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UNITED STATES
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, 2006
[ ] 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 1-16497
MOVADO GROUP, INC.
(Exact Name of Registrant as Specified in its Charter)
<Table>
New York 13-2595932
(State or Other Jurisdiction (IRS Employer
of Incorporation or Organization) Identification No.)
650 From Road, Paramus, New Jersey 07652
(Address of Principal Executive Offices) (Zip Code)
</Table>
(201) 267-8000
(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 by check mark whether the registrant is a large accelerated filer,
an accelerated filer or a non-accelerated filer. See definition of "accelerated
filer" or "large accelerated filer" in Rule 12b-2 of the Exchange Act. Large
accelerated filer [ ] Accelerated filer [X] Non-accelerated filer [ ]
Indicate by check mark whether the registrant is a shell company (as
defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The number of shares outstanding of the registrant's common stock and class
A common stock as of May 31, 2006 were 18,714,861 and 6,766,909, respectively.
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MOVADO GROUP, INC.
Index to Quarterly Report on Form 10-Q
April 30, 2006
Page
----
Part I Financial Information (Unaudited)
Item 1. Consolidated Balance Sheets at April 30, 2006,
January 31, 2006 and April 30, 2005 3
Consolidated Statements of Income for the three months
ended April 30, 2006 and 2005 4
Consolidated Statements of Cash Flows for the three
months ended April 30, 2006 and 2005 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosure about Market
Risks 20
Item 4. Controls and Procedures 21
Part II Other Information
Item 1A. Risk Factors 22
Item 6. Exhibits 22
Signature 23
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
MOVADO GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
April 30, January 31, April 30,
2006 2006 2005
--------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 82,560 $123,625 $ 49,641
Trade receivables, net 116,523 109,852 102,115
Inventories 213,763 198,582 202,498
Other 34,199 26,596 35,055
-------- -------- --------
Total current assets 447,045 458,655 389,309
Property, plant and equipment, net 51,003 52,168 53,389
Other 39,774 39,069 37,548
-------- -------- --------
Total assets $537,822 $549,892 $480,246
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Loans payable to banks $ -- $ -- $ 18,000
Current portion of long-term debt 5,000 5,000 --
Accounts payable 33,432 35,529 35,289
Accrued liabilities 35,748 43,065 35,830
Current taxes payable 287 7,724 --
Deferred taxes 871 503 5,131
-------- -------- --------
Total current liabilities 75,338 91,821 94,250
Long-term debt 97,323 104,955 45,000
Deferred and non-current income taxes 13,181 11,947 12,046
Other liabilities 20,244 19,491 16,425
-------- -------- --------
Total liabilities 206,086 228,214 167,721
-------- -------- --------
Commitments and contingencies (Note 8)
Minority interest 231 -- --
Shareholders' equity:
Preferred Stock, $0.01 par value, 5,000,000 shares
authorized; no shares issued -- -- --
Common Stock, $0.01 par value, 100,000,000 shares
authorized; 23,260,013, 23,215,836 and
22,973,787 shares issued, respectively 233 232 230
Class A Common Stock, $0.01 par value,
30,000,000 shares authorized; 6,766,909, 6,766,909 and
6,782,040 shares issued and outstanding, respectively 68 68 68
Capital in excess of par value 109,387 107,965 102,410
Retained earnings 237,850 236,515 214,695
Accumulated other comprehensive income 34,742 27,673 46,188
Treasury Stock, 4,613,645, 4,613,645 and 4,612,976
shares, respectively, at cost (50,775) (50,775) (51,066)
-------- -------- --------
Total shareholders' equity 331,505 321,678 312,525
-------- -------- --------
Total liabilities and equity $537,822 $549,892 $480,246
======== ======== ========
See Notes to Consolidated Financial Statements
3
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three Months
Ended April 30,
-----------------
2006 2005
------- -------
Net sales $97,744 $87,756
Cost of sales 38,154 34,918
------- -------
Gross profit 59,590 52,838
Selling, general and administrative 56,156 50,699
------- -------
Operating income 3,434 2,139
Interest expense (943) (878)
Interest income 891 69
Minority interest 79 --
------- -------
Income before income taxes 3,461 1,330
Provision for income taxes 606 333
------- -------
Net income $ 2,855 $ 997
======= =======
Earnings per share:
Basic $ 0.11 $ 0.04
======= =======
Diluted $ 0.11 $ 0.04
======= =======
Weighted-average shares outstanding:
Basic 25,436 25,051
======= =======
Diluted 26,395 26,020
======= =======
See Notes to Consolidated Financial Statements
4
MOVADO GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three Months Ended
April 30,
-------------------
2006 2005
-------- --------
Cash flows from operating activities:
Net income $ 2,855 $ 997
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 3,669 4,230
Deferred income taxes (858) (469)
Provision for losses on accounts receivable 684 300
Provision for losses on inventory 180 (99)
Stock-based compensation 539 251
Excess tax benefit from stock-based compensation (460) --
Minority interest (79) --
Changes in assets and liabilities:
Trade receivables (6,159) 2,184
Inventories (12,142) (17,477)
Other current assets (2,147) (6,524)
Accounts payable (2,493) (3,078)
Accrued liabilities (7,561) (4,011)
Current taxes payable (6,965) 1,318
Other non-current assets (1,063) 1,056
Other non-current liabilities 748 (779)
-------- --------
Net cash used in operating activities (31,252) (22,101)
-------- --------
Cash flows from investing activities:
Capital expenditures (2,138) (4,772)
Trademarks (119) (85)
-------- --------
Net cash used in investing activities (2,257) (4,857)
-------- --------
Cash flows from financing activities:
Payments on long-term debt (9,391) --
Net proceeds from bank borrowings -- 18,000
Stock options exercised and other changes 423 (1,508)
Excess tax benefit from stock-based compensation 460 --
Dividends paid (1,523) (1,255)
-------- --------
Net cash (used in) / provided by financing
activities (10,031) 15,237
-------- --------
Effect of exchange rate changes on cash and cash
equivalents 2,475 (2,420)
-------- --------
Net decrease in cash and cash equivalents (41,065) (14,141)
Cash and cash equivalents at beginning of period 123,625 63,782
-------- --------
Cash and cash equivalents at end of period $ 82,560 $ 49,641
======== ========
See Notes to Consolidated Financial Statements
5
MOVADO GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 consolidated financial statements included in the
Company's fiscal 2006 Annual Report filed on Form 10-K. In the opinion of
management, the accompanying consolidated financial statements reflect all
adjustments, consisting of only normal and recurring adjustments, necessary for
a fair statement 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 reclassifications were made to prior years' financial statement amounts
and related note disclosures to conform to the fiscal 2007 presentation.
