- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------------ FORM 10-Q ------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended July 31, 2005 [ ] 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> <S> <C> 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 an accelerated filer (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes [X] No [ ] Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] The number of shares outstanding of the registrant's common stock and class A common stock as of August 31, 2005 were 18,503,868 and 6,771,909, respectively. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
MOVADO GROUP, INC. Index To Quarterly Report on Form 10-Q July 31, 2005 <TABLE> <CAPTION> Page ---- <S> <C> <C> Part I Financial Information (Unaudited) Item 1. Consolidated Balance Sheets at July 31, 2005, January 31, 2005 and July 31, 2004 3 Consolidated Statements of Income for the three months and six months ended July 31, 2005 and 2004 4 Consolidated Statements of Cash Flows for the six months ended July 31, 2005 and 2004 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 21 Item 4. Controls and Procedures 22 Part II Other Information Item 1. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 23 Item 6. Exhibits 23 Signature 25 </TABLE> 2
PART I - FINANCIAL INFORMATION ITEM 1. Financial Statements MOVADO GROUP, INC. CONSOLIDATED BALANCE SHEETS (In thousands, except share and per share amounts) (Unaudited) <TABLE> <CAPTION> July 31, January 31, July 31, 2005 2005 2004 ---- ---- ---- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 50,323 $ 63,782 $ 27,438 Trade receivables, net 105,533 102,622 95,841 Inventories, net 206,483 187,890 181,784 Other 37,127 34,409 31,899 --------- --------- --------- Total current assets 399,466 388,703 336,962 Property, plant and equipment, net 50,282 50,283 48,193 Other 36,348 37,964 37,672 --------- --------- --------- Total assets $ 486,096 $ 476,950 $ 422,827 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable to banks $ 37,500 $ -- $ 25,000 Current portion of long-term debt -- -- 5,000 Accounts payable 35,283 38,488 30,965 Accrued liabilities 40,482 39,618 30,223 Deferred taxes 4,756 5,250 5,853 --------- --------- --------- Total current liabilities 118,021 83,356 97,041 Long-term debt 45,000 45,000 25,000 Deferred and non-current income taxes 9,031 14,827 11,936 Other liabilities 17,363 17,209 12,214 --------- --------- --------- Total liabilities 189,415 160,392 146,191 --------- --------- --------- Commitments and contingencies (Note 9) 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; 23,116,663, 22,580,459 and 21,987,361 shares issued, respectively 231 226 220 Class A Common Stock, $0.01 par value, 30,000,000 shares authorized; 6,773,258, 6,801,812 and 6,801,812 shares issued and outstanding, respectively 68 68 68 Capital in excess of par value 103,470 100,289 90,638 Retained earnings 221,981 214,953 198,426 Accumulated other comprehensive income 21,997 48,707 29,648 Treasury Stock, 4,613,645, 4,433,553 and 4,089,898 shares, respectively, at cost (51,066) (47,685) (42,364) --------- --------- --------- Total shareholders' equity 296,681 316,558 276,636 --------- --------- --------- Total liabilities and shareholders' equity $ 486,096 $ 476,950 $ 422,827 ========= ========= ========= </TABLE> See Notes to Consolidated Financial Statements 3
MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> Three Months Ended July 31, Six Months Ended July 31, --------------------------- ------------------------- 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net sales $115,326 $ 97,788 $203,082 $171,975 Cost of sales 45,340 39,810 80,258 70,612 -------- -------- -------- -------- Gross profit 69,986 57,978 122,824 101,363 Operating expenses: Selling, general and administrative 57,701 49,230 108,400 90,908 -------- -------- -------- -------- Operating income 12,285 8,748 14,424 10,455 Income from litigation settlement, net -- 1,444 -- 1,444 Net interest expense 884 783 1,693 1,508 -------- -------- -------- -------- Income before income taxes 11,401 9,409 12,731 10,391 Provision for income taxes 2,850 2,352 3,183 2,598 -------- -------- -------- -------- Net income $ 8,551 $ 7,057 $ 9,548 $ 7,793 ======== ======== ======== ======== Earnings per share: Basic $ 0.34 $ 0.29 $ 0.38 $ 0.32 ======== ======== ======== ======== Diluted $ 0.33 $ 0.28 $ 0.37 $ 0.31 ======== ======== ======== ======== Weighted average shares outstanding: Basic 25,241 24,643 25,148 24,590 ======== ======== ======== ======== Diluted 26,126 25,484 26,074 25,416 ======== ======== ======== ======== </TABLE> See Notes to Consolidated Financial Statements 4
MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended July 31, 2005 2004 -------- -------- <S> <C> <C> Cash flows from operating activities: Net income $ 9,548 $ 7,793 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 7,816 5,710 Deferred income taxes (731) -- Provision for losses on accounts receivable 600 75 Provision for losses on inventory 300 181 Changes in assets and liabilities: Trade receivables (3,813) 3,329 Inventories (27,078) (26,101) Other current assets (4,312) (5,861) Accounts payable (1,526) 4,863 Accrued liabilities (6,363) (7,858) Current taxes payable 159 (991) Other non-current assets (912) (584) Other non-current liabilities 174 502 -------- -------- Net cash used in operating activities (26,138) (18,942) -------- -------- Cash flows from investing activities: Capital expenditures (7,879) (6,878) Acquisition of Ebel, net of cash acquired -- (43,525) Trademarks (343) (178) -------- -------- Net cash used in investing activities (8,222) (50,581) -------- -------- Cash flows from financing activities: Net proceeds from bank borrowings 37,500 14,813 Stock options exercised and other changes (195) 923 Dividends paid (2,520) (1,968) -------- -------- Net cash provided by financing activities 34,785 13,768 -------- -------- Effect of exchange rate changes on cash and cash equivalents (13,884) 1,110 -------- -------- Net decrease in cash and cash equivalents (13,459) (54,645) Cash and cash equivalents at beginning of period 63,782 82,083 -------- -------- Cash and cash equivalents at end of period $ 50,323 $ 27,438 ======== ======== </TABLE> 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 2005 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 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 reclassifications were made to prior years' financial statement amounts and related note disclosures to conform to the fiscal 2006 presentation. NOTE 2 - ACQUISITION On December 22, 2003, the Company entered into an agreement to acquire Ebel S.A. and the worldwide business related to the Ebel brand (collectively "Ebel") from LVMH Moet Hennessy Louis Vuitton ("LVMH"). On March 1, 2004, the Company completed the acquisition of Ebel with the exception of the payment for the acquired Ebel business in Germany, which was completed July 30, 2004. In accordance with Emerging Issues Task Force No. 95-3 ("EITF 95-3"), "Recognition of Liabilities in Connection with a Purchase Business Combination", the Company recognized costs associated with exiting an activity of an acquired company and involuntary termination of employees of an acquired company as liabilities assumed in a purchase business combination and included the liabilities in the allocation of the acquisition cost. The liability recognized in connection with the acquisition of Ebel was comprised of approximately $2.4 million for employee severance, $0.2 million for lease terminations, $1.7 million for exit costs related to certain promotional and purchase contracts and $0.4 million of other liabilities. As of July 31, 2005, payments against employee severance, lease terminations, exit costs and other liabilities amounted to $1.7 million, $0.2 million, $1.1 million and $0.4 million, respectively. There were no further adjustments related to the abovementioned accruals as of July 31, 2005. Pro Forma Financial Information The unaudited financial information in the table below summarizes the combined results of operations of the Company and Ebel, on a pro forma basis, as though the acquisition had been completed as of the beginning of the six month period ended July 31, 2004. This pro forma financial information is presented for informational purposes only and is not necessarily indicative of the results of operations that would have been achieved had the acquisition taken place at the beginning of the six month period ended July 31, 2004. The unaudited pro forma condensed combined statement of income for the six month period ended July 31, 2004 combines the historical results for the Company for the six month period ended July 31, 2004 and the historical results for 6
Ebel for the period preceding the acquisition of February 1 through February 29, 2004. The following amounts are in thousands, except per share amounts: <TABLE> <CAPTION> Six Months Ended July 31, 2004 ---- <S> <C> Revenues $173,344 Net income $5,902 Basic income per share $0.24 Diluted income per share $0.23 </TABLE> NOTE 3 - STOCK OPTION PLAN The Company applies Accounting Principles Board Opinion No. 25 and related Interpretations in accounting for its stock option plan. No compensation cost has been recognized for any stock options granted under the Company's stock option plan because the quoted market price of the Common Stock at the grant date was not in excess of the amount an employee must pay to acquire the Common Stock. Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation," ("SFAS 123") issued by the Financial Accounting Standards Board ("FASB"), prescribes a method to record compensation cost for stock-based employee compensation plans at fair value. The Company utilizes the Black-Scholes valuation model for determining the fair value of the stock-based compensation. Pro forma disclosures as if the Company had adopted the recognition requirements under SFAS 123 for the three months and six months ended July 31, 2005 and 2004, respectively, are presented below. <TABLE> <CAPTION> For the Three Months Ended For the Six Months Ended July 31, July 31, -------------------------- -------------------------- (In thousands, except per share data) 2005 2004 2005 2004 --------- --------- --------- --------- <S> <C> <C> <C> <C> Net income as reported $ 8,551 $ 7,057 $ 9,548 $ 7,793 Fair value based compensation expense, net of taxes (673) (1,408) (1,511) (2,805) --------- --------- --------- --------- Pro forma net income $ 7,878 $ 5,649 $ 8,037 $ 4,988 ========= ========= ========= ========= Basic earnings per share: As reported $ 0.34 $ 0.29 $ 0.38 $ 0.32 Pro forma under SFAS No. 123 $ 0.31 $ 0.23 $ 0.32 $ 0.20 Diluted earnings per share: As reported $ 0.33 $ 0.28 $ 0.37 $ 0.31 Pro forma under SFAS No. 123 $ 0.30 $ 0.22 $ 0.31 $ 0.20 </TABLE> 7
