=========================================================================== 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 QUARTERLY PERIOD ENDED APRIL 30, 1996 [ ] 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 (I.R.S. EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 125 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) 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 23, 1996, the registrant had 2,588,368 shares of Class A Common Stock, par value $0.01 per share, outstanding and 3,419,131 shares of Common Stock, par value $0.01 per share, outstanding. ===========================================================================
MOVADO GROUP, INC. Index to Quarterly Report on Form 10-Q April 30, 1996 <TABLE><CAPTION> Page ---- <S> <C> Part I Financial Information Item 1. Consolidated Balance Sheets as of April 30, 1996 and January 31, 1996 3 Consolidated Statement of Operations for the three months ended April 30, 1996 and 1995 4 Consolidated Statements of Cash Flows for the three months ended April 30, 1996 and 1995 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II Other Information Item 4. Submission of Matters to a Vote of Security Holders 9 Item 6. Exhibits and Reports on Form 8-K 9 Signatures 10 Exhibit Index 11 </TABLE> 2
PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements MOVADO GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts) (Unaudited) <TABLE><CAPTION> April 30, January 31, 1996 1996 --------------- -------------- ASSETS - ------ <S> <C> <C> Current assets: Cash $3,306 $3,829 Trade receivables, net 70,593 75,335 Inventories 98,880 89,101 Other 13,158 12,521 --------------- -------------- Total current assets 185,937 180,786 --------------- -------------- Plant, property and equipment, net 12,407 11,794 Other assets 8,822 7,800 --------------- -------------- $207,166 $200,380 =============== ============== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Loans payable to banks $23,987 $8,782 Accounts payable 16,085 22,042 Accrued liabilities 10,143 9,289 Deferred and current taxes payable 7,697 7,994 -------------- -------------- Total current liabilities 57,912 48,107 -------------- -------------- Senior notes payable 40,000 40,000 Deferred and non-current foreign income taxes 3,392 3,860 Other liabilities 3,372 3,572 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; 3,418,313 and 3,426,610 shares issued, respectively 34 34 Class A Common Stock, $0.01 par value, 10,000,000 shares authorized; 2,589,309 and 2,588,891 shares issued and outstanding, respectively 26 26 Capital in excess of par value 34,263 34,252 Retained earnings 59,664 60,319 Cumulative translation adjustment 8,631 10,338 Treasury Stock, 9,201 shares, at cost (128) (128) -------------- -------------- 102,490 104,841 -------------- -------------- $207,166 $200,380 ============== ============== </TABLE> See Notes to Consolidated Financial Statements 3
MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share amounts) (Unaudited) <TABLE><CAPTION> Three Months Ended April 30, --------------------------------- 1996 1995 ---- ---- <S> <C> <C> Net sales $31,014 $28,204 Costs and expenses: Cost of sales 13,663 13,287 Selling, general and administrative 17,187 15,458 ---------------- ---------------- Operating income (loss) 164 (541) ---------------- ---------------- Net interest expense 842 978 ---------------- ---------------- Loss before income taxes (678) (1,519) Benefit from income taxes (204) (461) ---------------- ---------------- Net loss ($474) ($1,058) ================ ================ Loss per share: ($0.08) ($0.18) ================ ================ Shares used in per share computations: 6,025 6,000 ================ ================ </TABLE> See Notes to Consolidated Financial Statements 4
MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) <TABLE><CAPTION> Three Months Ended April 30, -------------------------------- 1996 1995 ---- ---- <S> <C> <C> Cash flows from operating activities: Net loss ($474) ($1,058) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 951 844 Deferred and non-current foreign income taxes (714) (919) Provision for losses on accounts receivable 51 104 Changes in current assets and liabilities: Trade receivables 4,464 2,325 Inventories (10,676) (9,658) Other current assets (3,451) (1,438) Accounts payable (4,550) (10,502) Accrued liabilities 819 (272) Deferred and current taxes payable (97) 756 Increase in other non-current assets (1,012) (78) (Decrease) increase in other non-current liabilities (42) 174 ------------- ------------ Net cash used in operating activities (14,731) (19,722) ------------- ------------ Cash flows used for investing activities: Capital expenditures (747) (693) Goodwill, trademarks and other intangibles (126) (63) ------------- ------------ Net cash used in investing activities (873) (756) ------------- ------------ Cash flows from financing activities: Net proceeds from current borrowings under lines of credit 15,468 17,708 Principal payments under capital leases (139) (266) Exercise of stock options 11 Dividends paid (181) (149) ------------- ------------ Net cash provided by financing activities 15,159 17,293 ------------- ------------ Effect of exchange rate changes on cash (78) 138 Net decrease in cash (523) (3,047) Cash at beginning of period 3,829 4,896 ------------- ------------ Cash at end of period $3,306 $1,849 ============= ============ </TABLE> See Notes to Consolidated Financial Statements 5
