1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 ------------------------ FORM 10-Q ------------------------ [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JULY 31, 1999 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-22378 MOVADO GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <TABLE> <S> <C> NEW YORK 13-2595932 (STATE OR OTHER JURISDICTION (IRS EMPLOYER OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 125 CHUBB AVENUE, LYNDHURST, NEW JERSEY 07071 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) </TABLE> REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (201) 460-4800 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate the number of shares outstanding of each of the Issuer's classes of Common Stock, as of the latest practicable date. As of September 8, 1999 the Registrant had 3,509,773 shares of Class A Common Stock, par value $0.01 per share, outstanding and 9,476,353 shares of Common Stock, par value $0.01 per share, outstanding. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
2 MOVADO GROUP, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q JULY 31, 1999 <TABLE> <CAPTION> Page ---- <S> <C> Part I Financial Information Item 1. Consolidated Balance Sheets at July 31, 1999, January 31, 1999 and July 31, 1998 2 Consolidated Statements of Income for the six months ended July 31, 1999 and 1998 and the three months ended July 31, 1999 and 1998 3 Consolidated Statements of Cash Flows for the six months ended July 31, 1999 and 1998 4 Notes to Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Part II Other Information Item 1 Legal Proceedings 12 Item 4. Submission of Matters to a Vote of Security Holders 12 Item 6. Exhibits and Reports on Form 8-K 13 Signatures 14 Exhibit Index 15 </TABLE>
3 PART 1 - FINANCIAL INFORMATION Item 1. Financial Statements MOVADO GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited) July 31, JANUARY 31, JULY 31, 1999 1999 1998 -------- ----------- -------- ASSETS - ------ Current assets: Cash $ 32,628 $ 5,626 $ 4,767 Trade receivables, net 104,641 109,102 98,766 Inventories, net 118,143 104,027 118,885 Assets held for sale -- 22,187 -- Other 20,120 21,489 23,511 -------- -------- -------- Total current assets 275,532 262,431 245,929 -------- -------- -------- Plant, property and equipment, net 26,728 22,998 22,546 Other assets 13,021 10,946 11,658 -------- -------- -------- $315,281 $296,375 $280,133 ======== ======== ======== LIABILITIES AND SHAREHOLDERS' EQUITY - ------------------------------------ Current liabilities: Loans payable to banks $ 47,950 $ 2,200 $ 36,055 Current portion of long-term debt 5,000 10,000 5,000 Accounts payable 18,572 25,181 27,039 Accrued liabilities 15,081 20,020 13,349 Deferred and current taxes payable 8,790 10,179 8,944 -------- -------- -------- Total current liabilities 95,393 67,580 90,387 -------- -------- -------- Long-term debt 50,000 55,000 35,000 Deferred and non-current foreign income taxes 6,286 5,728 3,798 Other liabilities 1,627 1,641 2,460 Shareholders' equity Preferred Stock, $0.01 par value, 5,000,000 shares authorized; no shares issued Common Stock, $0.01 par value, 20,000,000 shares authorized; 9,472,425, 9,419,781 and 9,386,611, shares issued, respectively 95 94 94 Class A Common Stock, $0.01 par value, 10,000,000 shares authorized; 3,509,773, 3,530,922 and 3,533,529 shares issued and outstanding, respectively 35 35 35 Capital in excess of par value 65,403 65,332 64,792 Retained earnings 114,242 106,141 89,213 Accumulated other comprehensive income (7,344) (2,188) (5,521) Treasury Stock, 488,490, 159,019 and 16,819 shares at cost, respectively (10,456) (2,988) (125) -------- -------- -------- 161,975 166,426 148,488 -------- -------- -------- $315,281 $296,375 $280,133 ======== ======== ======== See Notes to Consolidated Financial Statements 2
4 MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except per share amounts) (Unaudited) <TABLE> <CAPTION> Six Months Ended July 31, Three Months Ended July 31, ------------------------- --------------------------- 1999 1998 1999 1998 <S> <C> <C> <C> <C> Net sales $117,191 $110,584 $69,538 $68,934 Costs and expenses: Cost of sales 46,935 46,305 28,317 29,369 Selling, general and administrative 61,001 57,173 33,961 33,663 --------- -------- ------- ------- Operating income 9,255 7,106 7,260 5,902 Net interest expense 2,665 2,516 1,518 1,504 Gain on disposition of business 4,752 -- -- -- --------- -------- ------- ------- Income before income taxes 11,342 4,590 5,742 4,398 Provision for income taxes 2,609 1,056 1,320 1,012 --------- -------- ------- ------- Net income $8,733 $3,534 $4,422 $3,386 ========= ======== ======= ======= Basic net income per share $0.69 $0.27 $0.35 $0.26 ========= ======== ======= ======= Diluted net income per share $0.67 $0.26 $0.34 $0.25 ========= ======== ======= ======= Dividends declared per share $0.05 $0.04 $0.025 $0.02 ========= ======== ======= ======= Average shares outstanding 12,687 12,885 12,604 12,896 Dilutive effect of stock options 393 676 393 704 --------- -------- ------- ------- Average shares outstanding assuming dilution 13,080 13,561 12,997 13,600 ========= ======== ======= ======= </TABLE> See Notes to Consolidated Financial Statements 3