NOTE 2 - STOCK-BASED COMPENSATION
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, as amended and restated as of
April 8, 2004, 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 9,000,000 shares of Common
Stock. Options granted to participants under the Plan generally become
exercisable in equal installments over three or five years 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.
On February 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), "Share-Based Payment" ("SFAS No.
123(R)"), electing to use the modified prospective application transition
method, and accordingly, prior period financial statements have not been
restated. Under this method, the fair value of all stock options granted after
adoption and the unvested portion of previously granted awards must be
recognized in the Consolidated Statements of Income. The Company utilizes the
Black-Scholes option-pricing model to calculate the fair value of each option at
the grant date which requires certain assumptions be made. The expected life of
stock option grants is determined using historical data and represents the time
period which the stock option is expected to be outstanding until it is
exercised. The risk free interest rate is the yield on the grant date of U.S.
Treasury constant maturities with a maturity date closest to the expected life
of the stock option. The expected stock price volatility is derived from
historical volatility and calculated based on the estimated term structure of
the stock option grant. The expected dividend yield is calculated using the
expected annualized dividend which remains constant during the expected term of
the option.
The weighted-average assumptions used with the Black-Scholes option-pricing
model for the calculation of the fair value of stock option grants during the
three months ended April 30, 2006 were: expected term of 3.62
6
years; risk-free interest rate of 4.66%; expected volatility of 31.75% and
dividend yield of 1.19%. The weighted-average grant date fair value of options
granted during the three months ended April 30, 2006 was $5.56.
Total compensation expense for unvested stock option grants recognized during
the three months ended April 30, 2006 was approximately $0.2 million, net of a
tax benefit of $0.1 million. Expense related to stock option compensation is
recognized on a straight-line basis over the vesting term. As of April 30, 2006,
there was approximately $2.8 million of unrecognized compensation cost related
to unvested stock options. These costs are expected to be recognized over a
weighted-average period of 2.8 years. Total cash received for stock option
exercises during the three months ended April 30, 2006 amounted to approximately
$0.4 million. Windfall tax benefits realized on these exercises were
approximately $0.1 million.
Prior to February 1, 2006, employee stock options were accounted for under the
intrinsic value method, which measures compensation cost as the excess, if any,
of the quoted market price of the stock at grant date over the amount an
employee must pay to acquire the stock. Accordingly, compensation expense had
not been recognized for stock options granted at or above fair value. Had
compensation expense been determined and recorded based upon the fair value
recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", net income (in thousands) and net income per share would have
been reduced to pro forma amounts for the three months ended April 30, 2005 as
follows:
Three Months Ended
(In thousands, except per share data) April 30, 2005
------------------
Net income as reported $ 997
Fair value based compensation
expense, net of taxes (838)
-----
Pro forma net income $ 159
=====
Basic earnings per share:
As reported $0.04
Pro forma under SFAS 123 $0.01
Diluted earnings per share:
As reported $0.04
Pro forma under SFAS 123 $0.01
The weighted-average assumptions used with the Black-Scholes option-pricing
model for the calculation of the fair value of stock option grants during the
three months ended April 30, 2005 were: expected term of 7.0 years; risk-free
interest rate of 3.76%; expected volatility of 46.50% and dividend yield of
1.74%. The weighted-average grant date fair value of options granted during the
three months ended April 30, 2005 was $8.11.
7
Stock option transactions for the three months ended April 30, 2006 are
summarized as follows:
Number of Weighted-Average
Options Exercise Price
--------- -----------------
January 31, 2006 3,169,613 $12.96
Options granted 21,000 $19.33
Options exercised (42,564) $ 8.96
--------- ------
April 30, 2006 3,148,049 $13.06
========= ======
The total intrinsic value of stock options exercised for the three months ended
April 30, 2006 and 2005 was approximately $0.5 million and $5.1 million,
respectively. The total fair value of the stock options vested for the three
months ended April 30, 2006 and 2005 was approximately $1.2 million and $2.5
million, respectively.
The following table summarizes outstanding and exercisable stock options as of
April 30, 2006:
Weighted-
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (Years) Price Exercisable Price
- --------------- ----------- ------------ --------- ----------- ---------
$ 3.12 - $ 6.22 160,360 4.0 $ 4.25 160,360 $ 4.25
$ 6.23 - $ 9.34 283,916 3.1 $ 7.03 261,016 $ 7.01
$ 9.35 - $12.45 808,229 4.0 $10.70 784,129 $10.73
$12.46 - $15.57 1,253,797 5.1 $14.49 943,697 $14.59
$15.58 - $18.68 623,747 6.2 $18.08 373,416 $18.37
$18.69 - $21.81 18,000 9.2 $19.76 334 $18.75
--------- --- ------ --------- ------
3,148,049 5.0 $13.06 2,522,952 $12.51
--------- --- ------ --------- ------
The total intrinsic value of outstanding and exercisable stock options as of
April 30, 2006 was approximately $20.8 million and $18.1 million, respectively.
