lines and other credit facilities. The estimated total cost of the Project is
approximately $11.0 million. The total amount expended on the Project through
January 31, 1999 was approximately $7.1 million which has been capitalized as a
long-term asset. This estimate assumes that the Company will not incur
significant Year 2000 related costs due to the failure of customers, vendors and
other third parties to be Year 2000 compliant.
Risks
The failure to correct a material Year 2000 problem could result in an
interruption in, or failure of, certain normal business activities or
operations. Such failures could materially and adversely affect the Company's
result of operations, liquidity and financial condition. Due to the general
uncertainty inherent in the Year 2000 problem, resulting in part from the
uncertainty of the Year 2000 readiness of third party suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000 failures will have a material impact on the Company's results of
operations, liquidity or financial condition. The Project is expected to
significantly reduce the Company's level of uncertainty about the Year 2000
problem. The Company believes that, with the implementation of new business
systems and completion of the Project as scheduled, and the Company's
contingency plan, if necessary, the possibility of significant interruptions of
normal operations should be reduced. No major information technology projects
have been deferred as a result of the Project.
OTHER
On December 22, 1998, the Company entered into an agreement with VLG North
America, Inc. ("VLG") for the sale to VLG of substantially all of the assets,
properties and rights related to the Piaget business. The transaction was
completed on February 22, 1999 at a sale price of approximately $30.0 million.
The Company will report a pretax gain, representing the excess of the sale price
over the net book value of the assets sold at January 31, 1999, during the first
quarter of fiscal 2000. Accordingly, the Company recorded $22.2 million in
assets held for sale at January 31, 1999.
21
<PAGE> 31
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
NET INCOME:
Net sales $ 277,836 $ 237,005 $ 215,107
--------- --------- ---------
Costs and expenses:
Cost of sales 111,766 97,456 95,031
Selling, general and administrative 133,395 113,593 99,657
--------- --------- ---------
245,161 211,049 194,688
--------- --------- ---------
Operating income 32,675 25,956 20,419
Net interest expense 5,437 5,383 4,874
--------- --------- ---------
Income before income taxes 27,238 20,573 15,545
Provision for income taxes 6,265 4,731 3,853
--------- --------- ---------
Net income $ 20,973 $ 15,842 $ 11,692
========= ========= =========
Net income per share - Basic $ 1.63 $ 1.35 $ 1.04
========= ========= =========
Net income per share - Diluted $ 1.58 $ 1.29 $ 1.02
========= ========= =========
COMPREHENSIVE INCOME:
Net income $ 20,973 $ 15,842 $ 11,692
Other comprehensive income, net of tax:
Foreign currency translation adjustment 2,949 (3,281) (12,194)
--------- --------- ---------
Comprehensive income (loss) $ 23,922 $ 12,561 $( 502)
========= ========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
22
<PAGE> 32
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1999 1998
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash $ 5,626 $ 10,874
Trade receivables, net 109,102 92,386
Inventories 104,027 98,183
Assets held for sale 22,187 --
Other 21,489 18,206
--------- ---------
Total current assets 262,431 219,649
Plant, property and equipment, net 22,998 18,909
Other assets 10,946 10,511
--------- ---------
$ 296,375 $ 249,069
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ 2,200 $ --
Current portion of long-term debt 10,000 10,000
Accounts payable 25,181 25,286
Accrued liabilities 20,020 16,920
Deferred and current taxes payable 10,179 10,340
--------- ---------
Total current liabilities 67,580 62,546
--------- ---------
Long-term debt 55,000 35,000
Deferred and noncurrent foreign income taxes 5,728 3,460
Other liabilities 1,641 2,530
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; 9,419,781 and 9,317,007
shares issued, respectively 94 93
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,530,922 and 3,556,793
shares issued and outstanding, respectively 35 36
Capital in excess of par value 65,332 64,475