NOTE 4 - COMPREHENSIVE (LOSS) INCOME The components of comprehensive loss for the three months and six months ended July 31, 2005 and 2004 are as follows (in thousands): <TABLE> <CAPTION> Three Months Ended Six Months Ended July 31, July 31, ------------------------ ------------------------ 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> Net income $ 8,551 $ 7,057 $ 9,548 $ 7,793 Net unrealized gain (loss) on investments, net of tax 143 (8) 153 20 Effective portion of unrealized loss on hedging contracts, net of tax (4,790) (292) (5,127) (2,274) Foreign currency translation adjustment (19,545) 4,251 (21,736) (2,571) -------- -------- -------- -------- Total comprehensive (loss) income ($15,641) $ 11,008 ($17,162) $ 2,968 ======== ======== ======== ======== </TABLE> NOTE 5 - 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. Operating Segment Data for the Three Months Ended July 31, 2005 and 2004: <TABLE> <CAPTION> Net Sales Operating Income ----------------------- ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> Wholesale $ 95,658 $ 80,592 $ 12,177 $ 8,266 Retail 19,668 17,196 108 482 -------- -------- -------- -------- Consolidated total $115,326 $ 97,788 $ 12,285 $ 8,748 ======== ======== ======== ======== </TABLE> Operating Segment Data for the Six Months Ended July 31, 2005 and 2004: <TABLE> <CAPTION> Net Sales Operating Income (Loss) ----------------------- ------------------------ 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> Wholesale $168,263 $141,600 $ 15,911 $ 11,165 Retail 34,819 30,375 (1,487) (710) -------- -------- -------- -------- Consolidated total $203,082 $171,975 $ 14,424 $ 10,455 ======== ======== ======== ======== </TABLE> 8
Geographic Segment Data for the Three Months Ended July 31, 2005 and 2004: <TABLE> <CAPTION> Net Sales Operating Income ----------------------- ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> Domestic $ 89,231 $ 77,143 $ 4,986 $ 5,675 International 26,095 20,645 7,299 3,073 -------- -------- -------- -------- Consolidated total $115,326 $ 97,788 $ 12,285 $ 8,748 ======== ======== ======== ======== </TABLE> Geographic Segment Data for the Six Months Ended July 31, 2005 and 2004: <TABLE> <CAPTION> Net Sales Operating Income ----------------------- ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- <S> <C> <C> <C> <C> Domestic $157,306 $136,226 $ 3,669 $ 5,971 International 45,776 35,749 10,755 4,484 -------- -------- -------- -------- Consolidated total $203,082 $171,975 $ 14,424 $ 10,455 ======== ======== ======== ======== </TABLE> Domestic and International net sales are net of intercompany sales of $59.3 million and $56.3 million for the three months ended July 31, 2005 and 2004, respectively. Domestic and International net sales are net of intercompany sales of $105.3 million and $115.9 million for the six months ended July 31, 2005 and 2004, respectively. <TABLE> <CAPTION> Total Assets -------------------------------------- July 31, January 31, July 31, 2005 2005 2004 -------- -------- -------- <S> <C> <C> <C> Domestic $275,696 $282,018 $251,840 International 210,400 194,932 170,987 -------------------------------------- Consolidated total $486,096 $476,950 $422,827 ====================================== </TABLE> NOTE 6 - 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 three months ended July 31, 2005 and 2004, the Company recorded an expense related to the SERP of $0.1 million and $0.2 million, respectively. For the six months ended July 31, 2005 and 2004, the Company recorded an expense related to the SERP of $0.3 million for each period. 9
NOTE 7 - INVENTORIES consist of the following (in thousands): <TABLE> <CAPTION> July 31, January 31, July 31, 2005 2005 2004 --------- --------- --------- <S> <C> <C> <C> Finished goods $ 125,702 $ 111,468 $ 110,701 Component parts 74,731 71,761 65,734 Work-in-process 6,050 4,661 5,349 --------- --------- --------- $ 206,483 $ 187,890 $ 181,784 ========= ========= ========= </TABLE> NOTE 8 - 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 25,241,000 and 24,643,000 for the three months ended July 31, 2005 and 2004, respectively. For diluted earnings per share, these amounts were increased by 885,000 and 841,000 for the three months ended July 31, 2005 and 2004, respectively, due to potentially dilutive common stock equivalents issuable under the Company's stock option plans and restricted stock grants. The weighted-average number of shares outstanding for basic earnings per share were 25,148,000 and 24,590,000 for the six months ended July 31, 2005 and 2004, respectively. For diluted earnings per share, these amounts were increased by 926,000 and 826,000 for the six months ended July 31, 2005 and 2004, respectively, due to potentially dilutive common stock equivalents issuable under the Company's stock option plans and restricted stock grants. NOTE 9 - COMMITMENTS AND CONTINGENCIES At July 31, 2005, the Company had outstanding letters of credit totaling $0.9 million with expiration dates through August 31, 2006 compared to $0.6 million with expiration dates through June 30, 2005 as of July 31, 2004. One bank in the domestic bank group has issued irrevocable standby letters of credit for retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada. As of July 31, 2005, a Swiss bank guaranteed one of the Company's Swiss subsidiary's obligations to certain Swiss third parties in the amount of approximately $3.3 million in various foreign currencies compared to $0.7 million as of July 31, 2004. The Company is involved from time to time in legal claims involving trademarks and intellectual property, licensing, 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 10
