<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM 10-Q
------------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22378
MOVADO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
NEW YORK 13-2595932
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201) 460-4800
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Issuer's classes
of Common Stock, as of the latest practicable date.
As of May 24, 2000 the Registrant had 3,509,733 shares of Class A Common
Stock, par value $0.01 per share, outstanding and 9,505,298 shares of Common
Stock, par value $0.01 per share, outstanding.
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MOVADO GROUP, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
APRIL 30, 2000
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I Financial Information
Item 1. Consolidated Balance Sheets at April 30, 2000, January 31,
2000 and April 30, 1999 3
Consolidated Statements of Operations for the three months
ended April 30, 2000 and 1999 4
Consolidated Statements of Cash Flows for the three months
ended April 30, 2000 and 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
Exhibit Index 14
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31, APRIL 30,
2000 2000 1999
--------------- -------------- ------------
<S> <C> <C> <C>
ASSETS
------
Current assets:
Cash and cash equivalents $20,122 $26,615 $37,614
Trade receivables, net 100,256 103,795 109,431
Inventories 86,708 77,075 119,757
Other current assets 22,931 19,341 22,787
--------------- -------------- ------------
Total current assets 230,017 226,826 289,589
Plant, property and equipment, net 27,462 27,593 25,297
Other assets 13,476 12,767 12,433
--------------- -------------- ------------
$270,955 $267,186 $327,319
=============== ============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities:
Loans payable to banks $33,565 $13,500 $45,226
Current portion of long-term debt 5,000 5,000 5,000
Accounts payable 15,888 17,562 24,333
Accrued liabilities 17,140 26,602 20,920
Deferred and current taxes payable 6,254 5,432 9,221
--------------- -------------- ------------
Total current liabilities 77,847 68,096 104,700
Long-term debt 45,000 45,000 55,000
Deferred and non-current foreign income taxes 4,277 5,105 5,471
Other liabilities 1,220 1,170 1,648
--------------- -------------- ------------
Total liabilities 128,344 119,371 166,819
--------------- -------------- ------------
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; 9,505,298,
9,496,529 and 9,448,938 shares
issued, respectively 95 95 94
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized; 3,509,733,
3,509,733 and 3,517,000 shares issued
and outstanding, respectively 35 35 35
Capital in excess of par value 66,122 66,113 65,229
Retained earnings 118,149 118,615 110,134
Accumulated other comprehensive income (18,985) (16,462) (10,292)
Treasury stock, 1,043,690, 920,690 and 238,519 shares,
respectively, at cost (22,805) (20,581) (4,700)
--------------- -------------- ------------
142,611 147,815 160,500
--------------- -------------- ------------
$270,955 $267,186 $327,319
=============== ============== ============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except share and per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
-----------------------------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $53,339 $47,653
Costs and expenses:
Cost of sales 21,298 18,618
Selling, general and administrative 31,045 27,039
------------------------------ -----------------------------
Operating income 996 1,996
Net interest expense 1,226 1,147
Gain on disposition of business - 4,752
------------------------------ -----------------------------
(Loss) income before income taxes (230) 5,601
(Benefit from) provision for income taxes (57) 1,289
------------------------------ -----------------------------
Net (loss) income (173) $4,312
============================== =============================
Basic (loss) income per share ($0.01) $0.34
============================== =============================
Diluted (loss) income per share ($0.01) $0.33
============================== =============================
Dividends declared per share $0.025 $0.025
============================== =============================
Average shares outstanding 11,981 12,771
Dilutive effect of stock options 207 394
------------------------------ -----------------------------
Average shares outstanding assuming dilution 12,188 13,165
============================== =============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED APRIL 30,
----------------------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income ($173) $4,312
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Depreciation and amortization 1,317 1,193
Deferred and non-current foreign income taxes (663) 114
Provision for losses on accounts receivable 227 265
Gain on disposition of business - (4,752)
Changes in current assets and liabilities:
Trade receivables 2,664 (592)
Inventories (10,760) (19,371)
Other current assets (5,689) (1,380)
Accounts payable (1,315) (11,847)
Accrued liabilities (9,026) (1,094)
Deferred and current taxes payable 325 (554)
Decrease in other non-current assets 854 5,730
Decrease in other non-current liabilities (177) (185)
-------------------------- --------------------------
Net cash used in operating activities (22,416) (28,161)
-------------------------- --------------------------
Cash flows (used for) provided by investing activities:
Capital expenditures (1,024) (3,526)
Proceeds from disposition of business - 28,409
Goodwill, trademarks and other intangibles (168) (655)
-------------------------- --------------------------
Net cash (used in) provided by investing activities (1,192) 24,228
-------------------------- --------------------------
Cash flows from financing activities:
Repayment of Senior Notes - (5,000)
Net proceeds from bank borrowings 20,065 43,058
Principal payments under capital leases - (36)
Stock options exercised 7 125
Dividends paid (294) (319)
Purchase of treasury stock (2,224) (1,712)
-------------------------- --------------------------
Net cash provided by financing activities 17,554 36,116
-------------------------- --------------------------
Effect of exchange rate changes on cash and cash equivalents (439) (195)
-------------------------- --------------------------
Net (decrease) increase in cash and cash equivalents (6,493) 31,988
Cash and cash equivalents at beginning of period 26,615 5,626
-------------------------- --------------------------
Cash and cash equivalents at end of period $20,122 $37,614
========================== ==========================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5
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MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
by Movado Group, Inc. (the "Company") in a manner consistent with that used in
the preparation of the financial statements included in the Company's fiscal
2000 Annual Report filed on Form 10-K. In the opinion of management, the
accompanying financial statements reflect all adjustments, consisting of only
normal and recurring adjustments, necessary for a fair presentation of the
financial position and results of operations for the periods presented.