Retained earnings 106,141 86,194
Accumulated other comprehensive income (2,188) (5,137)
Treasury stock, 159,019 shares and 17,251 shares at cost,
respectively (2,988) (128)
--------- ---------
Total shareholders' equity 166,426 145,533
--------- ---------
Commitments and contingencies (Note 9)
--------- ---------
$ 296,375 $ 249,069
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
23
<PAGE> 33
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 20,973 $ 15,842 $ 11,692
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization 5,380 4,121 3,946
Deferred and noncurrent foreign income taxes 1,764 483 221
Provision for losses on accounts receivable 1,304 1,005 1,917
Changes in current assets and liabilities:
Trade receivables (24,693) (18,699) (4,096)
Inventories (19,925) (12,988) (3,828)
Other current assets (1,265) (2,565) (14,163)
Accounts payable 290 263 5,174
Accrued liabilities 3,352 3,841 4,301
Deferred and current taxes payable 229 3,481 (377)
Increase in other noncurrent assets (314) (592) (1,285)
(Decrease) increase in other noncurrent liabilities (29) (307) 253
-------- -------- --------
Net cash (used in) provided by operating activities (12,934) (6,115) 3,755
-------- -------- --------
Cash flows from investing activities:
Capital expenditures (11,707) (7,638) (6,626)
Goodwill, trademarks and other intangibles (1,835) (1,421) (294)
Sale of subsidiary 2,646 -- --
-------- -------- --------
Net cash used in investing activities (10,896) (9,059) (6,920)
-------- -------- --------
Cash flows from financing activities:
Proceeds from issuance of Common Stock, net of underwriting
discounts and offering expenses -- 29,609 --
Repayment of Senior Notes (5,000) -- --
Proceeds from issuance of Series A Senior Notes 25,000 -- --
Net proceeds from (payment of) current bank borrowings 2,200 (7,570) 5,335
Principal payments under capital leases (387) (275) (389)
Stock options exercised 627 431 212
Dividends paid (1,026) (939) (720)
Purchase of treasury stock (2,860) -- --
-------- -------- --------
Net cash provided by financing activities 18,554 21,256 4,438
-------- -------- --------
Effect of exchange rate changes on cash 28 (93) (217)
-------- -------- --------
Net (decrease) increase in cash (5,248) 5,989 1,056
Cash at beginning of year 10,874 4,885 3,829
-------- -------- --------
Cash at end of year $ 5,626 $ 10,874 $ 4,885
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
24
<PAGE> 34
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
ACCUMULATED
CAPITAL OTHER
CLASS A IN EXCESS COMPRE-
PREFERRED COMMON COMMON OF PAR RETAINED HENSIVE TREASURY
STOCK STOCK STOCK VALUE EARNINGS INCOME STOCK
----- ----- ----- ----- -------- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1996 $-- $64 $ 49 $34,199 $ 60,319 $ 10,338 $ (128)
Net income 11,692
Dividends ($0.064 per share) (720)
Stock options exercised, net of
tax benefit 251
Foreign currency translation
adjustments (12,194)
Conversion of Class A Common
Stock to Common Stock 1 (1)
--- --- ---- ------- -------- -------- -------
Balance, January 31, 1997 -- 65 48 34,450 71,291 (1,856) (128)
Net income 15,842
Dividends ($0.080 per share) (939)
Stock options exercised 431
Proceeds from issuance of
Common stock, net of
Underwriting discounts
and Offering expenses 15 29,594
Foreign currency translation
adjustments (3,281)
Conversion of Class A Common
Stock to Common Stock 13 (12)
--- --- ---- ------- -------- -------- -------
Balance, January 31, 1998 -- 93 36 64,475 86,194 (5,137) (128)
Net income 20,973
Dividends ($0.080 per share) (1,026)
Stock options exercised, net of
tax Benefit 857
Common stock repurchased (2,860)
Foreign currency translation
adjustments 2,949
Conversion of Class A Common
Stock to Common Stock 1 (1)
--- --- ---- ------- -------- -------- -------
Balance, January 31, 1999 $-- $94 $ 35 $65,332 $106,141 $ (2,188) $(2,988)
=== === ==== ======= ======== ======== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
25
<PAGE> 35
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. In fiscal 1999, the Company marketed six
distinctive brands of watches: Movado, Concord, ESQ, Coach, Piaget and Corum,
which compete in most segments of the watch market. On February 22, 1999, the
Company completed the sale of substantially all its assets relating to the
Piaget brand to VLG North America, Inc. ("VLG").