the final outcome would not have a material effect on the Company's consolidated financial position, results of operations or cash flows. NOTE 10 - AMERICAN JOBS CREATION ACT OF 2004 The American Jobs Creation Act of 2004 ("the Act"), as enacted on October 22, 2004, provides for a temporary 85% dividends received deduction on certain foreign earnings repatriated during a one-year period. The deduction would result in an approximate 5.25% U.S. federal tax rate on any repatriated earnings. To qualify for the deduction, the earnings must be reinvested in the United States pursuant to a domestic reinvestment plan established by the Company's Chief Executive Officer and approved by the Company's Board of Directors. Certain other criteria in the Act, applicable Treasury Regulations and guidance published (or that may subsequently be published) by the Internal Revenue Service or Treasury Department, must be satisfied as well. The Company is in the process of evaluating whether it will repatriate any foreign earnings under the repatriation provisions of the Act and, if so, the amount that it will repatriate. The range of reasonably possible amounts that the Company is currently considering for repatriation, which would be eligible for the temporary deduction, is zero to approximately $150 million. Repatriation would result in additional income tax expense, which the Company currently estimates to be between 4.50% and 8.50% of the repatriated amount. The Company expects to determine the amounts and sources of foreign earnings to be repatriated, if any, during the third or fourth quarter of fiscal 2006. NOTE 11 - RECENTLY ISSUED ACCOUNTING STANDARDS In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 151, "Inventory Costs", an amendment of ARB No. 43, Chapter 4 ("SFAS No. 151"). The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, and is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment", which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123(R)"). SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Public entities are required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005. The Company continues to use the intrinsic value based method of accounting for share-based payments. The Company uses the Black-Scholes valuation model to estimate the value of stock options granted to employees. SFAS No. 123(R) requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement may reduce net operating cash flows and increase net financing cash flows in periods after adoption. The adoption of SFAS No. 123(R) is expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows. 11
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Nonmonetary Assets -- An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS No. 153"). SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions", and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies that the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the impact of FIN 47 on its consolidated financial position, results of operations and cash flows. 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, 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, 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. 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 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 13
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, 2005. 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 July 31, 2005, 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, 2005. Results of operations for the three months ended July 31, 2005 as compared to the three months ended July 31, 2004 Net Sales: Comparative net sales by business segment were as follows (in thousands): <TABLE> <CAPTION> Three Months Ended July 31, ----------------------- 2005 2004 -------- -------- <S> <C> <C> Wholesale: Domestic $ 69,563 $ 59,947 International 26,095 20,645 Retail 19,668 17,196 -------- -------- Net Sales $115,326 $ 97,788 ======== ======== </TABLE> Net sales increased by $17.5 million or 17.9% for the three months ended July 31, 2005 as compared to the three months ended July 31, 2004. Sales in the wholesale segment increased 18.7% to $95.7 million versus $80.6 million in the prior year. The domestic wholesale business was $69.6 million or 16.0% above prior year sales of $59.9 million. Movado and ESQ brand sales increased by $2.0 million and $1.6 million, respectively, primarily the result of increased demand in the chain and department store business. Ebel sales increased by $5.2 million or 259.0% above the prior year due to the sales of new models. Sales in the international wholesale business were $26.1 million or 26.4% above prior year due to Ebel and Tommy Hilfiger increases of $3.3 million and $1.4 million, respectively. These increases were primarily driven by sales in Europe. Sales in the retail segment rose 14.4% to $19.7 million. The increase was driven by an overall 21.4% increase in Movado Boutique sales. Comparable store sales increases for the Movado Boutiques were 2.3% for the three months ended July 31, 2005. Comparable store sales increases for the outlet stores were 9.3% for the three months ended July 31, 2005. The Company operated 27 Boutiques and 28 outlet stores at July 31, 2005 compared to 20 Boutiques and 27 outlet stores at July 31, 2004. Gross Profit. The gross profit for the three months ended July 31, 2005 was $70.0 million or 60.7% of net sales as compared to $58.0 million or 59.3% of net sales for the three months ended July 31, 2004. Gross profit increased by $12.0 million primarily as the result of the higher sales volume. The 140 basis point increase in gross profit percentage is mainly attributed to supply chain productivity improvements. 14