Under the 1996 Stock Incentive Plan, the Company has the ability to grant
restricted stock to certain employees. Restricted stock grants generally vest
three years from the date of grant. Expense for these grants is recognized on a
straight-line basis over the vesting period. The fair value of restricted stock
grants is equal to the closing price of the Company's publicly-traded common
stock on the grant date. Total compensation expense for restricted stock grants
recognized during the three months ended April 30, 2006 and 2005 was $0.2
million, net of a tax benefit of $0.1 million for each period. Prior to February
1, 2006, compensation expense for restricted stock grants was reduced as actual
forfeitures of the awards occurred. SFAS No. 123(R) requires forfeitures to be
estimated at the time of grant in order to estimate the amount of share-based
awards that will ultimately vest and thus, current period compensation expense
has been adjusted for estimated forfeitures based on historical data. As of
April 30, 2006, there was approximately $2.4 million of unrecognized
compensation cost related to unvested restricted stock. These costs are expected
to be recognized over a weighted-average period of 2.0 years.
8
Restricted stock transactions for the three months ended April 30, 2006 are
summarized as follows:
Number of Weighted-Average
Restricted Grant Date
Stock Units Fair Value
----------- ----------------
January 31, 2006 321,090 $14.39
Units granted 46,400 $20.43
Units vested (92,390) $ 9.83
Units forfeited (220) $13.27
------- ------
April 30, 2006 274,880 $16.95
======= ======
Restricted stock units are exercised simultaneously when they vest and are
issued from the pool of authorized shares. The total intrinsic value of
restricted stock units that vested during the three months ended April 30, 2006
was approximately $1.8 million. The windfall tax benefits realized on the
restricted stock grants for the three months ended April 30, 2006 were $0.3
million. The weighted-average grant date fair value for restricted stock grants
for the three months ended April 30, 2006 and 2005 were $20.43 and $17.90,
respectively. Outstanding restricted stock units had a total intrinsic value of
approximately $5.4 million as of April 30, 2006.
NOTE 3 - COMPREHENSIVE INCOME (LOSS)
The components of comprehensive income (loss) for the three months ended April
30, 2006 and 2005 are as follows (in thousands):
Three Months Ended
April 30,
------------------
2006 2005
------ ---------
Net income $2,855 $ 997
Net unrealized gain on investments, net of tax 7 10
Net change in effective portion of hedging
contracts, net of tax 1,905 (337)
Foreign currency translation adjustment (1) 5,157 (2,192)
------ --------
Total comprehensive income (loss) $9,924 ($1,522)
====== ========
(1) The currency translation adjustments are not adjusted for income taxes as
they relate to permanent investments in international subsidiaries.
NOTE 4 - SEGMENT INFORMATION
The Company conducts its business primarily in two operating segments: Wholesale
and Retail. The Company's Wholesale segment includes the designing,
manufacturing and distribution of quality watches. The Retail segment includes
the Movado Boutiques and outlet stores.
The Company divides its business into two major geographic segments: Domestic,
which includes the results of the Company's North American, Caribbean and Tommy
Hilfiger South American operations, and International, which includes the
results of the Company's operations in all other parts of the world. The
Company's International operations are principally conducted in Europe, the
Middle East and Asia. The Company's International assets are substantially
located in Switzerland.
9
Operating Segment Data for the Three Months Ended April 30, 2006 and 2005 (in
thousands):
Net Sales Operating Income (Loss)
----------------- -----------------------
2006 2005 2006 2005
------- ------- ------- -------
Wholesale $81,003 $72,605 $ 4,686 $ 3,733
Retail 16,741 15,151 (1,252) (1,594)
------- ------- ------- -------
Consolidated total $97,744 $87,756 $ 3,434 $ 2,139
======= ======= ======= =======
Total Assets
--------------------------------------------------
April 30, 2006 January 31, 2006 April 30, 2005
-------------- ---------------- --------------
Wholesale $471,296 $484,767 $417,962
Retail 66,526 65,125 62,284
-------- -------- --------
Consolidated total $537,822 $549,892 $480,246
======== ======== ========
Geographic Segment Data for the Three Months Ended April 30, 2006 and 2005 (in
thousands):
Net Sales Operating (Loss) Income
----------------- -----------------------
2006 2005 2006 2005
------- ------- -------- --------
Domestic $72,554 $68,072 ($3,066) ($1,314)
International 25,190 19,684 6,500 3,453
------- ------- -------- --------
Consolidated total $97,744 $87,756 $ 3,434 $ 2,139
======= ======= ======== ========
Domestic and International net sales are net of intercompany sales of $49.5
million and $46.0 million for the three months ended April 30, 2006 and 2005,
respectively.
Total Assets
--------------------------------------------------
April 30, 2006 January 31, 2006 April 30, 2005
-------------- ---------------- --------------
Domestic $347,621 $391,310 $278,806
International 190,201 158,582 201,440
-------- -------- --------
Consolidated total $537,822 $549,892 $480,246
======== ======== ========
Long-Lived Assets
--------------------------------------------------
April 30, 2006 January 31, 2006 April 30, 2005
-------------- ---------------- --------------
Domestic $37,010 $37,101 $36,957
International 13,993 15,067 16,432
------- ------- -------
Consolidated total $51,003 $52,168 $53,389
======= ======= =======
10
NOTE 5 - EXECUTIVE RETIREMENT PLAN
The Company has a number of employee benefit plans covering substantially all
employees. Certain eligible executives of the Company have elected to defer a
portion of their compensation on a pre-tax basis under a defined contribution,
supplemental executive retirement plan (SERP) sponsored by the Company. The SERP
was adopted effective June 1, 1995, and provides eligible executives with
supplemental pension benefits in addition to amounts received under the
Company's other retirement plans. The Company makes a matching contribution
which vests over five years. For the quarter ended April 30, 2006 and 2005, the
Company recorded an expense related to the SERP of approximately $0.2 million
for each period.