5 MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) <TABLE> <CAPTION> Six Months Ended July 31, ------------------------- 1999 1998 ------- ------- <S> <C> <C> Cash flows from operating activities: Net income $8,733 $3,534 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 2,533 1,810 Deferred and non-current foreign income taxes 808 681 Provision for losses on accounts receivable 437 491 Gain on disposition of business (4,752) -- Changes in current assets and liabilities: Trade receivables 4,051 (7,234) Inventories (16,136) (21,174) Other current assets (826) (5,838) Accounts payable (6,323) 2,514 Accrued liabilities (8,036) (3,511) Deferred and current taxes payable (1,106) (1,665) Increase in other non-current assets (1,126) (932) (Decrease) increase in other non-current liabilities (180) 105 ------- ------- Net cash used in operating activities (21,923) (31,219) ------- ------- Cash flows used for investing activities: Capital expenditures (6,010) (5,140) Proceeds from disposition of business 28,409 -- Goodwill, trademarks and other intangibles (1,019) (374) ------- ------- Net cash provided by (used in) investing activities 21,380 (5,514) ------- ------- Cash flows from financing activities: Repayment of senior notes (5,000) (5,000) Proceeds from bank borrowings 40,750 36,055 Principal payments under capital leases (69) (166) Stock options exercised 301 310 Dividends Paid (632) (515) Purchase of treasury stock (7,468) -- ------- ------- Net cash provided by financing activities 27,882 30,684 ------- ------- Effect of exchange rate changes on cash and cash equivalents (337) (58) ------- ------- Net increase (decrease) in cash 27,002 (6,107) Cash at beginning of period 5,626 10,874 ------- ------- Cash at end of period $32,628 $4,767 ======= ======= </TABLE> See Notes to Consolidated Financial Statements 4
6 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 1999 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 - INVENTORIES Inventories consist of the following (in thousands): <TABLE> <CAPTION> JULY 31, JANUARY 31, JULY 31, 1999 1999 1998 ---------------- ---------------- ---------------- <S> <C> <C> <C> Finished goods $75,257 $64,438 $73,888 Work-in-process and component parts 42,886 39,589 44,997 ---------------- ---------------- ---------------- $118,143 $104,027 $118,885 ================ ================ ================ </TABLE> NOTE 2 - SUPPLEMENTAL CASH FLOW INFORMATION The following is provided as supplemental information to the consolidated statements of cash flows (in thousands): <TABLE> <CAPTION> SIX MONTHS ENDED JULY 31, ------------------------- 1999 1998 ---- ---- <S> <C> <C> Cash paid during the period for: Interest $2,995 $3,241 Income taxes 3,310 2,164 </TABLE> 5
7 NOTE 3 - COMPREHENSIVE INCOME The components of comprehensive income are as follows (in thousands): <TABLE> <CAPTION> SIX MONTHS ENDED JULY 31, THREE MONTHS ENDED JULY 31, ------------------------- --------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income $8,733 $3,534 $4,422 $3,386 Foreign currency translation adjustment (5,156) (384) 2,948 864 ------------ ------------ ------------ ------------ Comprehensive income $3,577 $3,150 $7,370 $4,250 ============ ============ ============ ============ </TABLE> NOTE 4 - SEGMENT INFORMATION In fiscal 1999, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," (the "Statement") which requires reporting certain financial information regarding the Company's segments according to the "management approach." This approach requires reporting information regarding operating segments on the basis used internally by management to evaluate segment performance. The Company conducts its business primarily in two operating segments: "Wholesale" and "Other". The Company's wholesale segment includes the design, manufacture and distribution of quality watches. The other segment includes the Company's retail and service center operations. In fiscal 2000, the Statement also requires quarterly disclosure of certain segment information. Operating segment data is as follows (in thousands): <TABLE> <CAPTION> NET SALES OPERATING PROFIT --------------------------- --------------------------- FOR THE SIX MONTHS ENDED JULY 31, --------------------------------------------------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Wholesale $ 102,208 $ 98,432 $ 11,023 $ 8,716 Other 14,983 12,152 (1,768) (1,610) ---------- ---------- --------- -------- Consolidated total $ 117,191 $ 110,584 $ 9,255 $ 7,106 ========== ========== ========= ======== </TABLE> <TABLE> <CAPTION> NET SALES OPERATING PROFIT --------------------------- --------------------------- FOR THE THREE MONTHS ENDED JULY 31, --------------------------------------------------------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- <S> <C> <C> <C> <C> Wholesale $ 61,052 $ 61,919 $ 7,543 $ 6,528 Other 8,486 7,015 (283) (626) ---------- ---------- --------- -------- Consolidated total $ 69,538 $ 68,934 $ 7,260 $ 5,902 ========== ========== ========= ======== </TABLE> 6