Selling, General and Administrative ("SG&A") Expenses. Selling, general and administrative expenses for the three months ended July 31, 2005 were $57.7 million or 50.0% of net sales as compared to $49.2 million or 50.3% of net sales for the three months ended July 31, 2004. The increase reflects spending primarily to invest in the Company's strategic growth initiatives, including higher marketing expenditures of $3.2 million, added spending of $1.5 million in support of the retail expansion, increased payroll and benefit costs of $1.5 million and increased spending of $0.5 million for outside services. Wholesale Operating Income. Operating income in the wholesale segment increased by $3.9 million to $12.2 million. The increase was the net result of higher gross profit of $10.7 million, partially offset by the increase in SG&A expenses of $6.8 million. The higher gross profit of $10.7 million was the result of the increase in net sales of $15.1 million. The increase in the SG&A expenses of $6.8 million was primarily due to spending to invest in the Company's strategic growth initiatives. This includes higher marketing spending of $3.1 million, increased payroll and benefit costs of $1.5 million and higher outside service fees of $0.5 million. Retail Operating Income. Operating income of $0.1 million and $0.5 million were recorded in the retail segment for the periods ended July 31, 2005 and July 31, 2004, respectively. The decrease in operating income was the net result of higher gross profit of $1.3 million offset by higher SG&A expenses of $1.7 million. The increased gross profit was the result of the sales increase. The higher SG&A expenses were primarily the result of added staff and occupancy costs as a result of the retail expansion. Interest Expense. Net interest expense for the three months ended July 31, 2005 increased by 13.0% to $0.9 million as compared to $0.8 million for the three months ended July 31, 2004. The increase was due to both higher borrowings as well as an increase in the average borrowing rate. The higher borrowings were primarily the result of the issuance of $20.0 million of new senior promissory notes in the third quarter of fiscal 2005. The higher average borrowing rate was the result of the mix of the borrowings with a greater portion related to the higher rate long-term debt. Litigation Settlement. The Company recognized income for the three months ended July 31, 2004 from a litigation settlement with Swiss Army Brands, Inc. in the amount of $1.4 million. This consisted of a gross settlement of $1.9 million partially offset by direct costs related to the litigation of $0.5 million. After accounting for fees and taxes associated with the settlement, second quarter net income increased by $0.8 million, or $0.03 per diluted share. Income Taxes. The Company recorded a tax expense of $2.9 million for the three months ended July 31, 2005 as compared to a tax expense of $2.4 million for the three months ended July 31, 2004. Taxes were recorded at an effective tax rate of 25.0% for both periods. Net Income. For the quarter ended July 31, 2005, the Company recorded net income of $8.6 million as compared to $7.1 million for the quarter ended July 31, 2004. 15
Results of operations for the six months ended July 31, 2005 as compared to the six months ended July 31, 2004 Net Sales: Comparative net sales by business segment were as follows (in thousands): <TABLE> <CAPTION> Six Months Ended July 31, ----------------------- 2005 2004 -------- -------- <S> <C> <C> Wholesale: Domestic $122,487 $105,851 International 45,776 35,749 Retail 34,819 30,375 -------- -------- Net Sales $203,082 $171,975 ======== ======== </TABLE> Net sales increased by $31.1 million or 18.1% for the six months ended July 31, 2005 as compared to the six months ended July 31, 2004. Sales in the wholesale segment increased 18.8% to $168.3 million versus $141.6 million in the prior year. The domestic wholesale business was $122.5 million or 15.7% above prior year sales of $105.9 million. Ebel sales grew $6.7 million which reflects the increased demand for new products. Movado and ESQ brand sales increased by $4.3 million and $2.7 million, respectively, primarily the result of increased demand in the chain and department store business. Sales in the international wholesale business were $45.8 million or 28.0% above prior year sales of $35.7 million due to Ebel and Tommy Hilfiger increases of $6.1 million and $2.5 million, respectively. These increases were primarily driven by sales in Europe. Sales in the retail segment rose 14.6% to $34.8 million. The increase was driven by an overall 27.2% increase in Movado Boutique sales. Comparable store sales increases for the Movado Boutiques were 2.7% for the six months ended July 31, 2005. Comparable store sales increases for the outlet stores were 4.3% for the six months ended July 31, 2005. The Company operated 27 Boutiques and 28 outlet stores at July 31, 2005 compared to 20 Boutiques and 27 outlet stores at July 31, 2004. Gross Profit. The gross profit for the six months ended July 31, 2005 