NOTE 6 - INVENTORIES
Inventories consist of the following (in thousands):
April 30, 2006 January 31, 2006 April 30, 2005
-------------- ---------------- --------------
Finished goods $139,476 $135,160 $147,323
Component parts 67,561 59,325 47,544
Work-in-process 6,726 4,097 7,631
-------- -------- --------
$213,763 $198,582 $202,498
======== ======== ========
NOTE 7 - EARNINGS PER SHARE
The Company presents 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.
The weighted-average number of shares outstanding for basic earnings per share
were 25,436,000 and 25,051,000 for the three months ended April 30, 2006 and
2005, respectively. For diluted earnings per share, these amounts were increased
by 959,000 and 969,000 for the three months ended April 30, 2006 and 2005,
respectively, due to potentially dilutive common stock equivalents issuable
under the Company's stock option plan and restricted stock grants.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
At April 30, 2006, the Company had outstanding letters of credit totaling $1.2
million with expiration dates through May 31, 2007. One bank in the domestic
bank group has issued irrevocable standby letters of credit for retail and
operating facility leases to various landlords, for the administration of the
Movado Boutique private-label credit card and Canadian payroll to the Royal Bank
of Canada.
As of April 30, 2006, two European banks have guaranteed obligations to third
parties on behalf of two of the Company's foreign subsidiaries in the amount of
approximately $3.2 million in various foreign currencies.
The Company is involved from time to time in legal claims involving trademarks
and intellectual property, contracts, employee relations and other matters
incidental to the Company's business. Although the outcome of such items cannot
be determined with certainty, the Company's general counsel and management
believe that the final outcome would not have a material effect on the Company's
consolidated financial position, results of operations or cash flows.
11
NOTE 9 -- SUBSEQUENT EVENT
On May 31, 2006, the Compensation Committee of the Board of Directors (the
"Committee") of Movado Group, Inc. (the "Company") adopted the Movado Group,
Inc. Executive Long-Term Incentive Plan (the "LTIP") pursuant to Section 9 of
the Movado Group, Inc. 1996 Stock Incentive Plan (as amended and restated, the
"Plan"). Key employees of the Company selected by the Committee are eligible to
participate in the LTIP. The LTIP provides for the award of "Performance Share
Units" (as defined in the Plan) during the three years ending January 31, 2009
(the "Award Period"). Performance Share Units are equivalent, one for one, to
shares of "Stock" (as defined in the Plan) that vest based on the Company's
achievement of its "operating margin" (as defined in the LTIP) for fiscal year
2009 (the "Performance Goal"). Each participant's target award is expressed as a
number of Performance Share Units. The actual number of shares of Stock earned
by a participant is based on the Company's actual performance at the end of the
Award Period relative to the Performance Goal and can range from 0% to 150% of
the target award.
12
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q, including, without limitation,
statements under this Item 2, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere 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 the
Private Securities Litigation Reform Act of 1995. These statements are based on
current expectations, estimates, forecasts and projections about the Company,
its future performance, the industry in which the Company operates and
management's assumptions. Words such as "expects", "anticipates", "targets",
"goals", "projects", "intends", "plans", "believes", "seeks", "estimates",
"may", "will", "should" and variations of such words and similar expressions are
also intended to identify such forward-looking statements. The Company cautions
readers that forward-looking statements include, without limitation, those
relating to the Company's future business prospects, projected operating or
financial results, revenues, working capital, liquidity, capital needs, plans
for future operations, expectations regarding capital expenditures and operating
expenses, 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 in the United States and the other
significant markets where the Company's products are sold, general uncertainty
related to possible terrorist attacks and the impact on consumer spending,
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 the
loss of any significant supplier, the loss of significant customers, the
Company's dependence on key employees and officers, the ability to successfully
integrate the operations of acquired businesses without disruption to other
business activities, the continuation of licensing arrangements with third
parties, the ability to secure and protect trademarks, patents and other
intellectual property rights, the 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, disease, general risks associated with doing business outside the
United States including, without limitation, import duties, tariffs, quotas,
political and economic stability, and success of hedging strategies with respect
to currency exchange rate fluctuations.
These risks and uncertainties, along with the risk factors discussed under
Item 1A "Risk Factors" in the Company's Annual Report on Form 10-K, should be
considered in evaluating any forward-looking statements contained in this
Quarterly Report on Form 10-Q or incorporated by reference herein. All
forward-looking statements speak only as of the date of this report or, in the
case of any document incorporated by reference, the date of that document. All
subsequent written and oral forward-looking statements attributable to the
Company or any person acting on its behalf are qualified by the cautionary
statements in this section. The Company undertakes no obligation to update or
publicly release any revisions to forward-looking statements to reflect events,
circumstances or changes in expectations after the date of this report.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of
13
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements. These estimates and
assumptions also affect the reported amounts of revenues and expenses. Estimates
by their nature are based on judgments and available information. Therefore,
actual results could materially differ from those estimates under different
assumptions and conditions.
Critical accounting policies are those that are most important to the portrayal
of the Company's financial condition and the results of operations and require
management's most difficult, subjective and complex judgments as a result of the
need to make estimates about the effect of matters that are inherently
uncertain. The Company's most critical accounting policies have been discussed
in the Company's Annual Report on Form 10-K for the year ended January 31, 2006.
In applying such policies, management must use significant estimates that are
based on its informed judgment. Because of the uncertainty inherent in these
estimates, actual results could differ from estimates used in applying the
critical accounting policies. Changes in such estimates, based on more accurate
future information, may affect amounts reported in future periods.