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. Coach watches are assembled in
Switzerland by independent suppliers. The Company is also the exclusive
distributor of Swiss-manufactured Corum watches in the United States, Canada,
and the Caribbean. 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, the
Company sells Movado watches, Movado jewelry, table top accessories and other
product line extensions within the Movado brand directly to consumers in its
Company-operated Movado Boutiques. The Company also operates a number of Movado
outlet 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
within accumulated other comprehensive income as foreign currency translation
adjustments.
Sales and trade receivables
The Company's trade customers include department stores, jewelry store chains
and independent jewelers. Movado, Concord and Coach 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 $2,567,000 and $2,187,000 at January 31,
1999 and 1998, respectively. One individual trade customer accounted for 10% and
12% of the Company's consolidated net sales in fiscal 1999 and 1998,
respectively. No individual trade customer accounted for 10% or more of the
Company's consolidated net sales in fiscal 1997.
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 obligations to the Company as
a result of financial difficulties.
26
<PAGE> 36
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>
1999 1998
---- ----
<S> <C> <C>
Furniture and equipment $ 34,586 $ 32,516
Leasehold improvements 11,096 9,558
-------- --------
45,682 42,074
Less: accumulated depreciation (22,684) (23,165)
-------- --------
$ 22,998 $ 18,909
======== ========
</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 related 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. The Company reviews the carrying value of goodwill and
other intangible assets for impairment whenever events or changes have occurred
that would suggest an impairment of carrying value of an asset may not be
recoverable. An impairment would be recognized when expected undiscounted
future operating cash flows are lower than the carrying value. At January 31,
1999 and 1998, goodwill and other intangible assets at cost were $5,448,000 and
$6,425,000, respectively, and related accumulated amortization of goodwill and
other intangibles were $2,322,000 and $2,696,000, respectively.
Advertising
The Company expenses the production costs of an advertising campaign at the
commencement date of the advertising campaign. Advertising expenses for fiscal
1999, 1998 and 1997, amounted to $53.8 million, $49.6 million and $38.7 million,
respectively.
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, 1999 and
1998 were $2,098,000 and $1,139,000, respectively.
Earnings per share
In accordance with the provisions of SFAS No. 128, Earnings Per Share, the
Company is presenting net income per share on a 'basic' and 'diluted' basis.
Basic earnings per share is computed using weighted average shares outstanding
during the period. Diluted earnings per share is computed using the weighted
average number of shares outstanding adjusted for dilutive common stock
equivalents.
27
<PAGE> 37
The weighted average number of shares outstanding for basic earnings per share
were 12,842,000, 11,736,000, and 11,273,000 for fiscal 1999, 1998 and 1997,
respectively. For diluted earning per share, these amounts were increased by
414,000, 500,000 and 216,000 in fiscal 1999, 1998 and 1997, respectively, due to
potentially dilutive common stock equivalents issuable under the Company's stock
option plan. There were no anti-dilutive common stock equivalents in the years
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.
Stockholders Equity
The Company's Class A Common Stock entitles the holder thereof to 10 votes per
share on all matters submitted to a vote of shareholders. Each share of Common
Stock is entitled to one vote per share.
In March 1998, the Company's Board of Directors authorized the repurchase of
400,000 shares of the Company's Common Stock. As of January 31, 1999, the
Company has repurchased 142,200 shares at an aggregate cost of $2.9 million. In
March 1999, the Board approved a revised stock repurchase program for the
repurchase of shares of the Company's Common Stock up to an aggregate repurchase
price of $10.0 million, in addition to the shares previously purchased.