was $122.8 million or 60.5% of net sales as compared to $101.4 million or 58.9% of net sales for the six months ended July 31, 2004. Gross profit increased by $21.4 million primarily as the result of the higher sales volume. The gross profit as a percent of sales increase of 154 basis points was mainly attributed to supply chain productivity improvements. Selling, General and Administrative ("SG&A") Expenses. Selling, general and administrative expenses for the six months ended July 31, 2005 were $108.4 million or 53.4% of net sales as compared to $90.9 million or 52.9% of net sales for the six months ended July 31, 2004. The increase reflects spending primarily to invest in the Company's strategic growth initiatives, including higher marketing spending of $6.0 million, added spending of $3.4 million in support of the retail expansion, increased payroll and related spending of $2.4 million and increased spending of $1.7 million for outside services. 16
Wholesale Operating Income. Operating income in the wholesale segment increased by $4.7 million to $15.9 million. The increase was the net result of higher gross profit of $18.5 million, partially offset by the increase in SG&A expenses of $13.8 million. The higher gross profit of $18.5 million was primarily the result of the increase in net sales of $26.7 million. The increase in the SG&A expenses of $13.8 million was primarily due to spending in support of the Company's strategic growth initiatives. This includes higher marketing spending of $5.7 million, increased payroll and related spending of $2.4 million, higher outside service fees of $1.7 million and $0.5 million increase in depreciation and amortization expense. Retail Operating Loss. Operating losses of $1.5 million and $0.7 million were recorded in the retail segment for the periods ended July 31, 2005 and July 31, 2004, respectively. The increase in the operating loss was the net result of higher gross profit of $2.9 million more than offset by higher SG&A expenses of $3.7 million. The increased gross profit was primarily attributed to higher sales. The higher SG&A expenses were primarily due to increased staff and occupancy costs associated with the retail expansion. Interest Expense. Net interest expense for the six months ended July 31, 2005 increased by 12.3% to $1.7 million as compared to $1.5 million for the six months ended July 31, 2004. The increase was due to both higher borrowings as well as an increase in the average borrowing rate. The higher borrowings were primarily the result of the issuance of $20.0 million of new senior promissory notes in the third quarter of fiscal 2005. The higher average borrowing rate was the result of the mix of the borrowings with a greater portion related to the higher rate long-term debt. Litigation Settlement. The Company recognized income for the six months ended July 31, 2004 from a litigation settlement with Swiss Army Brands, Inc. in the amount of $1.4 million. This consisted of a gross settlement of $1.9 million partially offset by direct costs related to the litigation of $0.5 million. After accounting for fees and taxes associated with the settlement, second quarter net income increased by $0.8 million, or $0.03 per diluted share. Income Taxes. The Company recorded a tax expense of $3.2 million for the six months ended July 31, 2005 as compared to a tax expense of $2.6 million for the six months ended July 31, 2004. Taxes were recorded at an effective tax rate of 25.0% for both periods. Net Income. For the six months ended July 31, 2005, the Company recorded net income of $9.5 million as compared to $7.8 million for the six months ended July 31, 2004. LIQUIDITY AND CAPITAL RESOURCES Cash used in operating activities amounted to $26.1 million for the six months ended July 31, 2005 and $18.9 million for the six months ended July 31, 2004. The cash used in operating activities for the six months ended July 31, 2005 and the six months ended July 31, 2004 was primarily due to an increase in inventory. Both periods reflect the seasonal build-up of inventory to support the sales for the upcoming holiday season. Included in the inventory was an increase in Ebel inventory which reflects the new product designs introduced subsequent to the acquisition of Ebel in March 2004. Cash used in investing activities amounted to $8.2 million and $50.6 million for the six months ended July 31, 2005 and 2004, respectively. The cash used during the six months ended July 31, 2005 was primarily for capital expenditures related to the build out of the new Movado Boutiques, renovations of existing retail 17
operations and the acquisition of machinery and equipment to further automate distribution activities. The cash used during the six months ended July 31, 2004 was primarily for the acquisition of Ebel and capital expenditures related to the build out of the new Movado Boutiques opened during the period. Cash provided by financing activities amounted to $34.8 million and $13.8 million for the six months ended July 31, 2005 and 2004, respectively, which was the result of seasonal short-term borrowings. 