As of April 30, 2006, except as noted below, there have been no material changes
to any of the critical accounting policies as disclosed in its Annual Report on
Form 10-K for the fiscal year ended January 31, 2006.
On February 1, 2006, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 123(R), "Share-Based Payment" (SFAS No.
123(R)"), electing to use the modified prospective application transition
method, and accordingly, prior period financial statements have not been
restated. Under this method, the fair value of all employee stock options
granted after adoption and the unvested portion of previously granted awards
must be recognized in the Consolidated Statements of Income. Prior to February
1, 2006, employee stock option grants were accounted for under the intrinsic
value method, which measures compensation cost as the excess, if any, of the
quoted market price of the stock at grant date over the amount an employee must
pay to acquire the stock. Accordingly, compensation expense had not been
recognized for employee stock options granted at or above fair value.
Overview
The Company divides its watch business into distinct categories. The luxury
category is comprised of the Ebel and Concord brands. The accessible luxury
category is comprised of the Movado and ESQ brands. The licensed brands category
represents all brands distributed under licensing agreements and includes Coach,
Hugo Boss and Tommy Hilfiger.
Results of operations for the three months ended April 30, 2006 as compared to
the three months ended April 30, 2005
Net Sales: Comparative net sales by business segment were as follows (in
thousands):
Three Months Ended
April 30,
------------------
2006 2005
------- -------
Wholesale:
Domestic $55,813 $52,921
International 25,190 19,684
Retail 16,741 15,151
------- -------
Net Sales $97,744 $87,756
======= =======
14
Net sales increased by $10.0 million or 11.4% for the three months ended April
30, 2006 as compared to the three months ended April 30, 2005.
Sales in the domestic wholesale segment were $55.8 million or 5.5% above prior
year sales of $52.9 million. The increase of $2.9 million was attributed to
higher sales in the accessible luxury brands. Movado was above prior year by
$2.2 million as the brand achieved increased sell through at retail in the major
chain and department store businesses. ESQ was above prior year by $0.8 million
as the brand continues to gain positive retailer response to the new model
introductions as well as the ESQ&U marketing campaign. The luxury brands were
flat year over year. Ebel was above prior year resulting from retailer orders of
the newly introduced Brasilia collection. This increase was offset by lower
Concord sales, as planned, as the Company begins development of a new strategic
plan for the re-launch of the brand. The licensed brands were relatively flat
year over year.
Sales in the international wholesale business were $25.2 million or 28.0% above
prior year sales of $19.7 million. In the luxury brands, sales increased by
48.9%. Increased sales were recorded in Ebel with the Brasilia collection launch
while lower sales were recorded in Concord for the same reasons as in the
domestic wholesale segment. In the accessible luxury brands, Movado sales were
below prior year by $1.4 million due to planned reductions in the brand's
overseas distribution. In the licensed brands, sales were above prior year by
47.8%. The growth was driven by Hugo Boss due to the launch of the new
collection of Hugo Boss watches.
Sales in the retail segment were $1.6 million or 10.5% above prior year sales of
$15.2 million. The increase was driven by an overall 12.1% increase in Movado
Boutique sales. This was the result of a 4.5% comparable store sales increase in
the Movado Boutiques along with sales from three non-comparable stores year over
year. The Company's outlets stores were above prior year by 8.9%. This was the
result of a 6.5% comparable store sales increase along with the sales from
one additional store. The Company operated 27 Movado Boutiques and 28 outlet
stores at April 30, 2006 compared to 25 Movado Boutiques and 27 outlet stores at
April 30, 2005.
The Company considers comparative store sales to be sales of stores that were
open as of February 1st of the last year through January 31st of the current
year. The sales from stores that have been relocated, renovated or refurbished
are included in the calculation of comparable store sales. The method of
calculating comparative store sales varies across the retail industry. As a
result, the calculation of comparative store sales may not be the same as
measures reported by other companies.
Gross Profit. The gross profit for the three months ended April 30, 2006 was
$59.6 million or 61.0% of net sales as compared to $52.8 million or 60.2% of net
sales for the three months ended April 30, 2005. The increase in gross profit of
$6.8 million was the result of the higher sales volume. The increase in gross
profit as a percentage of sales by 80 basis points was driven by higher margins
in the Company's new product introductions and higher margins in the Movado
Boutiques.
Selling, General and Administrative ("SG&A"). Selling, general and
administrative expenses for the three months ended April 30, 2006 were $56.2
million or 57.5% of net sales as compared to $50.7 million or 57.8% of net sales
for the three months ended April 30, 2005. The dollar increase reflects spending
primarily to invest in the Company's growth initiatives, including higher
marketing spending of $1.2 million to support the sales growth initiatives,
added spending of $0.6 million in support of the retail expansion and higher
payroll and related expenses of $2.6 million reflecting salary increases as well
as increased headcount to support the growth for both new and existing brands.
In addition, as a result of the consolidation of the Company's majority-owned
joint venture with Financiere TWC SA ("TWC") established to distribute the
licensed brands in France and Germany, $0.4 million of expense was recorded in
the consolidated results.
15
Wholesale Operating Income. Operating income in the wholesale segment increased
by $1.0 million to $4.7 million. The increase was the net result of higher gross
margin of $5.8 million, partially offset by the increase in SG&A expenses of
$4.8 million.
The higher gross margin of $5.8 million was the result of the increase in net
sales of $8.4 million. The increase in the SG&A expenses of $4.8 million is
primarily due to higher marketing spending of $1.2 million to support the sales
growth initiatives and higher payroll and related expenses of $2.6 million
reflecting salary increases as well as increased headcount to support the growth
for both new and existing brands. In addition, as a result of the consolidation
of the Company's majority-owned joint venture with TWC established to distribute
the licensed brands in France and Germany, $0.4 million of expense was recorded
in the consolidated results.