New Accounting Standards
As of February 1, 1998, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 130, "Reporting Comprehensive Income." SFAS 130 establishes
standards for the reporting and display of comprehensive income and its
components in a full set of general-purpose financial statements. Under SFAS
130, foreign currency translation adjustments, which had been reported
separately in shareholders' equity prior to adoption, are included in other
comprehensive income. No provision has been made for taxes on foreign
subsidiaries' undistributed earnings, because it is management's intention to
permanently reinvest the earnings of foreign subsidiaries within the business of
those companies. Amounts in prior year financial statements have been
reclassified to conform to SFAS 130.
Additionally, in fiscal 1999, the Company adopted SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information." This pronouncement
establishes standards for the reporting of financial information about a
Company's operating segments. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 was effective January 31, 1999 and has been adopted for all
periods presented.
These statements affect only financial statement presentation and disclosure.
Adoption of the new Standards did not have an impact on the Company's
consolidated financial position or results of operations.
The Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) in June 1998, which
establishes accounting and reporting standards for derivative instruments. SFAS
133 which is effective for the first quarter of fiscal 2001, requires all
derivatives to be recorded on the balance sheet at fair value and establishes
new accounting practices for hedge instruments. Management of the Company is
currently analyzing the effect, if any, SFAS 133 will have on the Company's
consolidated financial position and results of operations.
28
<PAGE> 38
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
JANUARY 31,
---------------
1999 1998
---- ----
<S> <C> <C>
Finished goods $ 64,438 $ 61,960
Work-in-process and component parts 39,589 36,223
-------- --------
$104,027 $ 98,183
======== ========
</TABLE>
NOTE 3 - BANK CREDIT ARRANGEMENTS AND LINES OF CREDIT
In order to meet the increase in working capital requirements, the Company's
revolving credit and working capital lines with its domestic bank group were
amended in July 1997 to provide for a three-year $90.0 million unsecured
revolving line of credit, pursuant to the Restated Bank Credit Agreement, and
to provide for $28.3 million and $31.6 million of uncommitted working capital
lines of credit at January 31, 1999 and 1998, respectively. These new
facilities replaced a $20.0 million revolving line of credit and $35.0 million
domestic working capital lines of credit and certain of the Company's Swiss
working capital lines. At January 31, 1999 and January 31, 1998, the Company
had $5 million outstanding under the Restated Bank Credit Agreement. The
Restated Bank Credit 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
and limit the amount of additional debt outstanding to $20 million. The Company
was in compliance with these restrictions and covenants at January 31, 1999.
The amount of $5.0 million outstanding at January 31, 1999 and 1998 is included
in Long-term debt. The domestic unused line of credit was $111.1 million and
$116.6 million at January 31, 1999 and 1998, respectively.
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 8,000,000 Swiss francs and 12,870,000 Swiss
francs, with dollar equivalents of approximately $5,633,000 and $8,708,000 at
January 31, 1999 and 1998, respectively. 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, 1999
and 1998. 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 $2,200,000 at January 31, 1999. There were no borrowings under these credit
lines at January 31, 1998. Aggregate maximum and average monthly outstanding
borrowings against the Company's lines of credit and related weighted average
interest rates during fiscal 1999, 1998 and 1997 were as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JANUARY 31,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Maximum borrowings $70,900 $72,560 $56,143
Average monthly borrowings $41,229 $41,564 $34,302
Weighted average interest rate 6.9% 6.4% 5.9%
</TABLE>
Weighted average interest rates were computed based on average month-end
outstanding borrowings and applicable average month-end interest rates.
