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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED APRIL 30, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-22378
MOVADO GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW YORK 13-2595932
(STATE OR OTHER JURISDICTION (IRS EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
125 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(201) 460-4800
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
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 that 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 June 7, 2001 the Registrant had 3,509,773 shares of Class A Common
Stock, par value $0.01 per share, outstanding and 9,717,898 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, 2001
Page
Part I Financial Information
Item 1. Consolidated Balance Sheets at April 30, 2001, January 31,
2001 and April 30, 2000 3
Consolidated Statements of Operations for the three months
ended April 30, 2001 and 2000 4
Consolidated Statements of Cash Flows for the three months
ended April 30, 2001 and 2000 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 14
Exhibit Index 15
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PART 1 - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share amounts)
(Unaudited)
APRIL 30, JANUARY 31, APRIL 30,
2001 2001 2000
-------- -------- --------
ASSETS
Current assets:
Cash and cash equivalents $12,042 $23,059 $20,122
Trade receivables, net 96,414 98,797 95,063
Inventories 104,428 95,863 87,926
Other current assets 25,231 23,501 22,035
-------- -------- --------
Total current assets 238,115 241,220 225,146
Plant, property and equipment, net 33,224 32,906 27,462
Other assets 16,766 16,279 14,372
-------- -------- --------
$288,105 $290,405 $266,980
========= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $38,725 $8,800 $33,565
Current portion of long-term debt 5,000 5,000 5,000
Accounts payable 15,182 28,819 15,421
Accrued liabilities 21,845 28,157 13,632
Deferred and current taxes payable 10,768 15,807 6,254
-------- -------- --------
Total current liabilities 91,520 86,583 73,872
Long-term debt 40,000 40,000 45,000
Deferred and non-current foreign income taxes 3,329 3,517 4,277
Other liabilities 948 835 1,220
-------- -------- --------
Total liabilities 135,797 130,935 124,369
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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; 9,687,960, 9,600,435 and 97 96 95
9,505,298 shares issued, respectively
Class A Common Stock, $0.01 par value,
10,000,000 shares authorized;3,509,733, 3,509,733 and 35 35 35
3,509,733 shares issued and outstanding, respectively
Capital in excess of par value 67,994 67,242 66,122
Retained earnings 137,589 138,176 118,149
Accumulated other comprehensive loss (25,497) (18,169) (18,985)
Treasury stock, 1,556,670, 1,556,670 and 1,043,690
shares, respectively, at cost (27,910) (27,910) (22,805)
-------- -------- --------
152,308 159,470 142,611
-------- -------- --------
$288,105 $290,405 $266,980
========= ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED APRIL 30,
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2001 2000
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Net sales $56,512 $53,339
Costs and expenses:
Cost of sales 21,568 21,298
Selling, general and administrative 33,890 31,045
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Operating income 1,054 996
Net interest expense 1,232 1,226
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Loss before tax benefit and cumulative
effect of a change in accounting principle (178) (230)
Tax benefit (50) (57)
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Loss before cumulative effect of a change in
accounting principle (128) (173)
Cumulative effect of a change in accounting
principle, net of a tax benefit of $42 (109) --
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Net loss ($237) ($173)
====== ======
Basic loss per share
Loss before cumulative effect of a change in
accounting principle ($0.01) ($0.01)
Cumulative effect of accounting change (0.01) --
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Net loss ($0.02) ($0.01)
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Weighted basic average shares outstanding 11,629 11,981
====== ======
Diluted loss per share
Loss before cumulative effect of a change in
accounting principle ($0.01) ($0.01)
Cumulative effect of accounting change (0.01) --
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Net loss ($0.02) ($0.01)
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Weighted diluted average shares outstanding 11,853 12,188
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
THREE MONTHS ENDED APRIL 30,
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2001 2000
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Cash flows from operating activities:
Net loss ($237) ($173)
Adjustments to reconcile net loss to net cash used in operating
activities:
Depreciation and amortization 1,675 1,317
Deferred and non-current foreign income taxes -- (663)
Provision for losses on accounts receivable 307 227
Provision for losses on inventory 572 --
Changes in current assets and liabilities:
Trade receivables 814 7,857
Inventories (11,330) (11,978)
Other current assets (6,136) (4,793)
Accounts payable (13,060) (1,315)
Accrued liabilities (5,941) (13,001)
Deferred & current taxes payable (4,622) 325
Other non-current assets 281 (42)
Other non-current liabilities 113 (177)
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Net cash used in operating activities (37,564) (22,416)
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Cash flows from investing activities:
Capital expenditures (2,649) (1,024)
Goodwill, trademarks and other intangibles (128) (168)
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Net cash used in investing activities (2,777) (1,192)
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Cash flows from financing activities:
Net proceeds from bank borrowings 29,925 20,065
Stock options exercised 753 7
Dividends paid (349) (294)
Purchase of treasury stock -- (2,224)
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Net cash provided by financing activities 30,329 17,554
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Effect of exchange rate changes on cash and cash equivalents (1,005) (439)
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Net decrease in cash and cash equivalents (11,017) (6,493)
Cash and cash equivalents at beginning of period 23,059 26,615
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Cash and cash equivalents at end of period $12,042 $20,122
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SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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
2001 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. Operating results for the interim periods
presented are not necessarily indicative of the results that may be expected for
the full year.