Retail Operating Loss. Operating losses of $1.3 million and $1.6 million were
recorded in the retail segment for the three months ended April 30, 2006 and
2005, respectively.
The decrease in operating loss was the net result of higher gross margin of $0.9
million offset by higher operating expenses of $0.6 million. The increased gross
margin was primarily attributed to higher sales as a result of total comparable
store sales increase of 5.4% as well as the three Movado Boutiques and one
additional outlet store that were not open during the full three month period
ended April 30, 2005. The higher operating expenses were primarily the result of
added spending for the three new Movado Boutiques and one additional outlet
store.
Interest Expense. Interest expense for the three months ended April 30, 2006 and
2005 was $0.9 million for each period. Average borrowings were $106.5 million at
an average borrowing rate of 3.4% for the three months ended April 30, 2006
compared to average borrowings of $51.5 million at an average rate of 5.7% for
the three months ended April 30, 2005.
Interest Income. Interest income was $0.9 million for the three months ended
April 30, 2006 as compared to $0.1 million for the three months ended April 30,
2005. The repatriated foreign earnings of $150 million in the fourth quarter of
fiscal year 2006 under the American Jobs Creation Act of 2004 resulted in
significantly higher cash balances in the United States. The cash invested in
the United States generated interest income at the rate of 4.5%.
Income Taxes. The Company recorded a tax expense of $0.6 million for the three
months ended April 30, 2006 as compared to a tax expense of $0.3 million for the
three months ended April 30, 2005. Taxes were recorded at an effective tax rate
of 17.5% and 25.0% for the three months ended April 30, 2006 and 2005,
respectively. The lower effective tax rate is the result of the Company's
adoption of tax planning strategies in Switzerland which will enable it to
utilize a greater portion of the Swiss net operating loss carryforward.
Net Income. For the quarter ended April 30, 2006, the Company recorded net
income of $2.9 million as compared to $1.0 million for the quarter ended April
30, 2005.
LIQUIDITY AND CAPITAL RESOURCES
Cash used in operating activities amounted to $31.3 million for the three
months ended April 30, 2006 and $22.1 million for the three months ended April
30, 2005. The cash used in operating activities for the first quarter reflects
the historic pattern of the Company in using cash to fund its working capital
needs, primarily to build inventories. The increase of $9.2 million in the cash
used during the three months ended April 30, 2006 as compared to the three
months ended April 30, 2005 is primarily due to current tax payments of $8.7
million related to the tax liability associated with the fiscal 2006 year-end
repatriation of foreign earnings under the American Jobs Creation Act of 2004.
16
Cash used in investing activities amounted to $2.3 million and $4.9 million for
the three months ended April 30, 2006 and 2005, respectively. The cash used
during both periods consisted of the capital expenditures related to the build
out and renovations of existing retail operations. Additionally, cash used
during the three months ended April 30, 2006 included the acquisition of tooling
and development for new product introductions and computer hardware and software
enhancements. Cash used in the prior period also included the acquisition of
machinery and equipment to further automate distribution activities.
Cash used by financing activities amounted to $10.0 million for the three
months ended April 30, 2006 compared to cash provided of $15.2 million for the
three months ended April 30, 2005. Cash used by financing activities for the
three months ended April 30, 2006 was primarily to pay down long-term debt and
to pay dividends while cash provided in the three months ended April 30, 2005
resulted primarily from the proceeds of short-term borrowings required to fund
the Company's working capital needs.
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 of 6.90% per annum, mature on October 30, 2010 and are
subject to annual repayments of $5.0 million commencing October 31, 2006. These
notes contain certain financial covenants including an interest coverage ratio
and maintenance of consolidated net worth and certain non-financial covenants
that restrict the Company's activities regarding investments and acquisitions,
mergers, certain transactions with affiliates, creation of liens, asset
transfers, payment of dividends and limitation of the amount of debt
outstanding. At April 30, 2006, the Company was in compliance with all financial
and non-financial covenants and $25.0 million of these notes were issued and
outstanding.
As of March 21, 2004, the Company amended its Note Purchase and Private Shelf
Agreement, originally dated March 21, 2001, to expire on March 21, 2007. This
agreement 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. On
October 8, 2004, the Company issued, pursuant to the Note Purchase Agreement,
4.79% Senior Series A-2004 Notes due 2011 (the "Senior Series A-2004 Notes"), in
an aggregate principal amount of $20.0 million, which will mature on October 8,
2011 and are subject to annual repayments of $5.0 million commencing on October
8, 2008. Proceeds of the Senior Series A-2004 Notes have been used by the
Company for capital expenditures, repayment of certain of its debt obligations
and general corporate purposes. These notes contain certain financial covenants
including an interest coverage ratio and maintenance of consolidated net worth
and certain non-financial covenants that restrict the Company's activities
regarding investments and acquisitions, mergers, certain transactions with
affiliates, creation of liens, asset transfers, payment of dividends and
limitation of the amount of debt outstanding. As of April 30, 2006, the Company
was in compliance with all financial and non-financial covenants and $20.0
million of these notes were issued and outstanding.
On June 30, 2005, the Company renewed its promissory note for a $5.0 million
unsecured working capital line with Bank of New York, originally dated June 27,
2000. The line expires on July 31, 2006. The Company had no outstanding
borrowings under the line as of April 30, 2006 and 2005.
On December 12, 2005, the Company executed a line of credit letter agreement
with Bank of America and an amended and restated promissory note in the
principal amount of up to $20.0 million payable to Bank of America. Pursuant to
the line of credit letter agreement, Bank of America will consider requests for
short-term loans and documentary letters of credit for the importation of
merchandise inventory, the aggregate amount of which at any time outstanding
shall not exceed $20.0 million. The Company's obligations under the agreement
are guaranteed by its subsidiaries, Movado Retail Group, Inc. and Movado LLC.