These consolidated financial statements should be read in conjunction with the
aforementioned annual report.
NOTE 1 - RECLASSIFICATION
Certain prior year amounts have been reclassified to conform to the current
presentation.
NOTE 2 - INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31, APRIL 30,
2000 2000 1999
--------------------- ----------------------- -----------------------
<S> <C> <C> <C>
Finished goods $51,838 $50,565 $80,076
Work-in-process and component parts 34,870 26,510 39,681
--------------------- ----------------------- -----------------------
$86,708 $77,075 $119,757
===================== ======================= =======================
</TABLE>
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS
ENDED APRIL 30,
-------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Cash paid during the period for:
Interest $425 $1,245
Income taxes $1,557 $2,058
</TABLE>
6
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NOTE 4 - COMPREHENSIVE (LOSS) INCOME
The components of comprehensive income for the three months ended April 30, 2000
and 1999 are as follows (in thousands):
<TABLE>
<CAPTION>
2000 1999
---- ----
<S> <C> <C>
Net (loss) income ($173) $4,312
Foreign currency translation adjustment (2,523) 2,264
----------------------- -----------------------
Comprehensive income (loss) (2,696) $6,576
======================= =======================
</TABLE>
NOTE 5 - SEGMENT INFORMATION
In fiscal 1999, 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. 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. Operating segment data as of April 30, 2000 and 1999 are as
follows (in thousands):
<TABLE>
<CAPTION>
NET SALES OPERATING PROFIT
2000 1999 2000 1999
------------------------------ -----------------------------
<S> <C> <C> <C> <C>
Wholesale $44,794 $41,156 $2,205 $3,016
Other 8,545 6,497 (1,209) (1,020)
------------------------------ -----------------------------
Consolidated total $53,339 $47,653 $996 $1,996
============================== =============================
</TABLE>
7
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Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD LOOKING STATEMENTS
Statements included under Management's Discussion and Analysis of Financial
Condition and Results of Operations, in this report, as well as statements in
future filings by the Company with the Securities and Exchange Commission
("SEC"), in the Company's press releases and oral statements made by or with the
approval of an authorized executive officer of the Company, which are not
historical in nature, are intended to be, and are hereby identified as, "forward
looking statements" for purposes of the safe harbor provided by Section 21E of
the Securities Exchange Act of 1934. The Company cautions readers that forward
looking statements include, without limitation, those relating to the Company's
future business prospects, revenues, working capital, liquidity, capital needs,
plans for future operations, effective tax rates, margins, interest costs, and
income, as well as assumptions relating to the foregoing. Forward looking
statements are subject to certain risks and uncertainties, some of which cannot
be predicted or quantified. Actual results and future events could differ
materially from those indicated in the forward looking statements due to several
important factors herein identified, among others, and other risks and factors
identified from time to time in the Company's reports filed with the SEC
including, without limitation, the following: general economic and business
conditions which may impact disposable income of consumers, competitive products
and pricing, ability to enforce intellectual property rights, seasonality,
availability of alternative sources of supply in the case of loss of any
significant supplier, the Company's dependence on key officers, continued
availability to the Company of financing and credit on favorable terms and
success of hedging strategies in respect of currency exchange rate fluctuations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2000 AS COMPARED TO
THE THREE MONTHS ENDED APRIL 30, 1999.
