- -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 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 OCTOBER 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 0-22378 MOVADO GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) <Table> <S> <C> NEW YORK 13-2595932 (State or other jurisdiction of (IRS Employer 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 the number of shares outstanding of each of the Issuer's classes of Common Stock, as of the latest practicable date. As of December 7, 2001 the Registrant had 3,483,276 shares of Class A Common Stock, par value $0.01 per share, outstanding and 9,759,235 shares of Common Stock, par value $0.01 per share, outstanding. - -------------------------------------------------------------------------------- - --------------------------------------------------------------------------------
MOVADO GROUP, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q OCTOBER 31, 2001 <TABLE> <CAPTION> Page ---- <S> <C> Part I Financial Information Item 1. Consolidated Balance Sheets at October 31, 2001, January 31, 2001 and October 31, 2000 3 Consolidated Statements of Income for the nine months and three months ended October 31, 2001 and 2000 4 Consolidated Statements of Cash Flows for the nine months ended October 31, 2001 and 2000 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Part II Other Information Item 1. Legal Proceedings 14 Item 4. Submission of Matters to a Vote of Security Holders 14 Item 6. Exhibits and Reports on Form 8-K 15 Signatures 16 Exhibit Index 17 </TABLE> 2
PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MOVADO GROUP, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share amounts) (Unaudited) <TABLE> <CAPTION> OCTOBER 31, JANUARY 31, OCTOBER 31, 2001 2001 2000 ---- ---- ---- <S> <C> <C> <C> ASSETS Current assets: Cash and cash equivalents $ 20,259 $ 23,059 $ 11,161 Trade receivables, net 127,671 98,797 131,143 Inventories 106,603 95,863 86,170 Other current assets 23,599 23,501 20,162 --------- --------- --------- Total current assets 278,132 241,220 248,636 Plant, property and equipment, net 36,492 32,906 29,683 Other assets 17,653 16,279 15,564 --------- --------- --------- $ 332,277 $ 290,405 $ 293,883 ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Loans payable to banks $ 46,500 $ 8,800 $ 37,840 Current portion of long-term debt 5,000 5,000 5,000 Accounts payable 26,133 28,819 19,902 Accrued liabilities 27,671 28,157 20,798 Deferred and current taxes payable 9,103 15,807 9,522 --------- --------- --------- Total current liabilities 114,407 86,583 93,062 Long-term debt 40,000 40,000 45,000 Deferred and non-current foreign income taxes 3,515 3,517 4,771 Other liabilities 1,295 835 1,279 --------- --------- --------- Total liabilities 159,217 130,935 144,112 --------- --------- --------- 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; 9,756,611, 9,600,435 and 9,513,172 shares issued, respectively 98 96 95 Class A common stock, $0.01 par value, 10,000,000 shares authorized; 3,509,733, 3,509,733 and 3,509,733 shares issued and outstanding, respectively 35 35 35 Capital in excess of par value 68,504 67,242 66,266 Retained earnings 149,540 138,176 134,858 Accumulated other comprehensive income (17,425) (18,169) (23,573) Treasury stock, 1,544,487, 1,556,670 and 1,556,670 shares, at cost, respectively (27,692) (27,910) (27,910) --------- --------- --------- 173,060 159,470 149,771 --------- --------- --------- $ 332,277 $ 290,405 $ 293,883 ========= ========= ========= </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3
MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF INCOME (in thousands, except share and per share amounts) (Unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED OCTOBER 31, OCTOBER 31, ----------- ----------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net sales $ 224,967 $234,634 $90,103 $105,122 Costs and expenses: Cost of sales 86,154 91,613 34,224 39,927 Selling, general and administrative 119,475 115,394 46,369 46,723 --------- -------- ------- -------- Operating income 19,338 27,627 9,510 18,472 Net interest expense 4,092 4,808 1,204 1,729 --------- -------- ------- -------- Income before income taxes and cumulative effect of a change in accounting principle 15,246 22,819 8,306 16,743 Provision for income taxes 2,725 5,705 782 4,186 --------- -------- ------- -------- Income before cumulative effect of a change in accounting principle 12,521 17,114 7,524 12,557 Cumulative effect of a change in accounting principle, net of a tax benefit of $42 (109) -- -- -- --------- -------- ------- -------- Net income $ 12,412 $ 17,114 $ 7,524 $ 12,557 ========= ======== ======= ======== Basic income (loss) per share Income before cumulative effect of a change in accounting principle $ 1.07 $ 1.46 $ 0.64 $ 1.09 Cumulative effect of a accounting change (0.01) -- -- -- --------- -------- ------- -------- Net income per share $ 1.06 $ 1.46 $ 0.64 $ 1.09 ========= ======== ======= ======== Weighted basic average shares outstanding 11,668 11,702 11,704 11,497 ========= ======== ======= ======== Diluted income (loss) per share Income before cumulative effect of a change in accounting principle $ 1.05 $ 1.44 $ 0.63 $ 1.07 Cumulative effect of a accounting change (0.01) -- -- -- --------- -------- ------- -------- Net income per share $ 1.04 $ 1.44 $ 0.63 $ 1.07 ========= ======== ======= ======== Weighted diluted average shares outstanding 11,964 11,908 12,023 11,783 ========= ======== ======= ======== Dividends declared per share $ 0.09 $ 0.075 $ 0.03 $ 0.025 ========= ======== ======= ======== </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4
MOVADO GROUP, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited) <TABLE> <CAPTION> NINE MONTHS ENDED OCTOBER 31, ----------------------------- 2001 2000 ---- ---- <S> <C> <C> Cash flows from operating activities: Net income $ 12,412 $ 17,114 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization 5,861 4,328 Deferred and non-current foreign income taxes -- 28 Provision for losses on accounts receivable 840 716 Provision for losses on inventory 422 378 Changes in current assets and liabilities: Trade receivables (30,324) (37,408) Inventories (11,206) (12,255) Other current assets (3,168) (7,169) Accounts payable (2,821) 3,107 Accrued liabilities 3,392 2,245 Deferred & current taxes payable (6,290) 4,108 Other non-current assets (341) 1,602 Other non-current liabilities 460 108 -------- -------- Net cash used in operating activities (30,763) (23,098) -------- -------- Cash flows from investing activities: Capital expenditures (9,069) (7,004) Goodwill, trademarks and other intangibles (620) (741) -------- -------- Net cash used in investing activities (9,689) (7,745) -------- -------- Cash flows from financing activities: Net proceeds from bank borrowings 37,700 24,340 Stock options exercised 1,262 79 Dividends paid (1,048) (863) Issuance of treasury stock 218 -- Purchase of treasury stock -- (7,328) -------- -------- Net cash provided by financing activities 38,132 16,228 -------- -------- Effect of exchange rate changes on cash and cash equivalents (480) (839) -------- -------- Net decrease in cash and cash equivalents (2,800) (15,454) Cash and cash equivalents at beginning of period 23,059 26,615 -------- -------- Cash and cash equivalents at end of period $ 20,259 $ 11,161 ======== ======== </TABLE> SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5
MOVADO GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements have been prepared by Movado Group, Inc. (the "Company") in accordance with generally accepted accounting principles for interim financial information and with the instructions for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 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 consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the fiscal year ended January 31, 2001. Since the Company's business is seasonal, with a higher proportion of sales and earnings generated in the last six months of the fiscal year, operating results for the interim periods presented are not necessarily indicative of the results that may be expected for the fiscal year. NOTE 1 - RECLASSIFICATION Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2 - INVENTORIES Inventories consist of the following (in thousands): <TABLE> <CAPTION> OCTOBER 31, JANUARY 31, OCTOBER 31, 2001 2001 2000 ---- ---- ---- <S> <C> <C> <C> Finished goods $ 67,462 $60,909 $48,387 Component parts 33,062 30,942 33,530 Work-in-process 6,079 4,012 4,253 -------- ------- ------- $106,603 $95,863 $86,170 ======== ======= ======= </TABLE> NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION The following is provided as supplemental information to the consolidated statements of cash flows (in thousands): <TABLE> <CAPTION> NINE MONTHS ENDED OCTOBER 31, ----------------- 2001 2000 ---- ---- <S> <C> <C> Cash paid during the period for: Interest $3,843 $4,861 Income taxes $9,322 $3,165 </TABLE> 6