Pursuant to the amended and restated promissory note, the Company promised to
pay to Bank of America $20.0 million, or such lesser amount as may then be the
unpaid balance of all loans made by Bank of America to the Company thereunder,
in
17
immediately available funds upon the maturity date of June 16, 2006. The
Company has the right to prepay all or part of any outstanding amounts under the
promissory note without penalty at any time prior to the maturity date. The
amended and restated promissory note bears interest at an annual rate equal to
either (i) a floating rate equal to the prime rate or (ii) such fixed rate as
may be agreed upon by the Company and Bank of America for an interest period
which is also then agreed upon. The amended and restated promissory note
contains various representations and warranties and events of default that are
customary for instruments of that type. As of April 30, 2006, there were no
outstanding borrowings against this line.
On December 13, 2005, the Company executed a promissory note in the principal
amount of up to $37.0 million payable to JPMorgan Chase Bank, N.A. ("Chase").
Pursuant to the promissory note, the Company promised to pay to Chase $37.0
million, or such lesser amount as may then be the unpaid balance of each loan
made or letter of credit issued by Chase to the Company thereunder, upon the
maturity date of July 31, 2006; provided that during the period between January
31, 2006 and the maturity date, the maximum principal amount of all loans made
by Chase to the Company, and outstanding under the promissory note, shall not
exceed $2.0 million. The Company has the right to prepay all or part of any
outstanding amounts under the promissory note without penalty at any time prior
to the maturity date. The promissory note bears interest at an annual rate equal
to either (i) a floating rate equal to the prime rate, (ii) a fixed rate equal
to an adjusted LIBOR plus 0.625% or (iii) a fixed rate equal to a rate of
interest offered by Chase from time to time on any single commercial borrowing.
The promissory note contains various events of default that are customary for
instruments of that type. In addition, it is an event of default for any
security interest or other encumbrance to be created or imposed on the Company's
property, other than as permitted in the lien covenant of the Credit Agreement.
Chase issued 11 irrevocable standby letters of credit for retail and operating
facility leases to various landlords, for the administration of the Movado
Boutique private-label credit card and Canadian payroll to the Royal Bank of
Canada totaling $1.2 million with expiration dates through March 31, 2007. As of
April 30, 2006, there were no outstanding borrowings against this promissory
note.
On December 15, 2005, the Company, and its Swiss subsidiaries, MGI Luxury Group
S.A. and Movado Watch Company SA, entered into a credit agreement with JPMorgan
Chase Bank, N.A., JPMorgan Securities, Inc., Bank of America, N.A., The Bank of
New York and Citibank, N.A. (the "Swiss Credit Agreement") which provides for a
revolving credit facility of 90.0 million Swiss francs and matures on December
15, 2010. The obligations of the Company's two Swiss subsidiaries under this
credit agreement are guaranteed by the Company under a Parent Guarantee, dated
as of December 15, 2005, in favor of the lenders. The credit agreement contains
financial covenants including an interest coverage ratio, average debt coverage
ratio and limitations on capital expenditures and certain non-financial
covenants that restrict the Company's activities regarding investments and
acquisitions, mergers, certain transactions with affiliates, creation of liens,
asset transfers, payment of dividends and limitation of the amount of debt
outstanding. The credit facility bears interest at a rate equal to the LIBOR (as
defined in the Swiss Credit Agreement) plus a margin ranging from .50% per annum
to .875% per annum (depending upon a leverage ratio). As of April 30, 2006, the
Company was in compliance with all financial and non-financial covenants, and
had 71.0 million Swiss francs, with a dollar equivalent of $57.3 million,
outstanding under this revolving credit facility.
On December 15, 2005, the Company and its Swiss subsidiaries, MGI Luxury Group
S.A. and Movado Watch Company SA, entered into a credit agreement with JPMorgan
Chase Bank, N.A., JPMorgan Securities, Inc., Bank of America, N.A., The Bank of
New York and Citibank, N.A. (the "US Credit Agreement") which provides for a
revolving credit facility of $50.0 million (including a sublimit for borrowings
in Swiss francs of up to $25.0 million) with a provision to allow for an
increase of an additional $50.0 million subject to certain terms and conditions.
The US Credit Agreement will mature on December 15, 2010. The obligations of MGI
Luxury Group S.A. and Movado Watch Company SA are guaranteed by the Company
under a Parent Guarantee, dated as of December 15, 2005, in favor of the
lenders. The obligations of the Company are guaranteed by certain domestic
subsidiaries of the Company under subsidiary guarantees, in favor of the
18
lenders. The credit agreement contains financial covenants including an interest
coverage ratio, average debt coverage ratio and limitations on capital
expenditures and certain non-financial covenants that restrict the Company's
activities regarding investments and acquisitions, mergers, certain transactions
with affiliates, creation of liens, asset transfers, payment of dividends and
limitation of the amount of debt outstanding. The credit facility bears
interest, at Borrower's option, at a rate equal to the Adjusted LIBOR (as
defined in the US Credit Agreement) plus a margin ranging from .50% per annum to
..875% per annum (depending upon a leverage ratio), or the Alternate Base Rate
(as defined in the US Credit Agreement). As of April 30, 2006, the Company was
in compliance with all financial and non-financial covenants, and there were no
outstanding borrowings against this line.
A Swiss subsidiary of the Company maintains unsecured lines of credit with an
unspecified length of time with a Swiss bank. Available credit under these lines
totaled 8.0 million Swiss francs, with dollar equivalents of $6.5 million and
$6.7 million at April 30, 2006 and 2005, respectively. As of April 30, 2006, two
European banks have guaranteed obligations to third parties on behalf of two of
the Company's foreign subsidiaries in the amount of $3.2 million in various
foreign currencies. As of April 30, 2006, there were no outstanding borrowings
against these lines.