29
<PAGE> 39
NOTE 4 - LONG-TERM DEBT
The components of long term debt as of January 31, were as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Senior Notes $35,000 $40,000
Series A Senior Notes 25,000 --
Revolving Credit Line 5,000 5,000
------- -------
$65,000 $45,000
Less current portion 10,000 10,000
------- -------
Long-term debt $55,000 $35,000
======= =======
</TABLE>
Senior Notes due January 31, 2005 (the "Senior Notes") were issued in a private
placement completed in fiscal 1994 and bear interest at 6.56% per annum, payable
semiannually on July 31 and January 31, and are subject to annual payments of
$5.0 million commencing January 31, 1998 (or next business day). Accordingly,
such amounts have been classified as a current liability in fiscal 1999 and
1998. 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 Series A Senior Notes ("Series A Senior Notes") were issued on December 1,
1998 under a Note Purchase and Private Shelf Agreement and bear interest at
6.90% per annum. Interest is payable semi-annually on April 30 and October 30
and mature on October 30, 2010 and are subject to annual payments of $5.0
million commencing October 31, 2006. The Note Purchase and Private Shelf
Agreement also provides for the issuance, up to two years after the date
thereof, of senior promissory notes in the aggregate principal amount of up to
an additional $25 million with maturities up to 12 years from their date of
issuance.
The agreements governing the Senior Notes and Series A Senior Notes contain
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, 1999.
Included in Long-term debt at January 31, 1999 and 1998 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 forward exchange
contracts, purchased foreign currency options and open market purchases to cover
identifiable inventory purchase commitments and occasionally 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, 1999 and 1998, the Company had
foreign currency trading lines totaling $165,000,000 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, 1999 and 1998.
30
<PAGE> 40
Foreign currency forward contracts included below mature within one year.
Currency Option Contracts at January 31, 1999 and 1998 generally mature after
one year. All financial instruments included below were held for hedging
purposes only. Contract amounts (in thousands) consist primarily of U.S. dollar
- - Swiss franc contracts.
<TABLE>
<CAPTION>
AS OF JANUARY 31,
---------------------------------------
1999 1998
----------------- ------------------
CONTRACT FAIR CONTRACT FAIR
AMOUNTS VALUES AMOUNTS VALUES
-------- ------ -------- ------
<S> <C> <C> <C> <C>
Foreign Currency Forward Contracts $11,399 $11,511 $ 9,036 $ 9,187
Currency Option Contracts $38,625 $ 2,829 $39,486 $ 576
</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, 1999 and 1998, the receivable
from banks recorded in current assets associated with closed contract positions
was $1,547,000 and $1,000, 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 $807,000 and $375,000 at January 31,
1999 and 1998, respectively, and were included in other current assets on the
accompanying balance sheet.
NOTE 6 - FAIR VALUE OF OTHER FINANCIAL INSTRUMENTS
The estimated fair value of the Company's Senior Notes and Series A Senior Notes
at January 31, 1999 approximated the carrying value of the notes. The difference
between market-based interest rates at the balance sheet date and the 6.56% and
6.90% fixed rates 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.
NOTE 7 - INCOME TAXES
The provision for income taxes for the fiscal years ended January 31, 1999, 1998
and 1997 consists of the following components (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current:
U.S. Federal $ 1,500 $ 725 $ 1,667
U.S. State and Local 444 192 477
Non-U.S 1,888 1,542 860
------- ------- -------
3,832 2,459 3,004
------- ------- -------
Noncurrent:
U.S. Federal -- -- --
U.S. State and Local -- -- --
Non-U.S 1,924 1,680 845
------- ------- -------
1,924 1,680 845
------- ------- -------
Deferred:
U.S. Federal (750) -- --
U.S. State and Local -- -- --
Non-U.S 1,259 592 4
------- ------- -------
509 592 4
------- ------- -------
Provision for income taxes $ 6,265 $ 4,731 $ 3,853
======= ======= =======
</TABLE>
31
<PAGE> 41
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
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, 1999 and 1998
consist of the following (in thousands):
<TABLE>
<CAPTION>
1999 DEFERRED TAX 1998 DEFERRED TAX
--------------------- ---------------------
ASSETS LIABILITIES ASSETS LIABILITIES
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
Operating loss carryforwards $ 2,400 $ -- $ 2,092 $ --
Rent accrual 417 -- 542 --
Inventory reserve 1,038 6,218 813 5,516
Receivable allowance 816 1,370 643 565
Depreciation/amortization 1,191 -- 1,043 --
Other 948 22 637 271
------- ------- ------- -------
6,810 7,610 5,770 6,352
Valuation allowance (2,660) -- (2,370) --
------- ------- ------- -------
Total $ 4,150 $ 7,610 $ 3,400 $ 6,352
======= ======= ======= =======
</TABLE>
As of January 31, 1999, the Company had foreign net operating loss carryforwards
of approximately $5.5 million, which are available to offset taxable income in
future years. As of January 31, 1999, the Company continued to maintain a 100%
valuation allowance with respect to the tax benefit of foreign net operating
loss carryforwards and other foreign tax assets. Since the Company's tax assets
relate primarily to its former sales office in Germany, which is currently
operated by an independent distributor, the Company's assessment is that the tax
assets will not likely be
utilized in the foreseeable future. Management is continuing to evaluate the
appropriate level of allowance based on future operating results and changes in
circumstances.