NOTE 4 - COMPREHENSIVE INCOME The components of comprehensive income for the nine months and three months ended October 31, 2001 and 2000 are as follows (in thousands): <TABLE> <CAPTION> NINE MONTHS ENDED THREE MONTHS ENDED ----------------- ------------------ OCTOBER 31, OCTOBER 31, OCTOBER 31, OCTOBER 31, 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Net income $ 12,412 $ 17,114 $ 7,524 $ 12,557 Other comprehensive income (expense): Foreign currency translation adjustment (214) (7,111) 6,485 (9,467) Net unrealized gain on foreign currency forward exchange contracts and other 904 -- 452 -- Net unrealized gain on investments 54 -- 54 -- -------- -------- ------- -------- Total other comprehensive income (loss) 744 (7,111) 6,991 (9,467) -------- -------- ------- -------- Total comprehensive income $ 13,156 $ 10,003 $14,515 $ 3,090 ======== ======== ======= ======== </TABLE> NOTE 5 - SEGMENT INFORMATION The Company conducts its business primarily in two operating segments: "Wholesale" and "Other". The Company's wholesale segment includes the designing, manufacturing and distribution of quality watches. Other includes the Company's retail and service center operations. Operating segment data for the nine months and three months ended October 31, 2001 and 2000 are as follows (in thousands): <TABLE> <CAPTION> FOR THE NINE MONTHS ENDED OCTOBER 31, ------------------------------------- NET SALES OPERATING INCOME --------- ---------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Wholesale $189,597 $205,068 $ 21,024 $ 31,608 Other 35,370 29,566 (1,686) (3,981) -------- -------- -------- -------- Consolidated total $224,967 $234,634 $ 19,338 $ 27,627 ======== ======== ======== ======== </TABLE> <TABLE> <CAPTION> FOR THE THREE MONTHS ENDED OCTOBER 31, -------------------------------------- NET SALES OPERATING INCOME --------- ---------------- 2001 2000 2001 2000 ---- ---- ---- ---- <S> <C> <C> <C> <C> Wholesale $77,313 $ 94,604 $ 9,964 $ 20,399 Other 12,790 10,518 (454) (1,927) ------- -------- ------- -------- Consolidated total $90,103 $105,122 $ 9,510 $ 18,472 ======= ======== ======= ======== </TABLE> 7
NOTE 6 - RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") SFAS No. 141, "Business Combinations" effective for all business combinations completed after June 30, 2001 and SFAS No. 142, "Goodwill and Other Intangible Assets" effective for fiscal years beginning after December 15, 2001. On August 16, 2001, the FASB issued SFAS No. 143, "Accounting for Asset Retirement Obligation", which is effective for financial statements issued for fiscal years beginning after June 15, 2002. On October 3, 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", which is effective for financial statements issued for fiscal years beginning after December 15, 2001. Upon adoption of these standards, the Company does not expect a significant impact on its financial position, earnings or cash flows. 8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations FORWARD LOOKING STATEMENTS Statements included under Management's Discussion and Analysis of Financial Condition and Results of Operations, in this report, as well as statements in future filings by the Company with the Securities and Exchange Commission ("SEC"), in the Company's press releases and oral statements made by or with the approval of an authorized executive officer of the Company, which are not historical in nature, are intended to be, and are hereby identified as, "forward looking statements" for purposes of the safe harbor provided by the Private Securities Litigation Reform Act of 1995. The Company cautions readers that forward looking statements include, without limitation, those relating to the Company's future business prospects, revenues, working capital, liquidity, capital needs, plans for future operations, effective tax rates, margins, interest costs, and income, as well as assumptions relating to the foregoing. Forward looking statements are subject to certain risks and uncertainties, some of which cannot be predicted or quantified. Actual results and future