8 NOTE 5 - DISPOSITION OF BUSINESS On December 22, 1998, the Company entered into an agreement with VLG North America, Inc. ("VLG") for the sale to VLG of substantially all of the assets, properties and rights related to the Piaget business. The transaction was completed on February 22, 1999 at a sales price of $28.4 million. After adjusting for the net assets sold and the expenses related to the sale, the Company earned an after tax gain of $3.7 million, or $0.28 per share. In fiscal 1999, the Piaget business had annual sales and operating income of approximately $14.2 million and $100,000 respectively. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations RESULTS OF OPERATIONS FORWARD LOOKING STATEMENTS Statements included under Management's Discussion and Analysis of Financial Condition and Results of Operations, in this report, as well as statements in future filings by the Company with the Securities and Exchange Commission ("SEC"), in the Company's press releases and oral statements made by or with the approval of an authorized executive officer of the Company, which are not historical in nature, are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by Section 21E of the Securities Exchange Act of 1934. The Company cautions readers that forward looking statements include, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, plans for future operations, effective tax rates, margins, interest costs, and income, as well as assumptions relating to the foregoing. Forward looking statements are subject to certain risks and uncertainties, some of which cannot be predicted or quantified. Actual results and future events could differ materially from those indicated in the forward looking statements due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company's reports filed with the SEC including, without limitation, the following: general economic and business conditions which may impact disposable income of consumers, competitive products and pricing, ability to enforce intellectual property rights, seasonality, availability of alternative sources of supply in the case of loss of any significant supplier, the Company's dependence on key officers, continued availability to the Company of financing and credit on favorable terms, and success of hedging strategies in respect of currency exchange rate fluctuations. Six months ended July 31, 1999 compared to six months ended July 31, 1998. Net Sales. Net sales for the six months ended July 31, 1999 increased 6.0% to $117.2 million from $110.6 million for the six months ended July 31, 1998. Prior year sales included the Piaget distribution business which the Company sold in February 1999. Sales from ongoing operations increased 13.2%. The increase in sales from ongoing operations is mainly attributable to a 16% increase in domestic sales and a 4% increase in international sales. The domestic sales increase resulted from increased sales in the Concord, Movado, ESQ and Coach brands offset by a decrease in the Corum brand. Domestic sales have also increased due to both volume increases as well as new store openings of both the Retail Outlets and the Movado Boutiques. International sales have increased due to the continuing rollout of the Coach brand. The increase in sales from ongoing operations was offset by approximately a $1.0 million decrease in the Corum brand. Gross Margins. Gross margins for the six months ended July 31, 1999 and July 31, 1998 were $70.3 million (59.9% of sales) and $64.3 million (58.1% of sales), respectively. The gross margin increase of 180 basis points is attributable to a combination of the disposition of the Piaget distribution 7
9 business which had margins below the Company's manufactured brands, a reduction in supply chain costs and a decline in the value of the Swiss franc against the U.S. dollar which reduces the Company's production costs. Operating Expenses. Operating expenses for the six months ended July 31, 1999 were $61.0 million (52.1% of sales) as compared to $57.2 million (51.7% of sales) for the six months ended July 31, 1998. The increase in operating expenses is primarily due to the launch of the Coach brand and Movado Boutiques both of which the Company launched late in the first quarter of fiscal 1999. Overall selling expenses decreased, due mainly to the disposition of the Piaget distribution business slightly offset by incremental growth in the Movado boutiques, the outlet stores and increased volume of our wholesale business. General and administrative expenses increased primarily due to expenses related to the amortization and other costs of the Company's new core information system as well as cost increases in employee benefit programs as a result of an increase in headcount. Interest Expense. Net