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):
APRIL 30, JANUARY 31, APRIL 30,
2001 2001 2000
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Finished goods $67,714 $60,909 $53,056
Component parts 31,707 30,942 32,450
Work-in-process 5,007 4,012 2,420
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$104,428 $95,863 $87,926
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NOTE 3 - DERIVATIVES AND FAIR VALUE OF FINANCIAL INSTRUMENTS
Effective February 1, 2001, the Company adopted Statement of Financial
Accounting Standards No. 133 "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 133), as amended, which establishes accounting and reporting
standards for derivative financial instruments. All derivatives are required to
be recorded on the balance sheet at fair value. The Company's policy is to enter
into forward exchange contracts and purchase foreign currency option contracts
to hedge foreign currency and commodity transactions related to its inventory.
The Company formally documents all relationships between hedging instruments and
hedged items in accordance with SFAS requirements. These hedging strategies
mitigate the impact of foreign currency exchange rate movements for transactions
which are denominated primarily in Swiss francs made between the Company's Swiss
subsidiaries and all other subsidiaries of the Company and the impact of gold
price movements related to the gold used in manufacturing its products. The
Company also uses forward contracts to hedge its net balance sheet exposure
denominated in non-functional currencies.
The documented hedging derivatives outstanding at February 1, 2001 and April 30,
2001 have been designated as cash flow hedges and accordingly, the effective
portion of the change in the fair value of derivatives are recorded each period
in accumulated other comprehensive loss ("AOCI"). Change in the fair value of
the derivative instruments reported in AOCI will be reclassified to cost of
sales during the period in which the hedged
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inventory is sold to third parties. Adoption of this statement resulted in an
increase in AOCI of $367, net of tax of $143, of which $280 is expected to be
recorded in cost of sales over the next twelve months. At April 30, 2001, the
unrealized net loss recorded in AOCI was $449, net of tax of $174. As of April
30, 2001, $426 of deferred net losses on derivative instruments recorded in AOCI
are expected be recognized in cost of sales over the next twelve months.
NOTE 4 - SUPPLEMENTAL CASH FLOW INFORMATION
The following is provided as supplemental information to the consolidated
statements of cash flows (in thousands):
THREE MONTHS
ENDED APRIL 30,
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2001 2000
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Cash paid during the period for:
Interest $1,238 $425
Income taxes $4,619 $1,557
NOTE 5 - OTHER COMPREHENSIVE LOSS
The components of other comprehensive loss for the three months ended April 30,
2001 and 2000 are as follows (in thousands):
2001 2000
---- ----
Accounting change, net of tax (See note 3) $ 367 $ --
Effective portion of unrealized losses on
hedging contracts, net of tax (816) --
Foreign currency translation adjustment (6,879) (2,523)
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Other comprehensive loss ($7,328) ($2,523)
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NOTE 6 - 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, 2001 and 2000 are as
follows (in thousands):
NET SALES OPERATING INCOME
2001 2000 2001 2000
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Wholesale $47,065 $44,794 $1,704 $2,205
Other 9,447 8,545 (650) (1,209)
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Consolidated total $56,512 $53,339 $1,054 $996
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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, changes in consumer
preferences and popularity of particular designs, new product development and
introduction, competitive products and pricing, seasonality, availability of
alternative sources of supply in the case of loss of any significant supplier,
the loss of significant customers, the Company's dependence on key officers, the
continuation of licensing arrangements with third parties, ability to secure and
protect trademarks, patents and other intellectual property rights, ability to
lease new stores on suitable terms in desired markets and to complete
construction on a timely basis, continued availability to the Company of
financing and credit on favorable terms, business disruptions, general risks
associated with doing business outside the United States including, without
limitations, import duties, tariffs, quotas, political and economic stability
and success of hedging strategies in respect of currency exchange rate
fluctuations.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED APRIL 30, 2001 AS COMPARED TO
THE THREE MONTHS ENDED APRIL 30, 2000.
Net sales: Comparative net sales by product class were as follows:
Three Months Ended April 30,
2001 2000
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Concord, Movado, Coach, ESQ and Tommy
Domestic $36,430 $36,473
International 10,635 8,350
Other 9,447 8,516
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Net Sales $56,512 $53,339
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Net sales increased by $3.2 million or 5.9% for the three months ended April 30,
2001 as compared to the three months ended April 30, 2000. Domestic sales of our
watch brands remained at the same sales level as compared to the prior year.
This is a reflection of the slowdown in the retail environment and domestic
economy. During the quarter, the Company successfully launched the Tommy
Hilfiger watch brand. International core watch brand sales increased by $2.3
million or 27.4% despite a stronger U.S. dollar versus the prior year. Without
the impact of the strong U.S. dollar, International sales increased by 30.1% for
the quarter. International sales were led by strong increases in our Movado and
Concord brands, especially in the Far East and Middle East markets.