events could differ materially from those indicated in the forward looking statements due to several important factors herein identified, among others, and other risks and factors identified from time to time in the Company's reports filed with the SEC including, without limitation, the following: general economic and business conditions which may impact disposable income of consumers, changes in consumer preferences and popularity of particular designs, new product development and introduction, competitive products and pricing, seasonality, availability of alternative sources of supply in the case of loss of any significant supplier, the loss of significant customers, the Company's dependence on key officers, the continuation of licensing arrangements with third parties, ability to secure and protect trademarks, patents and other intellectual property rights, ability to lease new stores on suitable terms in desired markets and to complete construction on a timely basis, continued availability to the Company of financing and credit on favorable terms, business disruptions, general risks associated with doing business outside the United States including, without limitations, import duties, tariffs, quotas, political and economic stability and success of hedging strategies in respect of currency exchange rate fluctuations. RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED OCTOBER 31, 2001 AS COMPARED TO THE NINE MONTHS ENDED OCTOBER 31, 2000. Net sales: Comparative net sales by product class were as follows (in thousands): <TABLE> <CAPTION> NINE MONTHS ENDED OCTOBER 31, 2001 2000 ---- ---- <S> <C> <C> Wholesale Watch Business Domestic $152,212 $173,135 International 37,385 31,933 Other 35,370 29,566 -------- -------- Net sales $224,967 $234,634 ======== ======== </TABLE> Net sales decreased by $9.7 million or 4.1% for the nine months ended October 31, 2001 as compared to the nine months ended October 31, 2000. Domestic sales of our wholesale watch business decreased by $20.9 million or 12.0% as compared to the prior year. Domestic sales decreases for the nine months is the reflection of a significant decrease in the third quarter as a result of a difficult economic environment, further impacted by the tragic events of September 11th. The Company experienced sales declines in all of its brands offset by sales of our 9
new Tommy Hilfiger watch brand, which was launched during the first quarter of fiscal 2002. Despite the weak U.S. economic environment our international wholesale watch sales increased by $5.5 million or 17.1%. International sales were led by double-digit sales growth in our Movado and Concord brands and single digit sales growth in our Coach brand. Other net sales, which include sales from the Company's outlet stores, the Movado Boutiques and after sales service business, increased by $5.8 million or 19.6%. Growth in the other sales category was primarily attributable to new store openings, comparable store sales increases in the Movado Boutiques and an increase in after sales service revenue. The increases in retail sales were offset by a decrease in comparable store sales in the outlet stores. Gross Margin. Gross profit for the nine months ended October 31, 2001 was $138.8 million (61.7% of net sales) as compared to $143.0 million (61.0% of net sales) for the nine months ended October 31, 2000, a $4.2 million decrease. The gross margin percent increase of 70 basis points primarily relates to efficiencies in the supply chain process and increased margins at the retail operations as a result of improved product offerings. The gross margin decrease of $4.2 million is a result of the Company's sales decrease in the third quarter of fiscal 2002. Selling, General and Administrative. Selling, General and Administrative expenses for the nine months ended October 31, 2001 were $119.5 million or 53.1% of net sales, a 3.5% increase over the $115.4 million or 49.2% of net sales for the nine months ended October 31, 2000. The 3.5% increase was primarily attributable to a $2.7 million one-time severance and early retirement charge recorded in the third quarter. Excluding the one-time charge expenses would have increased by $1.4 million or 1.2%. This increase is associated with growth initiatives which include the launch of the Tommy Hilfiger watch line, five new Movado Boutique and three