The provision for 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,
-----------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Provision for income taxes at the U.S. statutory rate $ 9,533 $ 7,200 $ 5,441
Realization of capital and operating loss carryforwards -- (88) --
Lower effective foreign income tax rate (3,685) (2,582) (2,369)
Tax provided on repatriated earnings of foreign subsidiaries 252 262 308
State and local taxes, net of federal benefit 134 127 315
Other 31 (188) 158
------- ------- -------
$ 6,265 $ 4,731 $ 3,853
======= ======= =======
</TABLE>
No provision has been made for taxes on foreign subsidiaries' undistributed
earnings of approximately $120,000,000 at January 31, 1999, as those earnings
are considered to be reinvested for an indefinite period. As such, no additional
taxes have been provided for on these earnings.
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
32
<PAGE> 42
trust will repay the loans from the proceeds of the policy. The Company had
loaned approximately $2,361,000 and $1,620,000 under this agreement at January
31, 1999 and 1998, respectively.
NOTE 9 - LEASES, COMMITMENTS AND CONTINGENCIES
Rent expense for equipment and distribution, factory and office facilities held
under operating leases was approximately $5,470,000, $4,680,000 and $4,270,000
in fiscal 1999, 1998 and 1997, respectively. Minimum annual rentals at January
31, 1999 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:
YEAR ENDING JANUARY 31,
(IN THOUSANDS):
<TABLE>
<S> <C>
2000 $5,680
2001 5,257
2002 4,443
2003 3,027
2004 2,380
2005 and thereafter 6,339
-------
$27,126
=======
</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 as of
January 31, 1999 and 1998. Accumulated depreciation of computer equipment
recorded under capital leases was $3,436,000 and $2,884,000 as of January 31,
1999 and 1998, respectively.
Future minimum lease payments for equipment under capital leases at January 31,
1999 are as follows:
YEAR ENDING JANUARY 31,
(IN THOUSANDS):
<TABLE>
<S> <C>
2000 $ 71
----
Total minimum lease obligations 71
Less interest (2)
----
Present value of minimum lease obligations 69
Less current portion (69)
----
Net amount due after one year $ -
====
</TABLE>
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 10 - EMPLOYEE BENEFIT PLANS
The Company maintains an Employee Savings Plan under Section 401(k) of the
Internal Revenue Code. Company contributions and expenses of administering the
Employee Savings Plan amounted to $430,000, $143,000 and $127,000 in fiscal
1999, 1998 and 1997, respectively.
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 1999, 1998 and 1997, the Company
recorded expenses related to the SERP of approximately $338,000, $190,000 and
$138,000, respectively, which includes costs related to phantom shares.
33
<PAGE> 43
During fiscal 1999, the Company adopted a Stock Bonus Plan for all employees not
in the SERP. Under the terms of this stock bonus plan, the Company contributes a
discretionary amount to the trust established under the plan. Each plan
participant vests after five years in 100% of their respective pro-rata portion
of such contribution. For fiscal 1999, the Company recorded an expense of
$209,000 related to this plan.