interest expense, which consists primarily of interest on the Company's 6.56% Senior Notes ("Senior Notes"), 6.90% Series A Senior Notes ("Series A Senior Notes") and borrowings against its working capital and revolving lines of credit, was $2.7 million for the six months ended July 31, 1999 as compared to $2.5 million for the six months ended July 31, 1998. The increase relates to interest on the 6.9% Series A Senior Notes issued in December 1998 and increased interest on working capital borrowings, offset by interest income from the investment of the proceeds from the disposition of the Piaget business. Income Taxes. The Company recorded a provision for taxes of $2.6 million for the six months ended July 31, 1999 and $1.1 million for the six months ended July 31, 1998. Taxes were provided at a 23% effective rate which the Company believes will approximate the effective annual rate for fiscal 2000; 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 23% 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. Three months ended July 31, 1999 compared to three months ended July 31, 1998. Net Sales. Net sales for the three months ended July 31, 1999 increased 1% to $69.5 million from $68.9 million for the comparable prior year period. Sales for the prior period included the Piaget distribution business which the Company sold in February 1999. Sales from ongoing operations increased 9% to $69.5 million from $63.7 million for the comparable prior year period. The sales increase from ongoing operations was attributable to a 9% increase in domestic sales and an 8% increase in international sales. The international sales increase was the result of increased international sales of our Concord, and Coach brands. The domestic sales increase was primarily attributable to sales increases for our ESQ and Coach brands as well as increases in retail sales by the Company's Movado Boutiques and our outlet stores. Gross Margins. Gross margins for the three months ended July 31, 1999 were $41.2 million (59.3% of sales) as compared to $39.6 million (57.4% of sales) for the three months ended July 31, 1998. The increase in the gross margins as a percentage of sales is primarily attributable to the disposition of the Piaget distribution business which had gross margins below the Company's manufactured brands, a reduction in supply chain costs and from a decline in the value of the Swiss franc against the U.S. dollar which reduces the Company's production costs. 8
10 Operating Expenses. Operating expenses for the three months ended July 31, 1999 were $34.0 million (48.8% of net sales) as compared to $33.7 million (48.8% of net sales) for the three months ended July 31, 1998. Operating expense increases were offset by reductions due to the disposition of the Piaget distribution business. The increases in operating expenses were due to the continuing expansion of the Company's retail network. In addition operating expenses increased due to amortization and other costs associated with the implementation of the Company's new core information system which was implemented in March 1999 in the United States. Interest Expense. Net interest expense, which consists primarily of interest on the Company's Senior Notes, Series A Senior Notes and borrowings against its working capital and revolving lines of credit, was $1.5 million for the three months ended July 31, 1999 and 1998. Interest expense on borrowings increased due to interest on the Series A Senior Notes issued in December 1998 and increased interest on working capital borrowings offset by interest income from the investment of the proceeds from the disposition of the Piaget business. Income Taxes. The Company recorded a provision for income taxes of $1.3 million for three months ended July 31, 1999 and $1.0 million for the three months ended July 31, 1998. Taxes were provided at a 23% effective rate which the Company believes will approximate the effective annual rate for fiscal 2000; 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 23% 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 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. 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's future requirements for capital will relate not only to working capital requirements for the expected continued growth of its existing brands, but also to fund new product lines. In addition, the Company is required to make a $5 million sinking fund payment on January 31, 2000 in connection with its Senior Notes which were issued in the original principal amount of $40 million. The Company's revolving credit and working capital lines with its domestic bank group provide for a three year, $90.0 million unsecured revolving line of credit, pursuant to an Amended and Restated Credit Agreement, dated July 23, 1997, among the Company, Chase Manhattan Bank, as agent, Fleet Bank N.A. as co-agent, and other banks signatory thereto ("Restated Bank Credit Agreement"), and $28.3 million of uncommitted working capital lines of credit. At July 31, 1999, the Company had $48.0 million in outstanding balances under the Restated Bank Credit Agreement. The Company is currently in the process of renegotiating the revolving and working capital lines. In March 1998, the Company's Board of Directors authorized the repurchase of 400,000 shares of the Company's Common Stock. In March 1999, the Board approved a revised stock repurchase program for the repurchase of shares of the Company's Common Stock up to an aggregate repurchase price of 9