new outlet stores. Interest Expense. Net interest expense for the nine months ended October 31, 2001 decreased by $0.7 million or 14.9% as compared to interest expense for the nine months ended October 31, 2000. The decrease in interest expense is principally due to a decline in interest rates. Income Taxes. The Company recorded a tax expense of $2.7 million for the nine months ended October 31, 2001 as compared to an expense of $5.7 million for the nine months ended October 31, 2000. Taxes were recorded at a 18% rate for fiscal 2002 as compared to a 25% rate for fiscal 2001. The Company's effective annual tax rate of 18% reflects the Company's current expectation that due to a weak U.S. economic environment U.S. sourced earnings will decrease as a percentage of the overall earnings mix. This result is dependent on a number of factors, including the mix of foreign to domestic earnings, local statutory tax rates and the Company's ability to utilize net operating loss carryforwards in certain jurisdictions. 10
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED OCTOBER 31, 2001 AS COMPARED TO THE THREE MONTHS ENDED OCTOBER 31, 2000. Net sales: Comparative net sales by product class were as follows (in thousands): <TABLE> <CAPTION> THREE MONTHS ENDED OCTOBER 31, 2001 2000 ---- ---- <S> <C> <C> Wholesale Watch Business Domestic $63,523 $83,121 International 13,790 11,483 Other 12,790 10,518 ------ ------ Net Sales $90,103 $105,122 ======= ======== </TABLE> Net sales decreased by $15.0 million or 14.3% for the three months ended October 31, 2001 as compared to the three months ended October 31, 2000. Domestic sales of our wholesale watch business decreased by $19.6 million or 23.6% as compared to the prior year. This decrease is a result of retailers aggressively managing their inventory due to a weak U.S. economic environment compounded by the tragic events of September 11th. These events led to sales decreases in all of the Company's brands offset by the continued roll out of our Tommy Hilfiger watch brand. International wholesale watch sales increased by $2.3 million or 20.1% led by double digit increases in our Movado, Concord and Coach brands. Other net sales, which include sales from the Company's outlet stores, the Movado Boutiques and after sales service business, increased by $2.3 million or 21.6%. Growth in the other sales category was primarily attributable to new store openings, comparable store sales increases in the Movado Boutiques and an increase in after sales service revenue. Comparable store sales increased 6.6% in the Movado Boutiques and flat in our outlet stores as compared to the prior year quarter. Gross Margin. Gross profit for the three months ended October 31, 2001 was $55.9 million (62.0% of net sales) as compared to $65.2 million (62.0% of net sales) for the three months ended October 31, 2000. The gross margin percent reflects the Company's ability to continue to maintain the cost reductions initiated in the supply chain process and increased margins at the Company's outlet stores as a result of improved product offerings. Selling, General and Administrative. Selling, General and Administrative expenses for the quarter were $46.4 million or 51.5% of net sales as compared to $46.7 million or 44.4% of net sales in the third quarter of last year. Excluding the one-time charge for severance and early retirement of $2.7 million, selling, general and administrative expenses would have decreased by 6.5% as compared to the prior year third quarter. This decrease is the result of the Company's productivity improvement initiatives to reduce the Company's operating expenses which were realized even with the expenses incurred for the Company's growth initiatives. These growth initiatives include the continued launch of the Tommy Hilfiger watch line and the expansion of our retail operations. Interest Expense. Net interest expense for the three months ended October 31, 2001 decreased by $0.5 million or 30.4% as compared to interest expense for the three months ended October 31, 2000. The decrease in interest expense reflects a decline in interest rates. 11