Net sales: Comparative net sales by product class were as follows:
<TABLE>
<CAPTION>
Three Months Ended April 30,
2000 1999
------------------- -------------------
<S> <C> <C>
Concord, Movado, Coach and ESQ
Domestic $34,450 $32,580
International 10,533 9,053
Piaget and Corum (160) (424)
Other 8,516 6,444
------------------- -------------------
Net Sales $53,339 $47,653
=================== ===================
</TABLE>
Net sales increased by $5.7 million or 11.9% for the three months ended April
30, 2000 as compared to the three months ended April 30, 1999. Domestic sales of
our core brands increased by $1.9 million or 5.7% and international sales of our
core brands increased by $1.5 million or 16.3%. Domestic sales increases of our
core brands were led by increases in Movado, ESQ and Coach sales offset by a
slight decline in sales of our Concord brand. The decline in Concord brand sales
was primarily due to timing of product deliveries from our suppliers.
International sales increases were led by double-digit growth of our Coach brand
as we continued the ongoing rollout of Coach in our international markets,
especially the Far East. The Company also experienced strong
8
<PAGE> 9
growth of our Concord brand in the international markets. International sales
increases were slightly impaired, due to a decline in average foreign currency
translation rates in effect for the three months ended April 30, 2000 as
compared to average translation rates in effect for the three months ended April
30, 1999.
Other net sales, which include sales from our Company's outlet stores, the
Movado Boutiques and our after sales service business, increased by $2.1 million
or 32.2%. Growth in the other sales category was primarily attributable to
comparable store sales increases in our outlets and Boutiques and new store
openings. The increases in retail sales were somewhat offset by decreased volume
in our after sales service business, due to the sale of our Piaget and Corum
distribution businesses.
Gross Margin. The gross profit for the three months ended April 30, 2000 was
$32.0 million (60.1% of net sales) as compared to $29.0 million (60.9% of net
sales) for the three months ended April 30, 1999. Gross margins increased by
$3.0 million for the quarter ended April 30, 2000, which primarily relates to a
higher sales volume than in the three months ended April 30, 1999. Gross margins
of 60.1% were approximately consistent with the 60.9% margin achieved for the
three months ended April 30, 1999.
Selling, General and Administrative. Selling, General and Administrative
expenses for the quarter were $31.0 million or 58.2% of net sales, a 14.8%
increase over the $27.0 million or 56.7% of net sales in the first quarter of
last year. The 14.8% increase was primarily attributable to expenses associated
with several of the Company's growth initiatives. These include the opening of
four additional outlet stores, the opening of the Company's fifth Movado
Boutique, additions to the Company's ESQ and Coach sales staffs in connection
with the expansion of these brands and addition of personnel in anticipation of
launching the new Tommy Hilfiger watch line in Spring 2001. The quarter also
included the costs associated with a global advertising and marketing team which
was developed throughout fiscal 2000 and increased depreciation expense
associated with our new core information system which went live in the U.S. in
March 1999.
Interest Expense. Net interest expense for the three months ended April 30, 2000
increased $0.1 million or 6.9%. The increase in interest costs over the level of
the prior year period reflects higher interest rates on borrowings under the
Company's bank lines of credit and a reduction in interest income for the
quarter due to lower invested cash balances. These factors were substantially
mitigated by lower average working capital employed in the business (primarily
inventories) as well as lower interest costs on long-term debt due to the
repayment of $5.0 million of Senior Notes in February 2000.
Income Taxes. The Company recorded a tax benefit of $57,000 for the three months
ended April 30, 2000 as compared to a charge of $1.3 million for the three
months ended April 30, 1999. Taxes were recorded at a 25% rate for fiscal 2001
as compared to a 23% rate for fiscal 2000. The Company believes that the near
term future effective tax rate will be 25%, which reflects the Company's current
expectation that domestic earnings will gradually increase as a percentage of
the overall earnings mix. However, there can be no assurance of this result 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 FINANCIAL POSITION
Cash flows used in operating activities for the three months ended April 30,
2000 were $22.4 million as compared to a use of $28.2 million for the three
months ended April 30, 1999. The reduction in cash used in operating activities
is the result of lower seasonal inventory build than the prior year. Also
contributing was a reduction in accounts receivable from year end vs. last April
30 when receivables were flat with the January 31, 1999 year end result.