11 $10.0 million in addition to the shares previously purchased. Since March 1998, the Company had repurchased approximately 452,000 shares at an aggregate cost of approximately $10.3 million. As of July 31, 1999, the Company's debt to total capitalization ratio was 38.9% as compared to 28.8% at January 31, 1999 and 33.9% at July 31, 1998. The increase in the debt to total capitalization from July 31, 1998 is primarily due to the issuance of the Series A Senior Notes in the fourth quarter of fiscal 1999. The increase from January 31, 1999 is primarily due to an increase in loans payable to banks. The Company's net working capital, consisting primarily of trade receivables and inventories, amounted to $180.1 million at July 31, 1999, $194.9 million at January 31, 1999 and $155.5 million at July 31, 1998. The decrease in working capital from January 31, 1999 is primarily the result of an increase in loans payable to banks. The increase in working capital from July 31, 1998 is primarily due to an increase in receivables due to growth in the Company's business, and the proceeds from the sale of the Piaget business. Accounts receivable at July 31, 1999 were $104.6 million as compared to $109.1 million at January 31, 1999 and $98.8 million at July 31, 1998. The growth in accounts receivable from July 31, 1998 is primarily the result of growth in the Company's business. Inventories at July 31, 1999 were $118.1 million as compared to $104.0 million at January 31, 1999 and $118.9 million at July 31, 1998. The increase from January 31, 1999 relates to the anticipation of the upcoming selling season. The decrease from July 31, 1998 relates to the Company's introduction of new product lines offset by the disposition of the Piaget business. The Company's fiscal 2000 year-to-date capital expenditures approximated $6.0 million as of July 31, 1999 and $5.1 million as of July 31, 1998. Expenditures in fiscal 2000 primarily related to the construction of the Company's sales booth for the Basel Fair in Switzerland and improvements in information systems. The Company expects that capital expenditures in the future will approximate the average of fiscal 1999 and 1998 levels. Year 2000 General - ------- Many older computer software programs and other equipment with embedded chips or processors (collectively "systems") refer to years in terms of their last two digits only. Such systems may incorrectly interpret the year 2000 to mean the year 1900. If not corrected, those systems could cause date related transaction failures. Project - ------- The Company initiated a project in 1997 (the "Project") to improve and standardize data and computer technology. The Project is designed to replace all obsolete hardware and software with systems that are Year 2000 compliant and in addition, to replace most business software systems. The Project calls for the replacement or upgrade of all PCs, servers, network components, desktop software and core business software which support manufacturing, distribution, sales, accounting, after sales service, retail point of sale, and electronic data interchange (EDI). A new global technical network infrastructure (hardware, software, and communication technology), a new retail point-of-sale and 10
12 merchandise system that is Year 2000 compliant have been implemented. As part of the Project, new client/server core business applications software (which is designed to be Year 2000 compliant) supporting manufacturing, distribution, sales, accounting and after sales service was implemented in the U.S. in March 1999. The Company has completed implementation in the United states and expects to complete the implementation of this software in Switzerland in February 2000 and in Canada and the Far East by the end of the first quarter of fiscal 2001. Existing business applications software systems operating in Canada and the Far East, however, have been made Year 2000 compliant. In Switzerland, the Company implemented certain upgrades and remediated applications software that was not Year 2000 compliant. The Company has tested its applications software by reviewing the database and program definitions to confirm that the date formats are four digit year specific. The Company plans to conduct further testing by simulating the date change to January 1, 2000 during the third quarter of fiscal 2000. As a result of the Project and its contingency planning, the Company expects that it will be Year 2000 compliant, on a global basis, by the end of