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 $101,000, $92,000 and $85,000 for fiscal 1999, 1998 and
1997, 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 four outside
directors, has the authority to grant incentive stock options and nonqualified
stock options to purchase, as well as stock appreciation rights and stock
awards, up to 1,500,000 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 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 1996 are summarized as
follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTION PRICE
OPTIONS PER SHARE
<S> <C> <C>
January 31, 1996 578,063 $ 7.43
Options granted 429,375 10.98
Options exercised (36,750) 7.47
Options forfeited (14,813) 7.47
---------
January 31, 1997 955,875 9.02
Options granted 227,964 13.49
Options exercised (51,250) 8.43
Options forfeited (6,189) 9.69
---------
January 31, 1998 1,126,400 9.91
Options granted 282,749 25.53
Options exercised (63,250) 9.02
Options forfeited (62,289) 13.39
---------
January 31, 1999 1,283,610 $13.23
=========
</TABLE>
Options exercisable at January 31, 1999, 1998 and 1997 were 538,216, 373,684 and
260,850, respectively.
The weighted-average fair value of each option grant estimated on the date of
grant using the Black-Scholes option-pricing model is $13.34, $6.53 and $3.47
per share in fiscal 1999, 1998 and 1997, respectively. The following
weighted-average assumptions were used for grants in fiscal 1999, 1998 and 1997:
dividend yield of 0.3% for fiscal 1999, 0.4% for fiscal 1998 and 2.0% for fiscal
1997;
34
<PAGE> 44
expected volatility of 45% for fiscal 1999, 38% for fiscal 1998 and 26%
for fiscal 1997, risk-free interest rates of 4.7% for fiscal 1999, and 5.6% for
fiscal 1998 and 1997, and expected lives of seven years for fiscal 1999, 1998
and 1997.
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 1999, 1998 and 1997 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 share for fiscal 1999, 1998 and 1997 would approximate
the pro forma amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ----------------- -----------------
AS PRO AS PRO AS PRO
REPORTED FORMA REPORTED FORMA REPORTED FORMA
-------- ----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Net Income $20,973 $19,856 $15,842 $15,306 $11,692 $11,392
Net Income per share-Basic $ 1.63 $ 1.55 $ 1.35 $ 1.30 $ 1.04 $ 1.01
Net Income per share-Diluted $ 1.58 $ 1.50 $ 1.29 $ 1.25 $ 1.02 $ 0.99
</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.
The following table summarizes outstanding and excisable stock options as of
January 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING LIFE (YEARS) PRICE EXERCISABLE PRICE
- ---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$5.00 - $9.99 724,026 6.2 $ 8.41 463,024 $ 8.02
$10.00 - $14.99 265,934 8.0 $13.14 69,792 $13.16
$15.00 - $19.99 42,250 9.4 $16.06 1,650 $16.33
$20.00 - $24.99 31,250 9.1 $23.37 1,250 $22.87
$25.00 - $29.75 220,150 9.1 $27.24 2,500 $26.50
- ---------------------------------------------------------------------------------
$5.00 - $29.75 1,283,610 7.2 $13.23 538,216 $ 8.83
=================================================================================
</TABLE>
NOTE 11 - SEGMENT INFORMATION
The Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information," which requires reporting certain financial information
according to the "management approach." This approach requires reporting
information regarding operating segments on the basis used internally by
management to evaluate segment performance. SFAS 131 also requires disclosures
about products and services, geographic areas and major customers.
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 constituted less than 10% of consolidated total
assets for all periods presented.
35
<PAGE> 45
The Company conducts its business primarily in two operating segments:
"Wholesale" and "Other". The Company's wholesale segment includes the designing,
manufacturing and distribution of quality watches. Other includes the Company's
retail and service center operations. The accounting policies of the segments
are the same as those described in "Significant Accounting Polices". The Company
evaluates segment performance based on operating profit.