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 a rate of 6.90% per annum, mature on October 30, 2010 and are subject to annual repayments of $5.0 million commencing October 31, 2006. At July 31, 2005, $25.0 million was 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, pursuant to the Note Purchase Agreement, the Company issued 4.79% Senior Series A-2004 Notes due 2011 (the "Senior 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 Notes will be used by the Company for capital expenditures, repayment of certain of its debt obligations and general corporate purposes. As of July 31, 2005, $20.0 million was issued and outstanding. The Company maintains a revolving credit line with its bank group which provides for a three year $75.0 million unsecured revolving line of credit and $17.0 million of uncommitted working capital lines, of which a maximum of $15.0 million may be drawn under the terms of the Company's revolving credit line with its bank group. The unsecured revolving line of credit expires on June 17, 2006. At July 31, 2005, the Company had $37.5 million of outstanding borrowings under its bank lines as compared to $25.0 million at July 31, 2004. In addition, one bank in the domestic bank group issued irrevocable standby letters of credit for retail and operating facility leases to various landlords and for Canadian payroll to the Royal Bank of Canada. As of July 31, 2005, these ten standby letters of credit totaled $0.9 million with expiration dates through August 31, 2006. As of July 31, 2004, there were five standby letters of credit that totaled $0.6 million with expiration dates through June 30, 2005. A Swiss subsidiary of the Company maintains unsecured lines of credit with an unspecified term with a Swiss bank. Available credit under these lines totaled 8.0 million Swiss francs, with dollar equivalents of approximately $6.2 million at July 31, 2005 and 2004, of which a maximum of $5.0 million may be drawn under the terms of the Company's revolving credit line with its bank group. As of July 31, 2005, there were no borrowings against these lines. As of July 31, 2005, the Swiss bank guaranteed the Swiss subsidiary's obligations to certain Swiss third parties in the amount of approximately $3.3 million in various foreign currencies. 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 shares repurchased under the repurchase program for the three months and six months ended July 31, 2005 and 2004. As of July 31, 2005, the Company had authorization to repurchase shares up to $4.5 million against an aggregate authorization of $30.0 million. During the six months ended July 31, 2005, treasury shares increased by 180,092 as the result of cashless exercises of stock options for 470,714 shares of stock. 18
The Company paid dividends of $0.05 per share for each of the first and second quarter, or $2.5 million, for the six months ended July 31, 2005 and $0.04 per share for each of the first and second quarter, or $2.0 million for the six months ended July 31, 2004. Cash and cash equivalents at July 31, 2005 amounted to $50.3 million compared to $27.4 million at July 31, 2004. The increase in cash and cash equivalents relates to the Company's positive cash flow and the issuance of Senior Series A-2004 Notes in the amount of $20.0 million in October 2004. RECENTLY ISSUED ACCOUNTING STANDARDS In November 2004, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 151, "Inventory Costs", an amendment of ARB No. 43, Chapter 4 ("SFAS No. 151"). The amendments made by SFAS No. 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges by requiring the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005, and is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123(R), "Share-Based Payment", which is a revision of FASB Statement No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123(R)"). SFAS No. 123(R) supersedes APB Opinion No. 25, "Accounting for Stock Issued to Employees", and amends FASB Statement No. 95, "Statement of Cash Flows". Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative. Public entities are required to apply SFAS No. 123(R) as of the first annual reporting period that begins after June 15, 2005. The Company continues to use the intrinsic value based method of accounting for share-based payments. The Company uses the Black-Scholes valuation model to estimate the value of stock options granted to employees. SFAS No. 123(R) requires the benefits of tax deductions in excess of recognized compensation cost to be reported as a financing cash flow, rather than as an operating cash flow as required under current literature. This requirement may reduce net operating cash flows and increase net financing cash flows in periods after adoption. The adoption of SFAS No. 123(R) is expected to have a material impact on the Company's consolidated financial position, results of operations and cash flows. In December 2004, the FASB issued Statement of Financial Accounting Standards No. 153, "Exchanges of Nonmonetary Assets -- An Amendment of APB Opinion No. 29, Accounting for Nonmonetary Transactions" ("SFAS No. 153"). SFAS No. 153 eliminates the exception from fair value measurement for nonmonetary exchanges of similar productive assets in paragraph 21(b) of APB Opinion No. 29, "Accounting for Nonmonetary Transactions", and replaces it with an exception for exchanges that do not have commercial substance. SFAS No. 153 specifies that a nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. SFAS No. 153 is effective for the fiscal periods beginning after June 15, 2005. The adoption of SFAS No. 153 is not expected to have a material impact on the Company's consolidated financial position, results of operations or cash flows. In March 2005, the FASB issued Interpretation No. 47, "Accounting for Conditional Asset Retirement Obligations" ("FIN 47"). FIN 47 clarifies that the term "conditional asset retirement obligation" as used in SFAS No. 143, "Accounting for Asset Retirement Obligations," refers to a legal obligation to perform an asset 19