Other net sales, which include sales from the Company's outlet stores, the
Movado Boutiques and after sales service business, increased by $0.9 million
or 10.9%. Growth in the other sales category was primarily attributable to
comparable store sales increases in the Movado Boutiques and new store openings.
The increases in retail sales were offset by an 11% decrease in comparable store
sales in the outlets.
Gross Margin. The gross profit for the three months ended April 30, 2001 was
$34.9 million (61.8% of net sales) as compared to $32.0 million (60.1% of net
sales) for the three months ended April 30, 2000. Gross margin increases of $2.9
million for the quarter ended April 30, 2001, primarily relate to improved
availability of core range product, higher margins on new model introductions,
reduced product acquisition costs due to the strength of the dollar against the
Swiss franc and increased margins at the Company's outlet stores as a result of
improved product offerings.
Selling, General and Administrative. Selling, General and Administrative
expenses for the quarter were $33.9 million or 60.0% of net sales, a 9.2%
increase over the $31.0 million or 58.2% of net sales in the first quarter of
last year. The 9.2% increase was primarily attributable to expenses associated
with growth initiatives. These include additional marketing and supply chain
costs for the launch of the Tommy Hilfiger watch line, two additional Movado
Boutiques opened in the Fall of 2000 and one outlet store.
Interest Expense. Net interest expense for the three months ended April 30, 2001
was relatively flat as compared to interest expenses for three months ended
April 30, 2000. Bank borrowing interest was slightly up due to higher rates
offset by a decrease in long-term debt interest due to the repayment of $5.0
million of Senior Notes in January 2001.
Income Taxes. The Company recorded a tax benefit of $92,000 for the three months
ended April 30, 2001 as compared to a benefit of $57,000 for the three months
ended April 30, 2000. Taxes were recorded at a 28% rate for fiscal 2002 as
compared to a 25% rate for fiscal 2001. The Company's effective tax rate is 28%,
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,
2001 were $37.6 million as compared to a use of $22.4 million for the three
months ended April 30, 2000. The increase in cash used in operating activities
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is the result of higher seasonal inventory build than the prior year, cash
outlays for the new Paramus, NJ office and a Movado Boutique and the payment of
management bonuses and income taxes.
The Company used $2.8 million of cash for investing activities for the three
months ended April 30, 2001 as compared to $1.2 million for the three months
ended April 30, 2000. The increase in cash used in investing represents payments
made for construction in progress at the new Paramus, NJ office.
Cash provided by financing activities amounted to $30.3 million for the three
months ended April 30, 2001 as compared to $17.6 million for the comparable
prior year period.
At April 30, 2001, the Company had two series of Senior Notes outstanding.
Senior Notes due January 31, 2005 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. Accordingly, such amounts have been classified
as a current liability in fiscal 2002 and 2001. The Company repaid $5.0 million
of principal related to these notes in the fourth quarter of fiscal 2001 and is
scheduled to repay an additional $5.0 million in the fourth quarter of fiscal
2002. At April 30, 2001, $20.0 million in principal related to these notes
remained outstanding.
During fiscal 1999, the Company issued $25.0 million of Series A Senior Notes
under a Note Purchase and Private Shelf Agreement dated November 30, 1998. 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.
On March 21, 2001, the Company entered into a new Note Purchase and Private
Shelf Agreement which allows for the issuance for up to three years after the
date thereof, of senior promissory notes in the aggregate principal amount of up
to $40.0 million with maturities up to 12 years from their original date of
issuance.
During the second quarter of fiscal 2001, the Company completed the renewal of
its revolving credit and working capital lines with its bank group. The new
agreement provides for a three year $100.0 million unsecured revolving line of
credit and $15.0 million of uncommitted working capital lines. At April 30,
2001, the Company had $38.7 million of outstanding borrowings under its bank
lines as compared to $33.6 million at April 30, 2000. The increase in borrowings
at the end of the first quarter as compared to the prior year period was
primarily the result of a reduction in cash balances available to fund seasonal
working capital requirements.
Under a series of share repurchase authorizations approved by the Board of
Directors, the Company has maintained a discretionary share buy-back program.
There were no current year purchases under the repurchase program as compared to
$2.2 million for the comparable prior year period.
The Company paid dividends of $349,000 as compared to $294,000 for the first
quarter of fiscal 2002 and fiscal 2001, respectively. The increase is
attributable to the raising of the quarterly dividend to $0.03 per share in the
first quarter of fiscal 2002 from $0.025 per share in the first quarter of
fiscal 2001.
Cash and cash equivalents at April 30, 2001 amounted to $12.0 million compared
to $20.1 million at April 30, 2000. The reduction in cash related primarily to
the funding of working capital requirements. Debt to total capitalization at
April 30, 2001 was 35.5% as compared to 36.9% at April 30, 2000.
The Company expects that capital expenditures in the future will approximate the
average of fiscal 2001 and 2000 levels.
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PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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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, 2001 By: /s/ Kennith C. Johnson
Kennith C. Johnson
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer and
Principal Accounting Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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