OPERATING SEGMENT DATA AS OF JANUARY 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT
------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Wholesale $245,783 $210,908 $191,381 $ 34,631 $24,277 $ 20,178
Other 32,053 26,097 23,726 (1,597) 1,963 623
Elimination(1) (359) (284) (382)
------------------------------ ------------------------------
Consolidated total $277,836 $237,005 $215,107 $ 32,675 $25,956 $ 20,419
============================== ==============================
</TABLE>
<TABLE>
<CAPTION>
SEGMENT ASSETS
------------------------------
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Wholesale $287,079 $237,382 $202,267
Other 3,670 813 1,291
Corporate(2) 5,626 10,874 4,885
------------------------------
Consolidated total $296,375 $249,069 $208,443
==============================
</TABLE>
GEOGRAPHIC SEGMENT DATA (IN THOUSANDS):
<TABLE>
<CAPTION>
NET SALES LONG-LIVED ASSETS
------------------------------ ---------------------------
1999 1998 1997 1999 1998 1997
------------------------------ ---------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic $245,865 $196,064 $177,039 $17,222 $13,324 $10,280
International 199,060 152,997 123,806 5,776 5,585 4,786
Elimination(3) (167,089) (112,056) (85,738)
------------------------------ ---------------------------
Consolidated total $277,836 $237,005 $215,107 $22,998 $18,909 $15,066
============================== ===========================
</TABLE>
<TABLE>
<CAPTION>
INCOME BEFORE INCOME TAXES
------------------------------
1999 1998 1997
------------------------------
<S> <C> <C> <C>
Domestic $982 $1,796 $3,102
International 26,615 19,061 12,825
Elimination(1) (359) (284) (382)
------------------------------
Consolidated total $27,238 $20,573 $15,545
==============================
</TABLE>
(1) Elimination of inter-segment management fees.
(2) Corporate assets include cash.
(3) Elimination of intercompany sales between domestic and international units.
36
<PAGE> 46
NOTE 12 - QUARTERLY FINANCIAL DATA (UNAUDITED)
The following table presents unaudited selected interim operating results of the
Company for fiscal 1999 and 1998 (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
APR 30 JUL 31 OCT 31 JAN 31
---------------------------------------------
<S> <C> <C> <C> <C>
1999
Net sales $ 41,650 $68,934 $97,455 $69,797
Gross profit $ 24,714 $39,565 $57,488 $44,303
Net income $ 148 $ 3,386 $12,007 $ 5,432
PER SHARE:
Net income:
Basic $ 0.01 $ 0.26 $ 0.94 $ 0.42
Diluted $ 0.01 $ 0.25 $ 0.91 $ 0.41
1998
Net sales $ 34,918 $56,994 $84,536 $60,557
Gross profit $ 19,901 $32,226 $49,098 $38,324
Net (loss) income $ (260) $ 2,355 $ 9,308 $ 4,439
PER SHARE:
Net (loss) income:
Basic $ (0.02) $ 0.21 $ 0.81 $ 0.35
Diluted $ (0.02) $ 0.20 $ 0.77 $ 0.34
</TABLE>
As each quarter is calculated as a discrete period, the sum of the four quarters
may not equal the calculated full year amount. This is in accordance with
prescribed reporting requirements.
NOTE 13 - 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,
-----------------------------
1999 1998 1997
-----------------------------
<S> <C> <C> <C>
Cash paid (received) during the year for:
Interest $5,274 $ 4,580 $5,141
Income taxes $4,585 $ (26) $4,321
Non cash investing and financial activities:
Equipment acquired under capital lease $-- $-- $ 217
</TABLE>
NOTE 14 - SUBSEQUENT EVENT
On December 22, 1998, the Company entered into an agreement with VLG North
America, Inc. ("VLG") for the sale to VLG of substantially all of the assets,
properties and rights related to the Piaget business. The transaction was
completed on February 22, 1999 at a sale price of approximately $30.0 million.
The Company will report a pretax gain, representing the excess of the sale
price over the net book value of the assets sold at January 31, 1999, during the
first quarter of fiscal 2000. Accordingly, the Company recorded $22.2 million in
assets held for sale at January 31, 1999.
37