The Company paid dividends per share of $0.06 or approximately $1.5 million, for
the three months ended April 30, 2006 and $0.05 per share or approximately $1.3
million for the three months ended April 30, 2005.
Cash and cash equivalents at April 30, 2006 amounted to $82.6 million compared
to $49.6 million at April 30, 2005. The increase in cash and cash equivalents
primarily relates to the Company's borrowings in the fourth quarter of fiscal
2006 to repatriate foreign earnings to the United States under the American Jobs
Creation Act of 2004.
Off-Balance Sheet Arrangements
The Company does not have off-balance sheet financing or unconsolidated
special-purpose entities.
19
Item 3. Quantitative and Qualitative Disclosure about Market Risks
Foreign Currency and Commodity Price Risks
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 manages most of its
foreign currency exposures on a consolidated basis, which allows it to net
certain exposures and take advantage of natural offsets. The Company uses
various derivative financial instruments to further reduce the net exposures to
currency fluctuations, predominately forward and option contracts. These
derivatives either (a) are used to hedge the Company's Swiss franc liabilities
and are recorded at fair value with the changes in fair value reflected in
earnings or (b) are documented as cash flow hedges with the gains and losses on
this latter hedging activity first reflected in other comprehensive income, and
then later classified into earnings in accordance with Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" ("SFAS No. 133"), as amended by SFAS No. 137, SFAS No. 138 and SFAS
No. 149. In both cases, the earnings impact is partially offset by the effects
of currency movements on the 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 Company's cost of sales. In addition, the
Company hedges its Swiss franc payable exposure with forward contracts. As of
April 30, 2006, the Company's entire net forward contracts hedging portfolio
consisted of 139.0 million Swiss francs equivalent for various expiry dates
ranging through March 30, 2007. If the Company was to settle its Swiss franc
forward contracts at April 30, 2006, the net result would be a gain of $1.9
million, net of tax of $1.2 million. As of April 30, 2006, the Company had 23.0
million Swiss franc option contracts related to cash flow hedges for various
expiry dates ranging through April 30, 2007. If the Company was to settle its
Swiss franc option contracts at April 30, 2006, the net result would be a gain
of $0.7 million, net of tax of $0.4 million.
The Company's Board of Directors authorized the hedging of the Company's Swiss
franc denominated investment in its wholly-owned Swiss subsidiaries using
purchase options under certain limitations. These hedges are treated as net
investment hedges under SFAS No. 133. As of April 30, 2006, the Company did not
hold a purchased option hedge portfolio related to net investment hedging.
Commodity Risk
Additionally, the Company has a hedging program related to gold used in the
manufacturing of the Company's watches. Under this hedging program, the Company
purchases various commodity derivative instruments, primarily future contracts.
These derivatives are documented as SFAS No. 133 cash flow hedges, and gains and
losses on these derivative instruments are first reflected in other
comprehensive income, and later reclassified into earnings, partially offset by
the effects of gold market price changes on the underlying actual gold
purchases. If the Company did not engage in a gold hedging program, any changes
in the gold price would have an equal effect on the Company's cost of sales. The
Company did not hold any futures contracts in its gold hedge portfolio related
to cash flow hedges as of April 30, 2006.
Debt and Interest Rate Risk
In addition, the Company has certain debt obligations with variable interest
rates, which are based on Swiss LIBOR plus a fixed additional interest rate. The
Company does not hedge these interest rate risks. The Company also has certain
debt obligations with fixed interest rates. The differences between the market
based interest rates at April 30, 2006, and the fixed rates were unfavorable.
20
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management,
including the Chief Executive Officer and the Chief Financial Officer, evaluated
the effectiveness of the Company's disclosure controls and procedures, as such
terms are defined in Rule 13a-15(e) under the Securities Exchange Act, as
amended. Based on that evaluation, the Chief Executive Officer and the Chief
Financial Officer concluded that the Company's disclosure controls and
procedures are effective as of the end of the period covered by this report.
It should be noted that while the Company's Chief Executive Officer and Chief
Financial Officer believe that the Company's disclosure controls and procedures
provide a reasonable level of assurance that they are effective, they do not
expect that the Company's disclosure controls and procedures or internal control
over financial reporting will prevent all errors and fraud. A control system, no
matter how well conceived or operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met.
Changes in Internal Control Over Financial Reporting
There has been no change in the Company's internal control over financial
reporting during the quarter ended April 30, 2006, that has materially affected,
or is reasonably likely to materially affect, the Company's internal control
over financial reporting.
21
PART II - OTHER INFORMATION
Item 1A. Risk Factors
As of April 30, 2006, there have been no material changes to any of the
risk factors previously reported in its annual report on Form 10-K for the
fiscal year ended January 31, 2006.
Item 6. Exhibits
10.1 License Agreement entered into effective March 27, 2006 between MGI
Luxury Group, S.A. and Lacoste S.A., Sporloisirs S.A. and Lacoste
Alligator S.A.*
31.1 Certification of the Chief Executive Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Chief Financial Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
* Confidential portions of Exhibit 10.1 have been omitted and filed separately
with the Securities and Exchange Commission pursuant to Rule 24b-2 of the
Securities Exchange Act of 1934.
22
SIGNATURE
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 9, 2006 By: /s/ Eugene J. Karpovich
------------------------------------
Eugene J. Karpovich
Senior Vice President and
Chief Financial Officer
(Chief Financial Officer)
(Duly Authorized Officer)
/s/ Ernest R. LaPorte
------------------------------------
Ernest R. LaPorte
Vice President of Finance
(Principal Accounting Officer)
23