Income Taxes. The Company recorded a tax expense of $0.8 million for the three months ended October 31, 2001 as compared to an expense of $4.2 million for the three months ended October 31, 2000. Taxes were recorded at an annual rate of 18% for fiscal 2002 as compared to a 25% rate for fiscal 2001. During the quarter, the Company's estimated annual tax rate changed from 28% to 18%. This change reflects the Company's current expectations that U.S. source earnings will decrease as a percentage of the overall earnings mix. This result is dependent on a number of factors, including the mix of foreign to domestic earnings, local statutory tax rates and the Company's ability to utilize net operating loss carryforwards in certain jurisdictions. The tax expense for the third quarter includes an adjustment of taxes for the difference between the 18% annual tax rate versus the 28% tax rate used to record tax expenses for the six months ended July 31, 2001. LIQUIDITY AND FINANCIAL POSITION Cash flows used in operating activities for the nine months ended October 31, 2001 were $30.5 million as compared to $23.1 million for the nine months ended October 31, 2000. The increase in cash used in operating activities is principally due to tax payments made this year of $9.3 million as compared to $3.2 million in the prior year and a decrease in net income of $4.7 million. The Company used $9.7 million of cash for investing activities for the nine months ended October 31, 2001 as compared to $7.7 million for the nine months ended October 31, 2000. The increase in cash used in investing activities was due to an increase of capital expenditures made during the nine months ended October 31, 2001 of $9.1 million as compared to $7.0 million made in the same period of the prior year. Capital expenditures for fiscal 2002 were primarily for construction of the new Paramus, NJ leased office, information systems enhancements and three new Movado Boutiques. Capital expenditures for fiscal 2001 were primarily for the implementation of the new enterprise wide information system in Switzerland. Cash provided by financing activities amounted to $37.9 million for the nine months ended October 31, 2001 as compared to $16.2 million for the nine months ended October 31, 2000. The increase in cash provided by financing activities represents an increase in bank borrowings of $13.4 million and stock options exercised offset by the Company making no stock repurchases this year as compared to $7.3 million of repurchases made in the prior year. At October 31, 2001, the Company had two series of Senior Notes outstanding. Senior Notes due January 31, 2005 were originally issued in a private placement completed in fiscal 1994. These notes have required annual principal payments of $5.0 million since January 1998. Accordingly, such amounts have been classified as a current liability in fiscal 2002 and 2001. The Company repaid $5.0 million of principal related to these notes in the fourth quarter of fiscal 2001 and is scheduled to repay an additional $5.0 million in the fourth quarter of fiscal 2002. At October 31, 2001, $20.0 million in principal related to these notes remained outstanding. During fiscal 1999, the Company issued $25.0 million of Series A Senior Notes under a Note Purchase and Private Shelf Agreement dated November 30, 1998. These notes bear interest at 6.90%, mature on October 30, 2010 and are subject to annual repayments of $5.0 million commencing October 31, 2006. On March 21, 2001, the Company entered into a new Note Purchase and Private Shelf Agreement which allows for the issuance for up to three years after the date thereof, of senior promissory notes in the aggregate principal amount of up to $40.0 million with maturities up to 12 years from their original date of issuance. 12
During the second quarter of fiscal 2001, the Company completed the renewal of its revolving credit and working capital lines with its bank group. The new agreement provides for a three year $100.0 million unsecured revolving line of credit and $15.0 million of uncommitted working capital lines. At October 31, 2001, the Company had $46.5 million of outstanding borrowings under its bank lines as compared to $37.8 million at October 31, 2000. The increase in borrowings at the end of the third quarter as compared to the prior year period was primarily to fund seasonal working capital requirements and the Company's growth initiatives. Under a series of share repurchase authorizations approved by the Board of Directors, the Company has maintained a discretionary share