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 1996 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 amounts from prior years have been reclassified to conform to the fiscal 1997 presentation. NOTE 2 - INVENTORIES Inventories consist of the following (in thousands): April 30, January 31, 1996 1996 ---------- ---------- Finished goods $57,719 $51,034 Work-in-process and component parts 41,161 38,067 ------------ ------------ $98,880 $89,101 ============ ============ NOTE 3 - 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, 1996 1995 ---- ---- Cash paid during the period for: Interest $261 $240 Income taxes 705 375 Non-cash investing and financing activities: Equipment acquired under capital leases $11 6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Results of Operations Three months ended April 30, 1996 compared to three months ended April 30, 1995. Net Sales. Net sales increased 10.0% to $31.0 million from $28.2 million for the three months ended April 30, 1996 and April 30, 1995, respectively. The increase was attributable to a 15% increase in domestic sales reflecting both unit sales increases and higher average selling prices due to price increases in the second half of last year. The increase in domestic sales was offset by an 8% decrease in international sales due principally to timing of shipments. Gross Margins. Gross profit for the three months ended April 30, 1996 was $17.4 million (55.9% of net sales) as compared to $14.9 million (52.9% of net sales) for the comparable prior year period. The increase in margin is mainly attributable to the Company continuing to experience a shift in overall sales mix toward its higher margin Movado, Concord and Esquire brands and price increases instituted in the second half of last year. Operating Expenses. Operating expenses increased 11.2% for the three months ended April 30, 1996 to 55.4% of net sales from 54.8% of net sales for the comparable prior year period. Excluding the effect of a one-time, pre-tax charge of $600,000 included in last year's quarter, operating expenses increased approximately $2.3 million due mainly to increases in advertising, marketing and sales support costs. Interest Expenses. Net interest expense, which consists primarily of interest on the Company's $40,000,000 of 6.56% Senior Notes and borrowings against its working capital lines of credit, was $842,000 for the three months ended April 30, 1996 as compared to $978,000 for the comparable prior year period. The lower interest expense is mainly due to a reduction in average borrowings as compared to the period ended April 30, 1995. Income Taxes. The Company recorded a benefit from income taxes of $204,000 for the three months ended April 30, 1996 as compared to a benefit of $461,000 for the comparative prior year period. Taxes were provided at a 30% effective rate which the Company believes will approximate the effective annual rate for fiscal 1997; however, there can be no assurance of this as it is dependent on a number of factors including: mix of foreign to domestic earnings, local statutory tax rates and utilization of net operating losses. The 30% effective rate differs from the United States statutory rate due to the mix of earnings between the Company's U.S. and international operations, the most significant of which are located in Switzerland. The Company's international operations are generally subject to tax rates that are significantly lower than U.S. statutory rates. Liquidity and Capital Resources The Company's liquidity needs have been, and are expected to remain, primarily a function of its seasonal working capital requirements which have increased due to significant growth in domestic sales over the two previous years. The Company's business is not capital intensive and liquidity needs for capital investments have not been significant in relation to the Company's overall financing requirements. 7
The Company has met its liquidity needs primarily through funds from operations and bank borrowings under working capital lines of credit with domestic and Swiss banks. The Company has also entered into a revolving credit agreement with its domestic banks. Funds available under this agreement are in addition to the Company's working capital lines. As of April 30, 1996, the Company's debt to total capitalization ratio increased to 38.4% from 31.8% at January 31, 1996 due to seasonal borrowings under its working capital lines of credit. The Company's net working capital consisting primarily of trade receivables and inventories amounted to $128.0 million at April 30, 1996 and $132.7 million at January 31, 1996. Accounts receivable at April 30, 1996 were $70.6 million as compared to $75.3 million at January 31, 1996. The decrease was the result of the Company's collection efforts during the first quarter of fiscal 1997. Inventories at April 30, 1996 were $98.9 million as compared to $89.1 million at January 31, 1996. The increase reflects seasonal build of inventories in anticipation of the spring selling season. The Company's fiscal 1997 year-to-date capital expenditures approximate $750,000. Expenditures were primarily related to improvements in the Company's management information systems and costs incurred in connection with the expansion of domestic distribution operations. The Company expects its annual capital expenditures in fiscal year 1997 will exceed the average levels experienced over the last three fiscal years due to planned improvements in management information systems, expansion of its retail store network and the expansion of distribution operations to support continued sales growth. 8
PART II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders On April 12, 1996 a special meeting of shareholders was held at the Company's offices at 125 Chubb Avenue, Lyndhurst, New Jersey for purposes of considering and voting upon a proposal to amend the company's Restated Certificate of Incorporation to change the name of the Company to "Movado Group, Inc." At the meeting there were present in person or represented by proxy and entitled to vote 595,117 shares of Common Stock, each entitled to one (1) vote, and 2,150,795 shares of Class A Common Stock, each entitled to ten votes. There were 22,103,067 votes cast in favor of the proposal, no votes cast against the proposal, no votes abstaining and no broker nonvotes. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Lease dated April 15, 1996 between the Company and Belle Mead Corporation for premises at 1200 Wall Street West, Lyndhurst, New Jersey. (b) Reports on Form 8-K None 9
SIGNATURES Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MOVADO GROUP, INC. (Registrant) Dated: June 13, 1996 By: /s/ Kenneth J. Adams ------------------------------ Kenneth J. Adams Senior Vice President and Chief Financial Officer (Chief Financial Officer) Dated: June 13, 1996 By: /s/ John J. Rooney ------------------------------ John J. Rooney Corporate Controller (Principal Accounting Officer) 10
EXHIBIT INDEX Exhibit Number Description ------ ----------- 10.1 Lease dated April 15, 1996 between the Company and Belle Mead Corporation for premises at 1200 Wall Street West, Lyndhurst, New Jersey. 11