calendar year 1999. By the use of questionnaire the Company is monitoring the Year 2000 system status of customers and vendors involved with electronic interchange of data with our systems. This monitoring will continue throughout calendar year 1999. Non-electronic data exchange contingency approaches, including reliance on communications by fax, will be used, if required, with those customers or vendors which fail to reach Year 2000 system compliance by January 1, 2000. Costs - ----- Costs associated with systems replacement and modification to become Year 2000 compliant under the contingency plan (outside of the Project) are expected to be approximately $400,000. The estimated total cost of the Project is approximately $11.0 million. The total amount expended on the Project through July 31, 1999 was approximately $9.3 million. This estimate assumes that the Company will not incur significant Year 2000 related costs due to the failure of customers, vendors and other third parties to be Year 2000 compliant. Risks - ----- The failure to correct a material Year 2000 problem could result in an interruption in, or failure of, certain normal business activities or operations. Such failures could materially and adversely affect the Company's results of operations, liquidity and financial condition. Due to the general uncertainty inherent in the Year 2000 problem, resulting in part from the uncertainty of the Year 2000 readiness of third party suppliers and customers, the Company is unable to determine at this time whether the consequences of Year 2000 failures will have a material impact on the Company's results of operations, liquidity or financial condition. The Project is expected to significantly reduce the Company's level of uncertainty about the Year 2000 problem. The Company believes that, with the completion of the Project and the implementation of the Company's contingency plan, the possibility of significant interruptions of normal operations should be reduced. No major information technology projects have been deferred as a result of the Project. 11
13 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 15, 1999 the Company held its annual meeting of shareholders at the offices of Simpson, Thacher & Bartlett located at 425 Lexington Avenue, New York, New York. The following matters were voted upon at the meeting: (i) The election of the following directors, constituting the entire board of directors: Margaret Hayes Adame Michael Bush Efraim Grinberg Gedalio Grinberg Alan H. Howard Donald Oresman Leonard L. Silverstein (ii) A proposal to ratify the selection of PricewaterhouseCoopers LLP as the Company's independent public accountants for the fiscal year ending January 31, 2000; (iii) Approval of an amendment to the Company's Certificate of Incorporation to amend the definition of "Permitted Transferee" in respect of the Company's Class A Common Stock. With respect to the above referenced proposals that were voted on at the annual shareholders meeting, the following votes were tabulated. There were no broker non-votes, except in respect of proposal (iii). Proposal (i) on election of directors: <TABLE> <CAPTION> Nominee For Withheld Exception ------- --- ---------------- ----------------- <S> <C> <C> <C> Margaret Hayes Adame ............................................... 38,341,390 16,541 39,662 Michael Bush ....................................................... 38,329,290 16,541 51,762 Efraim Grinberg .................................................... 38,329,290 16,541 51,762 Gedalio Grinberg ................................................... 38,329,290 16,541 51,762 Alan H. Howard ..................................................... 38,381,052 16,541 51,762 Donald Oresman ..................................................... 38,328,690 16,541 51,762 Leonard L. Silverstein ............................................. 38,328,790 16,541 51,762 For Against Abstain --- ------- ------- Proposal (ii) on ratification of appointment of accountants ....... 38,393,103 1,097 3,393 Proposal (iii) on approval of amendment to Certificate of Incorporation ...................................................... 34,977,259 2,684,760 44,122 </TABLE> There were 691,452 broker non-votes in respect of proposal (iii). 12
14 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3(i) Restated Certificate of Incorporation filed on September 27, 1993, as amended. 27 Financial Data Schedule. (b) Reports on Form 8-K None 13
15 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: September 14, 1999 By: /s/ Kenneth J. Adams ------------------------------ Kenneth J. Adams Senior Vice President and Chief Financial Officer (Chief Financial Officer) Dated: September 14, 1999 By: /s/ Glenn E. Tynan ------------------------------ Glenn E. Tynan Corporate Controller (Principal Accounting Officer) 14
16 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION ------ ----------- 3(i) Restated Certificate of Incorporation, as amended. 27 Financial Data Schedule. 15