9
<PAGE> 10
The Company used $1.2 million of cash for investing activities for the three
months ended April 30, 2000 as compared to generating $24.2 for the three months
ended April 30, 1999. Cash generated from investing activities in the prior year
resulted primarily from the sale of the Piaget distribution business in February
1999 for $28.4 million. Excluding the sale of the Piaget distribution business,
the Company used $1.2 million in the quarter ended April 30, 2000 as compared to
$4.1 million in the quarter ended April 30, 1999, primarily for capital
expenditures related to management information systems.
Cash used in financing activities amounted to $17.6 million for the three months
ended April 30, 2000 as compared to $36.1 million for the comparable prior year
period.
At April 30, 2000 the Company had two series of Senior Notes outstanding. Senior
Notes due January 31, 2005 which were originally issued in a private placement
completed in fiscal 1994. These notes have required annual principal payments of
$5.0 million since January 1998. The Company repaid $5.0 million principal
amount of these notes in the first quarter of fiscal 2000 and is scheduled to
repay an additional $5.0 million in the fourth quarter of fiscal 2001. At April
30, 2000, $25 million in principal amount of these notes remained outstanding.
During fiscal 1999, the Company issued $25 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. This
agreement allows for the issuance for up to two years from 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 original date of issuance.
These notes bear interest at 6.90%, mature on October 30, 2010 and are subject
to annual repayments of $5.0 million commencing October 31, 2006.
The Company finances it seasonal working capital requirements through borrowings
under its bank lines of credit. The Company borrows from its bank group under
both a $90 million unsecured revolving line and $31.6 million of annually
renewable working capital lines of credit. Borrowings under the revolving line
are governed by a three-year agreement among the Company and its bank group. The
Agreement was originally dated July 23, 1997 and was last amended in March 2000
to revise certain financial covenants and substantially increase the Company's
ability to purchase shares under its ongoing share repurchase program. The
Company is presently in discussions with its bank group regarding a renewal of
the agreement and expects to complete the renewal by the end of the second
quarter of fiscal 2001. Due to significant increases in market interest spreads
since the July 23, 1997 agreement was completed, the Company expects that
interest spreads contained in the new revolving credit agreement will be
significantly higher than those contained in the current agreement. The Company
is also renegotiating its annually renewable working capital lines coincident
with renewal of the revolving credit facility since these lines are with three
members of the Company's bank group that are party to the revolving credit
facility. At April 30, 2000, the Company had $33.5 million of outstanding
borrowings under its bank lines as compared to $45.2 million at April 30, 1999.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary buy-back program. Current
year purchases under the repurchase program amounted to $2.2 million as compared
to $1.7 million for the comparable prior year period.
The Company paid dividends of $294,000 as compared to $319,000 for the first
quarter of fiscal 2001 and fiscal 2000, respectively. The decrease is
attributable to a reduction in outstanding shares related to the share
repurchase programs described above.
10
<PAGE> 11
Cash and cash equivalents at April 30, 2000 amounted to $20.1 million compared
to $37.6 million at April 30, 1999. The reduction in cash related primarily to
the funding of the Company's share repurchase program. Debt to total
capitalization at April 30, 2000 was 36.9% as compared to 38.6% at April 30,
1999.
The Company expects that capital expenditures in the future will approximate the
average of fiscal 1999 and 1998 levels.
YEAR 2000
The Company experienced no significant problems relating to the Year 2000 issue
in the first quarter of this year. The Company does not foresee any problems for
the remainder of 2000; however, if not all Year 2000 issues have been identified
or foreseen, there can be no assurance that such issues will not materially
adversely impact the Company's results of operations or adversely affect the
Company's relationships with customers, vendors, or others.
11
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Lease agreement dated May 22, 2000 between Forsgate
Industrial Complex and Movado Group, Inc. for premises
located at 105 State Street Moonachie, NJ.
27 Financial Data Schedule for the three months ended April
30, 2000, submitted to the Securities and Exchange
Commission in electronic format.
(b) Reports on Form 8-K
None
12
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SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MOVADO GROUP, INC.
(Registrant)
Dated: June 14, 2000 By: /s/ Kenneth J. Adams
-----------------------------
Kenneth J. Adams
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer and
Principal Accounting Officer)
13
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
------ -----------
10.1 Lease agreement dated May 22, 2000 between Forsgate Industrial
Complex and Movado Group, Inc. for premises located at 105 State
Street Moonachie, NJ.
27 Financial Data Schedule for the three months ended April 30,
2000, submitted to the Securities and Exchange Commission in
electronic format.
14