buy-back program. There were no current year purchases under the repurchase program as compared to $7.3 million for the comparable prior year period. The Company paid dividends of $1.1 million as compared to $0.9 million for the nine months ended October 31, 2001 and 2000, respectively. The increase is attributable to the raising of the quarterly dividend to $0.03 per share in fiscal 2002 from $0.025 per share in fiscal 2001. Cash and cash equivalents at October 31, 2001 amounted to $20.3 million as compared to $11.2 million at October 31, 2000. Debt to total capitalization at October 31, 2001 was 34.6% as compared to 37.0% at October 31, 2000. The Company expects that capital expenditures in the future will approximate the average of fiscal 2001 and 2000 levels. 13
PART II-OTHER INFORMATION Item 1. Legal proceedings None Item 4. Submission of Matters to a Vote of Security Holders On June 19, 2001 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 Richard Cote 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, 2001; (iii) A proposal to amend the Company's 1996 Stock Incentive Plan. (iv) A proposal to adopt the Company's Executive Performance Plan. 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. Proposal (i) on election of directors: <Table> Withheld/ Exception/ Nominee For Against Abstain - --------------------------------------------- ------------- ------------- ------------ <S> <C> <C> <C> Margaret Hayes Adame......................... 38,697,759 1,126,981 372,941 Richard Cote................................. 38,334,866 1,489,874 372,941 Efraim Grinberg.............................. 38,329,442 1,495,298 372,941 Gedalio Grinberg............................. 38,329,442 1,495,298 372,941 Alan H. Howard............................... 38,702,283 1,122,457 372,941 Donald Oresman............................... 38,697,759 1,126,981 372,941 Leonard L. Silverstein....................... 38,696,259 1,128,481 372,941 Proposal (ii) on ratification of appointment of accountants............................... 39,747,064 74,549 3,127 Proposal (iii) on amendment of 1996 Stock Incentive Plan............................... 34,563,289 3,177,060 42,106 Proposal (iv) on adoption of the Executive Performance Plan............................. 38,517,662 1,265,151 41,927 </Table>
PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits <Table> <S> <C> 10.1 Sublease Agreement entered into as of October 1, 2001 by and between Movado Group, Inc., as sub-landlord, and National Financial Services LLC, as sub-tenant. 10.2 Second Amendment of Lease dated July 26, 2001 between Mack-Cali Realty, L.P., as landlord, and Movado Group, Inc., as tenant, further amending lease dated as of December 21, 2000. 10.3 First Amendment of Sublease Agreement dated October 10, 2001 by and between Movado Group, Inc., as sub-landlord, and National Financial Services LLC, as sub-tenant, further amending sublease dated October 1, 2001. 10.4 Third Amendment of Lease dated November 6, 2001 between Mack-Cali Realty, L.P., as lessor, and Movado Group, Inc., as lessee, further amending lease dated as of December 21, 2000. </Table> (b) Reports on Form 8-K None 15
SIGNATURES Pursuant to the requirements of the Securities 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, 2001 By: /s/ Eugene J. Karpovich --------------------------- Eugene J. Karpovich Senior Vice President and Chief Financial Officer (Chief Financial Officer and Principal Accounting Officer) 16
EXHIBIT INDEX Exhibit Number Description - ------- -------------------------------------------------------------------- 10.1 Sublease Agreement entered into as of October 1, 2001 by and between Movado Group, Inc., as sub-landlord, and National Financial Services LLC, as sub-tenant. 10.2 Second Amendment of Lease dated July 26, 2001 between Mack-Cali Realty, L.P., as landlord, and Movado Group, Inc., as tenant, further amending lease dated as of December 21, 2000. 10.3 First Amendment of Sublease Agreement dated October 10, 2001 by and between Movado Group, Inc., as sub-landlord, and National Financial Services LLC, as sub-tenant, further amending sublease dated October 1, 2001. 10.4 Third Amendment of lease dated November 6, 2001 between Mack-Cali Realty, L.P., as lessor, and Movado Group, Inc., as lessee, for additional space at Mack-Cali II, One Mack Drive, Paramus, NJ. 17