retirement activity in which the timing and (or) method of settlement are conditional on a future event that may or may not be within the control of the entity. FIN 47 is effective no later than the end of fiscal years ending after December 15, 2005. The Company is currently assessing the impact of FIN 47 on its consolidated financial position, results of operations and cash flows. 20
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 purchases various derivatives, predominantly forward and option contracts. Changes in derivative fair values will either be recognized in earnings as offsets to the changes in fair value of related hedged assets, liabilities and firm commitments or, for forecasted transactions, deferred and recorded as accumulated other comprehensive income until the hedged transactions occur and are recognized in earnings. The ineffective portion of a hedging derivative's change in fair value will be immediately recognized in earnings. If the Company did not engage in a hedging program, any change in the Swiss franc currency rate would have an equal effect on the entities' cost of sales. The Company purchases gold for the production of certain watches. The Company purchases gold derivatives under its hedging program and treats the changes in fair value on these derivatives in the same manner as the changes in fair value in its Swiss franc derivatives. The Company also hedges its 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. Under SFAS No. 133, the change in fair value of these instruments is recognized in accumulated other comprehensive income to offset the change in the value of the net investment being hedged. The following presents fair value and maturities of the Company's foreign currency derivatives outstanding as of July 31, 2005 (in millions): <TABLE> <CAPTION> July 31, 2005 Fair Value Maturities ------------- ---------- <S> <C> <C> Forward exchange contracts ($9.5) 2005-2006 Purchased foreign currency options 1.4 2005-2006 ------ ($8.1) ====== </TABLE> The Company's international business accounts for 22.6% and 22.5% of the Company's sales for the three months and six months ended July 31, 2005 and 2004. The international operations are denominated in local currency and fluctuations in these currency rates may have an impact on the Company's sales, cost of sales, operating expenses and net income. During the three months and six months ended July 31, 2005 and 2004, there was no material effect to the results of operations due to foreign currency rate fluctuations. There can be no assurance that this trend will continue. Interest Rate Risk As of July 31, 2005, the Company had $37.5 million in short-term bank debt obligations with variable interest rates based on LIBOR plus an applicable loan spread. The Company does not hedge these interest rate risks. The Company also has $45.0 million Senior Note debt bearing fixed interest rates per annum. The difference between the market based interest rates at July 31, 2005 and the fixed rates was unfavorable. 21
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 (the "Exchange Act"). Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective as of the end of the period covered by this report. 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 July 31, 2005, that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting. 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. 22
PART II - OTHER INFORMATION Item 1. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders On June 16, 2005, the Company held its annual meeting of shareholders at its corporate office in Paramus, New Jersey. The following matters were voted upon at the meeting: (i) Margaret Hayes Adame, Richard Cote, Efraim Grinberg, Gedalio Grinberg, Alan H. Howard, Nathan Leventhal, Donald Oresman and Leonard L. Silverstein were elected directors of the Company. The results of the vote were as follows: <TABLE> <CAPTION> Withheld/ Nominee For Against ---------- ---------- --------- <S> <C> <C> Margaret Hayes Adame................... 78,797,501 538,914 Richard Cote........................... 75,102,221 4,234,194 Efraim Grinberg........................ 75,167,287 4,169,128 Gedalio Grinberg....................... 75,166,073 4,170,342 Alan H. Howard......................... 78,918,675 417,740 Nathan Leventhal....................... 78,918,475 417,940 Donald Oresman......................... 78,797,701 538,714 Leonard L. Silverstein................. 72,639,152 6,697,263 </TABLE> (ii) A proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company's independent public accountants for the fiscal year ending January 31, 2006 was approved. The results of the vote were as follows: <TABLE> <CAPTION> Withheld/ Exception/ For Against Abstain --- --------- ---------- <S> <C> <C> 79,105,508 228,978 1,929 </TABLE> Item 6. Exhibits 10.1 Line of Credit Letter Agreement dated as of June 19, 2005 between the Registrant and Bank of America and Amended and Restated Promissory Note as of June 19, 2005. 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. 23
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. 24
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: September 9, 2005 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) 25